9911796707
TMI Blog1985 (11) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... intestate, leaving behind five legal heirs, namely, Sarbati Devi, his wife, and Laxmi Chand, Vijay Agarwal, Sanjay Agarwal and Ajay Agarwal, his sons. Assessment was originally completed under section 144 of the Income-tax Act, 1961 ('the Act') for this assessment year by the ITO District III(29) on23-9-1978, the assessment being made in the name of Puran Chand Laxmi Chand. Puran Chand having died on24-3-1974the return of income for this year had in fact been filed by Laxmi Chand, one of the son of Puran Chand, on16-6-1975. It would appear that this assessment was cancelled on an application being filed by the assessee under section 146 of the Act. 4. Thereafter there was a fresh assessment proceeding. A draft assessment order was prepared by the ITO for reference to the IAC under section 144B. This draft assessment order also showed the name of the assessee as Puran Chand Laxmi Chand, the status being shown as 'individual'. These assessment proceedings were also based on the return filed on16-6-1975by Laxmi Chand, one of the legal heirs. 5. The ITO called for objections to the draft assessment order. There was a reply by letter dated11-4-1981(a copy of this is at page 6 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh assessment made after the order under section 146 was also a nullity. But this contention of the assessee had no force. This was because the original assessment made under section 144 was not on a dead person. It was made in the trade name of Puran Chand Laxmi Chand. Business was being carried on in that name. Secondly, even assuming that the original assessment had been made on a dead person the assessee could have agitated this point by way of an appeal. It was not done. Such an objection could not, therefore, be raised in the proceedings arising out of the fresh assessment. Thirdly, the infirmity, if any, crept in it the stage of framing the assessment, the return having been filed by the legal heirs. By reopening the assessment and framing the fresh assessment on the legal heirs the infirmity got cured. Hence it cannot be said that the present assessment was bad in law because the original assessment was made on a dead person. 9. The Commissioner (Appeals) then considered the assessee's objection that the fresh assessment was bad in law on the ground that all the legal heirs had not been brought on record and had not been made parties to the proceedings. The factual positi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has received the entire capital was also not clear. Besides under similar circumstances it was held by the Calcutta High Court in Sajjan Kumar Saraf v. CIT [1978] 114 ITR 155, that the assessment deserved to be set aside.' In that case also [the Commissioner (Appeals) noted] the question of other legal heirs being not made parties to the assessment proceedings, was not raised before the ITO. It was raised for the first time before the AAC. Hence the Commissioner (Appeals) held that the assessment had to be set aside, the infirmity having crept in after the filing of the return. The Commissioner (Appeals) was of the view that a fresh inquiry by the ITO was necessary as regards the other legal heirs to be brought on record as parties to the assessment proceedings, unless of course the inquiry showed that Laxmi Chand had been managing the entire estate. The assessment was, therefore, set aside but not annulled. The assessee is in further appeal. 11. After giving due consideration to the submissions raised before us and the material on record, we find that the order of the Commissioner (Appeals) does call for interference. Various authorities were cited before us by the parties. Atte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esentatives then had to be brought on record and proceedings continued in the name of all the legal representatives. It noted that in the case before it the ITO did not make any inquiry as to who were the legal heirs of Panna Lal. The facts on record showed that the ITO knew that there were more than one legal heirs, but he did not make any inquiry. On the contrary he made the assessments by impleading only one of the legal representatives. In such circumstances it was the duty of the Tribunal to annul the assessment. The Tribunal, accordingly, annulled the assessments. 14. The above decisions of the Tribunal were in fact based on the following two decisions : (1) Jai Prakash Singh v. CIT [1978] 111 ITR 507 (Gauhati) and (2) Sajjan Kumar Saraf's case. This decision of the Tribunal strongly supports the stand taken for the assessee. The relevant facts available from the record before us are as under: (a) After the death of Puran Chand on24-3-1974, one of his legal heirs, viz., Laxmi Chand filed a return of income on16-6-1975. (b) The letter dated11-4-1981(submitted to the ITO in the second assessment proceedings), clearly described Laxmi Chand as one of the legal heirs of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egal representatives before completing the assessments. In further appeal the contention of the assessee was that the assessments should have been annulled instead of being set aside. It was submitted that the AAC committed an illegality in setting aside the assessments and in not annulling them. The Tribunal also was of the view that the ITO's failure to issue notices under section 143(2) to nine of the ten legal representatives was at best an irregularity and Hence the AAC was justified in setting aside the assessments and in not cancelling them. Thereafter the issue came up for consideration before the Gauhati High Court. 