1. One K. Neelakanta Iyer of Bangalore who was carrying on business under the name and style of Rajkamal Enterprises, at No. 8/2, II Cross, Gandhinagar, Bangalore-9, was a registered dealer under the Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957) (hereinafter referred to as the Act), and the Central Sales Tax Act of 1956 (Act No. 74 of 1956) (hereinafter referred to as the CST Act). He died on 7th February, 1975, leaving behind him his mother Smt. Lakshmi Ammal, petitioner No. 1, his wife Smt. Vijayalakshmi, petitioner No. 2, and his daughter Miss Lakshmi, petitioner No. 3, as his legal representatives.
2. When Neelakanta Iyer was alive, he had been assessed to sales tax under the Act for the years 1965-66 to 1971-72 and for the years 1965-66 to 1967-68 under the CST Act and had been issued with demand notices for payment of taxes determine for the said years. On the non-payment of taxes, interests and penalties had been imposed and coercive proceedings had been instituted against Neelakanta Iyer. On the date of his death, Neelakanta Iyer was due in a sum of Rs. 85,074.00 as arrears of taxes and penalties to the State.
3. On 6th October, 1977, the Commercial Tax Officer, XIV Circle, Bangalore, respondent (hereinafter referred to as the CTO), issued notice No. T. 21/77-78 dated 6th October, 1977 (exhibit A), invoking section 16 of the Act to the first petitioner calling upon her to pay a sum of Rs. 85,074.00 as arrears of tax and penalty due within 7 days thereof. On 2nd January, 1978, the CTO by 6 separate but identical notices called upon M/s. (1) South India Wire Products, (2) Intact Manufacturing Company, (3) Control Equipments, (4) Control Oxygen Agency, (5) Lectromeotic Private Limited, and (6) Mohamed Laboratories, (exhibits C to H), under section 14 of the Act to pay the amounts that they held or payable to the deceased assessee and forwarded copies of the same of the power of attorney holder of the petitioners. On 2nd March, 1978, the petitioners have filed this writ petition under article 226 of the Constitution challenging the notices dated 6th October, 1977, and 2nd January, 1978, (exhibits A, C to H) on diverse grounds.
4. The petitioners have alleged that on the death of Neelakanta Iyer, they have not been issued with fresh and necessary demand notices under the Act, and therefore it was not open to the CTO to initiate recovery proceedings against them.
5. In this return, the respondent without denying the factual assertion the petitioners that they had not been issued with demand notices, has sought to justify the notice dated 6th October, 1977, as demand notice and the other notices issued to the garnishees.
6. Sri K. Srinivasan, the learned counsel for the petitioners, has contended that it was not open to the CTO to initiate recovery proceedings against his clients without issuing notices of demands under the Act.
7. Sri L. M. Pandurangaswamy, the learned High Court Government Pleader, appearing for the respondent, in justifying the impugned notices, has urged that no notices of demands were required to be issued before initiating recovery proceedings.
8. The Original assessee was Neelakanta Iyer. The assessment proceedings having been completed against him, he had defaulted in payment of taxes and penalties imposed against him and he was due in a sum of Rs. 85,074 as on 7th February, 1975, on which day he died leaving behind the petitioners as his legal representatives and thereafter they have not been issued with notice of demands under the Act, are not in dispute.
9. The Act broadly follows the pattern of other taxation Acts notably the Indian Income-tax Act, 1961, that replaced the earlier 1922 Act in the matter of assessments, recoveries of taxes and penalties from the assesses.
10. The Act provides for filing of returns and recovery of amounts assessed against a person. Chapter V of the Act deals with returns, assessment, payment, recovery, composition and collection of taxes. Section 12 provides for filing of returns and assessments. On a return filed by the assessee, if the officer is satisfied with the same, he is empowered to accept the same and make an assessment order. When is is not satisfied with the returns, then also he is required to make an assessment in conformity with the Act.
11. Section 12B of the Act provides for payment of tax in advance.
12. Section 13(1) and (2) of the Act, that is material for deciding the question, reads thus :
'13. Payment and recovery of tax. - (1) The tax under this Act shall be paid in such manner and in such instalments, if any, and within such time, as may be prescribed.
(2) If default is made in making payment in accordance with sub-section (1),
(i) the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay the tax under this Act; and
(ii) the person or persons liable to pay the tax under this Act shall pay penalty equal to -
(a) one per cent of the amount of tax remaining unpaid for each month for the first three months, after the expiry of the time prescribed under sub-section (1) and
(b) two and one half per cent of such amount for each month subsequent to the first three months as aforesaid.
Explanation. - For purposes of clause (ii) the penalty payable for a part of a month shall be proportionately determined.'
The rest of the provisions of the section dealing with the modes of recovery is not material and is, therefore, not noticed. Section 13(1) of the Act provides that the taxes under the Act shall be paid in such manner and in such instalments and within such item as in provided by the Rules. Rule 17A provides for the details of the demand to be made by the authority in pursuance of the assessment order made by him. A demand is required to be made in form No. 6 of the Rules.
