1. The following questions of law have been referred to us for our decision:
'1. Whether, on the facts and in the circumstances of the case, the Appellate Assistant Commissioner of Income-tax could set aside the assessment and issue direction to the Income-tax Officer for framing proper assessment on the legal heirs of Neecha Ram?
2. If the answer to the first question is in the negative, whether, on the facts and in the circumstances of the case, the assessment made in the name of Shri Neecha Ram for the assessment year 1962-63 was liable to be annulled ?'
2. These questions relate to the assessment of late Shri Neecha Ram for the assessment years 1962-63 and 1963-64. The assessment orders for these two assessment years were framed by the ITO concerned on December 20, 1965, and January 25, 1966, respectively. It is common ground before us that Shri Neecha Ram, the assessed, had died on November 5, 1964, which was at least more than a year before each of the assessment orders was passed. The assessment order for the year 1962- 63, which is annex. 'A' to the statement of case, does not state anywhere that the assessed had dies, but it does show that Shri Roshan Lal, son of the assessed, had attended along with Shri B. B. Ahuja, advocate, and the case had been discussed. The assessment order also shows that two houses had been constructed by the assessed and there was an unexplained investment. Part of this unexplained investment was added in the assessment year 1962-63, and part of it was added in the assessment year 1963-64. In the case of the assessment year 1963-64, the name of the assessed is shown as 'Shri Neecha Ram through his legal representative, Shri Roshan Lal'. So, in the later year it appears that the ITO had taken note of the fact that the assessed had died.
3. An appeal was taken to the AAC by the legal representatives, who passed a consolidated order concerning the two years. He held that the proceedings were valid till the death of Shri Neecha Ram and, thereafter, the ITO had not proceeded properly. He directed the ITO to take up the proceedings again and assess the legal heirs of Shri Neecha Ram. He also gave a direction that the procedure of law should be followed and proper assessments be framed. The direction is objected to on behalf of the legal representatives on the ground that it has the effect of extending the period of limitation for making the assessments.
4. An appeal was thereafter taken by the legal representatives, objecting to the remand and the direction, to the Income-tax Appellate Tribunal, which by its order dated March 5, 1970, held that the proceedings were a nullity. In fact, the decision is that the AAC could only set aside the assessment and could not set aside the assessment with a direction to frame a proper assessment. The real question before us is whether, (a) the assessment made by the ITO was valid, or (b) the assessment was invalid and the direction of the AAC directing the reassessment of the assessed was correct, or (c) the initial assessment was totally invalid as it was not in accordance with law.
5. Learned counsel for the assessed has suggested to us that the proper question of law which arises in this case is as follows:
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in annulling the assessments for the assessment years 1962-63 and 1963-64, made in the name of the deceased, late Shri Neecha Ram ?'
6. He suggests that the question should be reframed by us, but we not that the questions as framed seem to cover all the aspects of the case and we proceed to deal with the matter accordingly.
7. There are other income-tax references before us which are I.T.R. No. 125 and I.T.R. No. 126 of 1972. These assessments have arisen because, after the remand, fresh assessment orders have been passed by the ITO. As in the meantime the Tribunal had struck down the remand order, both the AAC as well as the Tribunal had struck down the reassessments. These two references will be dealt with separately by us in accordance with how we decide the present reference.
8. The first question for decision is as to the procedure which has to be followed by the ITO under s. 159 of the I.T. Act, 1961. The section provides as follows:
'159. (1) Where a person dies, his legal representative shall be 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.
(2) For the purpose of making an assessment (including an assessment, reassessment or recomputation under section 147) of the income of the deceased and for the purpose of levying and sum in the hands of the legal representative in accordance with the provisions of sub-section (1), -
(a) any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from the stage at which it stood on the date of the death of the deceased;
(b) any proceeding which could have been taken against the deceased if he had survived, may be taken against the legal representative; and
(c) all the provisions of this Act shall apply accordingly.
(3) The legal representative of the deceased shall, for the purposes of this Act, be deemed to be an assessed.
(4) Every legal representative shall be personally liable for any tax payable by him in his capacity as legal representative if, while his liability for tax remains undischarged, he creates a charge on or disposes of or parts with any assets of the estate of the deceased, which are in, or may come into, his possession, but such liability shall be limited to the value of the asset so charged, disposed of, or parted with.
(5) The provisions of sub-section (2) of section 161, section 162 and section 167, shall, so far as may be, and to the extent to which they are not inconsistent with the provisions of this section, apply in relation to a legal representative.
