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Issues: (i) Whether an assessment of a deceased person for assessment year 1948-49 could be made under section 24B of the Income-tax Act, 1922 without issuing notice to the heirs and legal representatives, and whether a return filed by a person who was not a legal representative invalidated the assessment. (ii) Whether the notice of demand was duly served on the heirs and legal representatives so as to render them assessees in default and sustain the recovery proceedings. (iii) Whether, after rectification of the assessment, a fresh notice of demand was required before recovery could continue.
Issue (i): Whether an assessment of a deceased person for assessment year 1948-49 could be made under section 24B of the Income-tax Act, 1922 without issuing notice to the heirs and legal representatives, and whether a return filed by a person who was not a legal representative invalidated the assessment.
Analysis: Section 24B(2) applied only where death occurred before service of notice under section 22(2) or section 34. Since notice under section 22(2) had already been duly served on the deceased during his lifetime, that sub-section had no application. The case fell under section 24B(3), under which the Income-tax Officer could assess the deceased's total income and determine tax payable without necessarily issuing notice to the heirs, unless accounts, documents or other evidence were required. The assessment was also not vitiated merely because the return for the deceased was filed by a person who was not his legal representative; that only meant that there was no valid return before the Officer, enabling him to proceed on the basis of the material available and make the assessment accordingly.
Conclusion: The assessment was valid and these challenges failed, against the assessee.
Issue (ii): Whether the notice of demand was duly served on the heirs and legal representatives so as to render them assessees in default and sustain the recovery proceedings.
Analysis: Service of a notice of demand is the vital step that creates the debt due to the Government and is the condition precedent to treating the assessee as in default and commencing recovery as arrears of land revenue. The notice in the present case was addressed to the deceased by his heirs and legal representatives and sent to the address of the old firms, which was not shown to be the petitioners' address after the deceased's death. On the petitioners' sworn statement that none of them received the notice, the Court held that service on the petitioners was not established.
Conclusion: The notice of demand was not served on the petitioners, so they could not be treated as defaulters and the recovery proceedings were invalid, in favour of the assessee.
Issue (iii): Whether, after rectification of the assessment, a fresh notice of demand was required before recovery could continue.
Analysis: A complete answer was provided by section 3 of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964, which states that when tax dues are enhanced or reduced in appeal or other proceedings, a fresh notice of demand is not necessary if an earlier notice had been served.
Conclusion: No fresh notice was required after rectification, against the assessee.
Final Conclusion: The assessment was sustained, but the recovery certificate and recovery proceedings were quashed because the notice of demand had not been served on the petitioners.
Ratio Decidendi: Under the Income-tax Act, 1922, valid service of a notice of demand on the assessee or legal representative is a condition precedent to default and to the institution of recovery proceedings, while an assessment of a deceased person may proceed under section 24B(3) without prior notice to the heirs if no further evidence is required.
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