Sheela Devi Vs ITO (ITAT Agra)
The appeal concerned whether salary arrears belonging to a deceased person could be taxed in the hands of his legal heir in her individual capacity. The assessee, Sheela Devi, received family pension and was the widow of Digambar Singh, who had been employed with the Deputy Director Agricultural Extension, Banda. He passed away on 11 April 2016. After his death, salary arrears pertaining to him were paid to the assessee during Assessment Year 2019–20.
For taxing these arrears, a notice under Section 148 was issued to the assessee on 27 March 2023 in her individual capacity. The assessment was then completed under Section 147 read with Section 144B on 29 December 2023, bringing the salary arrears of ₹27,19,935 to tax in her individual capacity. The Assessing Officer held that since the payment was made to the legal heir, it must be taxed in her hands. This view was upheld by the National Faceless Appeal Centre (NFAC), which maintained the assessment order.
The Tribunal examined the issue and reviewed the submissions and materials on record. It noted that Section 159 of the Income-tax Act had been entirely ignored by the NFAC. The Tribunal held that salary arrears relating to a deceased individual can be taxed in the hands of the legal heir only in the legal heir’s representative capacity and not in the legal heir’s individual capacity. It stated that taxing such income in the individual capacity of the legal heir was contrary to Section 159.
