Income Tax Appellate Tribunal - Allahabad
Late Iqbal Hussain, L/H-2 Ekram Hussain vs Income-Tax Officer, Ward-1(1) on 6 October, 2006
Equivalent citations: (2007)111TTJ(ALL)717
ORDER
D.C. Agrawal, Accountant Member
1. Those are two appeals filed by the assessee against the order of ld. CIT(A) in confirming the penalty Under Section 271(1)(c).
2. The facts of the case are that assessce was an Advocate and was a senior citizen. He had filed return of income from property and bank at Rs. l,78,910/-.In this computation the assessee had declared long tem capital loss of Rs. 4,82,853/- from sale of land/plot measuring 175583 sq. ft. The land was situated at Sivpur, Sahebganj, Gorakhpur and was co-owned by the assessee The capital gains was computed as under:
Total sale consideration Rs. 43, 89,575
Less; Index-cost of acquisition taking value as
On 1.4.1981 @ 10/-per sq. ft. of l75583 sq. ft.
1755830 x 305
100 Rs. 53,55,280
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Rs. 9,65,705
1/2 share of the assessee Rs.4,2,853
3. Subsequently, during the course of assessment proceedings, the assessee revised the measurement of the land to 192383 sq. ft. from 175583 sq. ft. and the long term capital loss to Rs. 5,92,165/- from Rs. 4,82,853/-. While completing die assessment, the A.O. worked out the capital gain at Rs. 17,14,259/- as against capital loss declared. For this purpose the Assessing Officer adopted the cost of the entire land at Rs. 11, 14,400/- as on 1.4.1981. As 41% of the total land was converted into plots and sold, the cost of the portion sold was taken at Rs. 4,56,905/- as on 1.04.1981. It was indexed by a factor of 3.05 and thus indexed cost of acquisition, as on 01.04.1981, of the portion of the land sold as plots was determined at Rs. 13,94,557/- By reducing it from sale consideration of Rs. 48,22,075/- the Assessing Officer worked out the capital gains at Rs.34,28,518/- and half of the share of the assesses came to Rs. l7,14,259/-.The working done by the Assessing Officer is reproduced below:
Since this land was sold and was for agricultural purposes, the rate applied at Rs. 70,000 per acre is very much reasonable. For 15 acres 92 decimals the value of the entire land as on 1.4.1981 comes to Rs. 11,114,400.Since 41% of the plot available for colonizing purposes has been utilised for this year, the value of land sold as on 1.4.1981 for assessment year 1997-98 portion will become 11,14,400 x .41 equal to Rs. 4,56,904 This value will be taken for indexing purposes for capital gain tax as against the value taken by the assessee at Rs. l7,55,830.The indexed cost for S. 4,6,904 is worked out asunder:
4, 56,904 x 505/100 = 13,93,57
Sale consideration 48,22,075
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Less: Indexed cost of acquisition
Worked out above 13,93,557
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34,28,518
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Half share of the assessee 17,14,259
3.1 He also issued notice Under Section 271(1)(c) for wrongly reporting capital gains. In quantum, the matter traveled up to the stage of the Tribunal which directed the Assessing Officer to adopt the rate of land at Rs. l lakh per acre as against Rs. 70,000/- per acre taken by him as on 01.04.1981 and on that basis capital gains for the whole land was worked out at Rs. 28,31,279/- in which assessee's half share was determined by the A.O. at Rs. 14,15,639/- as against original share of Rs. 7,14,259/- determined by the A.O. The Assessing Officer issued a penalty notice on 28.08.2003 and 22.09.2003 asking the assessee to explain why not penalty for concealment be imposed on him. In his reply dated 17.09.2003 and 25.09.2003 it was submitted that return was voluntarily filed Under Section 139(1) in which long term capital gain( loss) was disclosed and all the particulars relating thereto were given. The value of (he land was adopted on the basis of registered valuer's report, at Rs. 10/- per sq. ft. as on 01.04.1981 under the provisions of Section 55(2)(ii). It was submitted before the Assessing Officer that determination of capital gains cannot be made a subject matter of penalty proceedings Under Section 271(1)(c). The assessee had relied on various decisions before the Assessing Officer as under:
(1). Chandra Pal Bagga v. ITAT and Anr. 261 ITR 67 (Raj).
(2). Banaras Textorium v. CIT 161 ITR 782 (Alld.) (3). CIT v. R.K. Agarwal 187 ITR 397 (Alld.) (4). Harigopal Singh v. CIT 258 ITR 85 (P&H) (5). Sarabhai Chemicals (P) Ltd. v. CIT 257 ITR 355(Guj).
3.2 The Assessing Officer rejected all the contentions of the assessee and levied the penalty of Rs. 4 lakhs vide his order dated 30.09.2003.
4. An appeal was filed before the ld. CIT(A) who confirmed the levy of penalty by observing that the assessee has taken shelter under the valuation report of the registered Valuer. These valuers are prone to give favorable report for the customers. Further, till the year 1994, the land of the assessee was agricultural and, therefore, the value should have been adopted by taking the land as agricultural land as on 01.04.1981.
5. Against the order of ld. CIT(A), the two legal heirs, namely, Ekram Hussain and Hasan Akhtar, had filed the appeal. Appeal No. ITA 290(Alld) of 2004 is filed by Shri Ekram Hussain whereas appeal No. ITA 291 (Alld.) of 2004 is filed by Hasan Akhtar. Both are against the same order of ld. C.I.T.(A)
6. Before us, Id. A.R. has raised several legal issues. They are summarized as under:
(i) Notice has not been issued to all the legal heirs. There are seven legal heirs and notice has been issued only to the two.
