TMI Blog1980 (7) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... tative from the stage at which it stood on the date of death of the deceased and that that having not been done and an invalid assessment order having been passed against a dead person, the entire proceeding was bad in law. The stand of the department, on the other hand, was: (1) that the ITO, who passed the assessment order, was not aware of the death of Munshaw when he made the said order; (2) that it was the responsibility of the legal representative of the deceased to inform the ITO about the death of the deceased and that since she failed to do so, the assessment was validly completed against the deceased as if the provisions of s. 159(2) were non-existent or inapplicable-; (3) that, in any case, the proceeding was validly continued against the legal representative, who had received through her agents the notices issued under s. 142(2) of the I.T. Act, 1961 (hereinafter referred to as " the Act "), in the name of the deceased and produced the books of account in the course of the assessment proceedings; and (4) that, alternatively, the legal representative cannot be allowed to raise the objection as to the validity of the assessment proceedings or the assessment order when " s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 1968-69, there were a number of tax deduction certificates on which tax credit had been given and three out of those tax deduction certificates were signed by Smt. Renukaben as the legal heir of Munshaw; and (3) since certain dividend warrants (tax deduction certificates ?) were not available, duplicates of those documents were obtained and filed and along with them an indemnity bond signed by Smt. Renukaben was also presented, which was accepted by the ITO. On the question of the validity of the continuation of the assessment proceeding and the making of the assessment order in the name of Munshaw after his death, even though the fact of such death was known to the ITO, the AAC found that s. 159(2) was an enabling provision which authorised the ITO to continue an assessment proceeding taken against the deceased against his legal representative and that thereunder it was no part of the responsibility of the legal representative to come forward and to give an express intimation to the ITO in regard to the death of the deceased. In the instant case, in any event, when the fact of the death of the assessee was within the knowledge of the ITO, he was not justified in proceeding fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ood that this section (section 159) introduces a fiction, viz., that the income of the deceased is to be assessed as if it were the income of the legal representative. It has moreover been accepted that in such cases the assessment has to be made on the legal representative in respect of the income of the deceased. It is the legal representative, on whom the assessment is made and if an assessment is made on the deceased, it will be a nullity .......... It is, therefore, absolutely clear that the assessment made by ITO in the name of the deceased person is not a valid assessment and the fact that the legal representative, Smt. Renukaben, received the notices in question or that she could have pointed out the mistake to the ITO at an earlier stage does not help to validate the assessment." Having regard to the aforesaid findings, the AAC set aside the assessment order and proceeded to give the following further directions: "The ITO is directed to proceed afresh with the assessment with the fresh issue of notices u/s. 143(2) on the legal representatives after determining who are the legal representatives. The assessment should then be framed by him on the legal representatives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valid assessment was over ?" In order to appreciate the real point in controversy between the parties, it would be necessary to recall that s. 153, which prescribes the time-limit for completion of assessments and reassessments, in so far as it is relevant, provides in sub-s. (1) that no order of assessment shall be made under s. 143 at any time after the expiry of three years from the end of the assessment year in which the income was first assessable, where such assessment year is the assessment year commencing on the 1st day of April, 1968. Sub-section (3), in so far as it is relevant, provides, however, that the provisions of sub-s. (1) shall not apply where the assessment is made on the assessee or any person in consequence of or to give effect to any finding or direction in an order made under s. 250 and that such assessment may be completed at any time. In the instant case, in view of the foregoing provisions, any fresh assessment on the legal representative in respect of the income earned by the deceased in the previous year relevant to the assessment year 1968-69 would not obviously be within the power, authority and jurisdiction of the assessing authority, unless i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that view of the matter, the AAC was perfectly justified in giving the direction that he did and the fresh assessment was not barred by virtue of the provisions contained in sub-ss. (1) and (3) of s. 153 ; and (iii) in any event, the legal representative having received the notices and having complied with them and having participated as a legal heir of the deceased in the assessment proceeding before the ITO without raising any objection whatever at any stage of the said proceeding, she is precluded from raising an objection as to the validity of the assessment proceedings and the order, and that it is not fair and reasonable to allow her to take up such plea which she must be deemed