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Chooharmal Wadhuram (Decd.) (by Legal Representatives) Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 24 of 1965
Judge
Reported in[1971]80ITR360(Guj)
ActsIncome Tax Act, 1922 - Sections 18A, 18A(9), 22(2), 23(4), 24B(2), 28(3), 34 and 34(1)
AppellantChooharmal Wadhuram (Decd.) (by Legal Representatives)
RespondentCommissioner of Income-tax
Appellant Advocate K.C. Patel and; N.I. Dave, Advs.
Respondent Advocate J.M. Thakore, Adv. General and; M.G. Doshit, Adv.
Cases ReferredOfficer v. E. Alfred
Excerpt:
.....income tax act, 1922 - income-tax officer served notice for reopening of assessment only on one legal representative and not on other representative - assessee contended that order of assessment invalid on ground that notices not served on all legal representatives - whether proceedings under section 34 (1) validly initiated by serving notice on only one of legal representative - under section 24b (2) notice must be served on all legal representatives of deceased - held, proceedings not validly initiated by serving notice on only one of legal representative. - - in other words, the expression 'legal representative' means and includes one person as well as several persons according as they represent the whole interest of the deceased person. it was contended that naurez's heirs..........within the time limited by law,there is no abatement of the suit or appeal, that the impleaded legalrepresentatives sufficiently represent the estate of the deceased and that adecision obtained with them on record will bind not merely those impleaded but the entire estate including those not brought on record.'14. though this rule has been laid down by the supreme court in the context of suits and appeals, it is one of general application and there is no reason why it should not be invoked in the case of assessment of income of a deceased person in the hands of his legal representatives. if this priciplewere rejected in its application to assessment proceedings, it wouldin many cases frustrate the proceedings for assesssment of income of a deceased person and result in escapement of.....
Judgment:

P.N. Bhagwathi, C.J.

1. There is only one question which now remainsto be determined on this reference. There were originally five questionsreferred to us for our opinion but of them, the third was not pressed onbehalf of the assessee and the first, second and fourth were decided againstthe assessee when the reference was earlier heard by us. Our decisiondisposing of those questions is now reported as Chooharmal Wadhuram v.Commissioner of Income-tax, [1968] 69 I.T.R. 88 (Guj.). The fifth question could not be disposed ofby us at that time as we felt that in view of certain observations made bythe Supreme Court in First Addl. Income-tax Officer v. Mrs. SuseelaSadanandan, [1965] 57 I.T.R. 168 (S.C.). it was necessary to call for a supplemental statement of thecase. The supplemental statement of the case has now been received, and,hence, the reference is before us for determination of the fifth question.

2. The facts giving rise to the reference have already been stated by us in our earlier judgment and it is, therefore, not necessary to rehearse them over again but in order that the discussion of the arguments which have been advanced before us may be intelligible, it would be desirable if we state a few facts bearing directly on the fifth question. The notice issued by the Income-tax Officer for reopening the assessment of the deceased, Chooharmal Wadhuram, for the assessment years 1946-47 and 1947-48, under Section 34(1)(a) were addressed to 'Chooharmal Wadhuram, legal representatives--Daulatram and others' and though there were admittedly apart from Daulatram, other legal representatives of Chooharamal Wadhuram, namely, three other sons and a widow named Lilavati, the notices were served only on Daulatram and were not served on the other legal representatives. On these facts the assessee contended that, since the notices were not served on all the legal representatives of Chooharmal Wadhuram, the proceedings were not validly initiated and the orders of assessment made against the assessee were invalid. The Tribunal took the view that so far as the account in the name of Daulatram Chooharmal with Messrs. Narandas Parshottamdas was concerned, Daulatram had operated on this account and all the adjustments which had been made in this account were the result of negotiations between Daulatram and Messrs. Narandas Parshottamdas and Daulatram had, therefore, administered thet part of the estate of Chooharmal Wadhuram which consisted of the amounts deposited in this account and, in the circumstances, the notices served on Daulatram as legal representative of the deceased were sufficient to bind his estate. The validity of this view taken by the Tribunal is challenged before us on behalf of the assessee and the point which is raised in the fifth question is whether the proceedings under Section 34(1)(a) were validly initiated by serving notices under Section 34(1) (a) on Daulatram alone, though there were, besides him, other legal representatives of the deceased.

3. Now, the notices were admittedly issued by the Income-tax Officer under Section 34(1)(a) read with Section 24B(2) since the income which was sought to be assessed was the income of Chooharmal Wadhuram who was dead at the date when the notices were issued. The determination of the problem before us, therefore, depends on the true interpretation of Section 24B(2), What does Section 24B(2) require? Does it say that the notice under Section 34 must be served on all the legal representatives of a deceased assessee in order to make an assessment binding on his estate or is it enough if the notice is served on only one of the legal representatives To answer the question we must look at the language of Section 24B(2) and examine the principle on which it is founded. Section 24B was introduced in the Income-tax Act by Central Act XVIII of 1933, with a view toremoving the lacuna pointed out by the Bombay High Court in Ellis C. Reid v. Commissioner of Income-taxl, [1930] 5 I.T.C. 100; A.I.R. [1931] Bom. 333.. The Bombay High Court pointed out in this case that according to the law as it then stood, where a person died after the commencement of the assessment year but before his income of the previous year was assessed, his executor was not liable to pay the tax and if the death occurred whilst assessment proceedings were pending, the proceedings could not be continued and the assessment could not be made after the person's death. This lack of machinery for assessment of income of a deceased person was remedied by the legislature by Section 24B, which reads as follows :

'24B. Tax of deceased person payable by representative.--(1) Where a person dies, his executor, administrator or other legal representative shall 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 payable by him under this Act if he had not died.

