By CA Surekha Ahuja
“A legal heir may step into the shoes of the deceased, but cannot be made to walk paths the deceased alone knew.”
“Statute may create a representative assessee; it cannot create a substitute witness.”
Introduction
The Finance Act 2022 enlarged Section 68 by requiring, in specified cases, an explanation of the source of source. The same architecture continues in Section 102 of the Income-tax Act 2025. When this expanded burden is sought to be fastened on a legal representative, it collides with Section 159 of the Income-tax Act 1961 and Section 302 of the 2025 Act, which confine liability to a representative capacity and to the extent of the estate.
Core issue
Whether a legal heir can be compelled to prove facts that were exclusively within the knowledge of the deceased.
Answer
No. The statutory scheme, read harmoniously, does not permit imposition of an impossible evidentiary burden on a legal representative.
Exact Statutory Extracts (Determinative Words)
Section 68, Income-tax Act 1961 (relevant extract)
“Where any sum is found credited in the books of an assessee… and the assessee offers no explanation about the nature and source thereof or the explanation offered… is not satisfactory… the sum so credited may be charged to income-tax…
Provided that where the sum… consists of any loan or borrowing… the explanation… shall be deemed to be not satisfactory, unless—
(a) the person in whose name such credit is recorded… also offers an explanation about the nature and source of such sum; and
(b) such explanation… is found to be satisfactory…”
Interpretive hinge: “the assessee offers… explanation”; “deemed to be not satisfactory”.
Section 159, Income-tax Act 1961 (relevant extract)
“(1) Where a person dies, his legal representative shall be liable… in the like manner and to the same extent as the deceased.
…
(6) The liability of a legal representative… shall… be limited to the extent to which the estate is capable of meeting the liability.”
Interpretive hinge: “in the like manner”, “to the same extent”, “limited to the estate”.
Section 102, Income-tax Act 2025 (relevant extract)
“…the explanation… shall be deemed to be not satisfactory, unless—
(a) the person… also offers an explanation about the nature and source…; and
(b) such explanation… is found to be satisfactory…”
Interpretive hinge: continuation of “deemed unsatisfactory” framework.
Section 302, Income-tax Act 2025 (relevant extract)
“…legal representative shall be liable… in the like manner and to the same extent…
…
liability… shall be limited to the extent of the estate.”
Section 68 read with Section 159: Harmonious Construction
The expression “assessee” in Section 68, when applied to a legal representative, is a deemed and limited substitution created by Section 159. The phrases “in the like manner” and “to the same extent” restrict both liability and evidentiary reach to what the deceased could have been called upon to explain on the basis of material available in the estate.
The deeming fiction in Section 68 (“deemed to be not satisfactory”) cannot be extended to override the limiting words in Section 159. A construction that compels a legal heir to establish third-party source of funds or historical facts not on record enlarges liability beyond statute and is impermissible.
Doctrine of Impossibility (Controlling Principle)
Lex non cogit ad impossibilia. The law does not compel performance of the impossible. A legal heir cannot be required to:
- Prove the independent financial capacity of a creditor of the deceased
- Reconstruct unrecorded or historic transactions
- Depose to intent or knowledge exclusively of the deceased
An addition founded on failure to discharge such impossible burden is vitiated.
Burden of Proof and Special Knowledge
The phrase “nature and source” in Section 68 must be read with the rule that facts especially within knowledge must be proved by the person who has that knowledge. The deceased possessed such knowledge; it does not transmit upon death. The legal representative’s obligation is confined to producing available records forming part of the estate.
Scope of Compliance by Legal Heir
Discharge of onus by a legal representative consists of:
- Death certificate and proof of succession
- Books and bank statements of the deceased
- Confirmations or documents available on record
Once produced, the evidentiary burden shifts to the Assessing Officer to use statutory powers (summons, enquiries) against the creditor. Departmental inaction cannot be converted into an adverse inference against the heir.
Procedural Validity under Section 159
- Notice in the name of a deceased person is void ab initio
- Valid assumption of jurisdiction requires proper notice to legal representative
- Disclosure of material and opportunity of cross-examination are integral to natural justice
Non-compliance is a jurisdictional defect, not a curable irregularity.
