Estate of Late, Rangalal Jajodia Vs.
Commissioner of Income-Tax Madras [1970] INSC 238 (19 November 1970)
19/11/1970 RAY, A.N.
RAY, A.N.
SHAH, J.C.
MITTER, G.K.
HEGDE, K.S.
GROVER, A.N.
CITATION: 1971 AIR 147 1971 SCR (2) 807 1970
SCC (3) 371
ACT:
Income-tax Act, 1922, ss. 34(3) 2nd Proviso
and 24B-Assessee dying, before completion of assessment-Assessment completed by
I.T.O. on assessees legal representatives including disinherited son--A.A.C.
setting aside assessment and directing I.T.O. to make fresh assessment on
executors under assessee's will-Case whether covered by s. 34(3) 2nd proviso
for purpose of extending limitation-Procedure for reassessment-Applicability of
s. 24B.
HEADNOTE:
R filed his income-tax and excess profits tax
returns before the Income Officer/Excess Profits Tax Officer for the assessment
years 1942-43 and 1943-44 and the corresponding chargeable accounting periods.
He complied with the statutory notices issued to him by the said Revenue
Officer but died before the assessments could be made. He was survived by A,
his second wife, his children by her, and by S, his son by a predeceased wife.
In his will A and another person B were named'-as executors and S was
disinherited. S performed the observation at the funeral of R and on this
information the Revenue Officer gave notice to S asking him to show cause why
assessment should not be made on him as the legal representative of R. It was
objected by S that he was not legal representative, but he failed to produce a
copy of the will. The Revenue Officer thereupon completed the assessments on
the estate of R by his legal heirs and representatives among whom he included
S, A and her.
children. On appeal by S the Appellate
Assistant Commissioner, before whom a copy of the will was produced, set aside
the assessments and directed the Revenue Officer to make fresh assessment on
the executors in accordance with s. 24B of the Income-tax Act, 1922. Pursuant
to the direction the Revenue Officer issued notice to the executors. R's widow
A accepted the notice and requested the Revenue Officer to issue the copies of
the record to enable her to make representation. The Revenue Officer held that
it was not necessary to go through the formalities again. He completed the
assessments on 29th October 1952 more than four years after the end of the
assessments, years 1942-43 & 1943-44 respectively. In appeal by A the
Appellate Assistant Commissioner held that the assessments were validly made on
a valid direction by the previous Appellate Assistant Commissioner. He however
set aside the assessments and directed the Revenue Officer to complete them
after giving the executrix a fresh opportunity to object to the assessment. The
Tribunal upheld the order of the Appellate Assistant Commissioner. In reference
the High Court held that the first assessment having been made on S who was not
a legal representative, the direction given by the Appellate Assistant
Commissioner was outside the scope of s. 34(3) of the Act. The High Court also
gave a finding that s. 24B was applicable to the proceedings but that in the
present case the section had not been complied with inasmuch as the procedure
for making assessment had not been followed de novo In appeals before this
Court filed by the Revenue as well as by A the questions that fell for
consideration were : (i) whether s. 34(3) 2nd proviso saved the assessments in
the 808 present case from the bar of limitation and (ii) whether s.
24B applied to the case.
HELD,: (i) The second proviso to s. 34(3) of
the Act applied to the present appeals because, first the proceedings against R
commenced on filing of returns before the Income tax authorities. Secondly, the
assessment proceedings continued after the death of R against the legal
representatives S and A; thirdly, the assessment proceedings on being set aside
and not cancelled pursuant to the appeal filed by S on the ground that notice
was not given to A were continued and fourthly, the setting aside of the
assessment was only on the ground that notice was not given to and therefore
the finding and direction was vital to the assessment proceedings. The High
Court was in error in holding that the assessments were barred by limitation.
[815 C-D] Income-tax Officer, Sitapur v. Murlidhar Bhagwandas, 52 I.T.R. 335
and S. C. Prashad & Anr. v.Vasantsen Dwarkadas & Ors. 49 I.T.R. 1,
distinguished.
(ii) The High Court correctly held that s.