13. When a notice of demand is issued and severed on the assessee and the assessee makes payment of the amounts stated therein within the stipulated time, the assessee does not commit a default. A default occurs only when the assessee or the person on whom a demand is made, does not pay the amounts specified in the demand notice within the time specified therein and not otherwise.
14. Sub-section (2) of section 13 of the Act and various other provisions of the same section are intended to be resorted to only when an assessee or the other person on whom a demand is made commits a default in the payment of taxes due by him and not otherwise.
15. Section 16 of the Act, firstly provides for continuance of assessment proceedings against the legal representative of the deceased assessee and complete them as if the legal representative is a dealer and assessee under the Act. Secondly, this section provides for recovery of the taxes, penalties and fees that are payable by the deceased assessee from his legal representative to the extent of the assets of the deceased in his hands. Section 16 of the Act is a declaratory provision and creates a legal fiction against the legal representative of the deceased assessee. Section 16 does not provide for the continuance of the recovery proceedings against a legal representative from the very stage it was pending against the deceased assessee. Section 16 does not also provide for the continuance of the recovery proceedings against a legal representative without issuing him a notice of demand.
16. A demand notice issued to the assessee abates on his death. Section 16 to any other provision do not provide for continuance of the recovery proceedings against the legal representative of the assessee as if he is not dead and on the very notice of demand issued to the deceased assessee.
17. A legal representative being totally unaware of the assessment proceedings or the tax recovery proceedings against his predecessor in interest cannot altogether be ruled out. So also, a legal representative satisfying the demand to the extent he holds the assets of the deceased, if a demand is made on him, cannot also be ruled out. But, without issuing a notice of demand on the legal representative and his failure to pay the amounts within the stipulated time, a default in payment cannot and will not arise so far as he is concerned. If a legal representative has to be treated as a defaulter he has necessarily to be issued with a notice of demand. From this it follows that on the death of the assessee, law, reason and justice require the authority to issue a notice of demand to the legal representative of the deceased, preferably stating that that is the legal position brought about by section 16 of the Act.
18. Section 16 of the Act, the scope of which I have earlier noticed, does not dispense with the requirement of issuing a notice of demand to the legal representative. Section 16 itself creates an obligation on a legal representative. An order under section 16, though desirable, is not a condition precedent to fasten liability against the legal representative. Hence, the order made by the CTO on 6th October, 1977 (exhibit A), that too against petitioner No. 1, only and not against the other petitioners cannot be construed as a notice of demand. Even otherwise, a mere demand in that notice or order cannot be construed as a notice of demand issued under the Act and the Rules and in the form prescribed thereto.
19. In Doorga Prosad Chamaria v. Secretary of State the Judicial Committee of the Privy Council dealing with the validity of a revenue recovery certificate issued for income-tax arrears under the Indian Income-tax Act, 1922, on the requirement and necessity for a demand notice under that Act expressed thus :
'In their Lordships' opinion, although income-tax may be popularly described as due for a certain year, it is not in law so due. It is calculated and assessed by reference to the income of the assessee for a given year, but is is due when demand is made under section 29 and section 45. It then becomes a debt due to the Crown, but not for any particular period.'
20. In T. Govindaswamy v. Income-tax Officer, Special Survey Circle, Bangalore : 38ITR197(KAR) a Division Bench of this Court speaking through Narayana Pai, J. (as he then was), dealing with a case of recovery from a partner of a partnership firm, without issuing a notice of demand against him under the Indian Income-tax Act, 1922, expressed thus :
'The essential prerequisite of initiating proceedings for recovery, viz., the issue of a notice of demand under section 29, not having been complied with, it is impossible to hold that the Income-tax Officer has set in motion the machinery for collection.'
In B. Shah Mahmood v. Assistant Commissioner, Ramanagaram : 47ITR55(KAR) a Division Bench of this Court referring to the ruling of the Privy Council in Doorga Prasad Chamaria's case and the ruling of this Court in Govindaswamy's case : 38ITR197(KAR) again expressed the same view.
21. In Raja Pid Naik v. Agricultural Income-tax Officer, Yadgiri : 69ITR401(KAR) this Court was considering the validity of a recovery initiated against the petitioner, who was one of the legal representatives of one Raja Krishtappa Naik, under the Hyderabad Agricultural Income-tax Act, 1950, without issuing a notice of demand. The case initially came up for consideration before a Division Bench consisting of Hegde, J., (as he then was), and Tukol, J. while Hedge J., expressed the view that the recoveries cannot be continued in the absence of a notice of demand issued against the legal representative of Krishtappa Naik, Tukol, J., expressed a different view. On that difference of opinion, the case was referred to a Full bench consisting of Somnath Iyer, J. (as he then was), Kalagate, J., and Sadanandaswamy, J. (as he then was), to state its view on the following question of law :
'Whether, on the facts and circumstances of this case, the petitioner can be said to be an 'assessee in default' within the meaning of that expression found in section 34(3) of the Hyderabad Agricultural Income-tax Act, 1950 (Act 13 of 1950) ?'