(ii) Notwiihsianding, the assessee, i.e., Iqbal Hussain, had expired on 14th May, 2003 and penalty was levied on 30.09.2003, i.e., alter his death. The notice dated 22.09.2003 was issued to the deceased by the A.O. Hiraman Ram. Thus, issuance of penalty notice in the name of a deceased is illegal and, as such the penalty could not have been levied on the deceased.
(iii) As per Section 271(1)(c) penalty can be levied only on that person who has concealed the particulars of income or filed inaccurate particulars of income. The use of the words "such person" in Section. 271(1)(c) clearly mandates the authority to levy penalty only on the same person who has filed the return of income and concealed the particulars or filed inaccurate particulars in such return. In the present case, return was filed by the deceased but the penalty has been levied on the legal representatives. Therefore, penalty was not levied on the "same person.
(iv) Penalty proceedings are quasi criminal in nature. Therefore, their strict interpretation is called for.
(v) As per Section 159(1), the words used are "liable to pay any sum". This: is clarified in Sub-section (2) of Section 159, The liability takes place or accrues or arises only after an order of assessment is made and levy of tax has been ordered. In Section 159(2), the conjunction word 'and' has been used between two expressions "for the purpose of making an assessment (including an assessment; re-assessment or re-computation Under Section 147 of the income of the deceased" AND "for the purpose of levying any sum in the hands of the legal representative". This makes the legislative intent clear that the two purposes are not independent of each other. It has two possible consequences. First is that both the actions, i.e.; making an "assessment of the income of the deceased and, secondly, levy of any sum has to be done in sequence and simultaneously in the hands of same person i.e. either against the legal representatives or against the deceased himself. Penalty proceedings Under Section 271(1)(c) cannot be initiated against the: legal representative if assessment has been made on the deceased who has committed a mistake in the return. A notice Under Section 271(1)(c) cannot be issued to a legal representative as he has not committed any default in filing the return which was only filed by the deceased. The default, if any,, is committed only by the deceased mid not by the legal representatives and hence, penalty could not be validly continued against the legal representative namely, Hussan Akhtar and Ekram Hnssain. Second consequence is that liability to any sum will only be relatable to the assessment. In other words liability of legal representative will be confined only to the sum arising from assessment and not from any other proceeding. The two expressions are joined by the conjunction "and" therefore the domain of the second expression is limited by the contents of the first expression.
(vi) In Chapter XV, dealing with the 'liability in special cases-representative assessees" (i.e. cases like the present one) the Legislature has used the word "levy and collection of any penalty, interest, fine or other sum in respect of any period upto the date of partition" in the case of Hindu Undivided Family as described in Section 171(8) and (9). Similarly, in Section 177, dealing with the association dissolved or business discontinued, the words "the levy of; penalty or any other sum have been specifically mentioned in Sub-section (1) and the words "tax, penalty or other sum payable" have been used in Sub-section (3) in Section 189, in Chapter XVI, the words "the levy of penalty or any other sum" have been used in Sub-section (1) as well as Sub-section (3). Thus, the legislative intent is clear that in case of juridical person Legislature intended to levy and collect tax, penalty or any other sum from their successors or from ex-partner or legal representatives. But in case of natural person, no such combined word hide tax, penalty or interest together has been used in sec. 59. Therefore, Legislature only wanted to collect tax or levy tax from legal representatives of a deceased but they did not intend to levy penalty on legal representatives for the default committed by the deceased. This intent is made further clear by Sub-section (5) of Section 159. In Section 189 it clarifies that nothing in this Section (Section 189)shall affect the provisions of Sub-section (6) of Section 159.
(vii) Ld. A.R. relied on the decision of Honble Allahabad High Court in CIT, Kanpur v. Lalit Mohan 106 TR 817 (Alld.) for the proposition that penalty can be levied only on the same person on whom assessment has been framed. He also relied on the decision of IT AT, Calcutta Bench, in Bhuwan Mohan Mittal Charitable Trust v. ITO 45 ITD 617, for the proposition that on the death of the deceased penalty proceedings under the Act shall abate like all other criminal proceedings against him.
7. Against this, ld. D.R. submitted that
(i) Assessing Officer has initiated penalty proceedings after completing the assessment on 25.01.2000 and issued the penalty notice accordingly. There is no dispute on this. Subsequently, the new Officer has taken up the proceedings and he has issued the notice to give an opportunity. Mentioning the name of the deceased may be a mistake curable Under Section 292B because original notice was issued correctly.
(ii) So far as not issuing notice to all legal representatives, ld. .D.R. fairly; submitted that it may be only an irregularity and will not vitiate the entire penalty proceedings.
(iii) Regarding the legal contention. ld. D.R. submitted that the interne tat ion given by the ld. A.R. is not correct because the conjunctive word 'And' used in Section 159(2) does not mean that second limb in Section 159(2) is consequential to the first, i.e., unless an assessment is made on legal representatives penalty on them could not be levied. Both are independent as both starts with "for the purposes of. Thus, by putting these extra words, Legislature: has made the two actions independent, i.e., making an assessment of the income of the deceased and levying any sum in the hands of legal representatives. Therefore, it is incorrect to infer that penalty on legal representatives could be levied only when assessment is made in their hands.
7.1 He relied on the decision of Hon'ble Allahabad High Court in Kalawati Devi v. ITO (1981) 21 CTR Allahabad 62, for the proposition that penalty could be levied on legal representatives by virtue of Section 159(2) and also on the decision of Hon'ble Supreme Court in Addi. ITO v. E. Alfred (1952) 45 ITR 442 (SC), Smt. Tatati v. C1T 241 ITR 468 (Car), ACIT v. Nageshwar Prasad (2000) 244 ITR 38 (Pat), and Raj Kumar v. ITO 47 ITR 510 (Alld.).