24B of the, Act applied to present case. The third sub-section of s. 24B deals
with !a case of a person dying after having furnished a return. Further in the
present case the Income-tax Officer had reason to believe the return to be
incorrect, and he called upon R to furnish evidence. The Act further confers
power on the Revenue Officer to make the assessment and determine the tax
payable by the deceased on the basis of the assessment and for that purpose to
issue appropriate notice which would have had to be served upon the' deceased
had he survived and in that behalf to require from the executor, administrator
or other legal representatives of the deceased person any accounts or documents
or further evidence which he might under the provisions of ss. 22 and 23
require from the demand person. [815 G-H] [Counsel for the Revenue did not
impeach the conclusion of the High Court that in relation to A the provisions
of s.
24B of the Act were to be followed de novo.]
CIVIL APPELLATE JURISDICTION Civil Appeals
Nos. 2332 to 2335 and 2336 to 2339 of 1966.
Appeals from the judgment and order dated
August 16, 1966 of the Madras High Court in Tax Case No. 171 of 1962 (Reference
No. 96 of 1961).
A. K. Sen and T. A. Ramachandran, for the
appellant (in C.As. Nos. 2332 to 2335 of 1966) and the respondent (in C.As.
Nos. 2336 to 2339 of 1966).
S. Mitra, G. C. Sharma, B. D. Sharma for R.
N. Sachthey, for the respondent (in C.As. Nos. 2332 to 2335 of 1966) and the
appellant (in C.As. Nos. 2336 to 2339 of 1966).
The Judgment of the Court was delivered by
Ray, J. These appeals are by certificate against the judgment dated 16 August,
1965 of the High Court of Madras on 809 a reference under section 66(1) of the
Indian Income-tax Act 1921 (hereinafter referred to as the Act).
Seven questions were referred to the High
Court. The reference involved first the construction of the second proviso to
sub-section (3) of, section 34 of the Act, and, secondly, the applicability of
section 24B(3) of the Act to the assessments made on the, executor to the
estate of late Rangalal Jajodia.
In order to appreciate the scope of the
reference, it is necessary to refer to the facts which gave rise to the
questions. Rangalal Jajodia (hereinafter referred to as the deceased) filed
income-tax returns for the year 1942-43 and 1943-44 as well as his excess
profits tax returns for the corresponding chargeable accounting periods ending
31 December, 1941 and 31 December, 1942 before the Income-tax Officer, Excess,
Profits Tax Officer, Madras, Special South Circle. On receipt of the returns,,
the officer issued the requisite statutory notices to the assessee for
production of accounts and also other evidence in support of the returns under
sections 22 (4) and 23 (2) of the Act and under the corresponding provisions of
section 30 of the Excess Profits Tax Act, 1940. Rangalal Jajodia complied with
the aforesaid notice. But before the assessment to the income-tax and excess
profits tax could be made Rangalal Jajodia died on 11 January; 1946.
Rangalal Jajodia was survived by Shankarlal
Jajodia son by a predeceased wife, Aruna Devi, the second wife and children by
the second wife. Rangalal Jajodia had made a will on 16 April, 1945 whereby
Aruna Devi and one Ram Kumar Bhuwalka were executor and executrix respectively.
Shankar Lal Jajodia was disinherited under the will. Shankarlal Jajodia however
performed the funeral obsequies for the deceased.
The Revenue on the basis of that information
issued notice to Shankarlal Jajodia asking him to show cause why the assessment
of the deceased should not be made on him as the legal representative.
Shankarlal Jajodia objected to the course stating that he was not the legal
representative and that his step mother Aruna Devi andRam Kumar Bhuwalka as the
executrix and executor respectively were the proper persons on whom proceedings
were to be taken. The Revenue called for a copy of the will which however was
not produced. The assessment was completed on 28 February, 1947 on the
materials describing the assessee as "the estate of late Shri Rangalal
Jajodia by legal heirs and representatives, Shri Shankarlal Jajodia, son of
Rangalal Jajodia, Shrimati Aruna Devi, wife of Rangalal Jajodia and her
children".
The assessment orders were served on
Shankarlal Jajodia who appealed to the Appellate Assistant Commissioner contend810
ing that he was not the legal representative. At the hearing of the appeals on
30,, April. 1952 Shankarlal Jajodia produced a copy of the will. The Appellate
Assistant Commissioner set aside the assessment and directed the Revenue
Officer to make a fresh assessment on the executors in accordance with section
24B of the Act.
