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TMI Blog2001 (12) TMI 883X X X X Extracts X X X X X X X X Extracts X X X X ..... 5-86 3. Subsequently the Assessing Officer received information from the Income Tax Officer, Central Circle-II, Amritsar that the assessee had purchased FDRs amounting to ₹ 7,02,000 with Punjab Sind Bank, Hall Bazar, Amritsar, whose details are as under: - No. dt. of FDR Amount of FDR 804311 26-9-78 ₹ 40,000 804312 -do- ₹ 40,000 804313 -do- ₹ 40,000 804314 -do- ₹ 5,17,000 814793 6-3-1979 ₹ 65,000 ₹ 7,02,000 4. Since, according to the ITO, the source of these FDRs was not properly explained by the assessee and the interest earned on these FDRs had also not been disclosed by the assessee in the returns originally filed, proceedings for the Assessment years 1979-80, 1980-81 and 1981-82 were reopened under section 147 and the assessments were completed by making addition to the income already assessed for the entire interest accrued on the fixed deposits alleged to be belonging to Sh. Gurbax Lal (deceased). In the Assessment years 1983-84, 1984-85 and 1985-86, only the interest income on FDRs, assumed to be accrued in the relevant assessment years, has been assessed under section 147 read with section 143. 5. During his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The first challenge on legal grounds was that the order passed by the Assessing Officer under section 143(3)/147 was illegal, unjust, arbitrary and opposed to the facts and circumstances of the case, and there was no justification before the Assessing Officer to initiate proceedings under section 147(a) as the source of alleged FDRs in the name of Sh. Gurbax Lal (deceased) was on account of withdrawals from the firms, in which the deceased Sh. Gurbax Lal was a partner and the FDRs in fact represented the margin money against the excise duty liability of ₹ 17,97,803 due from the firm M/s. S.N. Jaiswal to the Collector of Excise and this fact was apparent from the Bank Certificate dated 27-2-1986 and this explanation given by the assessee in the Estate Duty proceedings of the deceased was accepted and the Estate Duty assessment was accordingly framed on 27-3-1986 determining the net estate at Rs. NIL. 10. It was explained before the learned first Appellate Authority that the deceased left behind 7 legal heirs at the time of his death on 24-5-1980 and this fact was known to the Assessing Officer, who should have issued notices to all the legal heirs. It was pleaded before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments on the ground that notices issued under section 148 for the five assessment years i.e., assessment years 1979-80, 1981-82, 1983-84, 1984-85 and 1985-86 are bad in law. It was submitted that to appreciate the legal arguments, the reassessments made for the assessment years 1979-80 and 1981-82 are to be treated as belonging to one group and the reassessments made for the assessment years 1983-84, 1984-85 and 1985-86 are to be treated as another group. 14. It was submitted that the notices issued under section 148 for the assessment years 1979-80 and 1981-82 are invalid on the ground that they were served only on Sh. Ashok Kumar treating him to be the sold legal heir of the deceased whereas in fact there are 7 legal heirs, list of which has been furnished to us at page 3 of the Paper Book, which are as under: - (i) Smt. Kaushalaya Devi Wife (ii) Sh. Ashok Kumar Son (iii) Sh. Bharat Bhushan Son (iv) Sh. Ramesh Kumar Son (v) Smt. Usha Rani Daughter (vi) Smt. Pushpa Rani " (vii) Smt. Vandana " As regards assessment year 1980-81 is concerned, it was submitted by Sh. Sharma that notice u/s 143(2) should also have been served on all the legal heirs and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the amount from the firm M/s. Gurdas Ram Co., Amritsar, in which he was a partner and these FDRs were in his own name and as such they belonged to him in his individual capacity. It was stated that similar is the position with regard to the FDR of ₹ 65,000 which was also withdrawn from the firm M/s. Gurdas Ram Co., Amritsar. Regarding FDR of ₹ 5,17,000 it was submitted that Sh. Gurbax Lal withdrew and amount of ₹ 5 lacks on 13-3-1978 from M/s. Gurbax Lal, Delhi and deposited this amount in FDR again for ₹ 5 lakhs with Punjab Sind Bank, Hall Bazar, Amritsar. This amount of ₹ 5 lacks was debited to the personal account of S. Gurbax Lal and interest of ₹ 17,000 was earned on this FDR and it was renewed for ₹ 5,17,000 on 26-9-1978. 16.1 Sh. Razdan, accordingly, submitted that since this FDR was in the personal name of Sh. Gurbax Lal, any interest on this was assessable in the hands of Sh. Gurbax Lal. Accordingly, it was submitted that the Assessing Officer was perfectly justified in reopening the assessments in the case of Sh. Gurbax Lal (deceased) and making additions on account of interest accrued on the FDR standing in the name of Sh. Gur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w [1981] 128 ITR 142 (Guj.) and V. Ramanathan v. CIT [1963] 49 ITR 881 (Mad.) 17. We have considered the rival submissions. The legal position with regard to the framing of assessment in relation to an assessee, who dies intestate leaving behind himself more than one legal heirs is that the Assessing Officer has to proceed to assess the total income of the deceased against all the legal heirs individually and he cannot choose any one of them to the exclusion of others and he must serve all