2006 (3) TMI 274 - AT - Income Tax

Tribunal voids assessment on deceased, upholds rental income for legal heirs, emphasizes impleading reps

Assistant Commissioner Of Income-Tax. Versus AY Prabhakar (HUF).

The Tribunal deemed the reassessment framed on a deceased person without impleading legal representatives as void ab initio. It upheld the reopening of ... Assessment Issues Involved:1. Validity of reassessment framed on a deceased person without impleading legal representatives.2. Reopening of assessment and communication of reasons for reopening.3. Treatment of interest on unpaid interest as a deduction.4. Assessment of 1/3rd share of rental income from properties inherited.Issue-wise Detailed Analysis:1. Validity of reassessment framed on a deceased person without impleading legal representatives:The first legal issue is whether the reassessment framed by the AO on a deceased person without bringing on record the legal representative is valid, void, or voidable. The Tribunal observed that the AO was informed of the death of the assessee during the pendency of the assessment proceedings, but did not take steps to implead the legal heirs. The assessment order was passed on the deceased individual, which is considered null and void. The Tribunal emphasized that all legal representatives must be impleaded to make the representation of the estate complete. The Tribunal concluded that the reassessment framed on the deceased person is void ab initio.2. Reopening of assessment and communication of reasons for reopening:The second issue pertains to the reopening of the assessment of the HUF and whether the reasons for reopening were communicated to the assessee. The Tribunal upheld the reopening of the assessment, stating that reopening after processing the return under section 143(1) of the Act is permissible if the conditions under section 147 are fulfilled. The Tribunal dismissed the assessee's contention that reasons for reopening were not communicated, noting that the assessee's counsel could not confirm this with certainty.3. Treatment of interest on unpaid interest as a deduction:The third issue is whether the interest on unpaid interest can be claimed as a deduction against income from house property. The Tribunal referred to the Supreme Court decision in Shew Kissen Bhatter vs. CIT, which held that compound interest is not deductible as it is not considered interest on the capital charge. The Tribunal concluded that the assessee's claim for deduction of interest on unpaid interest is not allowable. However, the Tribunal accepted the alternative plea of the assessee to verify the correct amount of interest on unpaid interest and remitted the issue back to the AO for verification.4. Assessment of 1/3rd share of rental income from properties inherited:The final issue involves the assessment of the 1/3rd share of rental income from properties inherited from late Smt. Kanthi Prabhakar and late Smt. Padmavathy Ammal. The CIT(A) directed the AO to assess the 1/3rd share of rental income substantively in the hands of the assessee and not on a protective basis. The Tribunal upheld the CIT(A)'s decision, stating that the income should be assessed at only one place, i.e., 1/3rd each in the hands of the legal heirs.Conclusion:The Tribunal allowed the appeals of the assessee regarding the validity of reassessment on a deceased person and the treatment of interest on unpaid interest. The Tribunal upheld the reopening of the assessment and the assessment of rental income substantively in the hands of the legal heirs. The Tribunal's decision ensures that the legal representatives are properly impleaded, and the correct amount of interest on unpaid interest is verified.