Commissioner Of Income Tax Viii, Chennai v. Shri.m.hemanathan

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MR.JUSTICE V.RAMASUBRAMANIAN THE HONOURABLE MR.JUSTICE M.DURAISWAMY TAX CASE APPEAL NO.199 OF 2016 Commissioner of Income TaxVIII, Chennai....AppellantVsShri.M.Hemanathan...Respondent APPEAL under Section 260A of the Income Tax Act, 1961against the order dated 11.9.2015 made in I.T.A.No.1286/Mds/2014on the file of the Income Tax Appellate Tribunal 'C' Bench,Chennai for the assessment year 2009-10 against the Order of theOffice of the Commissioner of Income Tax Chennai VIII made infile No.865(3)/CITVIII/2012-13, PAN NO: , AssessmentYear 2009-10 which was preferred against the Assessment Orderpassed by the Deputy Commissioner of Income Tax Circle-I Velloredated 23.06.2011 made in PAN NO.AANPM9760 E, for the AssessmentYear 2009-10. For Appellant :Mr.R.Swaminathan assisted by Mr.K.Sureshkumar & Ms.V.Pushpa Judgment was delivered by V.RAMASUBRAMANIAN,J This tax case appeal is filed by the Revenue under Section260A of the Income Tax Act, 1961. The Revenue has come up withthe above appeal raising the following substantial questions oflaw : "(1) Whether on the facts and in the circumstances of thecase, the Tribunal was right in law in quashing the order of theCommissioner of Income Tax passed under Section 263 of theIncome Tax Act on a dead person without noting that theCommissioner of Income Tax has impleaded the legal heirs of theassessee? and (2) Whether on the facts andcircumstances of the case, the Tribunal wasright in not considering the crucial fact https://hcservices.ecourts.gov.in/hcservices/ that the notice under Section 263 of theIncome Tax Act was served on the legalrepresentative and the opportunity of beingheard was given to the legal representativeand his authorised representative appearedand attended the hearings before theCommissioner of Income Tax during theproceedings under Section 263 of the IncomeTax Act ?" 2. Heard Mr.M.Swaminathan, learned Standing Counsel for theappellant/Department. 3. The respondent is the legal heir (the son) of one lateM.A.Margesan. For the assessment year 2009-10, the assesseefiled a return of income on 3.6.2009 admitting a total income atRs.39,26,390/-. The return was processed under Section 143(1).It was selected for scrutiny and a notice under Section 143(2)was issued. The assessee participated in the proceedings,produced books of accounts and presented his case through anauthorised representative. Thereafter, the Assessing Officerpassed an order dated 23.6.2011, recomputing the income andultimately arriving at the conclusion that an amount ofRs.57,162/- was due as refund by the Department to the assessee.It must be noticed that this is a case of scrutiny assessment. 4. After two years of passing of the assessment order, theCommissioner of Income Tax issued a show cause notice underSection 263 on 6.9.2013. The show cause notice was addressed tothe assessee Mr.M.A. Margesan. But, at least three months beforethe date of issue of the show cause notice, the assessee hadpassed away. He is stated to have died on 13.6.2013. 5. As a result, the show cause notice dated 6.9.2013, sentby post, was returned with the endorsement 'addressee deceased'.This fact was intimated by the Income Tax Officer to theAssistant Commissioner by a communication dated 23.9.2013. 6. It appears that thereafter the Department served the verysame show cause notice on the son of the deceased assesseethrough a messenger. Left with no alternative, the son engagedthe services of an authorised representative, who participatedin the proceedings under Section 263. 7. Eventually, an order was passed by the Commissioner on21.3.2014, sustaining the show cause notice, setting aside thescrutiny assessment order dated 23.6.2011 and remitting thematter back to the Assessing Officer to pass orders afresh. 5. As a result, the show cause notice dated 6.9.2013, sentby post, was returned with the endorsement 'addressee deceased'.This fact was intimated by the Income Tax Officer to theAssistant Commissioner by a communication dated 23.9.2013. 6. It appears that thereafter the Department served the verysame show cause notice on the son of the deceased assesseethrough a messenger. Left with no alternative, the son engagedthe services of an authorised representative, who participatedin the proceedings under Section 263. 7. Eventually, an order was passed by the Commissioner on21.3.2014, sustaining the show cause notice, setting aside thescrutiny assessment order dated 23.6.2011 and remitting thematter back to the Assessing Officer to pass orders afresh. 8. Pursuant to the said order, the Assessing Officer passeda giving effect order computing the total tax payable asRs.29,01,959/-. As against the order passed under Section 263, the assessee filed an appeal to the Tribunal inI.T.A.No.1286/Mds/2014. This appeal was allowed by the Tribunalby an order dated 11.9.2015 holding that the order passed underSection 263 against a dead person is a nullity. Aggrieved by thesaid order, the Revenue is before us. 9. The contentions of Mr.M.Swaminathan, learned StandingCounsel for the Revenue are three fold namely (i) that the Tribunal was wrong in setting aside the orderunder Section 263 as a nullity only on the basis that it waspassed against a dead person without realising that the legalheir had participated in the proceedings (ii) that under Section 292BB, the notice issued against adead person, cannot be taken to be a nullity under certaincircumstances and (iii) that under Section 159(2), the legal representativesbecome obliged to answer such notices and orders in certaincircumstances. 