TaxTMI 
TaxTMI 
2006 (3) TMI 274
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....p; House No. Amount of borrowed No. capital (Rs.) -------------------------------------------------------- 1. 5, Lattice Bridge Road, Chennai 14,54,000 -------------------------------------------------------- 2. 225A, Anna Nagar, Chennai 8,75,000 -------------------------------------------------------- 3. 9, L.B. Road, Chennai 6,30,000 -------------------------------------------------------- The returns were processed under s. 143(1)(a) or s. 143(1) of the IT Act, 1961 as the case may be for all these assessment years. Subsequently, the AO issued notice under s....
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....(a) and 3 of s. 159 of the Act and various decisions of the Hon'ble High Courts and apex Court, upheld the assessment orders and given a finding in p. 22, para 5.8 which reads as under: "5.8 In view of the detailed discussion hereinabove, I hold that there is no case for declaring the assessment proceedings as null and void. At the most there could have been procedural defect which has been cured by the AO as well as by me through notices issued to all the legal heirs of the appellant. The appellant, therefore, fails on the ground for all the assessment years under consideration." For this finding, the CIT(A) has gone through the provisions of s. 159 of the Act and directed the AO to issue notices to both the representatives to implead both of them as legal representatives and held that "I have also issued notices to both the legal heirs in exercise of my powers under s. 251 of IT Act." Further, the CIT(A) while upholding the order of the AO, has given the following reasoning: "It is clear by continuing the appellate proceedings through the Authorized Representative of one of the legal heirs (it may be mentioned here that Sri Raghunandan Prabhakar has neither appeared befo....
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.... well as assessment proceedings, the Assessee expired on 11th Nov., 2004 and one of the legal heirs filed a letter to the AO which is dt. 22nd Nov., 2004 and the same was received in the income-tax office on 22nd Dec., 2004. The relevant letter which is part of the assessment records has been filed in the assessee's paper book at p. 2 and the relevant letter is reproduced as it is: "Dt. 22nd Nov., 2004 From, Mr. Ravi Prabhakar 52/51, IIIrd Main Road, Gandhi Nagar, Adyar, Chennai - 600020. To The Asstt. CIT Circle IV, Nungambakkam High Road, Chennai-600 034. Sir, Sub : Intimation of expiry of A.Y. Prabhakar, Individual- Pan No. AAAPP7642M (G.I. No. 10718-P)-Reg: I would like to inform you that my father Mr. A.Y. Prabhakar expired on 11th Nov., 2004. The xerox copy of the death certificate and the legal heirs certificate are enclosed herewith for your records. As per the legal heirs certificate Mr. Raghunandan Prabhakar and Mr. Ravi Prabhakar are the only legal heirs of the deceased Mr. A.Y. Prabhakar. This is for your kind information. Thanking you, Yours faithfully Sd/- (Ravi Prabhakar) Enclosed: 1. The xerox copy of de....
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.... Adyar, Chennai 20 3. PAN/GIR No. : AAAPP7642M 4. Ward/Circle/Range : Circle IV 5. Status : Individual 6. Assessment Year : 1997-98 7. Whether resident/resident but : Resident not ordinarily resident/ non-resident 8. Method of accounting : Cash system 9. Previous year : 1996-97 10. Nature of Business(s) : Rental income 11. ....
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.... than one legal representative of the deceased person, then all must be impleaded to make the representation of the estate complete. He further argued that the effort of the CIT(A) to implead the legal heirs at the appellate stage is of no consequence. Once the assessment order is passed on the dead person, the AO cannot implead the legal heir. He further argued that in such circumstances, the defect cannot be cured by setting aside the matter and directing the AO to complete the assessment after issuing the relevant notices and completing the procedure. He further argued that the CIT(A) has given a finding that it is clear that it is not a valid order. He has drawn our attention at p. 18 and the relevant portion starting from third line reads as under: "However, in view of preponderance of case law, it is to be held that in the present case, a defect crept in at the time when the assessment was concluded without issuing notice to one of the two legal heirs. In view of the above discussion this defect cannot make the assessment ab initio void. Such a defect is a curable defect. However, since now there is no provision for setting aside the assessment, I direct the AO to remove t....
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....; Appellant Business Circle-IV, Chennai-600 034. A.Y. Prabhakar (Late) (Indl.) 51, III Main Road, Respondent Gandhi Nagar, Chennai - 20. Petition to bring on record legal representatives It is ascertained that the (respondent) Sri A.Y. Prabhakar has passed away on 11th Nov., 2004. In view of this, the legal representatives of the respondent are to be brought on record in respect of the above appeal proceedings. In this connection, Sri Ravi Prabhkar, s/o (Late) Sri A.Y. Prabhakar has filed death certificate, heir certificate and also a letter obtained from other legal heir (his brother) Sri Raghunandan Prabhakar nominating him to pursue the appeal (letter enclosed). Hence it is prayed that Sri Ravi Prabhakar, s/o (Late) Sri A.Y. Prabhakar may kindly be impleaded in the above appeal proceedings. &nbs....
