After the demise of beloved family members, dependants initiate steps for deciding on inheritance, with procedures distinctly enumerated in cases with a Will. In other cases, the deceased may have died without a Will (intestate).
Inheritance normally refers to the asset/property that changes hands to the heir or those entitled to succeed post the demise/death of an asset owner (individual). But not many are aware that obligations and debts of the deceased asset owner (individual) also have a distinct place in the process of inheritance.
As per Section 159 of the Income Tax Act, 1961, if an individual dies, then the legal representatives shall be liable to pay any sum which the deceased would have been liable to pay had the individual not died and were alive. A legal representative is deemed to be an assessee (representing the deceased) and tax is payable on income/ earnings from April 1 to the date of death of the asset owner.
It is noteworthy to mention that the legal representative/ heir is not responsible to pay the income tax dues from his/her own pocket. Importantly, the legal heirs are liable only up to the extent of the assets that they inherit from the deceased asset owner.
RBI notifications including Banking Companies (Nomination) Rules, 1985 deal with claims and operational aspects for closing the respective accounts (Savings Accounts, Fixed Deposits, Safe deposit lockers) but fail to address points which could lead to non-compliance of Income Tax because of inaccessibility to account statement details (savings/ current accounts).
As per the Banks Commitment to Customers (BCC) Code, bankers are bound not to reveal information or data relating to clients’ accounts, other than in the following exceptional cases i.e. if bankers have to give the information by law, if there is a duty towards the public to reveal the information, if Bankers interests require Banks to give the information (for example, to prevent fraud) and if clients asks Banks to reveal the information, or if Banks have clients permission, in writing.
There is no disbelief of the fact that legally on demise of the Client, the relationship between the Banker and now the deceased Client ceases merely by operation of law (Testamentary document or Indian Succession Act 1925) having migrated to the heir. While, Banks consider and follow this rule ceremoniously for Asset side management; it stands disregarded and not considered for their Liability side of their business. Is it the float that they are obsessed with and to hold on for whatever time possible?
Interpreting Statues – a true experience
In a true case, operating officials of a Bank, when approached for a statement, asked the heir of a Sole proprietorship firm (who had a current account) to represent before the Income Tax authorities asking them to write to the Bank for authorising / permitting the Bank to share information about the Firm (Sole proprietorship) bank statement to the family of the Sole proprietor. Such a ridiculous statement when asked in writing was refused. So, if the Bank official was right and true in legal terms the same should be provided. The Bank official knew that if provided in writing trouble would be entertained.
Another eye-opening experience of a parent (80 years old) when approached a Bank for issuance of a Bank statement of a savings bank account would give chill to the spine. The parent’s only son (account holder jointly with his wife) died suddenly due to a cardiac arrest at a young age of 42 years. His daughter-in-law (wife of the deceased) on hearing the demise of her husband slipped into trauma. As the couple had a minor child of 11 years, all banking operations came to a deadlock, as no where she was the nominee (being a minor). However, the law-abiding father wanted to first understand the revenue pattern through direct bank credits into the savings account, as by this way he would be able to identify the investments and returns thereon and also would aid in filing the Income Tax return as a legal representative of his deceased son.
To be eligible as a legal representative – as defined by Income Tax Act – a Legal Heir Certificate is needed. This would be possible only when either a Court of Jurisdiction issues the same or a surviving family member certificate is issued by Local Revenue Authority or a Family Pension Certificate is issued (Central/ State Government) or by Registered WILL, Certificate issued by financial institution mentioning particulars of nominee, or Joint account holder to the account of the deceased at time of death. In the case under reference, the savings account had the wife of the deceased as Joint account holder and no nominee as daughter was a minor; while the current account being that of Sole Proprietorship had no other signatories and cannot have nomination.
As no WILL was made, the Petition in the Court of Jurisdiction and process of securing the father as the legal representative / heir being tedious and long would surely miss the IT Act deadline, even extended deadline. The Bank was unnerved when after the father shared all medical records and addresses of the trauma centre where the daughter-in-law was being treated. Bank officials did not budge and Income Tax filing could not be done.
Make no mistake, make a Will and draft it holistically to address all possible scenarios. Registering of a Will, though is not required as per law. However, it seems necessary if not advisable as it would partly aid in ring-fencing any false claims and provide sanctity to the document.