TMI Blog1997 (7) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment was completed on Shri Birendra Prasad as legal heir of late Shri Nageshwar Prasad somewhere in the month of March 1984 (date is not mentioned in the copy of the assessment order forming part of the appeal record). The income was computed in a sum of Rs.1,82,925. The assessment was the subject matter of appeal proceedings. However, we are not concerned with the additions in this appeal. After the completion of assessment the A.O. intended to impose penalty on the legal heir, Shri Birendera Prasad on the basis of penalty proceedings initiated under section 271(1)(c) of the Act. At the time of completion of the assessment the deceased assessee's son, Shri Birendra Prasad submitted a detailed reply to the A.O. through its advocate as per letter dated 5-3-1986 a copy of which is filed on the appeal record. In this reply letter the L/H of the deceased assessee pleaded for dropping of the penalty proceedings as the concealment of income or furnishing of inaccurate particulars of income was not deliberately made by his deceased father, viz., the deceased assessee. According to the L/R of the deceased assessee the mistake in not showing the enhanced income in the original return w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e L/R of the deceased assessee. The deceased assessee as it appears from the facts did not act deliberately or contumaciously in failing to file correct taxable income in the original return filed by him on 31-10-1974. If the deceased assessee had dishonest intention to evade tax he would not have suo moto filed revised return on 16-8-1976 declaring higher income. In addition to the reasons given by the A/C we are further of the view that the son of the deceased assessee was a representative assessee before the A.O. under section 159 of the Act cannot be penalised under section 271(1)(c) of the Act for the alleged offence of concealment of income or furnishing of inaccurate particulars of such income. Whatever causes the deceased assessee, Shri Nageshwar Prasad had he has taken it alongwith him to the heavenly abode and it is, not lawfully proper or justified to expect and demand from the living persons, viz., the legal representatives as to why the deceased assessee committed the offence concealing the income or furnishing inaccurate particulars of such income. There might have been reasonable or sufficient causes with the deceased assessee which he carried alongwith him and the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t legal heir Shri Birendra Prasad when a penalty of Rs.28,934 was imposed under section 271(1)(c) of the Act. The penalty was cancelled by the C.I.T. (A) on 22-3-1990. 10. My learned brother has held that legal heirs cannot be penalised for defaults of the deceased, relying on a decision of the Calcutta Bench of the Tribunal in Bhuban Mohan Mitter Charitable Trust's case. In this decision, it has been observed that in criminal jurisprudence a crime dies with a man and the legal representative of the deceased offender or criminal cannot be penalised for the offences or crimes committed by the deceased. If this cardinal principle of criminal jurisprudence is also applied to the penalty proceedings under the Income-tax Act, which are quasi-criminal in nature, then the quasi-crimes also die alongwith the deceased and, therefore, it will be highly irrational, harsh and inequitable to penalise or punish the legal representative in respect of the quasi-crime committed by the deceased. 11. In this regard, I shall like to state that it is well settled that the Income-tax Act, 1961, is a self contained code exhaustive of the matter dealt with therein. If authority is required, reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ian Income-tax Act, 1922 in this regard under the old Act of 1922, the liability on the legal representative was confined to the tax payable only, the words "any tax" have been used. In the circumstances, the liability did not extend to penalty or any other sum. However, in the I.T. Act, 1961, the words "any tax" have been replaced by the words "any sum". The use of different words cannot be without any intention and effect must be given to their meaning. I hold that the words "any sum" are wide enough to include penalty under section 271(1)(c) also. The above, decision finds support from three well known commentaries of Income-tax Law. In Kanga Palkhiwala's The law and Practice of Income Tax, the learned commentators have observed as below: "Penalty on legal representative -- Section 24B of the 1922 Act imposed a liability on the legal representative only in respect of the tax payable by the deceased, and not penalty or any other sum. Therefore penalty proceedings could not be started or continued against the legal representative for any default committed by the deceased. But now penalty proceedings for a default committed by the deceased can be started or continued against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 84: "Section 159 of the I.T. Act, 1961, provides for continuance of proceedings, inter alia, for imposing penalty against the legal representatives. But this section has not been made applicable to proceedings under the W.T. Act." 19. I have held that penalty proceedings could be validly initiated against the legal heirs for default of the deceased. The merits of the case will now be discussed. 