Income Tax Appellate Tribunal - Jaipur
Smt. Pushpa Devi vs Assistant Commissioner Of Income-Tax on 30 April, 1993
Equivalent citations: [1993]46ITD468(JP)
ORDER
OF ASSESSMENT--On deceased.
Ratio :
Where all the legal representative not brought on record by issuing requisite notices on them, assessment not was valid.
Held :
The LRs of the deceased assessee, at the time of his death, include minor sons and daughters as well. Two of the minor daughters were not brought on record by issuing any notices to them through their natural guardian nor was their natural guardian ever informed that she was required to represent the case of the minors also. When all these facts are considered in the conduct of the assessing officer in not impleading all the LRs of the deceased as parties to the assessment proceedings despite knowledge of that fact and even in the second round not issuing notices to them individually at their residential places despite clear instruction and direction by Commissioner of Income Tax (Appeals), it is difficult to hold that the assessing officer had acted bonafidely and diligently. Despite clear directions of the first appellate authority, the Income Tax Officer had not brought all the LRs of the deceased on record by issuing requisite notices to them. The assessing officer was having full knowledge of all the LRs of the deceased assessee and in not issuing the requisite notices to all the LRs separately and individually the assessing officer had not acted bonafidely and diligently. The LRs, as were brought on record, had not acted bonafidely and diligently. The LRs, as were brought on record, had objected to the making of the assessment by the assessing officer in the manner she was doing and, therefore, they had not waived their right against the assessment. The assessment as made by the assessing officer in the second round in fact deserved to be annulled instead of simply setting aside the same. Setting aside the assessment for the second time for no fault of the assessee would certainly amount to abuse of the process of the judicial forum prescribed under the Act besides violating the provisions of section 153 thereof.
Application :
Also to current assessment years.
Income Tax Act 1961 s.143 Income Tax Act 1961 s.159 Liability in special cases--LEGAL REPRESENTATIVE--Absence of notice to all legal representatives.
Ratio:
Assessment can be made only after bringing all the LRs on record.
Held:
The general rule is that all the LRs of the deceased assessee should be brought on record and requisite notices should be issued to all of them. No doubt, a legal representative may waive his right of being heard by the assessing officer but that does not absolve the assessing officer of his duty of impleading all the LRs of the deceased assessee to the assessment proceedings and issuing notices to them. There may be cases wherein the assessing officer may bona fide and diligently believe one or more persons to be the only LRs of the deceased and initiate proceedings by serving notices on them. In such cases the bona fide belief of the assessing officer shall have to be examined quite objectively. The consensus of judicial opinion seems to be that the assessment should be made only after bringing all the LRs of the deceased assessee on record. A return filed by a LR in response to a notice issued to the deceased without stating that there were other LRs and heirs of the deceased would not be invalid unless it is shown that the assessing officer had not acted bonafidely and diligently in issuing the notice to only one or some of the legal representatives of the deceased.
Case Law Analysis:
First Addl. ITO v. Mrs. Suseela Sadanandan (1965) 57 ITR 168 (SC), ITO v. Maramreddy Sulochanamma (1971) 79 ITR 1 (SC) and Smt. Kamala Devi Todi v. CIT (1988) 174 ITR 414 (Gau) relied on.
Application:
Also to current assessment years.
Income Tax Act 1961 s.159 ORDER M.A.A. Khan, Judicial Member
1. These three appeals - two by the assessee and one by Revenue - raise the same point for consideration. These are, therefore, disposed off by this common order.
2. Facts relevant and sufficient to dispose off the appeals are these :-
Late Sri Kantilal Saraf was an individual, deriving share income from the registered firm of M/s. Usha Bleaching Centre, Pali and also from tuitions. He died on 9-7-1986 leaving behind him the following legal heirs and representatives, namely :-
1. Smt. Pushpa Devi (44) Widow
2. Sh. Dileep Kumar (22) Son
3. Smt. Usha (20) Daughter
4. Kum. Raj Kumari (18) -do-
5. Sh. Praveen Kumar (16) Son
6. Shri Kakesh Kumar (15) Son
7. Kum. Pooja (11) Daughter Despite issuance of notices under Sections 139 (2) and 142 (1) of the I. T. Act, 1961 ('the Act') on 10-2-1986 and 5-6-1986 respectively the deceased assessee had not filed re,turn of his income for A.Y. 1985-86. However, in compliance of the letter dated 26-9-1986 and notices under Sections 142(1) and 143(2), both dated 15-12-1986, his widow, Smt. Pushpa Devi filed a return on 30-7-1987 declaring the income of the deceased assessee for A.Y. 1985-86 at Rs. 19,020. The ITO completed the assessment under Section 143(3) on 30-3-1988 assessing the deceased on total income of Rs. 1,46,590. Smt. Pushpa Devi carried the matter in appeal.