Pursuant to the direction of the Appellate
Assistant Commissioner the Revenue Officer informed the executrix and Ram Kumar
Bhuwalka of his proposal to make assessment on them as the legal
representatives of Rangalal Jajodia. Ram Kumar Bhuwalka who had refused to act
as an executor intimated the fact to the Revenue Officer. Aruna Devi the
executrix accepted the notice but requested the Revenue Officer to furnish her
with copies of the returns, notes of examination and correspondence between the
deceased and the Revenue to enable her to make representations. The Revenue
Officer however took the view that under section 24B of the Act it was not
necessary to go through all the formalities once again and that the assessments
were required to be done only for the purpose of inviting objections, if any,
to the locus standi of Aruna Devi as the legal representative of the deceased.
On, the said view the Revenue Officer completed the income-tax and excess
profits tax assessments on the estate' of late Rangalal Jajodia by executors
Mrs. Aruna Devi and another. The assessments were made on 29 October.1952 more
than four years after the end of assessment years 1942-43 and 1943-44
respectively.
The executrix Aruna Devi appealed against the
assessments contending before the Appellate Assistant Commissioner that the
assessments were barred by limitation and that the previous Appellate Assistant
Commissioner's direction to make assessments on her was invalid. It was also
contended that reasonable opportunities were not given to Aruna Devi before the
assessments were made. The Appellate Assistant Commissioner on 16 April, 1955
held that the assessments were validly Made on a valid direction by the
previous Appellate Assistant Commissioner. He however set aside the assessments
directing the Revenue Officer, to complete them after giving the executrix a
fresh opportunity to object to the assessment. Aruna Devi appealed to the
Appellate Tribunal. The Tribunal rejected the appeals on the ground that the
assessments had been set aside by the Appellate Assistant Commissioner with the
direction to give sufficient opportunities to her. On a reference taken by
Aruna Devi to the High Court, the High Court held that the Tribunal ought to
have properly disposed of the appeals on all 811 the contentions raised
therein. Pursuant to the order of the High Court the Tribunal heard the appeals
on merits on 9 June, 1961 and held that the reassessment made by the Revenue
Officer on Aruna Devi, the executrix was valid and that the assessments were
saved from the bar of limitation by the second proviso to section 34(3) of the
Act. The Tribunal also held that the assessments were validly made under
section 24B(3) of the Act.
The High Court on reference under Section
66(1) of the Act held that the second proviso to section 34(3) applied to save
reassessment from the bar of limitation but that in the present appeals, the
first assessments which were made on Shankarlal Jajodia were set aside on
appeal because these were not made on, the real legal representatives of the deceased
and therefore no direction or finding could be made by the Revenue Authority in
any such appeal as would remove the bar of limitation on the reassessment later
made on the executor who was to be regarded as an entirely different assessee.
The High Court also held that the direction or finding given by the Appellate
Assistant Commissioner for making the assessment on the executors was
unnecessary for the disposal of the appeals filed by Shankarlar Jajodia and
therefore the direction and the findings were outside the scope of the second
proviso to section 34(3) of them Act.
As to section 24B sub-clause (3) of the Act,
the High Court held that the section applied to the assessments in the present
appeals but the High Court negative the contention of the Revenue that the
assessments made on the executrix were mater in proper compliance with the
procedure prescribed under section 24B (3) of the Act. The High Court held that
it was a condition precedent to the validity of assessment. to be made on the legal
representatives that the procedure prescribed for making the assessment on the
deceased assessee was to be repeated as regards the assessment on the legal
representative irrespective of the fact that such procedure was followed during
the life time of the deceased.
The relevant provisions of section 34(3) of
the Act necessary for the purpose of the present appeals are the second proviso
to the said sub-section. The said second proviso is as follows "Provided
further that nothing contained in' this section limiting the time within which
any action may 812 be, taken or any order, assessment or reassessment May be
made, shall Apply to a reassessment made under section 27 or to an assessment
or reassessment made, on the assessee or any person in consequence or of to
give effect to any finding or direction contained in an order under-section 31,
section 33, section 33A, section 33B, section 66 or section 66A".
Counsel for the Revenue in C.A. No. 2336-2339
of 1966 contended that the second proviso saved the assessment from the bar of
limitation by reason of an order of assessment having been made in consequence
of a finding or direction given by the Appellate Assistant Commissioner and
secondly that Aruna Devi was a person intimately connected with the assessment
and that in fact the assessment was made on her, but the assessment was set
aside because no notice was given to her. Counsel for the appellant Aruna Devi
in C.A. No. 2332-2335 of 1966 on the other contended first that Aruna Devi was
not an assessee and therefore the benefit of the second proviso to section
34(3) of the Act would not avail.
