1968 (10) TMI 35 - HC - Income Tax

Issues Involved:
1. Validity of the assessment order for the assessment year 1948-49.
2. Service of the notice of demand on the petitioners.
3. Effect of the rectification of the assessment order on the recovery proceedings.
4. Liability of the attached properties for the tax dues of the deceased.

Detailed Analysis:

Re Ground A(1): Validity of the Assessment Order for the Assessment Year 1948-49

The primary issue under this ground was whether the assessment order for the assessment year 1948-49 could be validly made after the death of the deceased without issuing any notice to the petitioners as heirs and legal representatives of the deceased. The court examined Section 24B of the Income-tax Act, 1922, which provides the machinery for assessment of the income of a deceased person.

Section 24B(2) applies only if a person dies before the publication of the notice under Section 22(1) or before he is served with a notice under Section 22(2) or Section 34. In this case, the deceased died on 11th November 1951, but the notice under Section 22(2) was served on him on 18th October 1948, when he was alive. Therefore, Section 24B(2) did not apply, and the case was governed by Section 24B(3). The Income-tax Officer was entitled to make an assessment of the total income of the deceased without issuing any notice to the petitioners as heirs and legal representatives of the deceased. The court concluded that the assessment order for the assessment year 1948-49 could not be assailed on this ground.

Re Ground A(2): Competency of the Return Filed by Nagindas Jadavji

The petitioners contended that the return for the assessment year 1948-49 was filed by Nagindas Jadavji, who was not an heir or legal representative of the deceased, and therefore, the return was incompetent. The court held that while Nagindas Jadavji was not competent to file the return, the Income-tax Officer was entitled to proceed on the basis that there was no valid return of income. The assessment was made on the basis of the deceased's share in the profits of the two firms as determined in the assessment proceedings of the firms under Section 23(5)(a). This contention was also rejected.

Re Ground B: Service of the Notice of Demand on the Petitioners

The court emphasized that the service of the notice of demand is a vital step in the process of recovery of the amount of tax determined to be due under the order of assessment. The amount of tax becomes a debt due to the Government on the service of the notice of demand. If the notice of demand was not served on the petitioners, they could not be treated as defaulters, and no recovery proceedings could be initiated against them.

In this case, the notice of demand was addressed to "Parmanand Narsidas by his heirs and legal representatives" and sent to the address of the two firms. The court found it difficult to see how the address of the firms could be regarded as the address of the petitioners after the death of the deceased. The petitioners stated on oath that the notice of demand was not received by any of them. Therefore, the court concluded that the notice of demand was not served on the petitioners, and the recovery proceedings were invalid.

Re Ground C: Effect of the Rectification of the Assessment Order on the Recovery Proceedings

Although the court found it unnecessary to consider this ground due to its decision on Ground B, it pointed out that the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964, provided a complete answer. Section 3 of the Act stated that if the tax dues are either enhanced or reduced in any appeal or other proceeding, it is not necessary to issue a fresh notice of demand.

Re Ground D: Liability of the Attached Properties for the Tax Dues of the Deceased

The court found it unnecessary to decide this ground based on its decision regarding the invalidity of the recovery proceedings due to the lack of service of the notice of demand. Additionally, the court noted that this ground involved a disputed question of fact, which would not be entertained under its extraordinary jurisdiction under Article 226. Moreover, the petitioners had an alternative remedy available under Rule 11, Clause (6), of the Second Schedule to the Act.

Conclusion:
The court allowed the petition and issued a writ of mandamus quashing and setting aside the certificate of recovery forwarded by the Income-tax Officer to the Additional Collector, Bombay, as well as the recovery proceedings instituted against the petitioners on the strength of such recovery certificate. The respondents were ordered to pay the costs of the petition to the petitioners.

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