to have wilfully abandoned. These rival contentions, when examined closely, raise the following questions for consideration : (1) What is the distinction between a nullity, illegality and irregularity ? (2) Is an assessment proceeding/order against a dead person necessarily a nullity for all purposes ? (3) If an assessee dies during the pendency of the assessment proceedings and the proceeding is continued and an assessment order made against the deceased by the ITO with full knowledge th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... death was also provided and the ITO was authorised to assess the total income of the deceased person as if the legal representative were the assessee. When the present Act was enacted, s. 159 occurring in Chap. XV which is entitled " Liability in Special Cases ", made a provision to meet with a similar situation. Under the Act, the words " legal representative " have the meaning assigned to them in the Code of Civil Procedure (s. 2(29)) and, accordingly, in so far as it is relevant for the purposes of the present case, they mean a person who, in law, represents the estate person and include any person who intermeddles with the estate of the deceased. Where an assessee dies, his legal representative becomes liable to pay any sum which the deceased would have been liable to pay if he had not died, in the like manner and to the same extent as the deceased (s. 159(1)). The liability of a legal representative is, however, limited to the extent to which the estate is capable of meeting the liability (s. 159(6)), unless the legal representative, while his liability for tax remains undischarged, creates a charge on or disposes of or parts with any assets of the estate of the deceased, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision in Ashutosh Sikdar v. Behari Lal Kirtania [1907] ILR 35 Cal 61 [FB] was cited with approval to bring about the distinction between a nullity and an irregularity (p. 1304 of AIR 1964 SC): " '...... no hard and fast line can be drawn between a nullity and an irregularity; but this much is clear, that an irregularity is a deviation from a rule of law which does not take away the foundation or authority for the proceeding, or apply to its whole operation, whereas a nullity is proceeding that is taken without any foundation for it or is so essentially defective as to be of no avail or effect whatever, or is void and incapable of being validated.' " What is a workable test to distinguish a nullity from an irregularity? The following passage from the decision in Holmes v. Russell [1841] 9 Dowl 487, which provides the clue, was cited with approval in Dhirendra Nath, AIR 1964 SC 1300 at p. 1304: " ' It is difficult sometimes to distinguish between an irregularity and a nullity,; but the safest rule to determine what is an irregularity and what is a nullity is to see whether the party can waive the objection; if he can waive it, it amounts to an irregularity; if he cannot, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the High Court which can be conveniently styled as " Government appeal " and " claimants' appeal ". One Y. Prabhakar Reddi (hereinafter referred to as " Reddi "), who was a party to both those appeals, which were crossappeals arising out of the same award, died during the pendency of the appeals. Upon an application made to the High Court in the claimants' appeal, his legal representatives were brought on record. Admittedly, however, the legal representatives were not brought on record in the Government appeal, where Reddi was one of the respondents, till both the appeals were disposed of by a common judgment, nearly five years after his death. By the common judgment the claimants' appeal was dismissed but the Government appeal was partly allowed and the compensation payable in respect of the acquired land was reduced. Thereupon, the original claimants as well as the heirs of Reddi preferred an appeal to the Supreme Court. The contention on behalf of the appellants was that as the heirs of Reddi were not brought on record within the prescribed period of limitation after his death, the Government appeal abated not only against Reddi but it also abated as a whole and that, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sentative (p. 1397(1) ): " The basic fact remains that a decree against a dead person is treated as a nullity because it cannot be allowed to operate against his legal representative when he was never brought on the record to defend the case... So while the law treats such a decree as a nullity qua the legal representative of the deceased defendant or respondent, there is nothing to prevent him from deciding that he will not treat the decree as a nullity, but will abide by it as it stands, or as it may be modified thereafter on appeal. If a legal representative adopts that alternative or course of action, it cannot possibly be said that his option to be governed by the decree is against the law or any concept of public policy or purpose, or the public morality. It is thus a matter entirely at the discretion of the legal representative of a deceased respondent against whom a decree has been passed after his death to decide whether he will raise the question that the decree has become a nullity, at the appropriate time, namely, during the course of the hearing of any appeal that may be filed by the other party, or to abandon that obvious technical objection and fight the appeal on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause of that basic defect, (3) the said position continued for a long period of almost five years and even when the appeals came on for hearing, no objection was taken to the hearing of the Government appeal in spite of the fatal