20. The income finally assessed as per assessment order dated 28-1-1984 was Rs.1,82,925. The original return as the basis for concealment, it will be seen that since the return was filed on 31-10-1974, the law applicable during the period 1-4-1964 to 31-3-1976 will be applicable in respect of the penalties under section 273(1)(iii). According to Explanation I to sub-section (1) existing during that period, where the total income returned was less than 80% of the total income assessed, the assessee should, unless he proves that failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have been guilty of concealment or furnishing inaccurate particulars. The degree of proof necessary in this Explanation was that required i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 271(1)(c) of the Act for the alleged offence by the deceased in concealing the true income chargeable to tax? (2) Whether, on the facts and in the circumstances of the case, the son and one of the legal representatives of the deceased assessee is obliged in law to answer and explain to the satisfaction of the Assessing Officer that there were reasonable causes with his deceased father for committing the alleged act of concealing income for which he as L/R is charged? (3) Whether the son and one of the L/Rs of the deceased assessee is obliged and burdened in law to rebut the presumption of concealment of income as prescribed and laid down in Explanation 1 to section 271(1)(c) of the I.T. Act, 1961? (4) When imposition of penalty under section 271(1)(c) of I.T.Act, 1961 is considered as quasi-criminal in nature, then whether the quasi-crime alleged to have been committed by the deceased assessee has died and ended with the death of deceased offender or whether it survives for penalising the L/R and son of the deceased offender? (5) Whether with a view to maintaining judicial discipline and consistency of views of various Benches of this Tribunal, the decision render ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the I.T. Act, 1961? (4) When imposition of penalty under section 271(1)(c) of I.T. Act, 1961 is considered as quasi-criminal in nature, then whether the quasi-crime alleged to have been committed by the deceased assessee has died and ended with the death of the deceased offender or whether it survives for penalising the L/R and son of the deceased offender? (5) Whether with a view to maintaining judicial discipline and consistency of view of various Benches of this Tribunal, the decision rendered in the case of Bhuban Mohan Mitter Charitable Trust should be followed in allowing this assessee's appeal? (6) Whether, in view of the decision of the coordinated Calcutta Bench 'B' of this Tribunal in the case of Bhuban Mohan Mitter Charitable Trust the matter should have been placed before the Hon'ble President of Income-tax Appellate Tribunal for constitution of a Special Bench as per the provisions of section 255(3) of the Act for deciding the controversy involved? These two sets of points of difference were put up before me for appointment of a Third Member as well as for identifying the point or points of difference. A reading of section 255(4) shows that while assigning th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment made an addition of Rs.25,000 to his gross receipts and thus estimated the gross receipts from the profession at Rs.1,46,453. Under the head 'other sources' the assessee disclosed bank interest of Rs.19,572. The assessee furnished interest earned on fixed deposits as follows: ---------------------------------------------------------------------------- (i) In the name of Sri Nageshar Prasad Rs.13,200 (ii) In the joint names of Sri Nageshwar Prasad and Smt. Meera Prasad Rs. 5,100 (iii) In the joint names of Sri Nageshwar Prasad and Smt. Ahilya Rani Rs. 7,644 -------------- Rs. 25,944 ---------------------------------------------------------------------------- The assessee claimed 50% deduction of interest lying in joint accounts. The A.O. while making the assessment disallowed the assessee's claim on the ground that although the deposits are in the joint names, the entire deposits belonged to late Sri. Nageshwar Prasad himself. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the question of bank deposits the A.O. merely stated the following: "Interest from fixed deposits is taken, at Rs.22,944 as discussed in the original assessment order." This assessment order under section 143(3)/146 does not bear any visible date but there was an endorsement that it was received perhaps by the assessee on 20-3-1984. Under the said assessment order the total income assessed was Rs.1,87,940. The words "initiate penalty proceedings under section 271(1)(c)" were found to have been written in the manuscript in this order of assessment at the end. Thus, it is clear that purporting to implement the CIT(A)'s order the A.O. did not care to implement his direction extracted above regarding bank interest, and thus, the ld. CIT(A)'s order was not followed either in letter or spirit. 3. In the first assessment order dated 28-7-1977 the A.O. initiated proceedings under section 271(1)(c) specifically as follows: "Proceedings under section 271(1)(c) is started for concealment of income from Fixed deposit." However, when I came to the order of the A.O. purporting to implement the CIT(A)'s order under the assessment framed under section 143(3)/146 as already st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided the case on a point of law. 5. On the other hand, the ld. Accountant Member disputed the correctness of the legal proposition sought to be stressed by the ld. Judicial Member in his order. According to him the clear provisions of section 159(1) would permit penalty proceedings being taken against the L/Rs also since the L/Rs would also be 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. If the deceased had not died then penalty proceedings under section 