notices, including notice u/s 148, on all the legal representatives. However, there are exceptions to the above general principle of law and if in a given case, it is shown that the legal representatives (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 proceedings 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 opportunity of being heard it would not be open to him to take up a plea at the appellate stage, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on at the appropriate time with regard to the continuance of the assessment proceeding against the deceased person, must be taken to have known the inevitable outcome of the assessment being made in the name of the deceased and to have opted to treat such an assessment as having been made as the legal representative against him and to waive any objection as its nullity on the said ground." Similar is the view of Hon'ble Madras High Court in the case of V. Ramanathan (supra) at page 889, wherein it is held that: - ".......... in respect of proceedings for or against the estate the ordinary and normal rule is that all of them should join or be joined together or at least all of them should be parties to the proceedings. But it may so happen that a third party suing the estate may not know or be aware of the existence of several heirs together constituting the legal representatives of the estate against which relief is sought. Any action against the estate by a third party impleading only one of the several legal representative cannot be said to be incompetent by the mere omission to implead all the legal heirs. If in such a case the person impleaded puts forward the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Gurbax Lal, Delhi, but this was debited to the account of Sh. Gurbax Lal and as such it also represented the personal property of Sh. Gurbax Lal (deceased). This FDR was renewed for an amount of ₹ 5,17,000. Subsequently after including interest of ₹ 17,000. 19.1 It is also seen that the firm M/s. S.N. Jaiswal, Delhi has claimed to have filed return for the assessment year 1978-79 on 30-3-1978, which is apparently incorrect as the return for the assessment year 1978-79 could not have been filed on 30-3-1978 and the photocopy of receipt furnished might be in connection with application in form No. 11 along with Partnership Deed, which was required to be filed before the close of the financial year. It was under these circumstances that the learned Dy. CIT (Appeals) set aside the assessments to the file of the Assessing Officer after recording his reasons in paras 15 to 18 of the impugned appellate order relating to assessment years 1979-80, 1981-82, 1983-84, 1984-85 and 1985-86. 19.2 In this connection we are in agreement with the reasoning of the Dy. CIT(Appeals), Amritsar, wherein the learned first Appellate Authority has directed the Assessing Officer to find ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al grounds. The first challenge on legal grounds was that the order passed by the Assessing Officer under section 143(3)/147 was illegal, unjust, arbitrary and opposed to the facts and circumstances of the case, and there was no justification before the Assessing Officer to initiate proceedings under section 147(a) as the source of alleged FDRs in the name of Shri Gurbax Lal (deceased) was on account of withdrawals from the firms, in which the deceased Shri Gurbax Lal was a partner and the FDRs in fact represented the margin money against the excise duty liability of ₹ 17,97,803 due from the firm M/s. S.N. Jaiswal to the Collector of Excise and this fact was apparent from the Bank Certificate dated 27-2-1986 and this explanation given by the assessee in the Estate Duty proceedings of the deceased was accepted and the Estate Duty assessment was accordingly framed on 27-3-1986 determining the net estate at Rs. Nil. 10. It was explained before the learned first Appellate Authority that the deceased left behind 7 legal heirs at the time of his death on 24-5-1980 and this fact was known to the Assessing Officer, who should have issued notices to all the legal heirs. It was plead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he deceased and income, if any, had accrued to the legal heirs individually to the extent each one of them was entitled to inherit the property of the deceased, which was represented by the alleged fixed deposits in his name, Shri G.C. Sharma, Advocate, accordingly submitted that assessment for these years have to be quashed on this count alone, assuming but not admitting that the Fixed Deposits belonged to Shri Gurbax Lal individually and absolutely till his death. 15.1 It was further submitted that income accrued after 24-5-1980, the date of death of Sh. Gurbax Lal assessable in the assessment year 1981-82 could also not have been assessed in the hands of the single legal heir and that too in his representative capacity. It was argued that all income accrued after 24-5-1980 could be assessed only in the hands of the seven legal heirs separately in proportion to their respective shares, assuming but not admitting that the Fixed Deposits were the absolute property of the deceased. 