3. Before the CIT (A) the very validity and legality of the assessment as made by the ITO on 30-3-1988 on the deceased assessee through her LR Smt. Pushpa Devi was challenged on the ground that all the LRs of the deceased had not been made party to the proceedings. The learned CIT(A) though found the factual position true and correct yet held that it was a case of procedural irregularity rectifiable by issue of notices to all the LRs of the deceased assessee. In this behalf he relied upon, mainly, the Calcuatta High Court decision in the case of Sajjan Kumar Saraf v. CIT [1978] 114 ITR 155. He, therefore, set aside the assessment to the ITO to be made afresh according to law and as per his observations and direction. That order of the CIT(A) passed on 3-8-1989, has given rise to assessee's appeal No. 1409/JP/89.
4. In compliance of CIT(A) 's order, dated 3-8-1989, mentioned above, the ITO issued notices under Section 143(2) to five of the seven LRs of the deceased assessee. By his letter dated 12-11-1990 Sri Arvlnd Bhatt, Advocate appears to have requested the ITO to keep the proceedings in abeyance as an appeal against CIT(A)'s order dated 3-8-1989 was pending for the decision of the Tribunal. But the ITO took no cognizance of such letter as the same was not accompanied with Power of Attorney. Any way, since none of the five LRs put in appearance before her, the ITO completed the assessment under Section 144 on 18-12-1990 again assessing the income of the deceased assessee at the same figure of Rs. 1,46,590. The five LRs approach the CIT(A) in appeal.
5. Before the CIT(A) the validity and legality of the assessment, as made by the ITO on 18-12-1990 in the second round, was challenged on the ground that a composite notice in the name of five LRs in one envelope sent to and delivered at wrong address did not amount to sufficient compliance of CIT(A)'s earlier order. It was also contended that two of the LRs were issued no notices at all. In sum it was submitted that no proper opportunity of being heard was given to the LRs representing the estate of the deceased. The learned CIT(A) found substance in these submissions. He particularly pointed out that no notice had been issued to Smt. Usha Devi and Kumari Puja. LRs and that the remaining LRs had complied with the notices issued to them but the ITO had not even marked their attendance in the order sheet. He, therefore, held that the order made by the ITO under Section 144 was bad and the assessment so made was not proper. He, however, set aside the assessment again to the ITO directing the ITO to again issue the notices to all the LRs of the deceased assessee and then complete the assessment afresh according to law after considering the material on record and giving proper opportunity of being heard to all the LRs.
6. The order of the CIT(A), as passed by him on 12-3-1991 in the manner stated above caused grievance to both the parties and led them to file their respective appeals. The five LRs of the deceased have contended in their appeal No. 955/JP/91 that the CIT(A) ought to have annulled the assessment as the same was void ab initio. On the other had the contention of the Department in this appeal No. 1131/JP/91 is that the CIT (A) should have confirmed the assessment order instead of setting aside the same to the ITO for de novo assessment.
7. We heard the parties at sufficient length and considered the material brought on our record. The learned counsel for the assessee vehemently urged that it was well within the knowledge of the ITO that the deceased assessee had died long back after leaving as many as 7 heirs behind him to represent his estate, that despite his knowledge the learned ITO did not like to bring all the LRs of the deceased assessee on record and did not issue required notices to them. It was submitted that Smt. Pushpa Devi, the widow of the deceased assessee had also pointed out to the ITO that the assessments being mads by him in the absence of the other legal representatives of the deceased assessee would be bad in law. But despite such objection having been raised before him the ITO chose to pass an assessment order by impleading Smt. Pushpa Devi alone as LR of the deceased assessee. It was thus submitted that in the first round learned CIT(A) instead of setting aside the assessment to the ITO for redoing the same, should have annulled the same on the ground that all the LRs of the deceased had not been brought on record and an illegality had been committed in making the assessment in the case of the deceased.
