Chartered Accountants, Advocates, or Tax Practitioners normally advise their clients to prepare a WILL and clarify which assets will be given to whom. After the death of a person, their assets are distributed by the executor(s) as mentioned in the WILL.
Now, a question may arise: if the WILL specifies that particular assets will be given to a son when he turns 21, but at the time of the father’s death, the son is only 18 years old, in whose income will the income arising from those assets until the son turns 21 be assessed? Similarly, if a person specifies in their WILL that their proprietary business will be run by the executor, in whose income should the income of the deceased be shown?
Typically, after the death of a person, all their assets are managed by the executor(s) and distributed as per the WILL of the deceased.
Section 168 of the Income Tax Act, 1961 explains the taxation of executors:
Section 168(1) Subject as hereinafter provided, the income of the estate of a deceased person shall be chargeable to tax in the hands of the executor:
(a) if there is only one executor, then, as if the executor were an individual; or
(b) if there are more executors than one, then, as if the executors were an association of persons;
and for the purposes of this Act, the executor shall be deemed to be resident or non-resident according as the deceased person was a resident or non-resident during the previous year in which his death took place.
As per subsection 2 of section 168, the assessment of an executor under this section shall be made separately from any assessment that may be made on him in respect of his own income.
Illustration:
Mr. A expired on 30th June 2024. All his assets were distributed as per his WILL by 31st March 2025. In this case, the income of deceased Mr. A from July 2024 to March 2025 will be added to the income of the executor. From April 2025 onwards, the income will be considered the income of the beneficiaries who inherit the assets.
If a professional person passes away and professional fees are received after their death, should such fees be considered the income of the executor?
The answer is NO. Section 176(4) specifies that any sum received after the death of a professional person shall be deemed to be the income of the recipient and taxed accordingly in the year of receipt, provided such income would have been included in the professional’s income if received before their death. [CIT vs. Estate of A.V. Vishvanath Shastry (161 ITR 270)].
If a person dies without preparing a WILL, can the assessment be made under Section 168?
The answer is NO. This was held in CIT vs. Smt. P. Dhanlakshmi (Madras High Court, 215 ITR 266). However, the same court did not accept this decision in CIT vs. P. Vishalakshi (217 ITR 282). Subsequently, the Full Bench of the Madras High Court ruled in favor of the assessee in CIT vs. Smt. P. Dhanlakshmi (245 ITR 48).
It is possible that a person may have prepared separate WILLS for different assets and appointed different executors. In such cases, how should the income be calculated?
As per Section 168, the total income of the deceased is calculated as an association of persons, and tax is paid accordingly. H.H. Maharani Vijaykuvarba Saheb vs. CIT (136 ITR 18, Gujarat High Court).
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