1982 (8) TMI 100 - AT - Income Tax

Assessment Proceedings, Assessment Year, Minor Child, Reassessment Proceedings, Regular Assessment, Share Income, Total Income

Summary

Issues Involved:
1. Applicability of Section 147(a) of the Income-tax Act, 1961.
2. Applicability of Section 64(1)(iii) of the Income-tax Act, 1961.
3. Validity of notice issued under Section 148 of the Income-tax Act, 1961.
4. Requirement of serving notice to all legal heirs.
5. Validity of reassessment proceedings.

Issue-wise Detailed Analysis:

1. Applicability of Section 147(a) of the Income-tax Act, 1961:
The revenue contended that the provisions of Section 147(a) were applicable as there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, leading to income escaping assessment. However, the tribunal found that there was no failure on the part of the assessee to disclose material facts. The assessee had disclosed the admission of his minor sons to the benefits of partnership, and the ITO was aware of this fact during the original assessment. Therefore, the reassessment under Section 147(a) was not justified.

2. Applicability of Section 64(1)(iii) of the Income-tax Act, 1961:
The ITO included the income of the minors from the partnership in the hands of their father under Section 64(1)(iii). However, the tribunal noted that the minors ceased to be admitted to the benefits of the partnership before the amended provision came into effect on 1-10-1975. Therefore, the income accruing to the minors up to 30-9-1975 could not be included in the hands of their father. The AAC's decision that Section 64(1)(iii) was not applicable was upheld.

3. Validity of notice issued under Section 148 of the Income-tax Act, 1961:
The notice under Section 148 was addressed to the deceased Mela Ram through Smt. Sumitra Devi. The tribunal held that a notice addressed to a deceased person is invalid. Moreover, the ITO did not provide clear reasons for reopening the assessment, which is a prerequisite for valid reassessment proceedings. The reassessment was deemed void ab initio.

4. Requirement of serving notice to all legal heirs:
The tribunal emphasized that for reassessment proceedings involving a deceased person, notices must be served to all legal heirs. In this case, the ITO failed to serve notices to the major sons of the deceased, which rendered the reassessment invalid. The reliance on the Gauhati High Court judgment in Jai Prakash Singh v. CIT was noted, which mandates serving notice to all legal heirs.

5. Validity of reassessment proceedings:
The tribunal concluded that the reassessment proceedings were invalid on multiple grounds: the failure to disclose fully and truly all material facts was not established, the notice was addressed to a deceased person, and all legal heirs were not served with notices. Additionally, the ITO's interpretation of the amended law was flawed, and there was no new information justifying the reassessment. The AAC's decision to cancel the reassessment was upheld, and the appeal by the revenue was dismissed.

Conclusion:
The tribunal confirmed the AAC's order, holding that the reassessment proceedings were invalid on several legal grounds, including the improper application of Sections 147(a) and 64(1)(iii), invalid notice under Section 148, and failure to serve notice to all legal heirs. The appeal by the revenue was dismissed.