2025 (11) TMI 928 - HC - Income Tax

Reopening of assessment against deceased upheld; legal representatives liable under Section 159, matter remitted for fresh merits hearing

Gowthaman S Legal heir of Late. K. Selvarasu Versus Income Tax Officer, Ward 2, The Assessment Unit Income Tax Department, New Delhi.

HC held reopening of assessment against a deceased assessee valid and legal representatives are liable under Section 159; proceedings under Section ... Validity of reopening of assessment against deceased assessee - legal representative liability - HELD THAT:- The mandate of Section 159(1) makes clear that when a person dies, his legal representative is 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. Section 159 reproduced above falls under Chapter XV- Liability in Special Cases. As per Section 159(2)(b) of the Income Tax Act, 1961, any proceeding which could have been taken against the deceased if he had survived, may be taken against the legal representative, for the purpose of making an assessment (including an assessment, reassessment or recomputation u/s 147 of the income of the deceased and for the purpose of levying any sum in the hands of the legal representative in accordance with the provisions of sub-section (1) Section 159 reproduced above falls under Chapter XV — Liability in Special Cases. Thus, there is no doubt that proceedings have been initiated in accordance with Section 159(2)(b) of the Income Tax Act, 1961. Therefore, it is not open for the petitioner to state that the assessment proceedings were initiated after the death of the deceased on 04.1.2024 without notice to the petitioner or other legal representatives. In fact, there are no records to indicate that after the deceased assessee died on 04.1.2024, the petitioner took steps to inform the Income Tax Department about the death of the deceased assessee. Even if such an intimation was given, the assessment has to be made in the name of the deceased assessee and the liability, if any, is to be fastened on the legal representatives. Therefore, it is not open for a legal representative to allege that the proceedings initiated under Section 147 was beyond the period of limitation u/s 149 or that the assessment impugned, dated 17.02.2025, was beyond the period of limitation under Section 153(2) of the Income Tax Act, 1961. Petitioner can state that the deceased assessee was not liable to any tax as the petitioner or other legal heirs have not inherited any estate of the deceased and therefore the conclusions arrived in the impugned orders were incorrect. At best, an opportunity to explain the case can be granted to the petitioner, since there was a failure on the part of the petitioner or other legal representatives to inform the Department that the deceased passed away on 04.1.2024. The challenge to the very jurisdiction of the respondents to either issue the notice u/s 148A(b) on 31.03.2024 or the consequential order dated 31.3.2024 under Section 148A(d) of the Income Tax Act and the Assessment Order dated 17.2.2025 is therefore liable to be rejected. Petitioner submits that the petitioner may be given an opportunity to explain the case afresh as the petitioner was unaware of the proceedings that came to be initiated, including the issuance of the notice dated 31.03.2024 under Section 148A(d) - The request of the learned counsel for the petitioner made at this stage is reasonable. Therefore, the impugned orders are quashed, and the case is remitted back to the 1st respondent to pass a fresh order on merits alone. The issue relating to jurisdiction or the limitation procedure is not open to be canvassed in the remand. ISSUES PRESENTED AND CONSIDERED 1. Whether assessment and demand proceedings initiated after the death of an assessee are maintainable under Section 159(2)(b) of the Income Tax Act when notices under Sections 148A/148/146 were issued posthumously. 2. Whether issuance of notice under Section 148A(b) on a date subsequent to the assessee's death, without prior intimation by legal representatives, vitiates the proceedings for want of jurisdiction or on limitation grounds (Sections 149 and 153). 3. The effect of Section 159 (inclusive of subsections (1)-(6)) on liability, procedure and title of legal representatives for assessment, reassessment and levy of tax (including applicability of Section 156 demand and Section 270A penalty proceedings) arising after the assessee's death. 4. Whether, in circumstances where procedural defects are alleged in issuance of notices to the deceased, the appropriate remedy is quashing of orders with remand for fresh consideration limited to merits, and whether issues of jurisdiction/limitation can be re-agitated on remand. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Maintainability of posthumous reassessment under Section 159(2)(b) Legal framework: Section 159(2)(b) permits any proceeding which could have been taken against the deceased if he had survived to be taken against the legal representative for purposes of assessment (including reassessment under Section 147); Section 159(1),(3)-(6) set out liability and deeming provisions for legal representatives. Precedent treatment: Decisions cited by parties (including Vipin Walia and subsequent High Court orders) recognize Section 159(2)(b) as enabling proceedings against legal representatives even if not initiated during the deceased's lifetime; some authorities stress notice in name of heirs where relevant facts exist. Interpretation and reasoning: The Court held that Section 159(2)(b) authorizes initiation and continuation of proceedings against legal representatives posthumously; initiation of proceedings