15.2 Shri Sharma, in this regard, relied on the following decisions: - 111 ITR 507 80 ITR 360 57 ITR 168 at page 172 79 ITR 324 32 ITR 401" 22. In addition to the above, estate duty as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Devinder Pal, Dharam Pal v. WTO [1983] 15 TLR 81 had the occasion to deal with similar situation and as against the approach of the Assessing Authority annulled the assessment when one of the three legal representatives representing the estate did not object to the proceedings being prosecuted against him in respect of his father's estate. The short judgment of the Tribunal must be brought in close focus as under: - "1. The assessee is in appeal for the assessment year 1976-77. 2. The assessee late Shri Gurdas Mal, had filed a return on 16-4-1977 at ₹ 1,25,200. He revised the return on 2-7-1977, showing an income of ₹ 1,40,200. During the course of assessment proceedings he expired on 9-12-1979. He left his wife Smt. Sumitra Devi and two sons, Shri Devinder Pal and Shri Dharam Pal. Notice was issued to Shri Devinder Pal for continuing the proceedings. No other legal heir was impleaded in the assessment proceedings, but the assessment was finalised on 12-3-1981 on a total income of ₹ 5,85,000 by the ITO in which together with Shri Devinder Pal, Dharam Pal and Sumitra Devi were mentioned as the legal heirs on whom assessment had been made. 3. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpleading two out of the three heirs, he has made himself liable to be charged with the violation of the principle of natural justice. If the two legal heirs had not been provided with an opportunity during the assessment proceedings such an assessment could not be saved from being considered as null and void. We had considered a similar issue in ITA No. 977/79 in the case of ITO v. Dr. Harbhajan Singh and others, where this Bench observed that it was not possible to direct the assessment so that it may operate against the legal heir to whom the notice had been given and remain ineffective for the remaining legal heirs who were not impleaded in the assessment proceedings. Following this decision, we hold that the plea of the assessee has to be accepted and the assessment has to be considered as null and void. We vacate the finding of the AAC accordingly and allow the appeal of the assessee. The appeal is allowed." 26. The Commissioner's request for reference under section 27(1) of the Wealth-tax Act, 1957, came to be rejected in R.A. No. 91 (AMRIT)/1993 vide order dated 14-11-1983. The learned CWT filed petition under section 27(3) of the Act before the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly to Shri Gurbax Lal individually and absolutely.' This was wholly illegal because Shri Gurbax Lal had died on 24-5-1980 and no income could accrue to the deceased. The assessments of the last three years, therefore, have to be quashed on this ground alone. 33. In view of the above, it is not considered necessary to go into the merits, much less any justification in approving the CIT(Appeals)'s approach in setting aside the assessments to the file of the Assessing Officer to be re-processed again. 34. In the result, all the assessee's appeals are allowed on the legal issue. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 There being difference of opinion between the two Members, who heard the appeals, the following point of difference is framed for reference to the President of the Income-tax Appellate Tribunal under section 255(4) of the Income-tax Act, 1961 : - "Whether on the facts and in the circumstances of the case, the proposed order of the Accountant Member in approving the DCIT(A)/CIT(A)'s approach of setting aside the assessments for framing the same afresh can be said to be valid or the view taken by the Judicial Member that the notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned assessment years whereas no returns had been filed for the last three. 5. The Assessing Officer received information from the ITO Central Circle II, Amritsar that the assessee had purchased FDRs amounting to ₹ 7,02,000 on various dates with the Punjab Sind Bank, Hall Bazar, Amritsar. On the ground that the source of these FDRs had not been properly explained by the assessee and interest earned thereon had also not been disclosed in the returns originally filed for assessment years 1979-80 to 1981-82 the Assessing Officer reopened the assessments under section 147 and the same were completed by making additions to the income a already assessed of the entire interest accrued on the fixed deposits alleged to be belonging to the assessee. For the assessment years 1983-84 to 1985-86 the interest income assumed to have been accrued on the said FDRs were assessed under section 147 read with section 143. 6. During the course of the assessment proceedings it was explained on behalf of the assessee that the FDRs purchased with the Punjab Sind Bank actually belonged to the firms M/s. S.N. Jaiswal and M/s. Gurdas Ram Co. from where the amounts had been withdrawn. The Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to whether the amount invested in the fixed deposits in the name of the assessee actually belonged to the assessee in his individual capacity or the same was out of the withdrawals from the various firms in which he was a partner. 8. As regards the assessment year 1980-81, however, the facts are slightly different since the appeal was heard by the CIT(A) as against the DCIT(A) for the other assessment years the assessed income being more than ₹ 1 lac. The CIT(A) confirmed the order of the Assessing Officer in including the interest income on the FDRs in the hands of the assessee on the ground that no evidence had been filed as to whether the firm M/s. S.N. Jaiswal had filed any return with the ITO at Delhi and whether any assessment had been framed in the said case at Delhi. 