TaxTMI 
TaxTMI 
1980 (7) TMI 68
X X X X Extracts X X X X
X X X X Extracts X X X X
....shaw, which was a fact within the knowledge of the. ITO, the assessment proceedings could have been continued only against the legal representative from the stage at which it stood on the date of death of the deceased and that that having not been done and an invalid assessment order having been passed against a dead person, the entire proceeding was bad in law. The stand of the department, on the other hand, was: (1) that the ITO, who passed the assessment order, was not aware of the death of Munshaw when he made the said order; (2) that it was the responsibility of the legal representative of the deceased to inform the ITO about the death of the deceased and that since she failed to do so, the assessment was validly completed against the deceased as if the provisions of s. 159(2) were non-existent or inapplicable-; (3) that, in any case, the proceeding was validly continued against the legal representative, who had received through her agents the notices issued under s. 142(2) of the I.T. Act, 1961 (hereinafter referred to as "the Act"), in the name of the deceased and produced the books of account in the course of the assessment proceedings; and (4) that, alternatively, the lega....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ace before the assessment order in question was passed on February 23, 1972; (2) in the record of assessment proceedings for the assessment year 1968-69, there were a number of tax deduction certificates on which tax credit had been given and three out of those tax deduction certificates were signed by Smt. Renukaben as the legal heir of Munshaw; and (3) since certain dividend warrants (tax deduction certificates ?) were not available, duplicates of those documents were obtained and filed and along with them an indemnity bond signed by Smt. Renukaben was also presented, which was accepted by the ITO. 5. On the question of the validity of the continuation of the assessment proceeding and the making of the assessment order in the name of Munshaw after his death, even though the fact of such death was known to the ITO, the AAC found that s. 159(2) was an enabling provision which authorised the ITO to continue an assessment proceeding taken against the deceased against his legal representative and that thereunder it was no part of the responsibility of the legal representative to come forward and to give an express intimation to the ITO in regard to the death of the deceased. In the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... mistake earlier or should have done SO." The AAC finally summed up his conclusions in the following words: ".. ...... it has always been clearly understood that this section (section 159) introduces a fiction, viz., that the income of the deceased is to be assessed as if it were the income of the legal representative. It has moreover been accepted that in such cases the assessment has to be made on the legal representative in respect of the income of the deceased. It is the legal representative, on whom the assessment is made and if an assessment is made on the deceased, it will be a nullity .......... It is, therefore, absolutely clear that the assessment made by ITO in the name of the deceased person is not a valid assessment and the fact that the legal representative, Smt. Renukaben, received the notices in question or that she could have pointed out the mistake to the ITO at an earlier stage does not help to validate the assessment." Having regard to the aforesaid findings, the AAC set aside the assessment order and proceeded to give the following further directions: "The ITO is directed to proceed afresh with the assessment with the fresh issue of noti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lding that the Appellate Assistant Commissioner was not competent to give a direction to the Income-tax Officer for making the fresh assessment after the limitation for making a valid assessment was over ?" 8. In order to appreciate the real point in controversy between the parties, it would be necessary to recall that s. 153, which prescribes the time-limit for completion of assessments and reassessments, in so far as it is relevant, provides in sub-s. (1) that no order of assessment shall be made under s. 143 at any time after the expiry of three years from the end of the assessment year in which the income was first assessable, where such assessment year is the assessment year commencing on the 1st day of April, 1968. Sub-section (3), in so far as it is relevant, provides, however, that the provisions of sub-s. (1) shall not apply where the assessment is made on the assessee or any person in consequence of or to give effect to any finding or direction in an order made under s. 250 and that such assessment may be completed at any time. 9. In the instant case, in view of the foregoing provisions, any fresh assessment on the legal representative in respect of the income earne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n passing the assessment order in the name of the deceased, the error committed by him was not so fundamental as to make the proceeding a nullity having regard to the aforesaid facts and that, in that view of the matter, the AAC was perfectly justified in giving the direction that he did and the fresh assessment was not barred by virtue of the provisions contained in sub-ss. (1) and (3) of s. 153 ; and (iii) in any event, the legal representative having received the notices and having complied with them and having participated as a legal heir of the deceased in the assessment proceeding before the ITO without raising any objection