[Opinion] Whether the Legal Heir is Liable to Prove the Source of the Deceased Assessee?

Mukesh Kohli – [2026] 185 taxmann.com 726 (Article)

Sometimes we professional face a query whether legal heirs are required to prove source of the source in case of death of the Assessee as Finance Act 2022 has inserted new first proviso in section 68 of Income-tax Act, 1961 wef assessment year 2023-24 and the Section 102 (2) of the Income-tax Act, 2025 retains the same provisions.

Let us see the provisions under the old Act and New Act

Section – 68, Income Tax Act, 1961

68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year:

[Provided that where the sum so credited consists of loan or borrowing or any such amount, by whatever name called, any explanation offered by such assessee shall be deemed to be not satisfactory, unless:

a. the person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited; and

b. such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:

Provided further that] where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless:

a. the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and

b. such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:

[Provided also] that nothing contained in the first proviso [or second proviso] shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.]

Section – 159, Income Tax Act, 1961

159. (1) Where a person dies, his legal representative shall be liable to pay any sum which the deceased would have been liable to pay if he had not died, in the like manner and to the same extent as the deceased.

(2) For the purpose of making an assessment (including an assessment, reassessment or recomputation under section 147) of the income of the deceased and for the purpose of levying any sum in the hands of the legal representative in accordance with the provisions of sub-section (1):

a. any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from the stage at which it stood on the date of the death of the deceased;

b. any proceeding which could have been taken against the deceased if he had survived, may be taken against the legal representative; and

c. all the provisions of this Act shall apply accordingly.

(3) The legal representative of the deceased shall, for the purposes of this Act, be deemed to be an assessee.

(4) Every legal representative shall be personally liable for any tax payable by him in his capacity as legal representative if, while his liability for tax remains undischarged, he creates a charge on or disposes of or parts with any assets of the estate of the deceased, which are in, or may come into, his possession, but such liability shall be limited to the value of the asset so charged, disposed of or parted with.

(5) The provisions of sub-section (2) of section 161, section 162, and section 167, shall, so far as may be and to the extent to which they are not inconsistent with the provisions of this section, apply in relation to a legal representative.

(6) The liability of a legal representative under this section shall, subject to the provisions of sub-section (4) and sub-section (5), be limited to the extent to which the estate is capable of meeting the liability.