Notice not served to all legal representatives to initiate reassessment proceedings against deceased person : ITAT

By | May 21, 2018
Print Friendly, PDF & Email
(Last Updated On: May 22, 2018)

The rights and interest of the LRs in the estate of the deceased cannot be taken away from them without giving them a proper opportunity of defending their rights and interest, in accordance with the natural justice principle of audi alterem partem, as held in ‘Umedram’

It is held that the initiation of reassessment proceedings, in the absence of service of notices under section 148 on all the LRs of the deceased Shanta Kapoor is bad in law, being void ab initio. Nothing further survives for adjudication, as such.

IN THE ITAT AGRA BENCH

Shanta Kapoor

v.

Assistant Commissioner of Income Tax-1, Agra

A. D. JAIN, JUDICIAL MEMBER
AND DR. MITHA LAL MEENA, ACCOUNTANT MEMBER

IT APPEAL NO. 363 (AGRA) OF 2015
[ASSESSMENT YEAR 2008-09]

DECEMBER  19, 2017

S.C. Jain, AR for the Appellant. Waseem Arshad, Sr. DR. for the Respondent.

ORDER

A.D. Jain, Judicial Member – This is assessee’s appeal for A. Y. 2008-09, taking the following effective grounds:

“(1)That the learned CIT (A) has erred in law and under the facts and circumstances of case in affirming initiation of proceedings under section 147/148 of the Act without justification and also without jurisdiction although the assessee has made full & true disclosure of all material facts and there was no adverse material for formation of belief that income had escaped assessment.
(2)That the learned CIT (A) has erred in law and under the facts and circumstances of case in affirming initiation of proceedings under section 147/148 of the Act, while there was no proper and valid service of notice under section 148 to all the legal heirs in the case thereby proceedings are void ab-initio.
(3)That the learned CIT(A) has erred in law and on facts in considering 2433 Sq.Mt. land left for road as estimated by ITI instead of actual area 2658.32 sq. mt. as per map plan on record for arriving embedded cost of acquisition of plots sold, thereby short calculation of cost of acquisition to Rs.52,76,866/- (page-14 of CIT (A) order) instead of Rs.54.34,120/- ( page-7 of CIT(A) order) resulting excess computation of short-term capital Gain by Rs.1,57,254/-. “

2. Apropos Ground No. 2, the assessee raised the following ground No. 2 before the ld. CIT(A):

“2. That there was no proper and valid service of notice u/s 148 to all the legal heirs in the case thereby proceedings are void. ”

3. The ld. CIT(A) has rejected this grievance of the assessee, holding as under:

“While going through the above submission of the appellant, it is observed that the Sh. Pradeep Kapoor the son of the deceased assessee has duly participated in the assessment proceedings. It is well settled that if a legal representative receives a notice / communication from the AO , and he or she participates in the assessment proceedings before the AO on his or her own voluntarily even without the notice being addressed to him/he and does not object to the continuance of the proceeding against the deceased person, and also adduce all requisite details till the assessment is finally framed by the AO, then in such a situation the assessee cannot take a stand during the appellate stage that the notice was not served upon all the legal heirs. The aforesaid position in this regard is affirmed in the case of CIT v. Sumantbhai C Munshaw [1981] 128 ITR 142 (Guj). Similarly, in Maharaja ofPatiala v. CIT [1943] 11 ITR 202 (Bom)though notice was issued to the deceased, but another received the same and filed the return and filed appeal against the assessment, the assessment though not made in the legal representative was held to be valid by the Bombay High Court. Therefore, in view of the above, this ground of the appellant is dismissed. ”

4. We have heard the parties and have perused the material on record with regard to this issue.

5. The ld. CIT(A), while deciding this issue against the assessee, relied on ‘CIT v. Sumantbhai C. Munshaw (decd)’ [1981]128 ITR 142 (Guj) and ‘Maharaja of Patiala v. CIT‘, [1943] 11 ITR 202 (Bom) to hold that once a legal representative voluntarily participates in the assessment proceedings and raises no objection to the continuation of the proceedings against the deceased person, such legal representative cannot, in appellate proceedings, take the objection of non-service of notice on all the legal heirs of the deceased.

6. ‘Sumantbhai’, (supra), as rightly contended on behalf of the assessee, is not applicable. In ‘Sumantbhai’, (supra), the notices were meant for taking up assessment proceedings ordinarily. However, in the present case, reassessment proceedings were sought to be initiated by the issuance of notices under section 148 of the Act, which are entirely on a different footing. In the case of ‘Sumantbhai’, (supra), a voluntary return was filed, but regular assessment was completed subsequent to his death. On the other hand, in the present case, the jurisdiction to assess the deceased was created by issuance of notice under section 148 of the Act.