7.2 In the rejoinder the Id. A.R. submitted that in the case of Kalawati devi decided by Hon'ble Allahabad High Court the facts were different. Reassessment proceedings were initiated against the L.Rs. who had filed the return and penalty for concealment was also levied on them. In the present case the return was filed by the deceased but the penalty is being levied on the L.Rs.
8. We have considered the rival submissions and perused the material available on record. In our considered view, legal objections raised by the Id. counsel for the alssessee that notices were not issued to all the L.Rs. will not make penalty proceedings a nullity. At best; this is an irregularity for which penalty order needed to be set aside to the file of the Assessing Officer to cure the defect Before dealing with this issue, we will take up the major issue that penalty cannot be levied on the legal representatives for the default committed by the deceased.
9. This situation is taken care of by Section 159 which reads under:
159. Legal representatives.--(1) Where a person dies, his legal representative shall he 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.
10. There are the four situations with regard to assessment of a natural person who has died, and his legal representatives come into his shoes after his death
(i) An assessee has earned income but before filing return of income, he dies, then his legal representative has to file the return of income and if there is any omission or contumacious conduct in filing of such return, then the question as against whom the penalty proceedings Under Section 271(1)(c) for concealment of income or for filing of inaccurate particulars will be initiated will arise.
(ii) A person has tiled the return of income but after filing the return he dies, then legal representatives step into his shoes. They gel assessment proceedings completed and for any default or for concealment of particulars of income or for filing inaccurate particulars penalty Under Section 271(1)(c) is initiated, and then question arises as to whether legal representatives can be penalized for the default committed by the deceased while filing the return of income.
(iii) The third situation is where assessment is done against the deceased, when he was alive and penalty .notice was issued to him for concealment of income but he dies before actually the penalty is levied, then the question arises whether penalty can be levied on the legal representative. These are the facts in the present case.
(iv) A person is assessed to tax and penalty is also levied on him. Thereafter he dies. Then the question arises about recovery of tax and penalty from the legal representatives.
10.1 Section 159(1) and Section 159(2) in fact would take care of all the four situations and the distinctions tried to be created by the ld. counsel for the assessee that sec. 159 would not be able to take are of situation No. 3 is not acceptable. Sub-Section (1) of Sec. 159 provides that LR shall be liable to pay in the like manner and to same extent as deceased, any sum which the deceased would have been liable if he had not died. The argument of ld. counsel of the assessee is that the word "any sum" used in Section 159(1) and 59(2) would only include tax and not penalty. This interpretation is supported by the argument of the ld. counsel referred to at (v) and (vi) above. However we do not agree. The expression "any sum" used in Section 159 would include tax; penalty or interest or any other sum and it cannot be confined to merely tax. It is because L.Rs. steps into the shoes of the deceased in respect of a proceeding already initiated or to be initiated. This is clear from Clause (a) and Clause (b) to Section 159(2). These proceedings can be in respect of quantifying tax ,or interest ,or for levying penalty. No definition of word "proceeding" has been given in this Section. In Keshab Nataytm Banerjee v. Commissioner of Income-tax 252 ITR 888 (Cal) in the context of Section 263 Hon'ble Calcutta High Court held that "Since "proceeding" has not been qualified in .Section 263, it cannot exclude any proceeding and cannot be confined only to mean a proceeding for assessment by the Income- tax Officer." Similarly in Section 159(2) the word "proceeding" has not been qualified. Therefore it can be confined to mean the proceeding for assessment only. It will cover the proceeding for penalty also.
10.2 Further, in the expression "'liable to pay" used before "any Sum" in Section 159(1) liability is not merely an event in the past i.e. a person would be liable to pay a sum only when it has been created. It covers the liability to be quantified in future also i.e. on assessment and after levy of penalty. As per charging Section 4, a person is liable to pay tax as soon as he earns income. Its quantification takes place at the end of financial year when he is required to file the return of income. Prior to this, he is required to pay advance tax as and when he earns income. The liability to pay tax is further fixed by various Finance Acts and it does not depend upon final assessment to be made. Final assessment will only determine the amount of tax as assessed by Assessing Officer but prior to that a person filing a return of income makes his own assessment of income and pays tax in the form of advance tax and self assessment tax in accordance with law. Hon'ble Supreme Court in Commissioner of income-tax v. Shelly Products 261 ITR 367 (SC) has held that in case where the assessment is cancelled or declared nullity, it will not entitle the assessee to the refund the tax on the income returned by him. Hon'ble Supreme Court held as under:
The Act also enjoins upon the assessee the duty to file a return of income disclosing his true income. On the basis of the income disclosed, the assessee is required to make a self assessment and to compute the lax payable on such income and to pay the same in the manner provided by the Act. Thus the filing of the return and the payment of tax thereon computed at the prescribed rates amount to an admission of tax-liability which the assessee admits to have incurred in accordance with the provisions of the Finance Act and the Income-tax Act. Both the quantum of tax payable and its mode of recovery are authorized by law. The liability to pay income-tax chargeable wider Section 4 of the Act does not depend on the assessment being made. As soon as the Finance Act prescribes the rate or rates for any assessment year, the liability to pay the tax arises. The assessee is himself required to compute his total income and the income-tax thereon which involves a process of self-assessment.