10. We have carefully considered the above submissions. 11. The first contention of the learned Standing Counsel forthe Department is that the notice, despite having been issuedagainst the dead person, was served on the legal heir and thelegal heir also participated in the proceedings. Therefore, itis his contention that it is not open to the legal heir now totake a position that the entire proceedings are a nullity. 12. But unfortunately, the said contention loses sight ofthe settled position that any proceeding initiated against adead person is a nullity. The contention of the learned StandingCounsel for the Department loses sight of one importantdistinction between a case where the proceedings are initiatedagainst a person, who is alive, but continued after his deathand a case of proceedings initiated against a dead personhimself. If the proceedings had been initiated against a person,who was alive, and they were continued after his death afterputting his legal heirs on notice, those proceedings, undercertain circumstances, may be saved. Such a situation is alsocontemplated in civil proceedings and a provision is made in theCivil Procedure Code itself under Order XXII Rule 4. Therefore,the cases where the very proceedings are initiated against adead person stand apart from those proceedings where they are https://hcservices.ecourts.gov.in/hcservices/ initiated against a live person, but continued after his deathagainst the legal heirs. Hence, the first contention is rejected.13. The second contention revolves around Section 292BB ofthe Act, which reads as follows : "292BB. Notice deemed to be valid incertain circumstances. Where an assessee has appeared in anyproceeding or co- operated in any inquiryrelating to an assessment or reassessment,it shall be deemed that any notice under anyprovision of this Act, which is required tobe served upon him, has been duly servedupon him in time in accordance with theprovisions of this Act and such assesseeshall be precluded from taking any objectionin any proceeding or inquiry under this Actthat the notice was-- (a) not served upon him; or initiated against a live person, but continued after his deathagainst the legal heirs. Hence, the first contention is rejected.13. The second contention revolves around Section 292BB ofthe Act, which reads as follows : "292BB. Notice deemed to be valid incertain circumstances. Where an assessee has appeared in anyproceeding or co- operated in any inquiryrelating to an assessment or reassessment,it shall be deemed that any notice under anyprovision of this Act, which is required tobe served upon him, has been duly servedupon him in time in accordance with theprovisions of this Act and such assesseeshall be precluded from taking any objectionin any proceeding or inquiry under this Actthat the notice was-- (a) not served upon him; or (b) not served upon him in time; or (c) served upon him in an impropermanner: Provided that nothing contained inthis section shall apply where the assesseehas raised such objection before thecompletionofsuchassessmentorreassessment." 14. A cursory look at Section 292BB would show that the samewould apply only to two types of proceedings namely (i)proceedings, in which, the assessee had appeared and (ii) anyinquiry, in which, the assessee had cooperated. 15. In the case on hand, the assessee was dead. It was theassessee's son, who appeared and perhaps cooperated. Therefore,the primary condition for the invocation of Section 292BB isabsent in the case on hand. 16. Section 292BB is in place to take care of contingencieswhere an assessee is put on notice of the initiation ofproceedings, but who takes advantage of defective notices ordefective service of notice on him. It is trite to point outthat the purpose of issue of notice is to make the noticee awareof the nature of the proceedings. Once the nature of theproceedings is made known and understood by the assessee, heshould not be allowed to take advantage of certain proceduraldefects. That was the purpose behind the enactment of Section292BB. In cannot be invoked in cases where the very initiationof proceedings is against a dead person. Hence, the secondcontention cannot also be upheld. 17. The third contention revolves around Section 159(2). Itwill be useful to extract Section 159 in entirety. It reads asfollows : "159. Legal representatives.