7. Moreover, even if ‘Sumantbhai’ (supra), were to be considered, it goes against the Department, rather than in its favour. Therein, it has been observed, inter alia, as under:

“The object of s. 159, therefore, is to provide a machinery for the assessment of tax on the income of a deceased person on whom the tax had been originally charged. Thereunder, it is expressly recognised that upon the death of the assessee, the liability to pay any sum which the deceased would have been liable to pay if he had not died, is that of his legal representative and for the purposes of the Act, the legal representative is treated as an assessee. If at the date of death of the deceased assessee, a return in respect of the income earned by him in the previous year had already been filed and the assessment proceeding had commenced, it would not be necessary to start the proceeding afresh against the legal representative since any proceeding taken against the deceased prior to the date of his death is by, a fiction, deemed as having been taken against the legal representative. From that stage onwards, however, the proceeding will have to continue against the legal representative who, in the eye of law, represents the legal personality of the deceased assessee. For this purpose, it would be necessary to determine who the legal representative is and that would be an issue to be decided in accordance with law in the course of the assessment proceeding. Once that has been done, all further steps in the proceeding will have to be taken against the legal representative or legal representatives, as the case may be, and the provisions of the Act will apply accordingly. A notice, if any, under s. 143(2) will, therefore, have to be served on such legal representative and if the assessee has left behind more than one legal representative, on all the legal representatives [See Suseela Sadanandan [1965] 57 ITR 168 (SC)], in order to complete the assessment. Besides, the assessment order, when ultimately made, would also have to be made against the estate of the deceased as represented by the legal representative. If these steps have been taken, the legal representative would become liable to pay the sum, which the deceased would have paid if he had not died, in the like manner and to the same extent as the deceased, the liability of such legal representative being ordinarily limited to the extent to which the estate is capable of meeting the same.

The basic scheme underlying this provision, which extends the legal personality of a deceased person for the purpose of assessment of tax, proceed on a recognition of the audi alteram partem rule 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 is binding on the estate.

The foregoing discussion shows that s. 159, which merely prescribes the method for making assessment of tax in a special case, does not bear upon the initial jurisdiction of the taxing authority but deals with matters incidental to it. 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 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 legal representative has a right to waive the advantage of any of the statutory provisions made solely for 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 but to the deceased assessee, and does not object to the continuance of the proceeding against the deceased person and is heard by the ITO, in regard to the tax liability of the deceased and invites an assessment on merits, such a legal representative must be taken to have exercised the option of abandoning the technical plea that the proceeding has not been continued against him, although, in substance and reality, it has been so continued. If and when an assessment order is consequently made in such a proceeding in the name of the deceased assessee, even that would not be a nullity qua the legal representative, not only because he was afforded a full opportunity of being heard in respect of it but also because he having not raised an objection at the appropriate time with regard to the continuance of the assessment proceeding against the deceased person, he must be taken to have 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 be a mere irregularity may be a gross irregularity, but not a nullity. ”

8. So, ‘Sumantbhai’, (supra) holds that if the deceased assessee is survived by more than one legal representative, notices u/s 143(2) of the IT Act will have to be served on all the legal representatives [‘First Additional Income Tax Officer v. Mrs.Suseela Sadanandan [1965] 57 ITR 168 (SC) followed . If the AO omits to issue such notice to all the LRs, the assessment would be null & void.

9. In the present case, this is precisely the issue, i.e., that the AO has not issued notices to all the LRs of the deceased assessee.

10. The CI.T(A)’s observation is that if an LR receives a notice from the AO and he participates in the assessment proceedings voluntarily, even without the notices being addressed to him, and does not object to the proceedings against the deceased, then he cannot, at the appellate stage, object that notices were not served on all the LRs. However, the position obtaining is diametrically opposite. The assessee, Late Shanta Kapoor is survived by two sons, Sh. Pradeep Kapoor & Sh. Sudheer Kapoor and one daughter, Smt. Achla Dhawan. Notice, admittedly, was served only on Sh. Pradeep Kapoor. Sh. Pradeep Kapoor participated in the proceedings before the AO voluntarily. He took this objection for the first time only before the ld. CIT(A). To this extent, the ld. CIT(A) is correct. But reference by the ld. CIT(A), in this regard, to ‘Sumantbhai’, (supra), is misplaced. What the judgment, as extracted hereinabove, deals with, qua this issue, is the locus standi of an LR of a deceased assessee to object non-service of notice, for the first time at the appellate stage, after having himself expressly waived such objection by having voluntarily participated in the assessment proceedings before the AO. It is trite that it is a waiver in personem, and not a waiver in rem, that is binding on the person making such a waiver. It is precisely for this reason that their Lordships have held in ‘Sumantbhai’ (supra), that:

“The LR has a right to waive the advantage of any of the statutory provisions made solely for his protection or benefit and not conceived in public interest”.