whatever at any stage of the said proceeding, she is precluded from raising an objection as to the validity of the assessment proceedings and the order, and that it is not fair and reasonable to allow her to take up such plea which she must be deemed to have wilfully abandoned. These rival contentions, when examined closely, raise the following questions for consideration : (1) What is the distinction between a nullity, illegality and irregularity ? (2) Is an assessment proceeding/order against a dead person necessarily a nullity for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....after his death. The liability, though absolute, was, however, limited to the extent to which the estate of the deceased person was capable of meeting the charge. The machinery for assessment of the income of a deceased person after his death was also provided and the ITO was authorised to assess the total income of the deceased person as if the legal representative were the assessee. When the present Act was enacted, s. 159 occurring in Chap. XV which is entitled "Liability in Special Cases", made a provision to meet with a similar situation. Under the Act, the words "legal representative" have the meaning assigned to them in the Code of Civil Procedure (s. 2(29)) and, accordingly, in so far as it is relevant for the purposes of the present case, they mean a person who, in law, represents the estate person and include any person who intermeddles with the estate of the deceased. Where an assessee dies, his legal representative becomes 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 (s. 159(1)). The liability of a legal representative is, however, limited to the extent to which the e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tory form, prima facie, it would be a nullity. Every act done in breach of a mandatory provision, however, is not necessarily a nullity. In Dhirendra Nath Gorai v. Sudhir Chandra Ghosh, AIR 1964 SC 1300, the following passage from the decision in Ashutosh Sikdar v. Behari Lal Kirtania [1907] ILR 35 Cal 61 [FB] was cited with approval to bring about the distinction between a nullity and an irregularity (p. 1304 of AIR 1964 SC): " '...... no hard and fast line can be drawn between a nullity and an irregularity; but this much is clear, that an irregularity is a deviation from a rule of law which does not take away the foundation or authority for the proceeding, or apply to its whole operation, whereas a nullity is proceeding that is taken without any foundation for it or is so essentially defective as to be of no avail or effect whatever, or is void and incapable of being validated.'" What is a workable test to distinguish a nullity from an irregularity? The following passage from the decision in Holmes v. Russell [1841] 9 Dowl 487, which provides the clue, was cited with approval in Dhirendra Nath, AIR 1964 SC 1300 at p. 1304: " ' It is difficult some....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quisition Officer, Kurnool, AIR 1979 SC 1393, this question fell for consideration in the context of an appellate decree on the following facts. After an award under s. 18 of the Land Acquisition Act, 1894, was made by the Subordinate judge, two appeals came to be, preferred before the High Court which can be conveniently styled as "Government appeal" and "claimants' appeal". One Y. Prabhakar Reddi (hereinafter referred to as "Reddi"), who was a party to both those appeals, which were cross appeals arising out of the same award, died during the pendency of the appeals. Upon an application made to the High Court in the claimants' appeal, his legal representatives were brought on record. Admittedly, however, the legal representatives were not brought on record in the Government appeal, where Reddi was one of the respondents, till both the appeals were disposed of by a common judgment, nearly five years after his death. By the common judgment the claimants' appeal was dismissed but the Government appeal was partly allowed and the compensation payable in respect of the acquired land was reduced. Thereupon, the original claimants as well as the heirs of Reddi preferred an ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....des for reopening and hearing the appeal in such cases." Then, following the further observations which throw considerable light on the question whether the decree against a dead person is a nullity for all purposes or whether an objection as to its invalidity can be waived by the legal representative (p. 1397(1) ): "The basic fact remains that a decree against a dead person is treated as a nullity because it cannot be allowed to operate against his legal representative when he was never brought on the record to defend the case... So while the law treats such a decree as a nullity qua the legal representative of the deceased defendant or respondent, there is nothing to prevent him from deciding that he will not treat the decree as a nullity, but will abide by it as it stands, or as it may be modified thereafter on appeal. If a legal representative adopts that alternative or course of action, it cannot possibly be said that his option to be governed by the decree is against the law or any concept of public policy or purpose, or the public morality. It is thus a matter entirely at the discretion of the legal representative of a deceased respondent against whom a decree ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the, Government appeal and although they knew that they were not so brought on record and that, therefore, the said appeal stood abated against, them, they did not make an application to the High Court for the dismissal of the appeal on the ground that it