2019 (3) TMI 1165 - HC - Income Tax

Penalty u/s 271(1)(c) levied on the legal representative/heirs - penalty was initiated assessee-husband but not concluded prior to his death - penalty in hand of wife - interpretation of Section 159 - HELD THAT - Tribunal was perfectly justified in setting aside the said penalty against the assessee/wife of the deceased late Sri S.Shanmugam, by the impugned order, as the penalty proceedings in question were initiated originally against the assessee-husband only and were not concluded against the said assessee, prior to his death on 23.01.2011. Since the provisions of Section 271 (1) (c) depend upon the guilty animus or mens rea on the part of the assessee concerned, naturally, as legal representative, the wife cannot be held liable to defend those penalty proceedings or be held guilty of any mens rea on the part of the husband. Therefore, unless the penalty proceedings are concluded against a living assessee, the legal heirs cannot be held liable to face those proceedings or pay any sum determined as penalty payable under Section 271 (1) (c) of the Act. - Decided in favour of the Assessee and against the Revenue.

Summary

Issues:
Interpretation of Section 159 of the Income Tax Act regarding penalty imposition on legal representatives.

Analysis:
1. The High Court addressed the issue of penalty imposition under Section 271(1)(c) of the Income Tax Act against the legal representative of a deceased assessee. The Tribunal had set aside the penalty against the wife of the deceased assessee, citing a decision of the Gujarat High Court.

2. The Tribunal's decision was based on the premise that penalty proceedings initiated against the deceased assessee, but not concluded before his death, cannot be imposed on the legal representatives. The Gujarat High Court's ruling emphasized that penalty proceedings must result in orders during the deceased's lifetime to hold the legal representatives liable.

3. The Madras High Court, in a similar case, held that penalty under Section 158B of the Act could not be enforced against legal representatives post the deceased assessee's demise. The Court highlighted that liability arises only after assessment or penalty orders are passed, and proceedings against the deceased continue against the legal representatives as per Section 159(2).

4. The Court reiterated that for penalty under Section 271(1)(c), the guilty animus or mens rea of the assessee is crucial. As the penalty proceedings were not concluded against the deceased assessee before his demise, the legal representative, in this case, the wife, cannot be held liable for the penalty amount.

5. The Court also noted that an appeal against the Gujarat High Court's decision had been dismissed by the Supreme Court, further supporting the position that penalty proceedings must be finalized during the assessee's lifetime to hold legal representatives accountable.

6. Ultimately, the High Court upheld the Tribunal's decision to set aside the penalty against the legal representative, ruling in favor of the Assessee and dismissing the Revenue's appeals. The Court cited precedents from both the Gujarat and Madras High Courts to support its conclusion.

7. The judgment provides a detailed analysis of the legal provisions, emphasizing the importance of concluding penalty proceedings against the assessee before their demise to hold legal representatives accountable. The decision aligns with established principles and precedents, ensuring fair application of penalty provisions under the Income Tax Act.