Secondly it was said that Aruna Devi was not
intimately connected with the assessment and was not an assessee, because there
was no proceeding in law under the Act against Aruna Devi and therefore she was
not an Assessee.
An assessee is defined in section 2 (2) of
the Act meaning, a person by whom income-tax or any other sum of money is
payable under this Act, and includes every person in respect of whom any proceeding
under the Act has been taken for the assessment of his income or of the loss
sustained by him or of the amount of refund due to him. It was said on behalf
of the appellant Aruna Devi that the estate cannot be an assessee and in order
to make the legal representative an assessee, a proceeding must be taken
against the executor under the Act. It was also said that in the final
assessment Aruna Devi was assessed as an executrix but no proceeding for
assessment was taken against Aruna Devi as an executrix. Emphasis was placed on
the fact that the proceeding. was against the estate which was unknown to law
and even if the proceeding against the estate could be held to be a valid
proceeding Aruna Devi was never given any notice and therefore no proceeding
was taken against her.
The assessment order shows the name of the
assessee as the estate of late Shri Rangalal Jajodia by legal heirs and
representatives Shri Shankarlal Jajodia, son of Shri Rangalal jajodia, Smt.
Arun Devi wife of Rangalal Jajodia and her children. Rangalal Jajodia had filed
the return., He died before the assessment was completed. The assessment was
made on Aruna 813 Devi as legal representative. She was described as legal
representative but not as an executrix. The liability under the Act in case. of
death of a person is of the esceutor, administrator or representative to be
liable to pay out of the estate of the deceased person to the extent to which
the estate is capable, of meeting the charge the tax assessed as payable by
such person or any tax Which would have been paidby him under the Act if he had
not died. The Revenue in the assessment proceedings described the estate of
Rangalal Jajodia by the legal heirs and representatives.
It. cannot be denied that an executor is also
a legal representative.
What happened in the present assessment
proceedings was that the proceedings were commenced during the life-time of
Rangalal Jajodia by reason of the returns being filed by and notices under
sections 22 (3) and 23 (2) of the Act having been served on Rangalal jajodia
during his life-time. The assessment order contains, intrinsic evidence to that
effect as also of repeated intimation having been given to Shankarlal Jajodia
after the death of Rangalal Jajodia. No reply having been received from
Shankarlal Jojodia, the assessment was completed under section 24B of the Act
through the legal heirs and representatives including Aruna Devi. The Appellate
Assistant Commissioner on an appeal preferred by Shankarlal Jajodia set aside
the assessment because no notice was given to Aruna Devi though the assessment
proceeding was against her as a legal representative. 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 liable to be challenged
and' corrected by giving notice to the assessee subject to such just exceptions
as an assessee can take under law. The direction given lay the Appellate Assistant
Commissioner was to make fresh assessment on Aruna Devi in accordance with the
provisions of the Act.
Counsel for Aruna Devi relied on the decision
of this Court in Income-tax Officer, Sitapur vs. Murlidhar Bhagwandas, 52
I.T.R. 3 3 5 in support of the proposition that no finding was necessary in the
present case because Aruna Devi was not an assessee and was a different person.
We find that Aruna Devi was an. assessee in the income-tax proceedings, but the
proceedings were, not in compliance with the Act by reason of the failure of
giving the requisite notice of assessment and the requisite notice of demand.
In Murlidhar's case (supra) the assessee appealed against an assess814 ment
order and the Appellate Assistant Commissioner held that the income was
received in the previous accounting year and directed that the amount should be
deleted from the assessment year 1949-50 and included in the assessment year
1948-49. Pursuant to that direction the Income-tax Officer imitated
reassessment proceedings in respect of the year1948-49 and served a notice on 5
December, 1957. The question was whether the second proviso applied and saved
the notice in respect of the year 194849. It was held that the jurisdiction of
the Appellate Assistant Commissioner under section 31 of the 1922 Act was
strictly confined to the assessment order of the particular year under appeal
and the assessment or reassessment made in consequence of or to give effect to
any finding or direction contained in an order under section 31, section 33A.,
section 33B, section 66 or section 66A must necessarily relate to the
assessment of the year under appeal. The expression finding and direction in
the second proviso to section 34(3) was held to be a finding necessary for
giving relief in respect of the assessment in question and that direction which
the appellate or the revisional authority was empowered to give tinder the
sections mentioned in that proviso. The finding in Murlidhar's case (spura)
that the income belonged to the year 4948-49 was not a finding necessary for
the disposal of an appeal in respect of the year of assessment in question.