8. Regarding the order of the CIT(A) passed in the second round, again setting aside the assessment to the ITO instead of annulling the same, the learned counsel submitted that in his first order the learned CIT(A) had clearly mentioned that the assessee had left as many as 7 legal representatives behind him and had, further, clearly directed the ITO to issue notices to all the LRs of the deceased assessee before making assessment afresh in the case. It was submitted that the ITO again chose not to implead all the LRs of the deceased to the proceedings and did not issue notices to all of them. Instead he issued notices to 5 LRs only and that too in one envelope which was sent to an address where at the LRs were not residing at all. It was submitted that in the totality of circumstances it was a case of illegality in making the assessment without issuing notices to all the LRs of the deceased and as such liable to be annulled. These arguments were supported with a large number of cases a few of them would be discussed hereinafter.
9. On the other hand the learned Departmental Representative objected to the setting aside of the assessments by the CIT(A) in the second round on the ground that the estate of the deceased was properly and sufficiently represented by the LRs to whom the ITO had issued notices in the second round and therefore, the CIT(A) was not at all justified in setting aside the assessment. It was submitted that in the facts and circumstances of the case the learned CIT(A) ought to have upheld the assessment as made by the ITO. The learned Departmental Representative further submitted that sending the notices to 5 LRs of the deceased assessee in one envelope at the address where the deceased assessee used to carry on his business was, at the most, an irregularity which stood cured by the fact that the LRs surrendered to the jurisdiction of the ITO by waiving their right to object against such irregularity. The learned Departmental Representative also supported his view point with several decisions which would be discussed at appropriate place.
10. Before we come to the merits of the case on hand, it would be necessary to consider the legal history of Section 159 of the Act. It may be recalled that in the case of Ellis C. Reid v. CIT [1930] 5 ITC 100 the Bombay High Court had pointed out that according to the law as it then stood, where a person died after the commencement of the assessment year but before his income of the previous year was assessed his executor was not liable to pay the tax and if the death occurred whilst assessments were pending, the proceedings could not be continued and the assessments could not be made after the person's death. This lacuna was removed by the enactment of Section 24B in the Indian IT Act, 1922, which made the LRs liable to pay the tax which might have been assessed but not paid by the deceased person or which might be assessed after his death. The liability, though absolute, was, however, limited to the extent to which the estimate of the deceased person was capable of meeting the charge. When the present Act was enacted, Section 159 occurring in Chapter XV entitled as "Liability in Special Cases", made a provision to meet with a similar situation. Under the Act the words "Legal Representative" were given the meaning as were assigned to them in Section 2(29) of the Code of Civil Procedure. L/R, therefore, means a person who, in law, represents the estate of a deceased person and includes any person who intermeddles with the estate of the deceased. Where an assessee dies, his legal representative becomes 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.
11. In fact, the basic scheme underlying Section 159, which extends the legal personality of a deceased person for the purpose of assessment of tax, proceeds on the recognition of the doctrine of "audi alteram partem" which mandates that no man shall be condemned unheard. Therefore, although the natural personality of the deceased person has disappeared, the legal representative, who represents him in the world of living, is treated as the assessee and he is afforded a full opportunity of being heard before an assessment is made which may have binding effect on the estate of the deceased assessee. If the Assessing Authority, in the exercise of his jurisdiction, omits to take one or more of the various procedural steps as laid down in Section 159 or in taking any of such steps commits an error or even deviates from the statutory mandate, the assessment would be null and void, only if the omission, error or breach, as the case may be, is so fundamental as could not be waived because it affects inherent jurisdiction. The LR has no doubt a right to waive the advantage of any of the statutory provisions made solely for his benefit and not conceived in public interest.
12. In the case of First Addl. ITO v. Mrs. Suseela Sadanandan [1965] 57 ITR 168 the Supreme Court had held that the principle laid down by the Apex Court in the case of DayaRam v. Shyam Sundari AIR 1965 SC 1049 that where a plaintiff or an appellant, after diligent and bonafide inquiry, ascertains who the legal representatives or a deceased defendant or respondent are and brings them on record within the time limited by law, there is no abatement of the suit or appeal and the legal representatives sufficiently represent the estate of the deceased and a decision obtained with them on record will bind not merely those impleaded, but the entire estate including those not brought on record, although laid down in the context of suits or appeals, is one of general application. There is no reason why the same principles cannot be invoked in the case of assessment of the income of a deceased person in the hands of his legal representatives. The same principle appears to have been reiterated by the Supreme Court in the case of ITO v. Maramreddy Sulochanamma [1971] 79 ITR 1 also.
