When a person dies, the executor of his estate becomes a tax payer in a representative capacity. This would mean that the executor would file two returns, that is, one in respect of his personal income and the second in respect of the income from the estate. Section 159 of the Income-tax Act, 1961 is meant to enable the revenue to make an assessment on the legal representative in respect of the income, which accrued to or was received by the deceased. Section 168 enjoins an assessment on the legal representative in respect of the income, which accrues to him after the death, the estate being vested in him. This section is mandatory.
If the executors make capital gains, they are entitled to set-off against such gains the capital loss, which the deceased had incurred in the same accounting year, the fact that the deceased was assessed as an individual and the executors are assessed as an association of persons is immaterial. After the estate is fully administered and the executors act as trustees for the beneficiaries, they may be assessed as trustees under section 161, but not till then. However, they may, in some cases, cease to be executors and become trustees, even while some debts remain undischarged.
In conclusion, it may be pointed out that section 168(3) contemplates a single assessment on the executor for each accounting year or part thereof and not separate assessments according to the several interests of the beneficiaries. Under section 168(4), it is only the income distributed to, or applied for the benefit of any specific legatee during the previous year, which should be excluded from the executor’s total income – implying that if the income is not so distributed or applied in the previous year, it would be taxable as part of the executor’s total income.
On the other hand, though there may be a residuary legatee, the income from the residue is the income of the executor and taxable in his hands so long as the estate has not been completely administered. It is only after the estate is fully administered and the net residue is ascertained that the residuary legatee gets a title to the residue and the income therefrom can be said to accrue to him and can be taxed in his hands.
This principle would apply irrespective of whether the residue is settled in trust for a life-tenant or is bequeathed absolutely, and it would apply even if a part of the income of the estate has been actually paid on account to the residuary legatee pending the administration of the estate. However, the administration may be regarded as completed, the executor’s assent to the residuary legacy as valid, and the residuary legatee’s title as established, although some liabilities due by the estate may remain undischarged.
The author is advocate, Supreme Court