TaxTMI 
TaxTMI 
2001 (12) TMI 883
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 10-1-1983 18-11-1983 Rs. 1,605 1983-84} No returns filed. 1984-85 1985-86 3. Subsequently the Assessing Officer received information from the Income Tax Officer, Central Circle-II, Amritsar that the assessee had purchased FDRs amounting to Rs. 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 Rs. 40,000 804312 -do- Rs. 40,000 804313 -do- Rs. 40,000 804314 -do- Rs. 5,17,000 814793 6-3-1979 Rs. 65,000 Rs. 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 dep....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent years 1983-84, 1984-85 and 1985-86, only interest income on the Fixed Deposits, assumed to be accruing in the relevant assessment years, has been assessed. 9. The assessee filed appeals against the orders passed by the Assessing Officer, wherein the assessments were challenged on factual as well as legal 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 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 Rs. 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 de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wal had filed any return with the ITO, Distt. VII(4), Delhi or whether any assessment has been framed in the case of M/s. S.N. Jaiswal at Delhi. 13. The assessee is in second appeals before us in respect of all the 6 assessment years. Sh. G.C. Sharma, Advocate, learned representative of the assessee assailed the assessments 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) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d.). 16. Sh. B.L. Razdan, learned Sr. DR, supported the order of the Dy. CIT(A) in relation to assessment years 1979-80, 1981-82, 1983-84, 1984-85 and 1985-86 and relied on the order of the CIT(A) for the assessment year 1980-81. It was submitted that out of the 5 F.D. Rs., totalling Rs. 7,02,000, the first 3 FDRs of Rs. 40,000 each were purchased by Sh. Gurbax Lal after withdrawing 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 Rs. 65,000 which was also withdrawn from the firm M/s. Gurdas Ram Co., Amritsar. Regarding FDR of Rs. 5,17,000 it was submitted that Sh. Gurbax Lal withdrew and amount of Rs. 5 lacks on 13-3-1978 from M/s. Gurbax Lal, Delhi and deposited this amount in FDR again for Rs. 5 lakhs with Punjab Sind Bank, Hall Bazar, Amritsar. This amount of Rs. 5 lacks was debited to the personal account of S. Gurbax Lal and interest of Rs. 17,000 was earned on this FDR and it was renewed for Rs. 5,17,000 on 26-9-1978. 16.1 Sh. Razdan, accordingly, submitted that since this ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of Hon'ble Supreme Court as in Mrs. Suseela Sadanandan's case (supra) Hon'ble Gujarat High Court as in 80 ITR 373 (sic) as well as the cases in Vijay Kumar Kedia v. CED [1976] 104 ITR 302 (All.) CIT v. Smt. Rahima Bi [1977] 107 ITR 810 (Mad.), Rajinder Mohan Bhandari v. ITO [1978] 111 ITR 407/[1980] 123 ITR 970 (Cal.) (sic), CIT v. Sumantbhai C. Munshaw [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 i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st him, although, in substance and reality, it has been so continued. If and when an assessment order is consequentially made in such a proceedings in the name of the deceased assessee, that would not be a nullity qua the legal representative, not only because he was afforded a full opportunity of being heard in respect of it but also because he, having not raised an objection 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 awa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Excise. However, the case of the Department is that out of the five FDRs, four were taken by the deceased in his individual name after withdrawals from the firm M/s. Gurdas Ram Co., Amritsar and the 5th FDR of Rs. 5,17,000 was also in the name of Sh. Gurbax Lal (deceased) although the same represented withdrawal of Rs. 5 lacks by the assessee from the firm 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 Rs. 5,17,000. Subsequently after including interest of Rs. 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 Assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e first appellate authority it had been explained that the deceased Shri Gurbax Lal had left behind seven legal heirs at the time of his death on 24-5-1980 and such fact was known to the Assessing Officer: - "9. The assessee filed appeals against the orders passed by the Assessing Officer, wherein the assessments were challenged on factual as well as legal 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 Rs. 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 Esta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the Assessment Orders for the last three assessment years i.e., assessment years 1983-84, 1984-85 and 1985-86 have been made on Shri Ashok Kumar in the capacity of legal heir as even during the last 3 assessment years, income accrued only to Shri Gurbax Lal individually and absolutely. It was submitted that this is also illegal because after the death of Shri Gurbax Lal on 24-5-1980, no income could accrue to the 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 aft....