13. In the case of Muniyammal v. Third Addl. ITO [1960] 38 ITR 664 the Madras High Court had thrown the proposition that in a case where a person died leaving more than one LR, the estate was represented by all of them jointly and not by some of them alone. As between co-heirs, one was not the agent of the other. Referring to Section 24B of the IT Act, 1922 their Lordships observed that the said provision made a legal representative of a deceased person liable to the tax, assessed as payable by the deceased, the liability being, however, limited to the extent of the estate left by the deceased. The word "legal representative", it was observed, "used in Section 24B Sub-section (1), meant all the legal representative collectively, if there were more than one".
14. In the case of CIT v. N.A. Mandagi [1967] 63 ITR 173 the Mysore High Court held that when a person dies and an assessment has to be made with respect to his income, his estate must be properly represented before the ITO and there could be such representation only if all his legal representatives are sewed with the notice enjoined by Section 24B of the FT Act, 1922.
15. The Andhra Pradesh High Court also spoke in the same language in the case of Rangapalli Basammav. GTO [1971] 81 ITR 391 in a case under the GT Act, 1958. It was held that there was every necessity to give notices to all the LRs, if any action is proposed to be taken under Section 16 of the GT Act, 1958 on the ground that the gifts made by a deceased person had escaped assessment.
16. The Gauhati High Court held in the case of Jai Prakash Singh v. CIT [1978] 111 ITR 507 that violation of statutory principles of natural justice, more particularly statutory principles of natural justice, takes away the jurisdiction of the authority concerned to continue with the proceedings and pass orders and necessarily invalidates the proceedings and orders passed therein. If the estate of a deceased assessee is to be assessed to income-tax, the estate must be fully represented by impleading all the legal representatives and serving notices under Section 143(2) on all of them who represent the entire estate. If this were not done, the assessment proceedings and assessment orders passed therein would cease to be valid proceedings and valid orders in the eye of the law. In such a case it is the legal duty of the AAC and the Appellate Tribunal to annull the assessment. After annulment of the assessment order, if the law permits and there is no bar under the limitation prescribed by law, fresh assessment proceedings may be drawn up in appropriate cases. But the appellate authorities cannot nullify the provisions of limitation of assessment, as laid down in Section 153, by passing an order setting aside the assessments and directing completion of the assessments by issuing notices on the remaining legal representatives.
17. The same High Court reiterated the same principles laid down above in a subsequent decision in the case of Smt. Kamala Devi Todi v. CIT [1988] 174 ITR 414 (Gauhati).
18. In the case of Chooharmal Wadhwam v. CiT [1971] 80 ITR 360 the Gujarat High Court held that where a person dies leaving more than one LR, the ITO must proceed to assess the total income of the assessee by serving notice under Section 22(2) or Section 34 of the IT Act, 1922 on all the LRs. If the notice is served on only one LR, there would be no complete representation of the estate and the proceedings will be wholly invalid. Their Lordships further held that there may be cases where, though there are several legal representatives, one may represent the whole interest of the deceased and in such a case there being complete representation of the interest of the deceased before the ITO, the assessment made would bind the estate of the deceased. Again, where the ITO bonafide and diligently believes one or more persons to be the only legal representatives of the deceased and initiates proceedings by serving notices on them and, subsequently it is found that, besides those served, there were also other legal representatives of the deceased, there is no reason why in such cases the general rule evolved in the field of civil law should not be applied and the proceedings may be held to be valid.
18A. The principles that emerge from a study of the cases discussed above are that before an assessment in the case of a deceased assessee is made, his estate should be duly represented through his LRs. The general rule is that all the LRs of the deceased assessee should be brought on record and requisite notices should be issued to all of them. No doubt, a legal representative may waive his right of being heard by the ITO but that does not absolve the ITO of his duty of, impleading all the LRs of the deceased assessee to the assessment proceedings and issuing notices to them. There may be cases wherein the ITO may bonafide and diligently believe one or more persons to be the only LRs of the deceased and initiate proceedings by serving notices on them. In such cases the bonafide belief of the ITO shall have to be examined quite objectively. The consensus of judicial opinion seems to be that the assessment should be made only after bringing all the LRs of the deceased assessee on record. A return filed by a LR in response to a notice issued to the deceased without stating that there were other LRs and heirs of the deceased would not be invalid unless it is shown that the ITO had not acted bonafidely and diligently in issuing the notice to only one or some of the legal representatives of the deceased. It is, therefore, clear that each case shall have to be judged on its own merits before the validity or otherwise of an assessment made on a deceased assessee through his LR may be finally approved or disapproved.