11. In the present case, the objection raised is not that the notice was not addressed to him, i.e., the LR, Sh. Pradeep Kapoor, but to the deceased assessee. The objection is that notices were not sent to the other two LRs, namely, Sudheer Kapoor and Achla Dhawan. Concerning this aspect, in ‘Sumantbhai’, (supra), their Lordships have specifically observed that:

“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 but to the deceased assessee, and does not object to the continuance of the proceeding against the deceased person and is heard by the ITO, in regard to the tax liability of the deceased and invites an assessment on merits, such a legal representative must be taken to have exercised the option of abandoning the technical plea that the proceeding has not been continued against him, although, in substance and reality, it has been so continued. If and when an assessment order is consequently made in such a proceeding in the name of the deceased assessee, even that would not be a nullity qua the legal representative, not only because he was afforded a full opportunity of being heard in respect of it but also because he having not raised an objection at the appropriate time with regard to the continuance of the assessment proceeding against the deceased person, he must be taken to have 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. ”

12. The above observations of their Lordships, while using the expression “legal representative which term includes plurality of persons”, obviously conceive of a situation where, in a case of multiplicity of LRs, all the LRs are duly served. These observations are equally applicable to a case like the present one, where service of notices under section 148 of the Act is in question.

13. Then, ‘Sumantbhai’, (supra), refers to ‘Chooharmal Wadhuram v. CIT’, [1971] 80 ITR 360 (Guj), wherein, it has been observed that:

“These are some kinds of case where the assessment would be valid even if one or some only of the legal representatives are served with notice. They constitute exceptions to the general rule which requires that where an assessee dies leaving more than one legal representative, the Income Tax Officer must proceed to assess the income of the deceased by serving notice on all the legal representative. These exceptions proceed on the same principle on which the general rule is based, namely, that there must be complete representation of the estate of the deceased in the proceedings before the Income Tax Officer and it is because in the cases falling within the exceptions one or more legal representative completely represent the estate of the deceased that it is held that service on them is enough to bind the estate of the deceased.”

14. In ‘Sumantbhai’, (supra), three types of cases were noted to be taken, in ‘Chooharmal’ (supra), as exceptions to the general rule that if the notice is served only on one out of more than one LRs, there would be no complete representation of the estate of the deceased and the proceedings would be wholly invalid as not being in compliance with the requirement of section 24B(2) of the Indian IT Act, 1922 (section 159 of the Indian IT Act, 1961). These exceptions are:

i.‘. Where, even though there are several legal representatives, one may represent the whole interest of the deceased, such as when one legal representative is managing the estate of the deceased.
ii.Where though one legal representative is served, he appears in the proceedings, with consent, express or implied, of the other LRs.
iii.Where the AO bona fide and diligently believes one or more persons to be the only LRs of the deceased and initiates proceedings by serving notices on them and subsequently it is found that besides those served, there were other LRs of the deceased.’

15. ‘Sumantbhai’, (supra) holds that in cases other than those involving the above exceptions, non-service of notices on all the LRs would be an irregularity and not a nullity. However, to reiterate, what was being considered therein, was non-service of notices meant for taking up assessment proceedings in the ordinary course, i.e., procedural notices. In the present case, however, the notices were notices under section 148 of the Act, i.e., reassessment notices, i.e., jurisdictional notices affecting the rights of all the LRs, creating the very jurisdiction to assess. Non-service of such jurisdictional notices is not a curable defect and such non-service on all the LRs renders the subsequent reassessment null and void. Reliance in this regard has rightly been placed on ‘Asstt. CIT v. Late Mangi Lal [2004], on behalf of the assessee.