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ading all the legal representatives and serving notices under section 143(2) on all of them who represent the entire estate. If this were not done, the assessment proceedings and assessment orders passed therein would cease to be valid proceedings and valid orders in the eye of the law. In such a case it is the legal duty of the Appellate Assistant Commissioner and the Appellate Tribunal to annul the assessment. 25. Amritsar Bench of the Tribunal in the case 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 Rs. 1,25,200. He revised the return on 2-7-1977, showing an income of Rs. 1,40,200. During the course of assessment proceedings he expired on 9-12-1979. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the rival views, we are not persuaded by the Revenue that we can over-rule the plea of the assessee. This Bench has been following the Gauhati decision in the past. According to this, failure on the part of the WTO to interplead all the legal heirs, who would together represent the entire estate of the deceased, was fatal omission which made the assessment null and void. On the facts of the case, WTO did not notice that in making the assessment on all the legal heirs, without 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....so have been served on all the legal heirs and not solely on Shri Ashok Kumar. The resultant assessment on this score was, therefore, invalid. 32. Notices under section 148 for the assessment years 1983-84, 1984-85 and 1985-86 were equally invalid as they ought to have been served on all the legal heirs. Besides, the assessment orders for the last three years came to be made on Shri Ashok Kumar in the capacity of 'legal heir as if even during the said three years, the income accrued only 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rned Members of the Division Bench have discussed the facts at length but for purposes of disposing of the present reference I only need to recapitulate these as follows: 4. The assessee during his life-time was being assessed as an individual in respect of the share of profit from various firms in which he was a partner. For the assessment years under consideration i.e., assessment years 1979-80 to 1981-82 and Assessment years 1983-84 to 1985-86 assessments had been completed for the first three mentioned 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 Rs. 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 accrue....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ereto were invalid and bad in law and required to be annulled. The first appellate authority, however, did not annul the assessments but restored the matter back to the file of the Assessing Officer asking him to make enquiries for ascertaining the legal heirs so that notices could be issued to all of them. On the merits of the case relating to accrual of interest on fixed deposits the matter was set aside by the first appellate authority to the file of the Assessing Officer with directions to find out 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 Rs. 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....legal heirs separately and in proportion to their respective shares assuming but not admitting that the fixed deposits were the absolute property of the deceased. In support of the various arguments the assessee's counsel placed reliance on a number of judgments which are mentioned in para 15.2 of the order by the ld. Accountant Member. 11. On behalf of the Department the ld. D.R. strongly relied on the orders passed by the first appellate authority contending that the FDRs stood in the personal name 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be open to the legal representative so present to take up a plea at the appellate stage as a last resort or an after-thought that the proceedings taken and the assessment orders made against the deceased were a nullity specially when the consequence of permitting him to raise such a plea would be to debar a fresh assessment on him and in such a situation though a gross irregularity is involved the assessment would still be valid and effective qua the legal representative. For the aforesaid proposition the ld. Accountant 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 me....
X X X X Extracts X X X X
X X X X Extracts X X X X
....set out by the ld. Judicial Member was that if the Estate of a deceased was to be assessed to income-tax the Estate must be fully represented by impleading all the legal representatives and serving notices under section 143(2) on all of them who represented the entire Estate. In case this was not done then the assessment proceedings and assessment orders passed thereon would cease to be valid proceedings and valid orders in the eye of law. The ld. Judicial Member also referred to the judgment of the Amritsar Bench 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 i....