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....e estate of the deceased. This view has been upheld by the Hon'ble apex Court in the case of Custodian of Branches of Banco National Ultramarino vs. Nalini Bai Naique AIR 1989 SC 1589, 1591. It is to be noted that even the Hon'ble apex Court and the jurisdictional High Court has defined the meaning of "legal representative" where the word legal representative means all the legal representatives of the deceased. The Hon'ble Madras High Court in the case of Muniyammal vs. Addl. ITO (1960) 38 ITR 664 (Mad) has held that all the legal representatives should concur in applying the copies of statement to the ITO and further, it has also held as under: "(ii) that in a case where a person died leaving more than one legal representative, the estate was represented by all of them jointly, and not by one of them alone. As between co-heirs, one was not the agent of the other. Sec. 24B of the IT Act made a legal representative of a deceased person liable to the tax assessed as payable by the deceased, the liability being however limited to the extent of the estate left by the deceased. The word "legal representative" in s. 24B, sub-s. (1), meant all the legal representatives collectively, if....
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....lid: Held also, that the assessment orders were not valid even against Daulatram, as the estate was not properly represented and an assessment of the income of the deceased person must be made on all those who represent his estate or interest-wholly and completely." In view of the case law of the Hon'ble apex Court, jurisdictional High Court and Gujarat High Court, discussed above, we fairly feel that all legal heirs must be proceeded against the deceased particularly when there are more than one legal heir of the deceased as per the legal heir certificate and representation made before the AO. In the present case, the AO was informed much before the completion of the assessment that the assessee has died on 11th Nov., 2004. The AO has not taken any step to implead the legal heirs and the assessment order was passed on the deceased assessee treating the assessee as alive. In the event of death of the assessee, the names of the legal representatives should be substituted and there may be anyone of the five contingencies, in respect of an assessment year. In the present case only one contingency will apply, i.e., the assessment was taken up but could not be completed and the as....
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....e on the legal representatives as deemed assessee from the stage at which it stood on the date of the death of the assessee. In the present case in hand, the AO was informed about the death of the assessee and the complete details regarding the legal heirs and it was supported by legal heir certificate and death certificate of the assessee. But the AO never tried to bring on record the legal representatives as informed to him. However, the learned Departmental Representative strongly relied on the view that one of the legal representatives, Sri Ravi Prabhakar, who submitted the legal heir certificate and informed the AO before the completion of assessment proceedings, is an assessee before the AO as well as before the first appellate authority. To support the view, he relied on the decision of the Hon'ble Punjab & Haryana High Court in the case of Swaran Kanta vs. CIT (1989) 176 ITR 291 (P&H). 11. We have gone through the decision cited by the learned Departmental Representative and observed that in that case, the legal representative was impleaded and then the assessment was completed. No doubt, the assessment was completed in the name of the deceased person instead of the lega....
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....of the Hon'ble apex Court reads as under: "Their Lordships set aside the order of the High Court in Suseela Sadanandan vs. Addl. ITO (1963) 47 ITR 318 (Ker) and remanded the matter to the High Court for fresh disposal after considering: (i) whether the person on whom the notices were served was in possession and management of the entire estate of the deceased, and if so whether he would be the legal representative; (ii) even if he intermeddled only with a part of the estate, whether the ITO bona fide treated him as representative of the estate; (iii) whether he, in fact, represented the estate and the other executors or representatives expressly or impliedly accepted his representation; and (iv) whether the first respondent who was not a party to the assessment proceedings could question the enforceability of the final assessment order against the person on whom notice was served." In the above case law referred by the learned Departmental Representative, either there are exceptional cases or service of notice to one of the legal representatives was sufficient, or there was only one legal representative who participated in the proceedings. But in the present case in hand, the....
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....egal representatives filed a letter to the AO intimating the death of the assessee along with xerox copy of the death certificate and legal heir certificate. As per the legal heir certificate, there are two legal representatives of the deceased, i.e., Shri Raghunandan Prabhakar and Shri Ravi Prabhakar. It is observed from the assessment order that the assessment order is passed on dead person and the relevant assessment order is reproduced in pp. 7 and 8 at para 5 of this order. Both the legal representatives were not impleaded. It is a fact that the assessee died before the completion of the assessment and that also during the pendency of the assessment proceedings. On the death of a person, his legal personality ceases to exist and thereafter no order can be passed against such dead person. If any order is passed against that dead person, that would be a nullity, This view has been held by the Hon'ble apex Court in the case of CIT vs. Amarchand N. Shroff (1963) 48 ITR 59 (SC). While dealing with the situation, the Hon'ble apex Court has held as under: "The correct position is that apart from s. 24B no assessment can be made in respect of the income of a person after his death:....
