Liability of person in respect of income included in income of another person.

100

Where, income of a person, other than the assessee, arising from any asset, or income from membership of a firm, is included in the total income of the assessee under this Chapter or under section 25(a), then, irrespective of anything to the contrary contained in any other law in force,––

• (a) such person, in whose name such asset stands, shall be liable to pay, that portion of the tax levied on the assessee which is attributable to the income so included, upon service of notice of demand by the Assessing Officer in this behalf;
• (b) where any such asset is held jointly by more than one person, they shall be jointly and severally liable to pay such tax; and
• (c) the provisions of Chapter XIX-D shall apply accordingly.

Explanation

Section Summary:

This section addresses the liability of a person whose income, derived from an asset or membership in a firm, is included in the total income of another person (the assessee). It ensures that the person in whose name the asset is held or who is a member of the firm is responsible for paying the tax attributable to that income, even if the income is taxed in the hands of the assessee.

Key Changes:

• This section clarifies the liability of the person whose income is included in another person's total income, ensuring that the tax burden is appropriately assigned.
• It introduces joint and several liability for jointly held assets, meaning all owners are collectively and individually responsible for the tax.
• It references Chapter XIX-D, which deals with the collection and recovery of taxes, ensuring that the procedural aspects of tax recovery are followed.

Practical Implications:

• For Individuals: If your income from an asset or firm membership is included in someone else's total income, you may be liable to pay the tax on that income, even though it is taxed in their hands.
• For Joint Asset Holders: If you jointly own an asset with others, all of you are collectively responsible for the tax on the income from that asset. If one person cannot pay, the others must cover the liability.
• For Businesses: Firms must ensure proper documentation and reporting of income attributable to members to avoid disputes over tax liability.

Critical Concepts:

• Joint and Several Liability: This means that if multiple people own an asset, each person is individually responsible for the entire tax liability, not just their share. The tax authorities can recover the full amount from any one owner.
• Chapter XIX-D: This chapter outlines the procedures for tax collection and recovery, including the issuance of notices and the enforcement of tax payments.

Compliance Steps:

1. Identify Income Sources: Determine if any income from assets or firm membership is included in another person's total income.
2. Maintain Documentation: Keep records of asset ownership and income attribution to ensure clarity in case of a tax demand.
3. Respond to Notices: If a notice of demand is served, ensure timely payment of the tax attributable to the income included in the assessee's total income.
4. Coordinate with Joint Owners: If the asset is jointly held, communicate with co-owners to ensure the tax liability is shared appropriately.

Examples:

• Scenario 1: Mr. A owns a property jointly with Mr. B. The rental income from this property is included in Mr. C's total income. Under this section, Mr. A and Mr. B are jointly and severally liable to pay the tax on the rental income, even though it is taxed in Mr. C's hands.
• Scenario 2: Ms. X is a member of a partnership firm, and her share of the firm's income is included in Mr. Y's total income. Ms. X is liable to pay the tax on her share of the firm's income, even though it is taxed in Mr. Y's hands.

This section ensures that the tax liability is correctly assigned to the person who actually earns the income, even if it is taxed in someone else's hands.