(2) Where a person dies before the publication of the notice referred to in Sub-section (1) of Section 22 or before he is served with a notice under Sub-section (2) of Section 22 or Section 34, as the case may be, his executor, administrator or other legal representative shall, on the serving of the notice under Sub-section (2) of Section 22 or under Section 34, as the case may be, comply therewith, and the Income-tax Officer may proceed to assess the total income of the deceased person as if such executor, administrator or other legal representative were the assessee.

(3) Where a person dies, without having furnished a return which he has been required to furnish under the provisions of Section 22, or having furnished a return which the Income-tax Officer has reason to believe to be incorrect or incomplete, the Income-tax Officer may make an assessment of the total income of such person and determine the tax payable by him on the basis of such assessment, and for this purpose may, by the issue of the appropriate notice which would have had to be served upon the deceased person had he survived, 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 have required from the deceased person.'

4. Sub-section (1) of Section 24B makes, inter alia, the legal representative 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 payable by him under the Act if he had not died. The effect of the sub-section is, to quote the words of Hidayatullah J., as he then was, in Addl. Income-tax Officer v. E. Alfred, [1962] 42 I.T.R. 442; [1962] Supp. 1 S.C.R. 143 (S.C.) that :

'.....a legal representative is made liable to pay the tax whichmight have been assessed but not paid by the deceased person or which might be assessed after his death. It covers all situations and contingencies,, and makes the liability absolute, limited, however, to the extent to which the estate of the deceased is capable of meeting the charge.'

5. Sub-sections (2) and (3) of Section 24B provide the machinery for assessment of income of a deceased person after his death. Sub-section (2) says that where a person dies before the publication of a general notice or before he is served with a special notice under Section 22 or Section 34, his legal representative shall, on the service of the special notice, comply with such notice, and the Income-tax Officer may proceed to assess the total income of the deceased person as if the legal representative were the assessee; Sub-section (3) provides that where a person dies after he is required to furnish a return but without having furnished such return, or where he has furnished the return but the Income-tax Officer has reason to believe it to be incorrect, the Income-tax Officer may make the assessment of the total income of such deceased person, and determine the tax after serving such notices, as may be required under Section 22 or Section 23, upon the legal representative of the deceased person to produce the accounts documents or other evidence. We are concerned here with Sub-section (2) of Section 24B, since Chooharmal died before service of the notices under Section 34(1)(a) and we must, therefore, closely examine the language of that provision.

6. Section 24B, Sub-section is founded on the principle which has been stated in the following words by Salmond on Jurispudence, twelfth edition, at page 120:

'The rights which a dead man thus leaves behind him vest in his representative. They pass to some person whom the dead man, or the law on his behalf, has appointed to represent him in the world of the living. This representative bears the person of the deceased, and therefore has vested in him all the inheritable rights, and has imposed upon him all the inheritable liabilities of the deceased. Inheritance is in some sort a legal and fictitious continuation of the personality of the dead man, for the representative is in some sort identified by the law with him whom he represents.'

7. Since the person whose income is to be assessed is dead, his liability to be assessed is enforced against those who 'represent him in the world of the living', or, in other words, those who represent his entire persona in relation to his estate. Sub-section (2) of Section 24B requires that the notice under Section 22, Sub-section (2) or Section 34, as the case maybe, shall be served on the executor, administrator or other legal representative of the deceased and the Income-tax Officer may then proceed to assess the total income of the deceased as if such legal representative were the assessee, that is to say, for the purpose of assessment, legal representative would represent the deceased;person. Now where there is only one legal representative, there can be no difficulty. Service on him would be enough. But where there are more than one legal reprentative, is it necessary to serve all or is service on one sufficient for making an order of assessment? Section 13(2) of the General Clauses Act (X of 1897) says that words in singular will include their plural also, The expression 'legal representative' in Section 24B, Sub-section (2), must, therefore, take in plurality of legal representatives. There is high authority for this proposition in the decision of the Federal Court in Tirtha Lal v. Bhusan Moyee Desai where Mahajan J. said :

'The expression 'legal representative' must when there are two or more legal representatives be read in the plural. All legal representatives must be brought on the record and if some one refuses to join as plaintiff, lie should be joined as a defendant.'

