Person entitled to claim refund in certain special cases.

432(1)

Where the income of one person is included in total income of any another person under any provision of this Act, the latter shall be eligible for a refund under this Part in respect of such income.

432(2)

Where a person is unable to claim or receive a refund due to him on account of death, incapacity, insolvency, liquidation or other cause, his legal representative or the trustee or guardian or receiver, shall be entitled to claim or receive such refund for the benefit of such person or his estate.

Explanation

Section Summary:

This section clarifies who is entitled to claim a tax refund in specific situations where income is attributed to another person or when the original taxpayer is unable to claim the refund due to certain circumstances like death, incapacity, insolvency, or liquidation.

Key Changes:

1. Section 432(1): Introduces the concept that if one person's income is included in another person's total income (as per the Income Tax Act), the latter is eligible to claim a refund for that income.
2. Section 432(2): Expands the scope of who can claim a refund if the original taxpayer is unable to do so due to death, incapacity, insolvency, liquidation, or similar reasons. Legal representatives, trustees, guardians, or receivers can now claim the refund on behalf of the taxpayer or their estate.

Practical Implications:

1. For Individuals/Businesses: If your income is included in someone else's total income (e.g., under clubbing provisions), you are not the one entitled to claim the refund—it is the person in whose income it is included.
2. For Legal Representatives/Trustees: If a taxpayer dies, becomes incapacitated, or faces insolvency/liquidation, their legal representative or trustee can step in to claim the refund on their behalf. This ensures that refunds are not lost due to the taxpayer's inability to claim them.
3. For Compliance: Taxpayers and their representatives must ensure proper documentation to prove their entitlement to claim refunds in such cases.

Critical Concepts:

1. Inclusion of Income: Refers to situations where income earned by one person is legally attributed to another person (e.g., clubbing of minor’s income with parent’s income).
2. Legal Representative: Includes executors, administrators, or anyone legally authorized to act on behalf of a deceased or incapacitated taxpayer.
3. Refund Entitlement: The right to claim a refund is tied to the person in whose total income the income is included, not necessarily the person who earned it.

Compliance Steps:

1. For Section 432(1): Ensure that the person in whose income the income is included files the refund claim. Proper documentation (e.g., proof of income inclusion) must be maintained.
2. For Section 432(2): Legal representatives or trustees must provide proof of their authority (e.g., death certificate, court order, or legal appointment documents) to claim the refund on behalf of the taxpayer.

Examples:

1. Example for Section 432(1): A minor earns interest income, which is clubbed with their parent’s income under the Income Tax Act. If a refund arises from this income, the parent (not the minor) is entitled to claim it.
2. Example for Section 432(2): A taxpayer passes away before claiming a refund. Their legal heir, with proper documentation (e.g., a succession certificate), can claim the refund on behalf of the deceased taxpayer’s estate.

This section ensures clarity on refund entitlements in special cases, preventing disputes and ensuring rightful claimants receive refunds.