could not survive against the surviving respondents because of that basic defect, (3) the said position continued for a long period of almost five years and even when the appeals came on for hearing, no objection was taken to the hearing of the Government appeal in spite of the fatal defect in its constitution; (4) the High Court, in fact, heard without any objection, not only the counsel for the appellants in the Government appeal, but also the counsel for the respondents in the said appeal who appeared also for all the appellants (including the legal representatives of Reddi) in the claimants' appeal; (5) it would not be unfair to assume, under the aforementioned circumstances, that out of the two courses of action open to the legal representatives, namely: (i) to move the High Court for the dismissal of the Government appeal, and (ii) to allow that appeal to be heard and decided on the merits and to abide by any decree that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pear to be a settled legal position in civil law: (1) that a court is not denuded of its jurisdiction to hear a case in which one of the defendants has died and the right to sue does not survive against the surviving defendant or defendants alone, merely because no application has been made to bring the legal representatives of the deceased on the record, when no objection to that effect is raised by anyone ; (2) that decree against a dead person is not necessarily a nullity for all purposes; (3) that a decree against a dead person is treated as a nullity qua the legal representative because it cannot be allowed to operate against him when he was not afforded a full opportunity of being heard in respect of it; (4) that there is nothing to prevent the legal representative, who has been condemned unheard, from abandoning a technical plea of abatement and from deciding that he will not treat the decree as a nullity, but will abide by it as it stands, or as it may be modified thereafter on appeal; (5) that it is thus a matter entirely at the discretion of such legal representative to decide whether he will raise an objection that the decree has become nullity at the appropriate time; (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ddl. ITO v. Suseela Sadanandan [1965] 57 ITR 168 (SC), Subba Rao J., speaking for the Supreme Court, observed that the principle laid down in the context of suits or appeals, namely, that a party bona fide impleaded one of the legal representatives as representing the estate of a deceased party and the said representative represented the estate, the decree obtained therein is binding on the other legal representatives of the deceased, is one of general application and that there was no reason why the said principle should not be invoked in the case of assessment of income from the estate of a deceased person in the hands of his legal representatives. It would be safe to conclude, on a parity of reasoning, therefore, that the aforesaid principles enunciated in N. Jayaram's case, AIR 1979 SC 1393, although they are laid down in the context of suits or appeals, have a general application and that they would be applicable even in a proceeding for the assessment of the income of a deceased person from the estate in the hands of his legal representative. Therefore, if in a given case it is shown that the legal representative (which term would include plurality of persons) of a deceas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the law with him he represents. The legal personality of the dead man thus survives his natural personality, until his obligations being duly performed, his representation among the living is no longer called for (See Salmond on Jurisprudence, 12th Edn., p. 443). 26. As regards income-tax liability, however, as earlier pointed out in the absence of appropriate provisions for collecting tax from the estate of deceased person in the Indian I.T. Act, 1922, prior to its amendment by the Indian I.T. (Second Amend.) Act, 1933, it was held in Reid's case [1930] 5 ITC 100 (Bom) that the executors under the will of the taxpayer were not liable to pay tax in respect of the income of the deceased in the previous year, notwithstanding that he died while the assessment proceedings were pending, because the proceedings could not be continued and the assessment could not be made after the taxpayer's death. This lacuna in the "machinery of assessment" was rectified by the enactment of s. 24B by the Indian I.T. (Second Amend.) Act, 1933 [See CIT v. James Anderson [1964] 51 ITR 345 (SC)]. By the incorporation of s. 24B, the Legislature extended the legal personality of a deceased ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....made against the estate of the deceased as represented by the legal representative. If these steps have been taken, the legal representative would become liable to pay the sum, which the deceased would have paid if he had not died, in the like manner and to the same extent as the deceased, the liability of such legal representative being ordinarily limited to the extent to which the estate is capable of meeting the same. 28. The basic scheme, underlying this provision, which extends the legal personality of a deceased person for the purpose of assessment of tax, proceed on a recognition of the audi alteram partem rule which mandates that no man shall be condemned unheard. Therefore, although the natural personality of the deceased person has disappeared, the legal representative, who represents him in the world of living, is treated as the assessee and he is afforded a full opportunity of being heard before an assessment is made which is binding on the estate. 