10.3. Once this is the legal position, then a person, who has earned the income .airing financial year, he is liable to pay tax on the income assessed by him. Therefore, his liability to pay sum rises prior to making the assessment. After assessment, liability to pay may increase or decrease depending upon the assessment the liability to pay any sum will also include stun by way of interest, penalty etc, in accordance with law. It is incorrect to interpret that "levying any sum in Section 159(2) would only include tax and not penalty. To refer to tax, penalty or inerest payable by an asscssee, the Legislature has used the words "any sum'" and wherever it intended to specify any one item out of the three or all the three items independently they have done so. In Section 2(7) "tax" has been separately specified leaving other items covered in the words "any other sum" used in that section. In Section 219 penalty and interest has been separately specified leaving other items covered in the words "any sum" used in that section. The two sections are referred below for convenience:
2(7). "assessee" means a. person by whom any tax or any other Sum of money is payable under this Act, (219). Credit for advance tax.--Any sum, other than a penalty or interest, paid by or recovered from on assessee as advance tax in pursuance of this Chapter shall be treated as a payment of tax in respect of the income of the period which would be the previous year for an assessment for the assessment year next following die financial year in which it was payable, and credit therefore shall be given to the assessee in the regular assessment.
10.4. Thus in our considered view die words "any sum" used in Section 159 refers to tax, interest and penalty and not merely tax as suggested by ld. counsel for L.Rs. Further, if the words "any sum" used in that Section does not include penalty than it cannot be .said that it includes interest chargeable under various sectionof I.T. Act like Sections 234A, 234B, 234C. As a result these sections would become redundant. Such an interpretation is not acceptable. It has been held in Additional Commissioner of Income-tax v. Bhagat Swarup Charanjit Singh and Co. 133 ITR 13 (Del) that any interpretation of states which makes other provisions of the redundant should be avoided. Thus, Once the expression "any sum" covers interest than it will certainly cover other items including penalty also. Therefore the legal representative is liable to pay the penalty for the default committed by the deceased. Once the deceased has filed the return of income when he was alive and he has committed default therein, then, the L.Rs. are liable to pay penalty if it is other wise legally imposable.
Section 159(1) imposes a liability on the L.Rs. to pay any sum (including interest and penalty) hi the like manner and to the same extent as the deceased had he not died. The liability to pay "any sum" does arise only after an order is passed either for assessment or for penalty or for interest. Section 159(2) provides that (1)for making assessment in the hands of L.Rs. and (2) for . levying any sum (including interest and penalty) in the hands of L.Rs. proceedings take in against the deceased before his death would continue against the L.Rs. Clause (b) of this Section covers a situation where no proceeding were; initiated against the deceased but could have been initiated against him , Since he has expired, they will now be initiated against the L.Rs. This covers the first of the four situations we have referred to above i.e. the deceased had earned income but did not file the return and he had in the meantime expired. The notice to file the return can be issued to the L.Rs. and proceedings thereafter would continue against them. But Clause (a) covers a situation where a proceeding has been initiated against the deceased when he was alive but before those proceedings could be finalized he expired. It provides that those proceedings would continue against the L.Rs. from the stage at which they stood at the time of the death of the deceased. In other words a fiction is created whereby proceedings initiated against the deceased when he was alive would be continued against the L.Rs. deeming them to have stepped into the shoes of the deceased without there being any effect on the, legality of the proceedings. Once this legal fiction is put into place then Clause (c) comes into operation that is all the provisions of the Act shall be applied accordingly. The effect of this deeming fiction is that the L.Rs. would be liable to consequences of ail the proceedings initiated against the deceased as if deceased is alive in the corpus of the L.Rs .
10.5. In Union of India v. Shantilal Jevellers 271 ITR 140 (Bomb) it is held that Penalty proceedings under the income-tax Act are not proceedings in continuation of proceedings relating to assessment. The liability to pay a penalty imposed under the provisions of the Act cannot be said to arise until the point of time; when the penalty is imposed. Thus there may be a doubt that liability to pay a sum of penalty would arise only when the penalty is imposed and when penalty could not be imposed on the deceased as before that he had expired, and therefore there is no liability to pay a penalty on the L.Rs. as it has not arisen. This interpretation is not tenable m view of the specific provisions of Section 159(2) which treats the proceedings to continue against the L.Rs.
10.6 Thus by virtue of Section 159(2) and Section 159(1) LRs will be liable to pay penalty which can be validly imposed on them even though default was committed by the deceased when he was alive.
11. In sub-section on (2) there are two limbs as pointed out by the ld. A.R. one is "for the purposes of making assessment" of the income of the deceased and the second is "for the purpose's of levying any sum" in the hands of legal representative. As per ld. A.R. the second limb of Sub-section (2) is in consequence to the first limb of Sub-section (2), i.e., consequence of second limb is confined to levy of penalty only on the same person on whom assessment is done. Levying any sum of penalty in the hands of LR when assessment is not done in their hands is therefore not permissible. This interpretation is incorrect and it unnecessarily adds a word 'consequently' between the two expressions. Let us explain. Section 159(2) as it stands is (2) For the purpose of making an assessment (including an assessment, reassessment or recomputation undar 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), To get the interpretation suggested by the ld. AR one has to redraft the sub-section as under:
(2) For the purpose of making an assessment (including an assessment, reassessment or recomputation under Section 147) of the income of the deceased and consequently for levying any sum in the hands of the legal representative in accordance with the provisions of Sub-section (1), 11.1. Thus one has to remove the words "for the purpose of from the second limb and add word "consequently" in its place. Without these changes the interpretation sought to the addition by ld. A.R. cannot be achieved. Thus there is a clear violence to the language of the section. This is not permissible. in Britannia 'Industries Ltd. v. Commissioner of income-tax 278 ITR 546(SC) it is held by Hon'ble Supreme .Court that when the language of a statute is clear and unambiguous, the courts are to interpret the same in its literal sense arid not to give a meaning which would cause violence to the provisions of the statute.