9. Being aggrieved with the orders passed by the first appellate authority for all the six assessment years the assessee filed appeals before the Tribunal and at which stage the orders were assailed on the legal ground that the notices issued under section 148 for assessment years 1979-80, 1981-82 and assessment years 1983-84 to 1985-86 were bad in law. The assessee's counsel sought to categorise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee and interest accruing therein was assessable in his hands. Another argument was to the effect that the Assessing Officer was perfectly justified in reopening the assessments and making additions on account of interest accruing on the FDRs standing in the name of the assessee in the Punjab Sind Bank. 12. As regards the legal arguments advanced on behalf of the assessee the plea of the Department was that the Estate of the late assessee was administered by Shri Ashok Kumar his son and one of the legal heirs with the help of Mansa Ram his Manager/Accountant who represented the deceased before the income-tax authorities even prior to the death of the assessee. The further submission was to the effect that notices had been received by Shri Ashok Kumar, Bharat Bhushan and Mansa Ram in various proceedings and returns of income had been filed by Shri Ashok Kumar for all the assessment years beginning assessment year 1979-80 with the exception of assessment year 1980-81 when the return was filed by Shri Bharat Bhushan his legal heir and on behalf of the family members. It was also submitted that notices for reopening of ex parte assessment completed under section 144 on an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccountant Member relied on the judgment of the Hon'ble Gujarat High Court in Sumantbhai C. Munshaw's case (supra). A similar view was found to have been expressed by the Hon'ble Madras High Court in V. Ramanathan's case (supra) and which decision also the ld. Accountant Member relied on. 14. Applying the interpretation of section 159 of the IT Act, to the facts of the case the ld. Accountant Member noted that whereas there were seven legal heirs of the deceased yet in fact the proceedings were initiated only against Shri Ashok Kumar as the legal heir of the deceased and it was he who attended the proceedings and was allowed due opportunity to explain the merits of the case. It was also noted as affect by the ld. Accountant Member that Shri Ashok Kumar individual never objected to the proceedings before the Assessing Officer and he never raised a plea to the effect that all the legal heirs should be impleaded. In view of the aforesaid the ld. Accountant Member held that the proceedings under section 148 had been validly initiated against Shri Ashok Kumar as legal heir of the deceased and the assessment consequent to assuming jurisdiction by issue of notice under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal in the case of Devinder Pal, Dharam Pal (supra) where according to him on identical facts the assessments had been annulled. It is noted from page 21 of the ld. Judicial Member's order that in the aforesaid decision of the Amritsar Bench of the Tribunal the decision of the Hon'ble Gauhati High Court in Jai Prakash Singh's case (supra) was followed. The ld. Judicial Member also referred to the rejection of the reference application filed against the said order initially by the Tribunal and thereafter by the Hon'ble Punjab Haryana High Court. In consi-dering the aforesaid facts as also the legal aspects of the matter the ld. Judicial Member in the ultimate analysis held that notices under section 148 read with section 147(a) issued to one of the legal heirs only were void ab initio and the assessments which followed did not suffer from curable infirmity but were non est in law. In annulling the same he allowed the appeals. 16. I have heard the ld. D.R. at length in support of the order passed by the ld. Accountant Member and he at the outset submitted that the judgment of the Hon'ble Gauhati High Court in the case of Jai Prakash Singh relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -67 and 1967-68 and that it was at best an irregularity for which the Appellate Assistant Commissioner was justified in setting aside the assessments and it was not a case fit for cancellation of the assessments." 18. The ld. Accountant Member in his order has approved the action of the first appellate authority in restoring the matter back to the file of the Assessing Officer asking him to re-process the same de novo but after bringing the other legal heirs on record. This direction is in conformity with the judgment of the Hon'ble Supreme Court in Jai Prakash Singh's case (supra) and I, therefore, have no hesitation whatsoever in confirming on the aforesaid facts and legal position the view expressed by the ld. Accountant Member. Before I part with this reference I would like to mention that six assessment years were involved but in respect of three the assessee decided to avail of KVSS, 1998 and a separate order has already been passed. The present order, therefore, pertains to those assessment years for which the assessee did not choose to go in KVSS, 1998. 19. The matter may now be listed before the Division Bench for passing an order in accordance with the majo ..... 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