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.... the legal representative and not against the dead person. There are exceptions to the general rule where it is shown that the legal representative of a deceased assessee, who was present before the AO, either voluntarily or in response to the notice issued to the deceased but served upon him or his agent allows the assessment proceedings to continue without any objection, then legal representative cannot take objection against the assessment in further appeals. Yes, we agree with this. In the present case, the assessee has taken objection at the initial stage that the assessee has died and information was given to the AO by writing a letter that there are two legal heirs and they filed the copy of the death certificate and legal heirs certificate. Even if we presume that the argument of the learned Departmental Representative is correct, that one of the legal representatives participated in the proceedings but the other legal representative was not present in the assessment proceedings by any expressed or implied consent, what will be the consequence of the order passed on a dead person. Now, under the general law, it is a fundamental principle, well established, that a decree pas....
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.... at the time of death of the deceased. According to the findings of the Tribunal, the proceedings had not been completed before the death of the assessee; therefore, the Tribunal has rightly held that the assessment should be completed under s. 159(2) of the Act. In this view of the matter, we are of the opinion that the view taken by the Tribunal is correct and both the questions are answered against the Revenue and in favour of the assessee." 15. From the above facts and circumstances of the case, it is seen that the assessment order was passed on the dead person. One of the legal heirs has informed the AO during the pendency of the assessment proceedings that the assessee has expired on 11th Nov., 2004. Before the AO, complete details like legal heir certificate and xerox copy of the death certificate were filed. Now, as the principle laid down and exception provided by the Hon'ble apex Court in the case of Mrs. Suseela Sadanandan, the first exception is that: "If it had been established that E.D. Sadanandan had alone been managing the entire estate, the Court could have come to the conclusion that he was the legal representative of the deceased and, therefore, represented....
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....ceedings alone is sufficient to bind the estate of the deceased as the assessment order can be enforced against the other representative who was not served the notice. The argument of the learned Departmental Representative was that one of the legal representatives has participated in the assessment proceedings and there was complete representation of the estate of the deceased. Here, we cannot agree with the contention of the learned Departmental Representative. The learned Departmental Representative overlooked the basic principle that in order to assess the income of a deceased person the assessment must be made on all those who represent his interest or estate wholly and completely and there must be complete representation of the estate of the deceased in the proceedings. Otherwise, the position would be as if the deceased is not before the ITO and obviously no assessment of income of a person can be made in his absence. In the present case, Shri Ravi Prabhakar, one of the legal representatives does not represent the deceased as both the legal representatives together represented him and therefore, they must all be before the AO in order to enable him to make a valid assessment....
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....9(2)(a) of the Act, the words are very clear where it states that "any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued.........." Here, the words 'shall' and 'may' are mandatory and this 'may' and 'shall' will be treated as 'shall'. The above words are mandatory or directory will depend on the context and this has been explained in V.S. Sundaram's Law of Income-tax in India, 12th Edn. in 1st Volume at p. 22 and the same is reproduced as it is: "Crawford on Statutory Construction and Interpretation of Laws stated: 'Mandatory and directory are permissive words. Ordinarily, the words 'shall' and 'must' are mandatory, and the word 'may' is directory, although they are often used interchangeably in legislation. This use without regard to their literal meaning generally makes it necessary for the Courts to resort to construction in order to discover the real intention of the legislature. Nevertheless, it will always be presumed by the Court that the legislature intended to use the words in their usual and natural meaning. If such a meaning, however, leads to absurdity, or great conven....
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.... by the learned Departmental Representative, is distinguished by the decision of the Hon'ble apex Court in the case of Mrs. Suseela Sadanandan cited above wherein it has held that there was no question before the Supreme Court whether service of notice on one of the legal representatives, was sufficient for valid proceedings. In view of the above facts of the case, case law cited above and the provisions of s. 159(2) of the Act, the reassessment framed on the deceased person is void ab initio. 18.1 Since the main issue is decided in favour of the assessee, it is not required to deliberate the other legal issues on merits. Accordingly, all these six appeals are allowed. 19. The first and second issue in the appeals of the assessee, Sri A.Y. Prabhkar (HUF) in ITA Nos. 2380 and 2381/Mad/2005, is as regards to reopening of the assessment is bad in law and the reasons recorded for the reopening were not communicated to the assessee. 20. We have heard both the sides and gone through the case records. It is a fact that the assessee, HUF is a regular income-tax assessee and the returns for the asst. yrs. 1997-98 and 1998-99 were tiled and the same were processed under s. 143(1) of....