29. The foregoing discussion shows that s. 159, which merely prescribes the method for making assessment of tax in a special case, does not bear upon the initial jurisdiction of the taxing authority but deals with matte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ity, but not nullity. 30. It would be convenient at this stage to refer to some of the decided cases in which the question whether if one or more of the essential steps envisaged in such a machinery section are not taken and the assessing authority acts in breach of the said section or any part thereof, the assessment proceeding is rendered invalid, has come to be considered in the context of s. 24B of the Indian I.T. Act, 1922. 31. Maharaja of Patiala v. CIT [1943] 11 ITR 202 (Bom) is a case which bears close resemblance to the instant case. The late Maharaja of Patiala, who had income from property and business in British India, died on March 23, 1938. On November 23, 1938, the ITO, Bombay, who was the assessing authority, sent two printed notices under s. 22(2) and s. 34 of the Indian I.T. 1922, addressed to the Maharaja of Patiala requiring him to make a return of his total income for the assessment years 1937-38 and 1938-39. Two returns signed by the Foreign Minister in response to those notices were sent to the ITO. After some correspondence was exchanged, two assessment orders each dated September 10, 1940, were passed for the respective assessment years 1937-38 and 19....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rn required was of the late Maharaja's income. It was not so stated, and the present Maharaja himself may have had taxable income for the years in question; but I think there is a good deal of force in the contention of the Tribunal that any irregularities in this respect were waived by the Maharaja, because returns of the late Maharaja's income were made by the Foreign Minister on behalf of the Maharaja, and then subsequently corrections were made in the assessment at the instance of the Maharaja. There is no doubt that the present Maharaja knew perfectly well that what was being assessed was the income of his predecessor." (Underlining supplied) The learned Chief justice then considered the question of the validity of the actual assessment which was made on the deceased Maharaja. In this connection he observed as follows (p. 228): "It is, of course, wholly irregular to assess a deceased person. The assessment should have been made on the legal representative in respect of the income of the deceased. However, there again, the Patiala authorities seem to have accepted the view that it was an assessment made on the agent in respect of the income of the deceased p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessment order. I must however put on record my opinion that the issue of the assessment order in the name of the late Maharaja was highly irregular and should not in the ordinary course and circumstances be validated lightly." (Underlining supplied.) 33. This decision is a clear authority for the proposition that a notice issued in a name which would apply both to the deceased assessee as well as to his legal representative and which does not on the face of it refer at all to the legal representative of the deceased, though not in accordance with the requirements of s. 24B(2), would not be bad if it is treated as having been addressed to him by the legal representative and it was no more than an irregularity, which could be waived. The decision is also an authority for the further proposition that though it is wholly irregular to assess a, deceased person, the assessment order would not be necessarily bad and that if the legal representative treats the same as an assessment made not on the deceased but on the legal representative or other person liable to be taxed in respect of the income of the deceased person, such assessment order would not be disturbed. 34. In Chooha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t service on them is enough to bind the estate of the deceased." 35. This decision illustrates that though the compliance with the requirement of s. 24B(2) with regard to service of notice on all the legal representatives of the deceased is a sine qua non to the assessment or reassessment of the income of the deceased assessee, in some kinds of cases the assessment or reassessment would be valid even if one or some only of the legal representatives are served with the notice. 36. In Estate of Late Rangalal Jajodia v. CIT [1971] 79 ITR 505 (SC), one R had filed his income-tax and excess profits tax returns for two assessment periods under the provisions of the Indian I.T. Act, 1922, and the Excess Profits Tax Act, 1940, respectively. Notices under ss. 22(4) and 23(2) of the Indian I.T. Act, 1922, were issued to R who complied with the same. Before the assessments could be completed, however, R died leaving him surviving S, a son by his predeceased wife, A, his second wife, and children by her. Under the will of R, A was appointed as an executrix and B as an executor and S was disinherited. The assessing authority issued a notice to S to show cause why the assessment on the dec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a, on her. The submission on behalf of A, on the other hand, was that she was not an assessee because there was no proceeding in law against her and that she was also not intimately connected with the assessment and that, therefore, the second proviso: to s. 34(3) did not apply. The Supreme Court observed that the first assessment was completed under s. 24B through the legal heirs an representatives including A and that the said assessment was set aside on an appeal preferred by S because no notice was given to A, although the assessment proceeding was against her as a legal representative. Then follow the following conclusions on the applicability of the second proviso to s. 34(3) (pp 511, 513 of 79 ITR): "The lack of a notice does not amount to the revenue authority having had no jurisdiction to assess, but that the assessment was defective by reason of notice not having been given to her. An assessment proceeding does not cease to be a proceeding under the Act merely by reason of want of notice. It will be a proceeding liable to be challenged and corrected. Similarly, if there is a mistake as to name or there is a misdescription of the name, the proceeding will be liabl....