under Section 148A/148 after death falls within the statutory scheme so long as Section 159 is attracted. Ratio vs. Obiter: Ratio - Section 159(2)(b) legally sustains reassessment proceedings post-death and renders legal representatives liable to be proceeded against; obiter - observations on procedural preferences in other fact patterns. Conclusion: Proceedings initiated posthumously were within the ambit of Section 159; the mere fact of issuance after death does not ipso facto render them invalid if Section 159 applies. Issue 2 - Requirement of notice to legal representatives / effect of absent intimation and limitation (Sections 148A/148, 149, 153) Legal framework: Section 148A prescribes pre-reopening procedure; Section 149 prescribes limitation for issuance of notice under Section 148 (3 or 10 years depending on escaped income); Section 153 prescribes time for passing assessment orders (and proviso to Section 153(2) links to Section 146 notice timeline). Precedent treatment: Some High Court decisions allowed de novo notices against legal representatives where original notices were invalid; other decisions insisted on consideration of limitation and timely issuance to heirs (and noted differing facts as to notice dates and intimation of death). Interpretation and reasoning: The Court emphasized that absence of intimation by the legal representative to the Department about the assessee's death is material. Where no intimation was given, and the record shows participation by the legal representative in proceedings initiated after death, the authority need not reissue notice in the name of the heirs before proceeding. The Court further held that assessment passed within prescribed periods (considering effective dates of legislative amendments and provisos) cannot be impugned on limitation if statutory timelines are met. Ratio vs. Obiter: Ratio - failure of legal representatives to notify the Department of death disentitles them from claiming jurisdictional infirmity/limitation where proceedings under Section 159 are otherwise competent and time-bars under Sections 149/153 are not breached; Obiter - comparative discussion of cases where fresh notices to heirs were required and the relevance of facts where notices were issued long after intimation of death. Conclusion: Absence of intimation by legal representatives meant the Department's post-death initiation (and the making of assessment within statutory timelines) was not vitiated by lack of jurisdiction or limitation; challenges on those grounds were rejected insofar as they sought to nullify jurisdiction already exercised. Issue 3 - Application to demand (Section 156) and penalty (Section 270A) consequences Legal framework: Section 156 permits issuance of demand consequent to assessment; Section 270A prescribes penalty proceedings which require valid initiation and service of show-cause notice. Precedent treatment: Authorities reflect that procedural invalidity in initiation (including service defects) may render penalty proceedings unsustainable; courts have set aside penalties where show-cause notices were invalidly issued posthumously. Interpretation and reasoning: The assessment order excerpt noted that penalty proceedings initiated posthumously without valid initiation during the deceased's lifetime could be void ab initio. The Court acknowledged that penalty initiation may be invalid if the show-cause notice and assessment prerequisites were not satisfied in relation to the deceased and that such procedural nullity can sustain quashing of penalty proceedings. Ratio vs. Obiter: Ratio - penalty proceedings that were not validly initiated (service/issue defects tied to death) cannot be sustained against legal heirs; Obiter - application of the assessment excerpt to the facts remanded for merits. Conclusion: The Court recognized potential invalidity of penalty proceedings initiated posthumously and considered such aspects in remand, noting that the particular penalty process challenged had been dropped by the Revenue in the proceedings. Issue 4 - Appropriate remedy: quashing with remand; scope of re-consideration (jurisdiction/limitation barred on remand) Legal framework: Writ jurisdiction under Article 226 allows for quashing of orders and remand for fresh consideration where procedural or substantive fairness requires; however courts may frame the scope of remand to avoid relitigation of certain questions. Precedent treatment: Some decisions permitted de novo proceedings against legal representatives; others refused remand where limitation would bar fresh proceedings. Interpretation and reasoning: Although the Court found Section 159(2)(b) supports posthumous proceedings and that the petitioner had not notified the Department, it concluded the petitioner had a reasonable request for an opportunity to explain merits because the petitioner claimed unawareness of the proceedings. In balancing procedural fairness against statutory constraints, the Court quashed the impugned orders and remitted the matter for fresh consideration on merits alone, explicitly precluding relitigation of jurisdictional or limitation objections on remand. Ratio vs. Obiter: Ratio - quashing of impugned orders with remand for fresh merits is an appropriate remedy where affected parties were unaware and seek an opportunity to be heard; obiter - discussion on when remand would be inappropriate because of limitation considerations in other factual matrices. Conclusion: Orders set aside and case remitted for fresh adjudication on merits; on remand the authority is to reconsider the matter but may not be challenged again on jurisdictional or limitation grounds.