On an examination of that question, the Full Bench expressed its concurrence with the view expressed by Hegde, J., and the earlier ruling of this Court in Govindaswamy's : 38ITR197(KAR) and Abdul Rahaman's I.T.R.C. No. 4 of 1959 decided on 13th June, 1961 (Mysore High Court) cases and ruled that in the absence of a notice of demand issued against him, the petitioner was not an assessee in default. In answering the question, the Full bench expressed thus :
'That certificate so prepared exhausted itself when the father died, and so, the power for recovery of the arrears, flowing from it also perished. In that situation, the recovery of the tax from the petitioner under section 34(3) in enforcement of the liability springing from section 22(1), was not possible until he also became an assessee in default by disobedience to the notice of demand to which section 33 refers.
Section 22(1) transmits the liability of the deceased assessee and not his default. So, the character of an assessee in default which had fastened itself on the father did not descend upon the son. There can be a default only when there is a duty to pay, and so, the father's default was not the son's when the tax had not yet become payable by the son.
We cannot import into proceedings for the recovery of agricultural income-tax in respect of which section 34(3) is, in a case like to one before us, a complete and exhaustive proviso, the machinery of the Code of Civil Procedure for execution of decrees. A certificate forwarded under section 34(3) authorises recovery of arrears only from the assessee in default named in that certificate, and, when that assessee dies, the efficacy of the certificate comes to an end and the recovery proceedings cannot continue.
The power of the Taluqdar under section 34(3) which is so limited by the certificate, does not extend to recovery from the legal representative of the deceased, until another certificate properly prepared names him as the assessee in default, and, for that purpose, the Income-tax Officer has to find the legal representative and make a demand.
The proviso to section 34(4) which confers on the Taluqdar the powers exercisable by a civil court in execution proceedings, is not a proviso to sub-section (3) of that section. Even if it is, those powers could be exercised for the recovery which is authorised. And the recovery so authorised is the recovery from the named assessee in default and from no other. Sub-sections (2) and (3) of section 22 under which an assessment may be made or continued against a legal representative as if he was the assessee, are inapposite to recovery proceedings expressly regulated by section 34(3).
Our decision on the question of law referred to us, therefore, is that the petitioner was not an assessee in default within the meaning of that expression found in section 34(3) of the Hyderabad Agricultural Income-Tax Act, 1950 (Act 13 of 1950).'
22. The principles stated in the above cases either under the Indian Income-tax Act of 1922 or the Hyderabad Agricultural Income-tax Act of 1950 are general legal principle and they are equally applicable to proceeding under the Act also. From the above discussion, two conclusions emerge and they are (1) that on the death of Neelakanta Iyer, the CTO was under a legal obligation to issue notices of demands to the petitioners (2) that without issuing notices of demands to the petitioners, the CTO cannot treat them as 'assesses in default' and initiate further recovery proceedings against them.
23. Section 16 if the Act fixes the liability on the legal representatives of the deceased assessee to the extent of the assets in their hands. The liability on the legal representatives in created by law. The notices dated 6th October, 1977, issued by the CTO to petitioner No. 1 (annexure A) does no more than inform the legal liability created by law. On the earlier conclusion, the demand therein requires to be ignored without being quashed. Hence, the notice dated 6th October, 1977, does not call for this Court's interference.
24. In the notices dated 2nd January, 1978 (exhibits C to H), the CTO has called upon the other persons under section 14 of the Act who are alleged to be due or become payable to the deceased assessee. Section 14 of the Act is analogous to section 226 of the India Income-tax Act of 1961 and the provisions regulating garnishee proceedings in the Code of Civil Procedure.
25. The garnishees themselves, though they have been given a right to object under sub-section (5) of section 14 of the Act, have not objected to the notices issued to them. So long as the garnishees do not object and challenge them, it is not open to the petitioners to challenge them. Even otherwise, the garnishees, to the extent they hold or become due to the assessee, are liable to pay the amounts due to the State. For these reasons, the garnishee notices issued by the CTO cannot be interfered with by this Court.
26. In the light of my above discussion, I make the following orders and directions :
(a) I reject the challenge of the petitioners to the notice dated 6th October, 1977 (exhibit A), and the notices dated 2nd January, 1978 (exhibits C to H), issued by the CTO and dismiss their writ petition to that extent.
(b) I prohibit the respondent from initiating recovery proceedings against the petitioners without issuing them proper notices of demand under the Act to the extent of the assets of the deceased in their hands.
27. Writ petition is disposed of in the above terms. But, in the circumstances of the case, I direct the parties to bear their own costs.
28. Let a copy of this order be furnished to the learned High Court Government Pleader within 10 days from this day.