--(1) Wherea person dies, his legal representative shallbe liable to pay any sum which the deceasedwould have been liable to pay if he had notdied, in the like manner and to the sameextent as the deceased. (2) For the purpose of making anassessment(includinganassessment,reassessment or re-computation under Section147) of the income of the deceased and forthe purpose of levying any sum in the handsof the legal representative in accordancewith the provisions of Sub-Section (1),-- (a) any proceeding taken against thedeceased before his death shall be deemed tohave been taken against the legalrepresentative and may be continued againstthe legal representative from the stage atwhich it stood on the date of the death ofthe deceased ; (b) any proceeding which could have beentaken against the deceased if he hadsurvived, may be taken against the legalrepresentative; and (c) all the provisions of this Act shall apply accordingly. (3) The legal representative of thedeceased shall, for the purposes of this Act,be deemed to be an assessee. (4) Every legal representative shall bepersonally liable for any tax payable by himin his capacity as legal representative if,while his liability for tax remainsundischarged, he creates a charge on ordisposes of or parts with any assets of theestate of the deceased, which are in, or maycome into, his possession, but such liabilityshall be limited to the value of the asset socharged, disposed of, or parted with. (5) The provisions of Sub-Section (2) ofSection 161, Section 162 and Section 167, https://hcservices.ecourts.gov.in/hcservices/ (c) all the provisions of this Act shall apply accordingly. (3) The legal representative of thedeceased shall, for the purposes of this Act,be deemed to be an assessee. (4) Every legal representative shall bepersonally liable for any tax payable by himin his capacity as legal representative if,while his liability for tax remainsundischarged, he creates a charge on ordisposes of or parts with any assets of theestate of the deceased, which are in, or maycome into, his possession, but such liabilityshall be limited to the value of the asset socharged, disposed of, or parted with. (5) The provisions of Sub-Section (2) ofSection 161, Section 162 and Section 167, https://hcservices.ecourts.gov.in/hcservices/ shall, so far as may be, and to the extent towhich they are not inconsistent with theprovisions of this Section, apply in relationto a legal representative. (6) The liability of a legalrepresentative under this section shall,subject to the provisions of Sub-Section (4)and Sub-Section (5), be limited to the extentto which the estate is capable of meeting theliability." 18. Sub-Section (1) of Section 159 would apply to a casewhere a liability has already crystallised. The death of anassessee would not absolve the legal heirs of the assessee ofany liability that the assessee had incurred during his lifetime. In the case on hand, the liability, if any, would havearisen only after an order is passed under Section 263.Therefore, Sub-Section (1) of Section 159 will not apply to thecase on hand. Sub-Section (2) of Section 159 deals primarilywith two contingencies. The first is dealt with in Clause (a) ofSub-Section (2) of Section 159. This Clause (a) contemplates thecontingency of a proceeding taken against the deceased beforehis death. 19. In this case, the very initiation of proceedings underSection 263 was done after the death. Clause (a) of Sub-Section(2) uses the expression 'before his death'. Therefore, Clause(a) would not apply to the case on hand. 20. Clause (b) is probably more advantageous to the Revenue,if at all it could be taken advantage by the Revenue. Clause (b)attempts to save the situation where the right of the Revenue toproceed against the assessee was available at the time when theassessee had passed away. Take for instance cases where theAppellate Authority has decided an issue in favour of theassessee and before the time limit available for the Departmentto file a further appeal, the assessee had died. In suchsituation, the right to file further appeal is a right to takeany proceeding that was available to the Department as if thedeceased assessee had survived. Therefore, it is only thosecircumstances that can be said to be taken care of under Clause(b). 21. In any case, in the case on hand, the Department wasmade aware of the fact that the assessee was dead. The IncomeTax Officer's letter dated 23.9.2013 informing his superior thatthe notice under Section 263 returned with the endorsement ofthe Postal Department to the effect that the addressee was dead,clinches the fact. Despite being put on notice that the noticeewas dead, the Department chose to pursue the very same notice. https://hcservices.ecourts.gov.in/hcservices/ In such circumstances, Clause (b) of Sub-Section (2) of Section159 cannot be taken advantage of by the Department. 22. Sub-Section (3) of Section 159 contains a deemingfiction. It states that the legal representative of the deceasedshall, for the purposes of this Act, be deemed to be anassessee. Therefore, it is contended by Mr.M. Swaminathan,learned Standing Counsel for the Department that the respondentshould be deemed to be an assessee and the service of notice onhim should be deemed to be sufficient service. https://hcservices.ecourts.gov.in/hcservices/ In such circumstances, Clause (b) of Sub-Section (2) of Section159 cannot be taken advantage of by the Department. 