Counsel for Aruna Devi contended that the
expression any person' occurring in the second proviso to section 34(3) of the
act could not be preferable to a stranger and that Aruna Devi was a stranger.
In support of that proposition reliance' was placed on the decision of this
Court in S. C.
Prashar & Anr. v. Vasentsen Dwarkadas
& Ors. 49 I.T.R. 1.
The facts of that case are entirely different
and are of no assistance for the reason that in the, present appeals Aruna Devi
was impleaded as a party to the assessment proceedings as a legal
representative of Rangalal Jajodia. The words any person were construed in
Murlidhar's case (supra) to be, confined to a person intimately connected with
the assessment year under appeal. It was said in that case that
"modification or setting aside assessment made on a firm, joint Hindu
family, association of persons, for a particular year may affect the assessment
for the said year on a patner or partners; of the firm, member or members of
the Hindu undivided family or the individual, as the case may, be. In such
cases though the latter are not a nominee parties to the appeal, their
assessments depend upon the assessments on the former, The said instances are
only illustrative. It is not necessary, to pursue the matter further. We would,
therefore, hold that the expression any person in the setting in which it
appears must be confined to a person intimately connected in the aforesaid
sense with the assessments of the year under appeal." In the present
appeals the ending was that the assessment was made on Aruna Devi but no notice
was given to her., The necessary direction was therefore given that notice
should be given to her. Aruna Devi was heard and the assessment was made. She
was not merely intimately connected with the assessment. She was in fact an
assessee. Therefore, the Second proviso to section 34(3) applied.
We are therefore of opinion that the second
proviso to section 34(3) of the Act applies to the present appeals because
first the proceedings against Rangalal Jajodia commenced on filling of returns
before the income-tax authorities;
secondly, the assessment proceedings
continued after the death of Rangalal Jajodia against the legal representatives
Shankarlal Jajodia and Aruna Devi; thirdly, the assessment proceedings on being
set aside and not cancelled pursuant to the appeal filed by Shankarlal'Jajodia
on the ground that notice was not given to Aruna Devi were continued, and,
fourthly, the setting aside of the assessment was only on the ground that
notice was not given to Aruna Devi and therefore the finding and direction was
vital to the assessment proceedings. The High Court was in error in holding that
the assessment proceedings were barred by limitation.
The other question is as, to the
applicability of section 24B of the Act. Counsel on behalf of Aruna Devi
repeated the contentions advanced in the High Court that section 24B does not
cover the entire field of procedure to be followed in assessing the income of
the deceased person. The High Court held that section 24B of the Act applied
but Aruna Devi should have been given opportunities to object to the assessment
by repeating the entire procedure of section 24B of the Act as during the life
time of the deceased. Counsel for the Revenue. did not impeach the conclusion
of the High Court that in relation to Aruna Devi the provisions of section 24B
of the Act were to be followed de novo. We are of opinion that the High Court
correctly held that section 24B of the Act applies to the present case. The
third subsection of section 24B deals with a case of a person dying after
having furnished a return. Further, in the present case the Income-tax Officer had
reason to believe the return to be incorrect or incomplete, and he called upon
Rangalal to furnish evidence. The Act further confers power on the Revenue
officer to make the assessment and determine the tax payable by the deceased on
the basis of the assessment and for that purpose to issue appropriate notice
which would have had to be served upon the, deceased had he survived and in
that behalf to require from the executor, administrator or other legal
representative of the deceased person any accounts, documents or other evidence
which he might under the provisions of sections 22 and 23 require from the
deceased 816 person. These provision adequately answer the contention of the
appellant Aruna Devi.
For these, reasons we hold that the High
Court was in error in holding that the second proviso to section 34 (3) of the
Act did not save the assessments and therefore we set aside the judgment of the
High Court and allow the appeals of the Revenue in C.A. Nos. 2336-2339 of 1966.
As for appeals C.A. Nos. 2332-2335 of 1966 we
the conclusion of the High Court and dismiss the appeals party will bear and
pay its own costs in all these appeals., G.C. C.A. Nos. 2336-2339 of 1966
allowed.
C.A. Nos. 2332-23.35 of 1966 dismissed.
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