11.2 In Padmasundra Rao (Deed.) v. State of Tamil Nadu 255 1TR 147 (SC) Hon'ble Supreme! Court further held that the court cannot read anything into a statutory provision which is plain and unambiguous. A statute is the edict of the Legislature. The language employed in a statute is the determinative factor of legislative intent. The first and primary rule of construction is that the intention of the legislation must be found in the words used by the Legislature itself. The court duly interprets the law and cannot legislate. If a provision of law is misused and subjected to the abuse of the process of law, it is for the Legislature to amend, modify or repeal it, if deemed necessary. Legislative casus omissus cannot be supplied by judicial, interpretative process. In Commissioner of Income-tax v. Budharaja (N.C.) and Co. 204 1TR 412(SC) Hon'ble apex court held that The principle of adopting a liberal interpretation which advances the purpose and object of beneficent provisions cannot be carried to the enactment of doing violence to the plain and simple language used in the enactment. It would not be reasonable or permissible for the court to rewrite the Section or substitute words of its own for the actual words employed by the Legislature in tire name of giving effect to the supposed underlying object. After all, the underlying object of any provision has to be gathered on a reasonable interpretation of the language employed by the Legislature.
11.3 The law as it stands presently shows the words "for the purpose" in the first limb as will as "for the purpose" in the second limb of Section 159(2). The two purposes are clearly different and not the same. First purpose in the first limb is appended with expression "making an assessment...". It clearly shows that underlying purpose of the proceeding taken or could be taken is for making the assessment or reassessment, the other purpose used in second limb is appended with '"levying any sum....' In other words, for the purpose of levying any sum in the hands of L.Rs, any proceedings taken against the deceased before his death shall be deemed to have been taken against the L.Rs. Therefore we do not accept the proposition advanced by ld. counsel for the assessee that levying any sum used in Section 159(2) should be confined to the sum arising as a result of assessment only, that is, tax only. Regarding other arguments given by ld. A.R. we are of the view that they are of no consequence as: in the setting of those sections i.e. Sections 171, 177, 189 Legislature has hi their wisdom clearly used the words "tax, penalty or any other sum". But that does not really affect, the applicability of Section 159 which is independent by itself.
12. However, we will make it clear that there is some difference in respect of recovery of penalty and recovery of tax as clearly laid down in Section 159(4) and 159(6). As per Section 159(4), L.Rs. would be personally liable for any tax payable and tax has to be collected from the assets left by the deceased. Such personal liability of LR is to confine to tax payable and may not extend to sum represented by penalty. The total liability as per Sub-section (6) would be confined to the estate of the deceased capable of meeting the liability. Therefore, this minor difference in respect of sum payable by way of tax and in respect of sum payable way of penalty is confined to personal liability of LR which, is limited to tax only but so long as estate of the deceased is capable of meeting the liability, the liability of tax as well as of penalty has to be paid by L.Rs. from the estate left by the deceased.
13. Now, let us come to certain decisions including the ones cited by the parties. In Vijay Sharan v. ITO 202 ITR 249 (Delhi), it is held that a proceeding can continue against a legal representative for levy of penalty. For this they followed the decision of Hon'ble Supreme Court in Ranglal Rajkodia v. CIT 79 ITR 505 (SC).The head notes from the decision are as under:
Held, (i) on the fuels, that the original assessments were completed under Section 24B of the Act through the legal heirs tee] representatives including A. A was not merely intimately connected with the assessments. She was in fact an assessee. The lack of notice to her only made the assessments defective. The selling aside of the assessments was only on the ground that notice was not given to A, and therefore, the finding and direction was vital to the assessment proceedings. The second proviso to Section 34(3) applied and the assessment proceedings were not barred by limitation.
(ii) That Section 24B covered die entire field of procedure to he followed in assessing the income of the deceased and Section 24B(3) applied to this case. An assessment proceedings dues run erase to be a proceeding under the Act merely by reason of want of notice. It will he a proceeding liable to be challenged ' and connected. Similarly, if then: is a mistake as to the name or there is a mis-description of the name, the proceeding will he liable to be challenged and corrected by giving notice to the assessee subject to such just exceptions as an assesses: can take under law.
13.1. In St. Tatital v. CIT 241 ITR 468, Hon'ble Calcutta High Court held that penalty proceedings can be initiated against legal, representative for the default committed by the deceased. The bead notes from the said decision read as under:
T was he legal heir of Dr. N. Dr. N died and the assessments were completed on the legal heir T. Penalty proceedings under Section 271(1)(c) of the Income-tax Act, 1961, were imitated against the legal representative. The Commissioner of Income-tax (Appeals) cancelled the penalties. On appeal to the Tribunal for the first time a plea was taken that the deceased was ill during the relevant period and hence the correct income could not he filed. The Tribunal restored the matter to the Assessing Officer to find out whether the assessee was ill. On a reference:
Held, (i) that since the plea of illness was raised for the first time before the Tribunal which required enquiry into facts the remand was justified;
(ii) that the heir was liable to pay the tax and treated as deemed assessee under Section 159 of the Act after the death of her father and hence the initiation of penalty proceedings against the legal heir yeas justified.
13.2 In CIT v. Chandra Mohan Verma 244 ITR 430 (Alld.),it is held that notice was issued to only one of several legal representatives and no objection was raised by the LR then it is deemed that other legal representatives had waived, their rights. Assessment on one LR would be valid. Head notes from tin's decision are as under:
From a perusal of Section 159 of the Income-tax Act, 1961, it will be seen that a legal representative, has been made liable to pay any stun which the deceased would have been liable to pay, if he had not died, in the like manner and to the same as extent the deceased and all the provisions of the Act have been made applicable in such crease. Further, the legal representative of the deceased has been treated as a learned assessee and has been made personally liable for any tax liability of the deceased to the. extent to which the estate of the deceased is capable of meeting the liability.
