Liability of Official Assignee
Liability of Official Assignee
A circular issued by the Central Board of Direct Taxes (CBDT) on the 28th of January, 2019, has provided clarifications on the status and liability of Official Assignees under the Income Tax Act. This article briefly describes this particular income-tax update.
Who is an Official Assignee?
The provisions of the Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920 states that if an order of insolvency is passed against a debtor by the concerned court, the property of the debtor will be vested with a person appointed by the court, known as an Official Assignee.
Not a Representative Assessee
Section 160(1)(iii) of the Income-tax Act considers a Representative Assessee to be liable in respect of any income received or is entitled to be received by the Assignee while managing the property for the benefit of any person. The Insolvency Acts mentioned above only entitles the Assignee to manage the property of the debtor for the benefit of the creditors. Considering that the Official Assignee does not receive the income or manage the property of the debtor for the taxpayer’s own benefit, the assessee cannot be considered as a ‘Representative Assessee’ of the debtor for the purpose of computing the tax liability arising from the estate of the debtor. The part of the circular that clarifies this aspect is quoted herewith:
As per provisions of section 160( 1 )(iii) of the Act, a 'Representative Assessee' amongst other situations specified therein, becomes liable in respect of any income which the Assignee receives or is entitled to receive while managing the property for benefit of any person. As per the two insolvency Acts, Official Assignee manages the property of the debtor for the benefit of the creditors. Further, the Insolvency Act, 1909, in unambiguous terms, provides that an insolvent ceases to have an ownership interest in the estate once an order of adjudication is made under section 17 of the Insolvency Act. Thus, it is hereby clarified that since Official Assignee does not receive the income or manage the property on behalf of the debtor, they cannot be considered as a 'Representative Assessee' of the debtor under the Act while computing the tax liability arising from the estate of the debtor.
Artificial Judicial Person
The relevant insolvency laws have endowed the property of the insolvent with the Official Assignee for the benefit of the creditors. Considering the nature and significance of the endowment, the Assignees who are covered by the relevant statutory provisions should be treated as a ‘juristic entity’ for the purposes of the Income Tax Act. Hence, the tax liability in such cases will be on par with that of an ‘Artificial Judicial Person (AJP).’ An AJP is a person who is treated on par with a natural person in the eyes of law.
Responsibilities of the Official Assignee
Once the property is vested with the Official Assignee, the taxpayers will be obligated to realize the property of the insolvent and allocate it amongst the creditors of the insolvent. The CBDT, in this circular, has clarified that such Assignees must file their income tax returns electronically in the ITR form applicable for ‘Artificial Judicial Person’. The return must be separately filed for each of the estates of the insolvent. In addition to it, the taxpayer must obtain a separate PAN for each of the estates of the insolvent.