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not cancelled on the ground of want of notice, and a finding or direction to make a fresh assessment after service of notice is given, such fresh assessment would not be barred and it would be saved by the second proviso to s. 34(3). 38. These three decisions clearly support the view which we have taken as regards the true scope and ambit of s. 159 and the consequences flowing out of non-observance or breach of any of its provisions. They lay down that an error or omission in taking one or more of the various procedural steps prescribed under the said section or even a breach of the statutory injunction contained therein does not necessarily affect the inherent jurisdiction of the taxing authority and that, in certain cases subject to other just exceptions open under law, the resultant defective assessment can be substituted by a fresh assessment undertaken pursuant to a finding or direction of a higher authority without any inhibition of time limit and that, in others, the assessment would still be valid and effective, notwithstanding the defect, depending upon the conduct of the parties and other relevant circumstances. 39. Counsel for the assessee, however, relied upon th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nterest of the deceased without giving the name of any executor, administrator or legal representative. One of the heirs had knowledge of the pendency of the proceeding and notice was received on his behalf by his attorney who did not object. Objection was raised only when the demand notice was issued. It was contended by the revenue in the course of a writ petition instituted by the said heir that his conduct precluded him from getting relief in writ jurisdiction. This contention was rejected on the ground that taxation of a citizen should be made strictly in accordance with law and that there does not seem to be any bounded duty on the part of the taxpayer to point out the infirmities of the revenue authorities in time to save limitation. From the judgment it does not appear that, though the concerned heir knew about the pendency of the assessment proceeding as he was served with the notice, he had actually participated therein and invited an assessment order. That is a material distinguishing fact. Besides, the decision in Maharaja of Patiala's case [1943] 11 ITR 202 (Bom) was not cited and considered. There is now a later judgment of the Supreme Court in Reddi's case, A....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., was not proved to have represented the other legal representatives, the assessment was null and void and that fresh assessment could have been ordered only if law permitted and there was no bar. This case is almost on all fours with Chooharmal's case [1971] 80 ITR 360 (Guj) and what we have stated above while dealing with Chooharmal's case would apply even to this decision. 44. In I. M. Thapar's case [1979] 116 ITR 797 (Cal), the deceased had left behind a will under which two executors were appointed. Probate of the will had not been obtained and administration of the estate was not completed during the relevant year. The assessment was made in the name of the estate of the deceased as represented by executors as well as by legal representatives. It was held that executors having been appointed by the will and the administration having not been completed, they alone could represent the estate, and that having regard to the specific statutory provisions of s. 168, executors alone could have been assessed, since it was not found that any of the legal representatives had intermeddled with the estate. It was further held that if a person, who is not legally liable to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....had before it material disclosing that the widow was representing herself to be the legal heir of the deceased for the purposes of assessment and that in the record of the assessment proceeding for the assessment year in question itself she had produced tax deduction certificates and an indemnity bond signed and executed by her as the legal heir of the deceased. The AAC has also found that the widow could have objected to the issue of all the notices in the, name of the deceased but she failed to do so, although she was advised by experts. It was an admitted fact, according to the AAC, that the legal heirs of the deceased were is stated to be "the widow and a minor son. Above all was the fact that the appeal against the assessment order was filed by the widow in the name of the deceased in her capacity as the legal heir and that it has not been her case that she is not the assessee or any person intimately connected with the assessment within the meaning of s. 153(3). In our opinion, the Tribunal was required to take into account and record its own finding on all these and other if any, facts and circumstances, found or appearing from the record, because they are extremely relevant....