defect in its constitution; (4) the High Court, in fact, heard without any objection, not only the counsel for the appellants in the Government appeal, but also the counsel for the respondents in the said appeal who appeared also for all the appellants (including the legal representatives of Reddi) in the claimants' appeal; (5) it would not be unfair to assume, under the aforementioned circumstances, that out of the two courses of action open to the legal representatives, namely: (i) to move the High Court for the dismissal of the Government appeal, and (ii) to allow that appeal to be heard and decided on the merits and to abide by any decree that might be passed in the two appeals, the legal representatives did not choose to adopt the first course of action and that they wilfully chose the second course of action; and (6) it was a proper conclusion to reach, on the facts and the circumstances of the case, that the legal representatives of Reddi wilfully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased on the record, when no objection to that effect is raised by anyone ; (2) that decree against a dead person is not necessarily a nullity for all purposes; (3) that a decree against a dead person is treated as a nullity qua the legal representative because it cannot be allowed to operate against him when he was not afforded a full opportunity of being heard in respect of it; (4) that there is nothing to prevent the legal representative, who has been condemned unheard, from abandoning a technical plea of abatement and from deciding that he will not treat the decree as a nullity, but will abide by it as it stands, or as it may be modified thereafter on appeal; (5) that it is thus a matter entirely at the discretion of such legal representative to decide whether he will raise an objection that the decree has become nullity at the appropriate time; (6) that if such legal representative opts to be governed by the decree, it cannot possibly be said that the exercise of his option is against the law or any concept of public policy or public morality; (7) that it would not be fair to draw an inference as to the abandonment of such a plea, however, unless there is clear, sufficient and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decree obtained therein is binding on the other legal representatives of the deceased, is one of general application and that there was no reason why the said principle should not be invoked in the case of assessment of income from the estate of a deceased person in the hands of his legal representatives. It would be safe to conclude, on a parity of reasoning, therefore, that the aforesaid principles enunciated in N. Jayaram's case, AIR 1979 SC 1393, although they are laid down in the context of suits or appeals, have a general application and that they would be applicable even in a proceeding for the assessment of the income of a deceased person from the estate in the hands of his legal representative. Therefore, if in a given case it is shown that the legal representative (which term would include plurality of persons) of a deceased assessee, who was present before the ITO either voluntarily or in response to a notice issued against the deceased but served upon him or his agent, allows the assessment proceeding to continue against the deceased without any objection and lets the ITO make an assessment order against the deceased, albeit, after affording to him a full opportuni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate provisions for collecting tax from the estate of deceased person in the Indian I.T. Act, 1922, prior to its amendment by the Indian I.T. (Second Amend.) Act, 1933, it was held in Reid's case [1930] 5 ITC 100 (Bom) that the executors under the will of the taxpayer were not liable to pay tax in respect of the income of the deceased in the previous year, notwithstanding that he died while the assessment proceedings were pending, because the proceedings could not be continued and the assessment could not be made after the taxpayer's death. This lacuna in the " machinery of assessment " was rectified by the enactment of s. 24B by the Indian I.T. (Second Amend.) Act, 1933 [See CIT v. James Anderson [1964] 51 ITR 345 (SC)]. By the incorporation of s. 24B, the Legislature extended the legal personality of a deceased assessee under the Act, which had ceased on his death, and, therefore, the income received by him before his death or, if he died during the previous year, by his heirs and legal representatives after his death in that previous year, became assessable to tax in the relevant assessment year [See CIT v. Amarchand N. Shroff [1963] 48 ITR 59 (SC)]. Section 159 of the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the estate is capable of meeting the same. The basic scheme, underlying this provision, which extends the legal personality of a deceased person for the purpose of assessment of tax, proceed on a recognition of the audi alteram partem rule which mandates that no man shall be condemned unheard. Therefore, although the natural personality of the deceased person has disappeared, the legal representative, who represents him in the world of living, is treated as the assessee and he is afforded a full opportunity of being heard before an assessment is made which is binding on the estate. The foregoing discussion shows that s. 159, which merely prescribes the method for making assessment of tax in a special case, does not bear upon the initial jurisdiction of the taxing authority but deals with matters incidental to it. If the assessing authority, in the exercise of his jurisdiction, omits to take one or more of the various procedural steps therein laid down or in taking any of such steps