If the assessing authority, in the exercise of his jurisdiction, omits to take one or more of the various /procedural steps therein laid down or in taking any of such steps commits an error or even deviates from the statutory mandate, the assessment would, be (sic) and void, only if the omission, error or breach, as the case may be, is Si fundamental as could not be (sic) because it affects inherent jurisdiction. The legal representative has a right to waive the advantage if any of the statutory provisions made solely fir his protection or benefit and not conceived in public interest. Therefore, if the legal representative (which term includes plurality of persons) is present before the taxing authority in some capacity or voluntarily appears in the- proceeding without service of notice or upon service of notice not addressed to him hut to the deceased-assessee. and does not object to the continuance of the proceeding against the deceased person and is heard by the Income-tax Officer, in regard to the lax liability of the deceased and invites an assessment on the merits, such a legal representative must be taken to have exercised die option of abandoning the technical plea that the proceeding has not been continued against hint, although in substance and reality, it has been so continued. If and when an assessment order is consequently made in such a proceeding tit the name of the deceased-asscssee, even that would not be a nullity qua the legal representative, not only because the was afforded a full opportunity of being made in respect of it but also because he having not raised any objection at the appropriate time with regard to the continuance of the assessment proceeding against the deceased person, he must he taken to hare known the inevitable outcome of the assessment being made in the name of the deceased and to have opted to treat such an assessment as having been made as the legal representative against him and to waive any objection as to its nullity on the said ground. Such an exercise of option on his part is not against public policy or public morality because the waiver is of a statutory provision which is conceived not in public interest but in the interest of the legal representative. It is obvious, therefore, that under such circumstances, the contravention of the relevant statutory provision would he a mere irregularity, may he a gross irregularity, but not a nullity.
13.3. In CIT v. Prabhawati Gupta 231 ITR 188 (MP), ii was held that after the death of assessee, when proceedings for assessment were completed, LRs were not brought on record. Assessments were held void ab-initio but ITO was directed to proceed according to law Under Section 159(2) after giving opportunity of hearing to the LR. Head notes reads as under:
Held, (i) that the assessee died before the proceedings for assessment were completed and, therefore, it was incumbent under Section 159(2) of the Act on the part of tin Income-tax Officer to have brought the legal representatives of the deceased (assessee on record and proceeded from the stage from where it was left at the time (if death of the deceased assessee. Since (he proceedings had not been completed before the death of the deceased, the Tribunal had rightly held that the assessment should be completed under Section 159(2) of the Act.
(ii) That though the Tribunal, after setting aside the order of the Commissioner of Income-tax (appeals) had not passed a further order directing the Income-fax Officer to proceed with the assessment against the legal representatives of the deceased assessee, it was open to the Income-tax Officer to proceed according to law under Section 159(2), if it was now possible to do so.
13.4 In CIT v. Jaiprakash Singh 219 ITR 737 (SC), LRs. were complying with the notices, assessment was completed, in appeal objections were raised that notice was not issued to all (he legal representatives. It as held that assessment is irregular and not null and void. The bead notes are as under:
An omission to serve or any defect in the service of notices provided by procedural provisions does not efface or erase the liability to pay tax where such liability is created by distinct substantive provisions /charging sections/. Any such omission or defect may render the order irregular-depending upon the nature of the provision not complied with-but certainly not void or illegal.
13.5. fn Swarn Kama v. CIT 176 ITR (P&H), die assessee died during the course of assessment proceedings, LRs were impleaded and heard and assessment as completed. The Assessment Order mentioned die name of the deceased. It was held that it is only a clerical error. Head notes are as under:
For the assessment year 1975-76, the assessee fled a return. Later on, he filed a revised return. During the pendency of the assessment proceedings, the assessee died. The assessment was completed by impleading the legal representative of the deceased but, in the assessment, order, the name of the deceased was shown instead of the legal heir. Before the Appellate Assistant Commissioner, the legal representative contended that the assessment was null and void as it was made on a dead person. The Appellate Assistant Commissioner accepted the contention of the assessee and annulled the assessment. 'The Tribunal held that since the legal heir of the deceased assessee was impleaded and was heard, it could not he said that the assessment order was passed on a dead person, that the mention of the name of the deceased in the assessment order was a clerical error which had no adverse effect on the proceedings within the meaning of Section 292B of the Income-tax Act, 1961, and hence the assessment order was valid. on a reference:
Held. (i) that according to Section 159(7)(a) of the Act, any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may he continued against the legal representative from the stage of which it stood on the death of the deceased and for completing the proceedings by virtue of Section 159(2)(c) of the Act, the provisions thereof are to be applied accordingly. Sub-Section (3) of Section 159 of the Act further provides that the legal representative of the deceased shall, for the purposes of this Ad, be deemed to be an assessee. Therefore, the deceased is an original assessee and the legal representative becomes the deemed assessee for the purposes of completion of the proceedings and for recovery of any tax from the estate of the deceased in the hands of the legal representative. The Income-tax Officer followed the procedure correctly as provided by Section 159 of the Act and completed the proceedings;
(ii) that Section 292B of the Act provides that an assessment made in pursuance of any of the provisions of the Act. shall not be invalid nor deemed to be invalid merely by reason of any mistake, defect or omission in the assessment if the assessment is in substance and effect in conformity with or according to the intent and purpose of the Act. The entire proceedings were conducted after the death of the original . .assessee in accordance with law. After the death of the original assessee, the legal representative is also deemed to be an assessee. 'Therefore, the title of the assessment order which was not correctly worded would not make the assessment order invalid and the assessment order as passed by the income-tax Officer was a valid assessment 13.6. In CIT v. Manoharlal Nagpal 139 ITR 157 (P&H),notices of hearing were issued and hearing given to L.R.. Assessment was made on the deceased assessee. ft is only a clerical error and held to he an oversight by the ITO.
