1976 (4) TMI 49 - HC - Income Tax

Appeal To Tribunal, Assessment Order, Certificate Proceedings, Income Tax Act, Recovery Proceedings, Tax Recovery Officer

Summary

Issues Involved:
1. Validity of the assessment made on the deceased assessee without serving notice to legal heirs.
2. Legality of the certificate proceedings based on the impugned assessment.
3. Applicability of section 225(4) of the Income-tax Act, 1961.
4. Necessity of fresh notice of demand after appellate order.

Detailed Analysis:

1. Validity of the Assessment Made on the Deceased Assessee Without Serving Notice to Legal Heirs:
The original assessee, Kanailal Jatia, was assessed on September 28, 1954, for the assessment year 1945-46. The assessment was reopened under section 34(1A) of the Indian Income-tax Act, 1922, and notice was served on him before his death on January 19, 1958. The assessment was completed ex parte on September 29, 1958. The legal heirs appealed, and the Appellate Assistant Commissioner set aside the assessment and directed fresh assessment after bringing the legal heirs on record. The Income-tax Officer issued notice on July 28, 1962, under section 22(4) of the 1922 Act to the legal heirs. The reassessment was completed on August 15, 1962, and demand notice was issued. The respondents' application under section 27 to set aside the assessment was rejected, and their appeal against this rejection was dismissed as incompetent. Subsequently, the Appellate Assistant Commissioner allowed the appeal, holding that no assessment could be made on the legal heirs without serving notices under section 34, rendering the assessment invalid.

2. Legality of the Certificate Proceedings Based on the Impugned Assessment:
The respondents moved an application under article 226(1) of the Constitution, contending that the assessment was invalid as it was made when the assessee was dead and no notice under section 34 was served on the legal heirs. The learned judge accepted the contention that the certificate proceedings based on the impugned assessment were liable to be quashed, as there was no valid assessment, and hence no valid demand. The certificate proceeding was quashed, and the appellants were restrained from proceeding with the impugned certificate, though liberty was given to initiate fresh proceedings after a valid order of assessment.

3. Applicability of Section 225(4) of the Income-tax Act, 1961:
The court considered section 225(4) of the 1961 Act, which provides that if a certificate for the recovery of tax is issued and the outstanding demand is reduced as a result of an appeal or other proceeding, the Income-tax Officer shall amend or withdraw the certificate when the order becomes final and conclusive. The court held that the certificate proceeding remains in abeyance pending the final and conclusive order. The decision in Income-tax Officer, Kolar Circle v. Seghu Buchiah Setty was considered, where it was held that when an assessment is revised, the original notice of demand falls to the ground, and fresh proceedings must be started. However, the 1961 Act's provisions were found to differ, allowing the certificate to remain in abeyance rather than being quashed.

4. Necessity of Fresh Notice of Demand After Appellate Order:
The court referred to the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964, which provides that fresh notice of demand is not necessary if the amount of Government dues is not varied as a result of any order passed in any appeal or proceeding. Since the Tribunal's order restored the original assessment without varying the amount, no fresh notice of demand was necessary. The rule obtained by the petitioners was discharged, and the appeal was allowed, setting aside the judgment and order under appeal.

Conclusion:
The appeal by the revenue was allowed, and the judgment and order under appeal were set aside. The certificate proceedings were held to remain in abeyance pending a final and conclusive order. No fresh notice of demand was necessary as the Tribunal's order did not vary the amount of Government dues. The respondents were not liable for any default during the period the Appellate Assistant Commissioner's order ruled the field. The rule was discharged, and all interim orders were vacated.