(6) The liability of a legal representative under this section shall, subject to the provisions of sub-section (4) and sub-section (5), be limited to the extent to which the estate is capable of meeting the liability.'
9. Sub-sections (1) and (6) of this section show that the legal representative is liable to pay the sum which the deceased would be liable to pay if he had not died and, the liability of the legal representative is limited to the extent to which the estate of the deceased is capable of bearing, i.e., there is no personal liability on the legal representative.
10. The second sub-section shows the procedure to be followed. If proceedings have been taken against a deceased before his death, they are deemed to have been taken against the legal representative and can be continued against the legal representative from the stage at which they stood at the time of the demise of the assessed. If no proceedings have been taken, the same can be taken against the legal representative. Moreover, the legal representative is to be treated as an assessed. He is deemed to be an assessed. The legal effect of these provisions as applied to the present case would be that on the demise of the original assessed, Shri Neecha Ram, the proceedings which had already commenced could be continued against the legal representatives. The section is silent as to how the legal representatives are to be proceeded against. Presumably, if notices have already been served on the deceased, then the legal representatives have to comply with the same. If no notices have been served at all, then probably the legal representatives have to be served. Normally, one would expect the legal representatives to be informed even if no notices have already been served on the deceased. The section is singularly silent on the exact procedure to be followed. According to the AAC, the two assessments were not properly framed against the legal representatives. On the other hand, the fact remains that the legal representatives were not absent. Both Shri Roshan Lal, the son of the deceased, as well as an advocate, Shri B. B. Ahuja, attended the hearing. The provisions of s. 159(2)(a) of the Act seem to indicate that the proceedings are to be continued against the legal representative. If the legal representative does not appear on his own, the ITO would have to serve him. However, the section is completely silent as to what is to happen if the legal representative appears on his own and complies with the notices. Is it that the proceedings are to be considered to be null and void Or is it that the proceedings have to be restarted by giving a proper notice It appears somewhat odd that the legal representative should continue to attend the hearing and not bring to the notice of the ITO that the assessed had died. It is noted by the AAC that the ITO had knowledge that the assessed had died, but this knowledge is derived from some other parts of the record. In any case, the omission to note that the assessed had died and the proceedings were going on against the legal representatives shows, at least in the assessment order for 1962-63, that the ITO was not fully conscious that the assessed had died. In the year 1963-64, the assessment order itself notes that the legal representative was present because the name of the assessed shows that he is represented through a legal representative. In a sense, the fault is of the ITO, but it is also a fault of the legal representative who continued to appear.
11. In the case of civil proceedings under the CPC the proceedings taken against dead persons are null and void. But if proceedings have been initiated against a living person who dies later, then they are not null and void; they are valid. If a suit is pending and the plaintiff dies, his legal representatives have to be joined within the time allowed by law, otherwise the proceedings abate. Similarly, if the sole defendant dies, the proceedings abate. In the case of proceedings under the I.T. Act, there is no provision relating to abatement. So, there is no time-limit for impleading the legal representatives. However, there is a time-limit for making the assessment. The assessment cannot be framed against a dead person but, if the assessed dies then the proceedings can be continued against his legal representative as if the proceedings were going on against that legal representative from the very beginning. The liability of the legal representative is restricted to the estate of the deceased. In the case of the assessment year 1962-63, no doubt, the assessment could not be framed against the deceased and, thereforee, the proceedings were invalid after the death of the deceased. In the case of the year 1963-64, it seems that the ITO was aware that he was proceeding against the legal representative. Nevertheless, the AAC seems to have given the benefit of the doubt and remanded the case back. The period of four years had not expired as far as the year 1963-64 is concerned even on the date of the appellate order. So, no direction was really necessary from the AAC. In the case of the year 1962-63, the question that arose was whether the proceedings were null and void or merely irregular which could be re-started from the stage at which they were on the date of death of the assessed. The real problem in the case is, thereforee, concerned with the year 1962-63 and the direction of the AAC which has the effect of extending the period for framing the assessment for that year.
12. The Tribunal has referred to the judgment of the Supreme Court in CIT v. Amarchand N. Shroff : 48ITR59(SC) , in which case it was observed that the assessment could not be made against a dead person because his legal personality ceases on his death. However, the judgment also points out that s. 24B of the Indian I.T. Act, 1922, had been framed to enable an assessment being framed against the legal representative, but up to a particular point. It does not follow from this judgment that in the application of s. 159, if there is an oversight then the proceedings become null and void. It appears that the proper result is that the proceedings are invalid after the death of the person whose income is to be assessed unless the proceedings are continued against the legal representative.