13.7 In CIT v. Vardhrajan 122 ITR 1014 (Madras), it was held that by virtue of Section. 159(2)(b) of the !.T. Act, parliament clearly intended to levy penalty in the hands of LR also in case where default is committed by the deceased person.
In response to notices issued under the Wealth-tax Act, 1957, the deceased filed his return of he I wealth and also paid the taxes due on the basis if the returns. 'The Wealth-tax Officer levied penalty on the legal representative of the deceased for the belated filling of the returns. The Appellate Assistant Commissioner cancelled the levies in if ground that, since the defaults were committed by the deceased, the legal representative could not be penalised as there was no provision therefor in the Wealth-tax Act corresponding to Section 159(2)(b) of the income-tax Act, 1961, and Section 19(3) of the Wealth-tax Act did not provide for an application of Section IS to a legal representative. The Tribunal confirmed this view. On a reference to the High Court:
Held, that the absence of a legal fiction as found in Section 24B(2) of the Indian Income-tax Act, 1922, would Militate against the acceptance of the contention that the legal representative should be deemed to he the assessee in the present case so that he may be made liable to the penalty, if any, leviable on the deceased. In the absence of day provision similar to Section 159(2)(b) if the Income-tax Act, by which parliament clearly intended to lay penalty in the hands of the legal representatives also in a case where the default had been committed by the deceased person, it is not possible to attribute to the Legislature the intention to penalise the legal representatives for the default, if any, committed by the deceased person under the Wealth-tax Act. Accordingly, penalty cannot be levied on the legal representative of a deceased assessee for the belated fling of a return by the deceased-assesee under the Wealth-tax Ad. The theory if treating penalty as an additional tax only for certain purposes and cannot be extended beyond its scope.
13.8 In Kalawati Devi v. ITO 21 CTR 62 (Allahabad),it was held that penalty can be imposed on legal representative for a default committed by the deceased. Para 19 and 20 from the above decision are as under:
19. It is significant to note that like the provisions contained in the W.T. Act, Section 24ti of the I T. Act, 1922 imposed a liability on the legal representatives only in respect of the tax payable by the deceased and not in respect of penalty or any other sum However Section 159(1) of the I.T. Act which runs thus:
Where a person died, his legal representative shall be liable to pay any sum which deceased would have been liable to pay if he had not died in the like manner and to the same extent as the deceased.
clearly makes the legal representatives liable not only for the tax payable by the deceased assessee but also for all other sums which the deceased would have been liable to pay had he not died. This clearly makes the legal representatives of the deceased liable far the penalty which would have been payable by the deceased .assessee had he not died. In oar opinion, under Section 159 of the IT Act penalty proceedings for a default committed by deceased can be started or continued against the legal representatives.
20. In 'view of this clear legislative provision it is not possible to contend that penalty proceedings under Section 271 of the I.T. Act could not be taken against the legal representatives of the deceased assessee who had furnished inaccurate particulars, in the return filed by him. The case of Smt. Yawarnnissa Begum v. WTO (supra) relied upon by the petitioner, relate to penalty imposable under the provisions 'of the W'T Act which Act does not contain a provision similar to that contained in Section 159 of the IT Act. Tin ratio decidendi of the said decision, is therefore not legal applicable to the pretest case 13.9 It was argued by the ld. counsel for the assessee that in this case assessee had died alter completion of assessment. Reassessment was done on the legal representatives and penalty was imposed on them. Thus the default was committed by She same person who had filed the return and penalty was also levied on the same person. It is However seen that penalty in that case was levied for mistakes done in the original return by the deceased which were. corrected by the L.Rs. in the return filed by them in response to reassessment proceedings.
13.10. In ACIT v. Nageshwar Prasad 244 ITR (AT) 38 (Pat),it was held that penalty proceedings can be validly levied on LRs. on (fie return of income tiled by the deceased during his file time with inaccurate particulars furnished by him in the return. As per headnotes:
Held (i) per T.V. Rajagopala Rao (President) and V.K. Sinha (Accountant Member); (Abdul Razack (Judicial Member) (dissenting) ],'that penalty proceedings can he validly levied in taw on legal heirs when she return of income was filed by She deceased daring his life lime and when inaccurate particulars as to his income were furnished by the deceased in die said return. [Per Abdul Razack (Judicial Member) (dissenting): that it is a wed known and sealed proposition that penal provisions being quasi-criminal in nature die with the man. Similarly quasi crime should also die with a man. The living persons, viz., legal, representative cannot be penalised or made to suffer for the alleged violations, offences, contraventions or crimes or quasi crimes committed by a deceased person assessee.