19. Now coming to the facts in the instant case it is well established on record that the deceased assessee had died without filing a return for the year under consideration. As early as on 26-9-1986 the ITO had issued a letter to Smt. Pushpa Devi, LR of the deceased assessee. He had then issued notice under Sections 142(1) and 143(2) to the deceased assessee. Even thereafter he had issued a letter on 12-6-1987 in the name of the deceased assessee. Any way, before completing the assessment in the first round it was well within the knowledge of the ITO that Shri Kanti Lal had already died leaving behind him several legal heirs. In fact in his life time Shri Kantilal, the deceased assessee, had been examined on 30-9-1985 and it had been known that he was having more than one persons to be considered as his LRs, in case of his death. That is well evident from the answer to question No. 5 in the said statement. Despite such knowledge the ITO had never tried to bring all the LRs of the deceased on record before completing the assessment, in the first round. Therefore, the learned CIT(A) had to set aside the assessment in the first round with a direction to him to bring all the LRs of the deceased assessee on record by issuing required notices to them.
20. No doubt, the provisions of Section 159, as stated above, are machinery provisions and hence procedural in nature. Procedural lapses ordinarily give rise to curable irregularity and it was perhaps from that angle that the learned CIT(A) in the first round had set aside the assessment to the ITO to be redone afresh. It is purely from this angle that we would not like to disturb CIT(A)'s order passed in the first round.
21. But in the second round of proceedings we find that though the learned CIT(A) had clearly mentioned in his order setting aside the assessment to the ITO that the deceased assessee had left as many as 7 LRs and notices were required to be issued to all of them yet the ITO does not appear to have followed his directions. It can hardly be disputed that notices to 5 LRs only were sent in one envelope and that too at an address where the deceased assessee used to work in his life time to earn his livelihood. It is not at all in evidence that any of his LRs was still working at that place. The LRs of the deceased assessee, at the time of his death, included minor sons and daughters as well. Two of the minor daughters were not brought on record by issuing any notices to them through their natural guardian nor was their natural guardian ever informed that she was required to represent the case of the minors also. When all these facts are considered in the conduct of the ITO in not impleading all the LRs of the deceased as parties to the assessment proceedings despite knowledge of that fact and even in the second round not issuing notices to them individually at their residential places despite clear instruction and direction by CIT(A) it is difficult to hold that the ITO had acted bonafidely and diligently. We are in fact pained to see that the clear instructions and directions of the first appellate authority were ignored by the ITO in impleading the LRs of the deceased assessee and effecting service of the notices upon them.
22. In the totality of circumstances, as mentioned above, we hold that despite clear directions of the first appellate authority, the ITO had not brought all the LRs of the deceased on record by issuing requisite notices to them. We further hold that the ITO was having full knowledge of all the LRs of the deceased assessee and in not issuing the requisite notices to all the LRs separately and individually the ITO had not acted bonafidely and diligently. We further hold that the LRs, as were brought on record, had objected to the making of the assessment by the ITO in the manner she was doing and, therefore, they had not waived their right against the assessment.
23. For these reasons, we are of the opinion that the assessment as made by the ITO in the second round in fact deserved to be annulled instead of simply setting aside the same. Setting aside the assessment for the second time for no fault of the assessee would certainly amount to abuse of the process of the judicial forum prescribed under the Act besides violating the provisions of Section 153 thereof.
24. In the result, CIT (A)'s order dated 3-8-1989 giving rise to assessee's appeal No. 1409/JP/89 is sustained for the reasons mentioned above. That appeal shall, therefore, be deemed to have been dismissed. But his order dated 12-3-1991 passed in second round, giving rise to assessee's appeal No. 955/JP/91 is hereby cancelled and the assessment made by the ITO annulled. That appeal shall be treated as allowed.
Revenue's appeal No. 1131/JP/91 is dismissed.