16. Further, the situation herein is akin to that in ‘Mangi Lal’ (supra), in another manner also, in that in the present case too, as in that matter, the limitation to issue notices under section 148 of the Act, as provided in section 149 thereof has long since expired and even if, for the sake of argument, the nullity were to be considered to be an irregularity, the AO is no longer competent to issue notices under section 148 of the Act to the other LRs of the deceased Shanta Kapoor and her estate cannot be represented on the basis of the notice issued to Sh. Pradeep Kapoor on 12.05.2011 (assessment order, page 1, first para). The assessment pertains to A.Y. 2008-09, i.e., the relevant assessment year. The limitation as per section 149(l)(b), which is the applicable provision, is six years from the end of the relevant assessment year, in other words, 31.03.2015, which date has long since gone by.

17. For the above reasons, ‘Sumantbhai’, (supra), has wrongly been relied on by the ld. CIT(A) to decide the matter against the assessee.

18. The ld. CIT(A) has also relied on ‘Maharaja of Patiala’ (supra). Therein also, the notices in question were, again, not issued under section 148 of the Act. ‘Maharaja of Patiala’ (supra) stands considered in ‘Sumantbhai’, (supra), and it has been observed in ‘Sumantbhai’, (supra), to bear a close resemblance to ‘Sumantbhai’, (supra). Therefore, reliance by the ld. CIT(A) on ‘Maharaja of Patiala’ (supra) is also misplaced and our above observations with reference to ‘Sumantbhai’, (supra) are equally applicable qua this decision also.

19. ‘Chooharmal’ (supra), as rightly relied on by the assessee, on the other hand, is directly applicable to the present case. The exceptions to the general rule of non-service of notices on all of several LRs amounting to a nullity, as referred to hereinabove, have been considered in ‘Chooharmal’ (supra). Therein, as in the case at hand, the notice being dealt with was a notice issued under section 148 of the Act. It was taken into consideration in the light of the observations of the Hon’ble Supreme Court in Suseela Sadanandair (supra), which was also considered in ‘Sumantbhai’, (supra). As to the first exception, i.e., where there are several LRs, one may represent the whole interest of the deceased and in such cases, there being complete representation of the interest of the deceased before the AO, the assessment made would bind the estate of the deceased, it has been observed that there was nothing to show that Daulat Ram (the only one out of several LRs served in that case) was in the management and administration of the entire estate of the deceased. Likewise, herein also, there is nothing on record to show that Sh. Pradeep Kapoor has been in the management and administration of the entire estate of Shanta Kapoor deceased. Before the ld. CIT(A), as reproduced at page 4 of the impugned order, Pradeep Kapoor specifically stated in his written submissions dated 15.05.2014 that ‘It is settled proposition in law that in case of deceased, it was necessary for the AO to issue notices to all the LRs because, the estate of deceased could not be properly represented by one of the legal representatives. The expression “legal representative”, under section 159 means legal representatives. Thus, if there are more than one legal representative of the deceased person, all must be implied to make representative (sic) to the estate complete’. The CIT(A), however, did not address this issue. There is no finding of either of the Authorities below, nor any material on record to show that Sh. Pradeep Kapoor either managed or administered the whole of the estate of the deceased so as to be able to represent completely, the estate of the deceased in the proceedings initiated by the issuance of the notice in question.

20. The second exception is of a case where though only one of several LRs is served, he appears in the proceedings before the AO with the consent, either express or implied, of the other LRs. Again, as in ‘Chooharmal’ (supra), there is no material on record that Sh. Pradeep Kapoor appeared in the assessment proceedings with the consent, expressed or implied, of the other LRs.

21. As for the last exception, this is that of cases where the AO bona fide and diligently believes one or more persons to be the only LRs of the deceased, he initiates proceedings by serving notices on them and subsequently, it is found that besides those served, there were other LRs of the deceased. In ‘Chooharmal’ (supra), it was found that the AO knew that there were other LRs of the deceased and yet, he did not choose to serve notices on them. No inquiry was, thus, required to be made and none was found made. In the present case, the assessment order simply states that “on perusal of the record of the assessee, it was seen that assessee has not shown the correct amount of capital gain, hence notice under section 148 of the Act was issued on 12.05.2011 after recording reasons to believe”. The reasons recorded (relevant portions) by the AO to believe escapement of income, as reproduced in the assessment order, are as under:

“During the course of assessment proceedings in the case of Sh. Pradeep Kapoor and Sh. Sudheer Kapoor, 181, Civil Lines Agra for the assessment year 2008-09, it was observed that Smt. Shanta Kapoor, who was mother of both the person has sold two plots ………………………………” (emphasis supplied).

“……………………………… Smt. Shanta Kapoor has shown the capital gain of Rs.3,56,837/- for the A.Y. 2008-09 but the correct capital gain was Rs.19,85,501/-. Therefore, AO was enough material in his possession for assuming that Rs. 16,28,664/- has escaped assessment”.