271(1)(c) can validly be taken against him and any penalty validly levied is liable to be paid by the deceased. Such a penalty payable by the deceased would be "a sum which the deceased would have been liable to pay". In the absence of the deceased, his L/Rs also would be liable to pay the penalty if it is found legally or justifiably payable by the deceased. The ld. Accountant Member did not agree with the proposition that penal provisions under the I.T. Act being quasi-criminal in nature dies with the person and the L/Rs cannot be proceeded against in such quasi-criminal proceedings. The ld. Accountant Member says th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in a return submitted by the legal representative." Thus, even under the old I.T. Act, 1922, the imposition of penalty on legal representative is permissible under law. 7. Now coming to the I.T. Act 1961. I have got the Allahabad High Court decision in Kalavati Devi's case. Facts of that case appear to be very near to the facts of the present case. There also the deceased had furnished inaccurate particulars in his income-tax return for which ultimately penalty proceedings were started against the legal representative after the death of the deceased. The validity of such proceedings against the legal representative was questioned in writ proceedings before the Allahabad High Court. Upholding the validity of the proceedings the Hon'ble Allahabad High Court held the following as per the Headnote at page 64 of the reported decision: "Penalty under section 271(1)(c) could validly be imposed against the legal representative for furnishing of inaccurate particulars by the deceased. Section 159 clearly makes the legal representatives liable not only for the tax payable by the deceased assessee but also for all other sums which the deceased would have been liable to pay had he no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings under section 271(1)(c) which is worth of repetition: "Proceedings under section 271(1)(c) is started for concealment of interest income from fixed deposits." I have also stated that the assessee returned only Rs.19,572 under the head interest on fixed deposits. Admittedly, he was joint holder of fixed deposits along with his daughters-in-law. Smt. Meera Prasad and Smt. Ahilyarani. An amount of Rs.5,100 was received under the fixed deposits held by the deceased along with his daughter-in-law Smt. Meera Prasad and an amount of Rs.7,644 was received under the F.Ds. held by the deceased along with his another daughter-in-law Smt. Ahilyarani. The deceased claimed 50% deduction for the accrued interest under joint accounts with his daughters-in-law. However, the ITO disallowed the assessee's claim holding that though the deposits are in joint names, the entire deposits belonged to late Sri Nageshwar Prasad himself. The other name has been put just for convenience which is the usual practice now a days for the sake of avoiding complications at the time of withdrawal. It does not mean that half of the F.Ds. belong to other parties. Thus, rejecting the contention of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t enlarge its scope and make an order beyond its scope. The authority concerned must proceed in accordance with the directions given in the order of remand." Therefore, since the ultimate order of assessment passed under section 143(3)/146, which does not bear any date, the interest income out of the fixed deposits made by the deceased assessee was found added as part of the income of the deceased without following scope of the remand order passed in its letter and spirit, the said order to my mind was not valid as per the decision of the Calcutta High Court mentioned above. If the item of income with reference to which penalty proceedings were started was itself not valid or illegal there is no question of any valid penalty capable of being sustained with regard to such addition either in the hands of the deceased-assessee or after his death in the hands of the legal representatives. Further, initiation of the penalty proceedings under section 271(1)(c) were not attacked as illegal in the appeal filed before the CIT(A): therefore, there was no scope for the CIT(A) to alter the ITO's order about the initiation of penalty proceedings in his appellate order. In fact, the CIT(A) nev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Tribunal was bad in law as being beyond the subject-matter of appeal. The Tribunal had no jurisdiction to uphold the imposition of penalty with reference to the amount of Rs.1,88,800 and which did not constitute the basis on which the IAC passed his order. The order of penalty could not be sustained." In this connection Madhya Pradesh High Court in Khandwala [1982] 132 ITR 523 has taken a similar view wherein it was held that the Appellate Tribunal, in the absence of an appeal or cross objection by the revenue, cannot impose penalty in respect of an item in respect of which the assessee was absolved of liability by the IAC. In fact, the ITO had imposed the penalty under section 271(1)(c) in this case not on the basis of the interest income on fixed deposits but two other altogether different items, namely, profession and capital gains. This would be very clear from the following portion of the ITO's penalty order: "Under the two heads of income, viz., profession and capital gains finally assessed figure is clearly more than what was shown in the revised return." A reading of the ITO's penalty order shows that he had taken the difference between the finally assessed figu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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