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....ablish the requisite conditions of s. 147. For these reasons, the second submission is rejected." Further, he relied on the decision of the Hon'ble Delhi High Court in the case of MTNL vs. Chairman, CBDT (2000) 162 CTR (Del) 554 : (2000) 246 ITR 173 (Del) to support his view. The Hon'ble High Court has held as follows: "Sec. 147 authorizes and permits the AO to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word 'reason' in the phrase 'reason to believe' would mean cause or justification. If the AO has cause or Justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income has escaped assessment. The expression cannot be read to mean that the AO should have finally ascertained the fact by legal evidence or conclusion. The function of the AO is to administer the statute with solicitude for the public exchequer with an in-built idea of fairness to taxpayers. As observed by the apex Court in Central Provinces Manganese Ore Co. Ltd. vs. ITO (1991) 98 CTR (SC) 161 : (1991) 191 ITR 662 (SC), for initiation of action under s. 147(a) (....
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....Ors. (2004) 186 CTR (Guj) 639 : (2004) 268 ITR 116 (Guj) wherein it has held that: "Thus, in the liberalized and simplified tax collection regime, mere acceptance and acknowledgement of return and issuance of refund cannot be elevated to the status of regular assessment and formation of opinion about the incidence of tax on a particular claim or item mentioned in the return of income. And in the absence of any formation of opinion about the taxability of the non-compete fees, in the facts of the present case, there can be no question of change of opinion. On the other hand, the deeming fiction provided by Expln. 2 to s. 147 of the Act imparts an added obligation in the matter of believing even where an assessment is made, but income chargeable to tax has been underassessed, it has to be deemed that such income has escaped assessment, and after noticing that income chargeable to tax was underassessed and applying the deeming fiction and the ratio of the aforesaid judgment in Praful Chunilal Patel vs. M.J. Makwana, Asstt. CIT (1998) 148 CTR (Guj) 62 : (1999) 236 ITR 832 (Guj), the AO can hardly have reason not to believe that any income chargeable to tax has escaped assessment.....
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....s under s. 143 of the Act while completing the assessment. 27. We have heard both the sides and gone through the case records. The learned counsel of the assessee could not adduce anything at the time of hearing and he has not mentioned as to what type of statutory requirements were not completed while completing the assessment under s. 143 of the Act. The main argument of the learned counsel of the assessee is that no notice under s. 143(2) of the Act was issued. On a query from the Bench whether the assessee can file an affidavit to this effect so that the records of the Revenue can be summoned, but the learned counsel for the assessee declined to file an affidavit to this effect. He specifically stated that as per their knowledge no notice under s. 143(2) of the Act was issued. Here, there is no question of knowledge or conjecture or surmises. The real fact brought out by the learned Departmental Representative is that notice under s. 143(2) of the Act was issued and statutory requirements under s. 143(2) of the Act were fulfilled by the assessing authority. Accordingly, the assessee has no case on this issue. Accordingly, we dismiss this issue. 28. The next common issue i....
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....ot paid, the same became a part of the principal and, thereafter, interest has to be paid not only on the original principal but also on that part of the interest which had become a part of the principal. It cannot be said that the interest which became a part of the principal can be considered as the capital charge. What the assessee is entitled to deduct is the interest payable by him on the capital charge and not the additional interest which because of his failure to pay the interest on the due date had been considered as a part of the loan. In fact, the real capital charge is that which was originally due. The other portion is merely an interest on which the assessee has agreed to pay interest. Hence we are unable to accept the contention of the assessee that the .interest paid on interest is an interest paid on the capital charge. Mr. Chagla, the learned counsel for the assessee, contended that the law permits his client to deduct any interest paid by him on the capital borrowed or charged and 'any interest' included compound interest also. This, to our minds, appears to be a fallacious argument. The compound interest is payable not on the capital charge but on that part of t....
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....th the sides and gone through the facts of the case. The facts are narrated in detail at para 6 of the order of the CIT(A) which reads as under: "6. The appellant has been showing 1/3 share of rental income received from the properties which originally belonged to late Smt. Kanthi Prabhakar (wife of Sri A.Y. Prabhakar) and late Smt. Padhmavathi Ammal (cousin of Sri A.Y. Prabhakar). Smt. Kanthi Prabhakar made a Will on 31st Dec., 1986 vide which all her movable and immovable properties devolved equally on her two sons namely, Sri Raghunandan Prabhakar and Sri Ravindran Prabhakar. She expired on 15th Dec., 1990. Similarly, Smt. Padmavathi Ammal wife of late Sri K. Ramalingam made a Will on 27th Oct., 1993 willing all her movable and immovable properties to her cousin Sri A.Y. Prabhakar and his two sons namely Sri Raghunandan Prabhakar and Sri Ravindran Prabhakar equally. She died on 18th April, 1994. Her husband predeceased her and she did not have any children. Sri Prabhakar was appointed as the sole executor of both the Wills. However, these Wills were never probated. Therefore, both these ladies are to be treated as having died intestate. Accordingly, their properties were dist....