commits an error or even deviates from the statutory mandate, the assessment would be null and void, only if the omission, error or breach, as the case may be, is so fundamental as could not be w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xt of s. 24B of the Indian I.T. Act, 1922. Maharaja of Patiala v. CIT [1943] 11 ITR 202 (Bom) is a case which bears close resemblance to the instant case. The late Maharaja of Patiala, who had income from property and business in British India, died on March 23, 1938. On November 23, 1938, the ITO, Bombay, who was the assessing authority, sent two printed notices under s. 22(2) and s. 34 of the Indian I.T. 1922, addressed to the Maharaja of Patiala requiring him to make a return of his total income for the assessment years 1937-38 and 1938-39. Two returns signed by the Foreign Minister in response to those notices were sent to the ITO. After some correspondence was exchanged, two assessment orders each dated September 10, 1940, were passed for the respective assessment years 1937-38 and 1938-39, Against the name of the assessee in both of them was written: His Highness Maharaja Sir Bhupindra Singh, late Maharaja of Patiala The notices for payment of tax were addressed to the Foreign Minister on behalf of the late Maharaja. Subsequent representations were made by the Foreign Minister to the ITO to reduce the amount assessed on the ground of mistake and an appeal was preferred to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aja, and then subsequently corrections were made in the assessment at the instance of the Maharaja. There is no doubt that the present Maharaja knew perfectly well that what was being assessed was the income of his predecessor. " (Underlining supplied) The learned Chief justice then considered the question of the validity of the actual assessment which was made on the deceased Maharaja. In this connection he observed as follows (p. 228): " It is, of course, wholly irregular to assess a deceased person. The assessment should have been made on the legal representative in respect of the income of the deceased. However, there again, the Patiala authorities seem to have accepted the view that it was an assessment made on the agent in respect of the income of the deceased person, because they have actually appealed against the, assessment, and if the assessment was an assessment on a dead man, it was obviously a nullity, and there is nothing to appeal from. " The learned Chief justice, though he was at pains to observe that he did not wish to give any countenance to the idea that the provisions of s. 24B need not be strictly complied with, concluded that in the particular facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve and which does not on the face of it refer at all to the legal representative of the deceased, though not in accordance with the requirements of s. 24B(2), would not be bad if it is treated as having been addressed to him by the legal representative and it was no more than an irregularity, which could be waived. The decision is also an authority for the further proposition that though it is wholly irregular to assess a, deceased person, the assessment order would not be necessarily bad and that if the legal representative treats the same as an assessment made not on the deceased but on the legal representative or other person liable to be taxed in respect of the income of the deceased person, such assessment order would not be disturbed. In Chooharmal Wadhuram v. CIT [1971] 80 ITR 360 (Guj), this court held that where a person dies leaving more than one legal representative, the ITO must proceed to assess the total income of the assessee by serving a notice under s. 22(2) or s. 34 of the Indian I.T. Act, 1922, as the case may be, on all the legal representatives. If the notice is served on only one legal representative, there would be no complete representation of the estate a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntatives are served with the notice. In Estate of Late Rangalal Jajodia v. CIT [1971] 79 ITR 505 (SC), one R had filed his income-tax and excess profits tax returns for two assessment periods under the provisions of the Indian I.T. Act, 1922, and the Excess Profits Tax Act, 1940, respectively. Notices under ss. 22(4) and 23(2) of the Indian I.T. Act, 1922, were issued to R who complied with the same. Before the assessments could be completed, however, R died leaving him surviving S, a son by his predeceased wife, A, his second wife, and children by her. Under the will of R, A was appointed as an executrix and B as an executor and S was disinherited. The assessing authority issued a notice to S to show cause why the assessment on the deceased should not be made on him as the legal representative under s. 24B(3). S objected stating that the executors were the proper persons against whom proceedings should be taken and pointing out that A and another person were the executors. Since, however, a copy of R's will was not produced, the assessments were completed without issuing notice to the executors against the assessee who was described as " the estate of late R by legal heirs and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aside on an appeal preferred by S because no notice was given to A, although the assessment proceeding was against her as a legal representative. Then follow the following conclusions on the applicability of the second proviso to s. 34(3) (pp 511, 513 of 79 ITR): "The lack of a notice does not amount to the revenue authority having had no jurisdiction to assess, but that the assessment was defective by reason of notice not having been given to her. An assessment proceeding does not cease to be a proceeding under the Act