22. Sub-Section (3) of Section 159 contains a deemingfiction. It states that the legal representative of the deceasedshall, for the purposes of this Act, be deemed to be anassessee. Therefore, it is contended by Mr.M. Swaminathan,learned Standing Counsel for the Department that the respondentshould be deemed to be an assessee and the service of notice onhim should be deemed to be sufficient service. 23. In other words, the contention of the learned StandingCounsel is that the respondent herein automatically becomes adeemed assessee in terms of Sub-Section (3) and hence, hisparticipation would pre-empt him from taking objection to thefact that the notice was addressed to a dead person. 24. Though at first blush, the contention appears to be wellfounded, we do not think that the Department can raise it inthis case. As we have pointed out earlier, the original order ofassessment was a scrutiny assessment passed under Section 143(3)on 23.6.2011. After two years, the Commissioner sought to invokeSection 263. The assessee had died in the meantime on 13.6.2013.The show cause notice under Section 263 was issued on 6.9.2013. 25. We can give the benefit to the Department that they werenot aware of the death of the assessee on that date. But, thisnotice dated 6.9.2013, sent by post, returned with theendorsement that the addressee was dead. Thereafter, theDepartment served the very same notice on the legal heir througha messenger. Therefore, the Department cannot now take advantageof Sub-Section (3) of Section 159. If the Department had issuedthe notice addressed to the legal heir himself, by takingrecourse to Section 159(3), the deeming fiction could have beentaken advantage of by the Department. It is too late in the dayfor the Department to take advantage of the same. 26. Mr.M.Swaminthan, learned Standing Counsel drew ourattention to the decision of the Madhya Pradesh High Court inSmt.Kaushalyabai Vs. CIT [238 ITR 1008] and contended that oncethe legal heir of the deceased assessee had participated in theproceedings, the defect in the notice stood automatically cured. 27. We have gone through the decision of the Madhya PradeshHigh Court. As seen from the facts, out of which, the said casearose, the proceedings for assessment for the years 1975-76 to1980-81 were completed by the Department. Thereafter, theDepartment noticed that the share income of the wife of theassessee, which should have been included in the assessee'shands under Section 64, had escaped assessment. Therefore, theproceedings were initiated under Section 147. In the meantime, the assessee expired on 12.1.1981. Notices were issued on3.3.1981 and they were received by the legal heirs. In responseto the notices, the legal heirs actually filed returns for allthese years under protest. 28. Therefore, there are two reasons as to why we cannot goby the ratio decidendi in Kaushalyabai. The first is that inresponse to the notices, the assessee's legal heirs filedreturns of income. In other words, they submitted to thejurisdiction. Moreover, what was sought to be done was actuallyto include the income of the wife under Section 64. 29. The second reason is that with great respect to theMadhya Pradesh High Court, the principle of law that they hadmentioned therein does not appear to be correct. A notice sentto a dead person is actually a nullity. There is only oneexception in so far as civil proceedings are concerned, whichcould be traced to Order XXII Rule 4. Section 159 of the IncomeTax Act also carves out an exception. Since service of notice onthe legal heir of a dead person falls under the category of anexception to the general rule, the same cannot overtake the rulein the absence of a specific provision. 29. The second reason is that with great respect to theMadhya Pradesh High Court, the principle of law that they hadmentioned therein does not appear to be correct. A notice sentto a dead person is actually a nullity. There is only oneexception in so far as civil proceedings are concerned, whichcould be traced to Order XXII Rule 4. Section 159 of the IncomeTax Act also carves out an exception. Since service of notice onthe legal heir of a dead person falls under the category of anexception to the general rule, the same cannot overtake the rulein the absence of a specific provision. 30. A Bench of this Court, to which, one of us (VRSJ) was aparty, had pointed out in Gopalakrishnan G.S. Vs. State of TamilNadu [2006 (4) CTC 757], that a distinction has always to bemaintained between judicial/ quasi judicial proceedings andother proceedings. In Savithriammal Vs. State of Tamil Nadu[2006 (3) MLJ 389], a Division Bench of this Court hadcategorically pointed out that the notification issued in thename of a dead person is a nullity. In Smt. Lila Vati Bai Vs.State of Bombay , the Constitution Bench of theSupreme Court had carved out an exception. 31. The case on hand will not fall under the said exception.Therefore, the very initiation of the proceedings against thedead person and the continuation of the same despite havingnoticed the factum of death of the assessee, cannot be approved. 32. Hence, the tax case appeal is dismissed and thequestions of law are answered against the Department. Sd/- Assistant Registrar(CS III) //True Copy// Sub Assistant Registrar To The Income Tax Appellate Tribunal 'C' Bench, Chennai. TCA.No.199 of 2016 lrs(CO)srg(11/04/2016)