13. There are three decisions which must now be noted by us which have some bearings on the questions before us. The judgment relied upon by the learned counsel for the department is CIT v. Sumantbhai C. Munshaw : 128ITR142(Guj) . The case was almost the same on the facts as the present case. There also the legal representative had appeared before the ITO and produced the relevant books of account; the ITO in ignorance of the assessed's death framed the assessment against the dead person. On appeal to the AAC, the assessment was set aside and a remand made with the direction that the assessment should be framed against the legal representatives in respect of the income of the deceased. On appeal to the Tribunal, just as in the present case, the decision was that the assessment was a nullity. The same points as have arisen before us were argued before the Gujarat High Court; the court, after referring to the procedure applicable to suits, came to the conclusion that the Tribunal had not found the basic facts and the question whether the assessment order was a nullity or whether it was merely irregular required a further examination of the facts. The court refused to answer the question and left it to the Tribunal to adjust his decision according to the observations made in the judgment.
14. In the judgment of the Gauhati High Court in Jai Prakash Singh v. CIT , it was held that the assessment had to be framed after impleading all the legal representatives and serving notices on them under s. 143(2) of the Act and an assessment order passed without so impleading the legal representatives was invalid. In such a case, the proper course was to annual the assessment. If the law permitted it and there was no bar of limitation, then fresh assessment orders could be passed after the annulment. This case has been relied upon by the learned counsel for the legal representative-respondents. In this case also, one of the legal representatives had appeared before the ITO, but the other nine had not been imp leaded. The AAC had remanded the case back to the ITO. On appeal to the Tribunal, the opposite conclusion was reached in that case. It was held that the assessments were valid even if one of the legal representatives was served. The High Court held that this was wrong and the assessments were in fact invalid being contrary to the rules of natural justice.
15. The third judgment is one delivered in a writ petition which is Ganashyamdas Jatia v. ITO : 87ITR683(Cal) . In that case, the assessed had died and assessment proceedings were taken against the legal heirs, but an ex parte assessment was made. On an appeal to the AAC, the assessment order was set aside and a direction given to the ITO to make a fresh assessment. Meanwhile, proceedings were taken to recover the tax. These recovery proceedings were quashed. There are some observations in this case regarding the procedure prescribed by s. 24B of the Indian I.T. Act, 1922, and the procedure prescribed by s. 159 of the Act of 1961, but the case does show that the proceedings could continue against the legal heirs.
16. The question for consideration in the present case, in the light of the aforementioned judgments, is whether it would be right to say that the assessment orders were invalid in the present case. No doubt, the AAC has held that the assessment orders were improperly framed, but this is probably because of different reasons for two years. In the year 1962-63, the legal representatives were apparently not served at all in that capacity. In the year 1963-64, one of the legal representatives appeared, but there is nothing to show on the record that the other legal representatives had been served. So, it is clear that for different reasons, both the assessment orders were invalid. The problem, in this case, is not so much the invalidity of the assessment orders as the question whether a direction can be given by the AAC after holding that the assessment orders are invalid. According to the view of the Tribunal, the assessment orders are a nullity but, according to the AAC, they are merely invalid. What is the difference between an invalid order and null and void order The provisions of s. 159 of the Act show that the proceedings can be continued against the legal representatives. The section does not indicate how this is to be done. It does not say that the legal representatives have to be specified in the assessment order or changes have to be made in the record. Such provisions are to be found in the Code of Civil Procedure dealing with the substitution of legal representatives on the death of a plaintiff or defendant. There is apparently no clear provision as to how the legal representatives have to be proceeded against. The provisions of s. 24B of the Act of 1922 give a clear indication that notices have to be served on the legal representatives both in cases where proceedings were pending and in cases whether the person concerned had not filed his return. In the present case, i.e., after s. 159 has become applicable, it appears that if proceedings had already started they can be continued against the legal representatives and even if they had not started, they can be started against the legal representative. In the present case, we are dealing with the proceedings which had started, so the only question in controversy is how the proceedings are to be taken against the legal representatives. If the legal representatives choose to turn up themselves and taken part in the proceedings, they cannot obviously complain of not being intimated of the fact that proceedings are going on against them. In both the years 1962-63 and 1963-64, at least one of the legal representatives was present and there was also an advocate. The account books and other material was shown and a detailed assessment order was framed. The legal representative did not complain that proceedings could not go on against them or that they were not going on properly. In view of the somewhat uncertain language used in the section as to how the proceedings are to go on against the legal representatives, it would appear that either the proceedings were going on against the legal representatives for both the assessment years, or at least the legal representatives were aware that proceedings were going on against them. One fails to understand how the legal representative appeared if he was not aware that proceedings could go on against him. At the most, as the other legal representatives may or may not have been represented by an advocate, it could be said that proceedings qua them were not going on and, thereforee, there was an irregularity in the procedure. The basic question is whether the ITO is obliged to serve all the legal representatives before he can continue the proceedings. It would appear that he has to serve the legal representatives or at least the legal representatives must be informed or be present before he can pass a valid order. Up to that point there can be no difference of opinion. If the ITO proceeds without the estate being substantially represented, i.e., without all or most of the legal representatives being before him, then it can be said that the assessment has not been framed against the legal representatives. The AAC was, thereforee, correct in holding that the proceedings were invalid. The proceedings could not be null and void because at least one of the legal representatives was present in the case of both the assessment proceedings. The assessments had to be set aside and, then, the crucial question arose whether the AAC was right in giving a direction to the ITO to frame assessments after serving the legal representatives.