13.11. In Abrahajm (C.A.) v. Income-tax Officer 41 ITR 425 (SC) it was held that word assessment has a comprehensive meaning. It would also include levy of penalty which at that time was in the form of additional tax. Hon'ble Supreme Const held as under:
The expression "assessment" used in the sections of Chapter IV of the Income-tax Act is not used merely in the sense of compulation of income and when Section 44 declares Unit the partners or members of the firm or association shall be jointly and severally liable to assessment, it refers to the liability to computation of income under Section 23 as well as the application of the procedure for declaration and r imposition (flax liability and the machinery for enforcement thereof Nor has the expression, Tall the provisions of Chapter IV shall so far as may be apply to such assessment's a restricted content; in terms it says that all the provisions of Chapter IV shaft only, so far as may be, to assessment of firms which have discontinued their business. By Section 28, the liability to pay additional tax which is designated penalty (sic) imposed in view of the dishonest contumacious conduct of the assessee. This liability arises only if the Income-fax Officer is satisfied about the existence of the conditions which give bin? jurisdiction and if in quantum thereof depends upon the circumstances of the case. The penalty is not uniform and its imposition depends upon the exercise of discretion by the taxing authorities; but it is imposed as a part oft he machinery for assessment of tax liability. The use of the expression ",so far as may be" in the last clause of Section 44 also does not restrict the application of the provisions of Chapter 11' only to those which provide for computation of income. By the use of the expression "so far as may be" it is merely intended to enact that the provisions in Chapter IV which from their nature have no application to firms will not apply thereto by virtue of Section 44. In effect, the legislature\has enacted by Section 44 that the assessment proceedings may be commenced and continued against a firm whose business is discontinued as if discontinuance has not taken place. It is enacted manifestly with a view to ensure continuity in if application of the machinery provided for assessment and imposition of lax liability notwithstanding discontinuance of the business of the firm.
Held accordingly, that the imposition of penalty under Section 28 in the assessment of u firm, which consisted of two partners, after the death of one of them was valid.
In interpreting a fiscal statute, the court cannot proceed to make good deficiencies if there be arty; the court must interpret the statute as it stands and in case of doubt in manner favourable to the taxpayer. But where by the use of words capable of comprehensive, provision is made for imposing liability for penalty upon taxpayers guilty of fraud, gross negligence or contumacious conduct, an assumption that the words were used in a restricted sense so as to defeat die avowed object of the Legislature in respect if a certain class will not be lightly made.
From this it follows that word "assessment" used in Section 159(2) would include levy of penalty also. Thus L.Rs. would be liable for penalty for the default committed by the deceased.
13.12 We shall mow consider the decisions cited by ld A.R. in Chandra Pal Bagga's case, that assessee disclosed transaction giving rise to income but erroneously claimed. exemption. It was held by Hon'bie Rajasthan High Court that there is no concealment of income and hence penalty cannot be levied. In Banaras textorium case returned income was less than 80% of the assessed income. It was held by Honble Allahabad High Court that application of Explanation to Section 271(1) (c) is automatic. Findings in assessment proceedings are relevant but not conclusive in penalty proceedings. Penalty was imposed and confirmed solely on die basis of findings in assessment proceedings and application of explanation was not considered. In R.K. Agrawals case Tribunal had found that the negative onus which lay upon the assessee was duly discharged in view of the Explanation to Section 271(1)(c) of die Income-tax Act, 1.96 L inasmuch as his return was supported by his book of account. As there was nothing to disturb the finding, penalty could not be levied under Section 271(1)(c). In Harigopals case it was held by Honble Punjab and Haryana High Court that in order to attract Clause (c) of Section 271(1)(c) of the Income-tax Act, 1961, it is necessary that there must be concealment by the assessee of the particulars of his income or furnishing of inaccurate particulars of such income, The provisions of Section 271(1) (c) of the Act are not itracted to cases where the income of an assessee is assessed on estimate basis and additions are made therein, hi Sarabhai Chemical's cake it was held by Honble Gujarat High Court that the deeming Hot ion contained hi Explanation 1 Section 271(1 )(c) of the Income-tax Act, 1961, that the added/disallowed amounts represent the income in respect of which particulars have been concealed will not apply if the explanation that was given by the assessee in the quantum proceedings which he could not substantiate in those proceedings was (i) bona fide and (ii) if he had disclosed all the facts relating to the same and material to the computation of his total income. In Lalit Mohan's case Hon'ble Allahabad High Court held that the person assessed and the poison upon whom a penalty is levied must be the same. As, in the instant case, the income had been finally assessed in the hands of the Hindu undivided family, the Appellate Assistant Commissioner rightly held that the penalty could not be imposed on a member of the family in his individual capacity. We respectfully subscribe to this view. There is no provision in the I.T. Act to treat die individual as representative assessee for the HUF unlike Section 159 Which treats the L.Rs. as representative assessee for the deceased. With the decision in Bhuwan Mohan Mittal's case we respectfully disagree. Penalty Under Section 271(1)(c) are not criminal proceedings as provisions of CRPC are not applicable and it is not necessary to prove mensrea in these proceedings. Hence As is clear, these decisions do not guide us on the legal issues raised by the ld. A.R. But they can be considered when the case is to be decided on merit.
14. As a result bf discussion made above we hold as under:
(i) If notice is not issued to all the L.Rs. then it will not vitiate the entire proceeding. It will only be art irregularity which can be cured by the Assessing Officer. Hence the order passed as a result of such proceeding needed to be set aside and not annulled.
(ii) Section 159 will take care of all the four situations described in para 10 above Situation at Sr. No. (iii) in that para cannot be treated differently. Thus penalty can be levied on the L.Rs. for the default committed by the deceased while filing the return of income.
(iii) Word "Assessment" used in Section 159(2) also includes penalty.
(iv) the expression any sum used in Section 159 also includes sum by way of penally.
(v) While interpreting the provision of statute no violence can be caused to the language used by the legislature
15. In view of above, we reject the legal contentions raised by the assessee that penalty could not be imposed on the legal representatives. However, all the legal representatives are not brought on record. We treat it as an irregularity and, therefore, restore the penalty proceedings to the file of the Assessing Officer to. give notices to all die legal representatives and decide accordingly. He will consider the decisions as referred to in para 13.12 above.
16. As a result, appeal riled by the two L.Rs. are allowed for statistical purposes.
Order pronounced in open court 06-10-2006