17. In the Court's view violation of principles of natural justice, more particularly statutory principles of natural justice takes, away the jurisdiction of the authorities concerned to continue with the proceedings and pass orders and necessarily invalidates the proceedings and the orders passed therein. If the estate of a deceased is to be assessed to income-tax, the estate must be fully represented by impleading all the legal representatives and serving notices under section 143(2) on all of them to represent the entire estate. If these were not done the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the invalid notice under section 22(2). The Tribunal ultimately set aside the assessment. It directed the ITO to make a fresh assessment in accordance with law and after impleading all the legal representatives of the deceased. The matter then went up to the Calcutta High Court. The Court held that a notice issued within time under section 22 to a dead person was a bad and invalid notice; no return could be filed pursuant to a notice which was non-existent in law. But where a return is filed within the time specified by a legal representative the ITO is not free to ignore the return. Where a return is filed by a legal representative in response to an invalid notice issued to the deceased, but the representative does not state that there are other legal representatives of the deceased, the return would not be invalid. However, the assessment should be made only after bringing all the legal representatives on record. 20. We do not see how the above decision supports the Commissioner (Appeals) decision, on the facts of this case which are so patent from the record. No doubt the Court said that the return filed by Sajjan Kumar Saraf could be treated as a valid return and acted upon, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved on Daulat Ram. It was Daulat Ram who attended in the course of the proceedings. Assessments initially completed under section 23(4) of the 1922 Act were set aside by the AAC in February 1958. The AAC directed the ITO to make fresh assessments after giving the assessee an opportunity of being heard. These fresh assessments were again contested. The question that survived for being answered by the Gujarat High Court was---whether the proceedings under section 34(1)(a) on the two assessment years were validly initiated by serving the notices under section 34(1)(a) on Daulat Ram who was only one of the legal heirs of the deceased and whether the ITO initiating the proceedings believed after diligent and bona fide inquiries that Daulat Ram was the sole legal representative of Chooharmal ? 22. The Tribunal in fact had called specifically from the department for evidence on the above aspect. After examining the evidence it found that the ITO could not have believed Daulat Ram to be the sole representative of Chooharmal before initiating the proceedings against the legal heirs of late Chooharmal ; and that the ITO obviously knew that there were other legal representatives apart from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. He, therefore, completely represents the interest of the deceased. The Court also confirmed the Tribunal's view that where the ITO bona fide and diligently believes one or more persons to be the only legal representatives of the deceased and initiates proceedings by serving notices on them and subsequently it is found that besides those served, there were also other legal representatives of the deceased, there is no reason why in such cases the general rule evolved in the field of civil law should not be applied and the proceedings may be held to be valid. The Court also held that the service of the notice on Daulat Ram alone was not sufficient to bind the estate of Chooharmal Wadhuram as Daulat Ram did not completely represent the estate of the deceased and the assessment of the income of the deceased was not in compliance with the requirement of section 24B(2) of the 1922 Act and that the reassessment orders under section 34(1) were not valid even against Daulat Ram. 24. The decisions cited for the revenue remain to be considered now. The first is Ganashyamdas Jatia's case. This was a decision of the Calcutta High Court. The Court held here that where a person dies after no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the legal representatives to furnish accounts, documents or other evidence which he could have required from the deceased assessee under sections 22 and 23. The notice under section 34(1A) was to be equated with a notice under section 22(2) and the preconditions laid down in section 24B(3) could be said to exist and hence the reassessment and the notices under section 22(4) of the 1922 Act on the legal representatives were valid. Here again we find, the specific controversy before us, was not before the Calcutta High Court. To repeat, the controversy before us is whether in the context of sections 2(29)/159 of the 1961 Act, all the legal representatives known to the ITO were or had to be impleaded in the assessment proceedings in dispute before us. Hence this decision in G.D. Jatia's case is also not relevant. 26. On a consideration of the position in law we find that the assessment will have to be annulled on the ground that all the legal representatives known to the ITO were not impleaded. In fact the only way in which the impleading of only one of the legal heirs, viz., Laxmi Chand could be justified in law and the assessment upheld on that score is for the revenue to sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO's finding that Laxmi Chand managed the estate fully 'was not backed by sufficient material'. In fact the Commissioner (Appeals) recorded the above finding after noticing the report of the ITO dated27-12-1982filed before him. This report had made the following points (page 8 of the paper book): (i) The firm Puran Chand Laxmi Chand was the sole proprietary concern of late Puran Chand. After his death the assets of the concern were taken over by Laxmi Chand and three minor sons. A partnership firm under the same name and style was formed. It could, therefore, be said that Laxmi Chand was managing the entire estate of the deceased. (ii) The record also showed that a power of attorney was filed on behalf of Laxmi Chand in the course of the assessment proceedings. (iii) It was, thus, evident that Laxmi Chand, the eldest son of the deceased, had taken over the assets of his father's concern and that he more than adequately represented the estate of the deceased. Hence, the assessment made on him as legal representative was in compliance with law. The Commissioner (Appeals) was, presumably not inclined to accept the ITO's conclusion above. In his view that conclusion was not back ..... X X X X Extracts X X X X X X X X Extracts X X X X
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