Rebuttal to Revenue Contentions
Contention: Proviso to Section 68 mandates source of source
Rebuttal: The proviso operates where the assessee has capacity and knowledge. Section 159 restricts both; the proviso cannot be applied mechanically to a legal representative.
Contention: Failure to explain triggers deeming fiction
Rebuttal: A deeming provision cannot be extended to defeat express statutory limitations or to compel proof of impossible facts.
Contention: Legal heir steps into the shoes of the deceased
Rebuttal: Substitution is for liability, not for knowledge or evidentiary capacity. The deeming of “assessee” is contextual and limited.
Black Money Act: Ownership vs Historical Source
In inheritance of foreign assets, the legal heir’s obligation is to disclose present ownership. The statute does not compel proof of the historical source of acquisition unless such material exists within the estate. The distinction between ownership and origin must be maintained.
Application Matrix: Practical Scenarios
| Situation | Revenue Position | Legal Objection | Governing Principle |
|---|---|---|---|
| Credit in books of deceased | Source of source must be proved | Burden confined to estate records; no obligation beyond knowledge | Section 159 limitation |
| No explanation due to death | Addition under Section 68 | Absence of explanation ≠ unexplained income | Evidence rule |
| No creditor details available | Onus not discharged | Onus discharged by available records; AO must investigate | Burden shifts to AO |
| Notice to deceased | Proceedings valid | Void ab initio; no jurisdiction | Jurisdictional law |
| Third-party statement relied | Sufficient | Invalid without cross-examination | Natural justice |
| Inherited foreign asset | Source must be proved | Disclosure of ownership sufficient | Statutory interpretation |
| Issue decided earlier | Reopen permissible | No addition without fresh material | Consistency doctrine |
| Records unavailable | Adverse inference | No presumption where impossibility exists | Impossibility doctrine |
Case Law Ratio Table (Citations and Holdings)
| Case | Court / Year | Core Issue | Ratio / Holding | Use in Defence |
|---|---|---|---|---|
| CIT v. Nemi Chand Kothari | Gauhati HC, 2003 | Scope of Section 68 and burden | Section 68 read with Evidence principles; assessee proves source of receipt, not source of source beyond knowledge | Burden aligns with knowledge; limits extension to heirs |
| Smt. Rajabai B. Kadam v. ACIT (83 ITD 229) | ITAT Pune, 2002 | Burden on legal heir | Legal heir cannot be compelled to explain facts exclusively within deceased’s knowledge | Direct authority on limited onus |
| C. Selvakumar v. ITO (6 SOT 646) | ITAT Cochin, 2006 | Meaning of “assessee” in deeming provisions | Deeming of assessee does not equate legal heir with original assessee for all purposes | Supports contextual reading of Section 68 |
| Bhavinsinh D. Vala v. ACIT (149 taxmann.com 425) | ITAT Rajkot, 2023 | Onus on legal heir under Section 68 | Onus on legal heir is not equivalent to that on original assessee | Recent affirmation of limited burden |
| Andaman Timber Industries v. CCE | SC, 2015 | Cross-examination | Denial of cross-examination vitiates proceedings | Use against third-party statements |
| ITO v. Lakhmani Mewal Das | SC, 1976 | Reason to believe / evidence | Suspicion cannot replace evidence | Against conjectural additions |
| CIT v. Daulat Ram Rawatmull | SC, 1973 | Burden of proof in credits | Apparent must be accepted unless disproved | Supports acceptance of records produced |
Constitutional Limitation
An interpretation that imposes a disproportionate or impossible burden on a legal heir is arbitrary and fails standards of fairness and reasonableness. Tax statutes must be applied in a manner consistent with due process; inability cannot be converted into liability.
Suggested Reply
The legal heir has furnished all records available within the estate, including banking records and succession documents. The legal heir does not possess, and cannot reasonably be expected to possess, knowledge of the source of funds of third parties or the historical transactions of the deceased. The liability under Section 159 is limited to the estate and does not extend to proving matters beyond available records. The proposed addition represents an impermissible extension of Section 68 and is liable to be deleted.
Closure
The Act draws a clear boundary between succession to liability and succession to knowledge. A legal representative stands in for the estate, not for the deceased’s personal knowledge. Any assessment that ignores this boundary departs from the statute and rests on presumption rather than proof.
“The law may follow the estate in succession, but it cannot compel proof of what never formed part of the heir’s knowledge.”