22. Therefore, as in ‘Chooharmal’ (supra), the AO was aware (here by way of the admission in the reasons recorded by the AO) that Shanta Kapoor was survived by more than one LR. Again, he did not choose to serve notice on them. Like in ‘Chooharmal’ (supra), the AO, as such, did not believe and could not possibly have believed Sh. Pradeep Kapoor to be the sole LR of Shanta Devi and since he knew that there were other LRs, there was no occasion for him to make any inquiry and there was, therefore, no inquiry, much less any diligent and bona fide inquiry. This, despite the fact that in para 2.1 of the assessment order, the AO has reproduced his reply dated 25.09.2012 to Pradeep Kapoor’s objection dated 24.06.2011. In the first para of this reply, the AO has made mention of a discreet inquiry . No such “discreet inquiry” or the result thereof, though, is borne out from the record.

23. In ‘Chooharmal’ (supra) the only question left for determination by their Lordships, as available from ‘Chooharmal Wadhuram’ v. CIT’, [1968] 69 ITR 88 (Guj), whereby the case was, inter alia, sent back to the Tribunal for a supplemental statement of the case on the point that the notice and reassessment proceedings would be valid if the ITO, after diligent and bona fide inquiry, believed Daulat Ram to be the sole LR of ‘Chooharmal’ (Question No. 5 at page 95 of the said latter Report), was as follows:

“5. Whether, on the facts and in the circumstances of the case, since proceedings u/s 34(1)(a) for the assessment years 1946-47 and 1947-48 were validly initiated by serving notices u/s 34(1) (a) on Daulat Ram who was only one of the legal heirs of the deceased? ”

24. The question was answered in favour of the assessee by holding that:

“We are therefore, of the view that for the assessment years 1946-47 and 1947-48 proceedings u/s 34(1)(a) were not validly initiated by serving notices on Daulat Ram alone since there were admittedly, besides the Daulat Ram, other legal representatives of the deceased who were not served. Our answer to the fifth question would, therefore, be in the negative “.

25. Section 34 (1) of the 1922 Act, it may be noted, contained the pre-1989 provisions of sections 147 to 149 of the 1961 Act.

26. ‘CIT v. NA Mandagi’, [1967] 63 ITR 173 (Mys.) is to the same effect.

27. ‘Chooharmal’ (supra) and “NA Mandagi’ (supra) have been relied on in:

i.‘Smt. Pushpa Devi v. Asstt CIT’, [1993] 46 ITD 468 (Jp.).
ii.‘ITO v. Umedram’, [1995] 54 ITD 191 (Jp.).
iii.Mangl Lal (supra)).

28. It would also be pertinent to notice here the provisions of section 159(4) of the Act, as per which, the personal liability of every LR for any tax payable by him in his capacity as such LR, if he creates a charge on or disposes of or parts with any asset of the estate of the deceased, shall be limited to the value of the asset so charged, dispose of or parted with. This is entirely in consonance with the requirement of serving reassessment notices on all the LRs of a deceased assessee, so as to enable a complete representation of the estate of the deceased in order to make the recovery of the liability fruitful and to enable the passing of an order effective to realize the entire sum due from the deceased assessee. The rights and interest of the LRs in the estate of the deceased cannot be taken away from them without giving them a proper opportunity of defending their rights and interest, in accordance with the natural justice principle of audi alterem partem, as held in ‘Umedram’ (supra).

29. In view of the above, Ground No. 2 is accepted. The impugned order on this issue is reversed. It is held that the initiation of reassessment proceedings, in the absence of service of notices under section 148 on all the LRs of the deceased Shanta Kapoor is bad in law, being void ab initio. Nothing further survives for adjudication, as such.

30. In the result, the appeal is allowed.

Other Income tax Judgments

Direct Taxes Ready Reckoner
Service Tax Ready Reckoner
Company Law Ready Reckoner
tax deduction at source

5 thoughts on “Notice not served to all legal representatives to initiate reassessment proceedings against deceased person : ITAT

  1. Pingback: Income Tax Assessment : Free Study Material - Tax Heal

  2. Pingback: New Income Tax News 02.06.2018 - Tax Heal

  3. Pingback: New Income Tax News 23.06.2018 - Tax Heal

  4. Pingback: New Income Tax News 26.07.2018 - Tax Heal

  5. Pingback: Income Tax Notice: Free Study Material - Tax Heal

Leave a Reply

Your email address will not be published. Required fields are marked *