17. In order to understand this question, it is useful to note that under s. 153 of the Act there is a time-limit for framing the assessment. At the relevant time, the period was four years. That period had not expired when the AAC passed his order in appeal in the case of the assessment year 1963-64, but it had expired for the year 1962-63. The provisions of s. 153(3) provide that the time-limit will not apply if the assessment, reassessment or recomputation is made in consequence of or to give effect to any finding or direction contained in an order passed under s. 250, 254, 260, 262, 263 or 264 of the Act, or in an order of a court. In the present case, the AAC held that the assessments were invalid and he gave a direction to the ITO to make a fresh assessment. So, the basic question is, should he have given a direction. At first sight, it would appear that even if he had given no such direction, a finding is contained in his order. But assuming that a direction is necessary before the reassessment can be made, we have to find out whether a direction was called for in the present case. Learned counsel for the respondent has referred to Rajinder Nath v. CIT : 120ITR14(SC) to contend that a direction can be given only in certain circumstances. We are not able to quite easily appreciate why the direction cannot be given in the present case. It seems to be a case that did require a direction in the circumstances of the case. For convenience, those circumstances can be summarised as follows. The ITO while dealing with this case did have before him the son of the assessed for the year 1962-63 together with an advocate, and for the year 1963-64, one of the legal representatives of the deceased with an advocate. If in both these years, a party appearing before the ITO continued with the proceedings as if they were valid and not even irregular, let alone null and void, the ITO could presumably infer that the proceedings were in accordance with law. If no one had appeared, as was the proper course, then the ITO would be on his guard. The appearance of the legal representative without demur together with a lawyer seems to suggest that this was a case in which the proceedings were such that it could be continued by taking up the same from the stage at which they were when the original assessed died. On the death of the assessed, it was incumbent on the ITO to proceed against the legal representatives. But, if the legal representatives or some other persons continue to appear or choose to appear, then the proceedings become irregular and can be remanded by a direction that they should be properly continued.
18. To illustrate this question further, if there is a suit pending before the court and a party dies, it may be that somewhere on the record it may be stated in a report on a summons or otherwise that the party has died, but if an advocate appears and contests the case apparently as if the party is alive, then the court will never be above to find out that the proceedings have in fact abated though an examination of the record may reveal that in fact the proceedings have abated. If in such a case the proceedings continue and a judgment is recorded without taking into consideration that the proceedings have abated, it would be a case in which the court would be entitled to set aside the proceedings and permit the other side to apply for setting aside the abatement. Indeed, if the opposite side never hears about the death and abatement till a late stage of the proceedings, then the court has full authority to set aside the abatement by condoning the delay. This appears to be such a case. The appearance of the legal representative together with an advocate would be bound to mislead the ITO into either believing that the proceedings were properly constituted or that the assessed was still alive. When reality is obscured by an illusion, a mistake is certainly possible and, thereforee, the direction made by the AAC would not be out of place, and indeed, was called for. We are of the view that the AAC did have the jurisdiction to make the direction and, in the circumstances, the direction cannot be classified as unjustified.
19. In the circumstances, we would answer the question referred to us as follows: We would answer the first question in the affirmative, to hold that the AAC could set aside the assessment and issue a direction to frame a proper assessment on the legal heirs of Sri Neecha Ram. As regards the second question, we do not answer the same as the answer is only required if the first question is answered in the negative.
20. As the questions involved in this case are, in a sense, novel we would leave the parties to bear their own costs.