merely by reason of want of notice. It will be a proceeding liable to be challenged and corrected. Similarly, if there is a mistake as to name or there is a misdescription of the name, the proceeding will be liable to be challenged and corrected by giving notice to the assessee subject to such just exceptions as an assessee can take under law. The direction given by the Appellate Assistant Commissioner was to make fresh assessment on Aruna Devi in accordance with the provisions of the Act ...... We are, therefore, of opinion that the second proviso to section 34(3) of the Act applies to the present appeals because, first, the proceedings against Rangalal Jajodia c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in taking one or more of the various procedural steps prescribed under the said section or even a breach of the statutory injunction contained therein does not necessarily affect the inherent jurisdiction of the taxing authority and that, in certain cases subject to other just exceptions open under law, the resultant defective assessment can be substituted by a fresh assessment undertaken pursuant to a finding or direction of a higher authority without any inhibition of time limit and that, in others, the assessment would still be valid and effective, notwithstanding the defect, depending upon the conduct of the parties and other relevant circumstances. Counsel for the assessee, however, relied upon the third exception enumerated in Chooharmal's case 1971] 80 ITR 360 (Guj) and strenuously contended that, on the principle underlying the said exception, in a case where the ITO proceeds with impunity to assess a deceased person, even after he fully knows the factum of death, the assessment cannot be held to have been made bona fide so as to be valid and effective against the legal representative, irrespective of the conduct of the legal representative in the course of such a pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxation of a citizen should be made strictly in accordance with law and that there does not seem to be any bounded duty on the part of the taxpayer to point out the infirmities of the revenue authorities in time to save limitation. From the judgment it does not appear that, though the concerned heir knew about the pendency of the assessment proceeding as he was served with the notice, he had actually participated therein and invited an assessment order. That is a material distinguishing fact. Besides, the decision in Maharaja of Patiala's case [1943] 11 ITR 202 (Bom) was not cited and considered. There is now a later judgment of the Supreme Court in Reddi's case, AIR 1979 SC 1393, which has considered an applied the principle of waiver if certain facts and circumstances are established. The decision of the Supreme Court in Rangalal Jajodia [1971] 79 ITR 505 (SC) also has its own bearing on the effect of a defect in the assessment proceeding arising out of want of notice to the legal representative and misdescription or mistake of name in the assessment order. Having regard to all these circumstances, the decision in Sahasrangshu's case [1963] 47 ITR 754 (Cal), therefore, is not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and administration of the estate was not completed during the relevant year. The assessment was made in the name of the estate of the deceased as represented by executors as well as by legal representatives. It was held that executors having been appointed by the will and the administration having not been completed, they alone could represent the estate, and that having regard to the specific statutory provisions of s. 168, executors alone could have been assessed, since it was not found that any of the legal representatives had intermeddled with the estate. It was further held that if a person, who is not legally liable to be assessed, is included in the assessment and is treated as an assessee, he would be subject to various obligations and liabilities and that, therefore, his name could not be shown as an assessee even by way of abundant caution. An assessment of that nature would not be a mere irregularity but affected the substance of the matter and it was invalid. The main question which we are considering herein did not fall for consideration in that case which considered the question of nullity in a different context. So far as the finding on the question whether the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to the AAC, that the legal heirs of the deceased were is stated to be " the widow and a minor son. Above all was the fact that the appeal against the assessment order was filed by the widow in the name of the deceased in her capacity as the legal heir and that it has not been her case that she is not the assessee or any person intimately connected with the assessment within the meaning of s. 153(3). In our opinion, the Tribunal was required to take into account and record its own finding on all these and other if any, facts and circumstances, found or appearing from the record, because they are extremely relevant and material and then to judge whether the assessment against the deceased is a nullity or an irregularity. In the absence of those findings, we are unable to examine ourselves whether the assessment is a nullity or an irregularity and, on that basis, to answer the question posed for our opinion. It is obvious that if the assessment was not a nullity, the AAC, would be competent to give a direction as to fresh assessment even after the time-limit therefor had expired, subject, of course, to any other just exception that could be taken under the law. However, the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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