8. The learned judge quoted with approval the following passage from the judgment of Sir Shadi Lal C. J. in Muhammad Hassan v. Inayat Hussain, A.I.R. 1927 Lah. 94.:

' 'These words mean the representation before the court of the plenary interest of the deceased party. Sometimes that interest may be represented by a single individual, but it may also be represented by a number of persons as the case may be. But there should be a complete representation of the interests of the deceased person, whether through a single individual or through a number of persons, so that these cannot be a partial representation of that interest. In other words, the expression 'legal representative' means and includes one person as well as several persons according as they represent the whole interest of the deceased person.' '

9. Their Lordships of the Privy Council also expressed a similar view in Khidrajmal v. Daim, [1905] L.R. 32 I.A.23; I.L.R. 32 Cal 296 (P.C.) In that case one Naurez had died and in a suit brought against his estate, Amirbaksh, by a guardian, Alahnawaz, was impleaded as the legal representative. Amirbaksh was one of the heirs of Naurez but in no other sense his legal representative. Alahnawaz was not any legal sense his guardian. It was contended that Naurez's heirs were bound by the proceedings in the suits and that his share of the property, whatever it was, was effectively sold in the suit, or at any rate that the share of Amirbaksh himself passed .by the sale. Their Lordships held that the estate of Naurez was not represented in law or in fact in the suit and: the sale of the property was without jurisdiction and null and void. It was. further held that the share of Amirbaksh in his father's estate was not bound. Their Lordships expressed the opinion that this was not a mere question of form, but one of substance. It would, therefore, seem clear that where a person dies leaving more than one legal representative, the Income-tax Officer must proceed to assess the total income of the assessee by serving notice under Section 22(2) or Section 34, as the case may be, on all the legal representatives. If the notice is served on only one legal representative, there would be no complete representation of the estate or, to use the words of Salmond, 'of the person of the deceased'. One only out of several legal representatives would not represent the whole interest of the deceased and if the whole interest of the deceased is not represented before the Income-tax Officer, it is difficult to see how the Income-tax Officer can proceed to assess the total income of the assessee. The assessment must on principle and authority be made on those who represent the whole interest of the assessee--his entire estate--and assessment on only one of them who partially represents the estate of the deceased, cannot be regarded as sufficient to bind the estate of the deceased. This view is clearly supported by two decisions of the Madras High Court, namely, E. Alfred v. First Additional Income-tax Officer, : [1957]32ITR401(Mad) . and Muniyammat v. Third Additional Income-tax Officer, : [1960]38ITR664(Mad) and one decision of the Mysore High Court, namely, Commissioner of Income-tax v. N. A. Mandagi : [1967]63ITR173(KAR) . There are also observations to the same effect in the judgment of the Supreme Court in First Additional Income-tax Officer v. Mrs. Suseela Sadanandan where Subha Rao J., speaking on behalf of the Supreme Court, observed ;

'The result is that if a person dies executing a will appointing more than one executor or dies intestate leaving behind him more than one heir, the Income-tax Officer shall proceed to assess the total income of the deceased against all the executors or the legal representatives, as the case may be.'

10. The observations of the Supreme Court would have ordinarily obviated any necessity on our part to examine the question on principle but we find that towards the close of the judgment, it has been stated by the learned judge that whatever observations have been made on any point which would include these observations, are not intended to be the final decision of the Supreme Court on the point. Even so, the emphatic manner in which these observations have been made, supported as they are by a discussion of the legal principle and relevant authorities on the point, clearly shows that great weight must attach ro these observations.

11. When we accept the general rule that the Income-tax Officer must proceed against all the legal representatives of a deceased person by serving a notice on them, it does not mean that the rule must be applied with unmitigated rigour in all kinds of cases irrespective of their peculiar facts. There may be cases where, though there are several legal represent-tatives, one may represent the whole interest of the deceased and in such a case there being complete representation of the interest of the deceased before the Income-tax Officer, the assessment made would bind the estate of the deceased. Such cases may arise, for example, where one legal representative is managing the entire estate of the deceased and he, therefore, completely represents the interest of the deceased. This was the exception which the Supreme Court had in mind when it said in First Addl. Income-tax Officer v. Mrs. Suseela Sadanandan that:

'If it had been established that E. D. Sadanandan had alone been managing the entire estate, the court could have come to the conclusion that he was the legal representative of the deceased and, therefore, represented the estate in the assessment proceedings.'

12. Then there may be cases where though one legal representative is served, he appears in the proceedings with the consent, express or implied, of the other legal representatives : in such cases too the estate would be properly and completely represented by one legal representative and the assessment would be binding on the estate. That is why the Supreme Court observed in Mrs. Suseela Sadanandan's case :

'Though notices were served only on one of the executors, the proceedings might show that the estate was properly represented by E. D. Sadanandan with the consent, express or implied, of the other executors and heirs.'

13. The last class of cases which may arise is where the Income-tax Officer bona fide and diligently believes one or more persons to be the only legal representatives of the deceased and initiates proceedings by serving notice on them and subsequently it is found that, besides those served, there were also other legal representatives of the deceased. There is no reason why in such cases the general rule evolved in the field of civil law should not be applied. It is now well-settled as a result of the decision of the Supreme Court in Daya Ram v. Shyam Sundari : [1965]1SCR231 , 1054. that:

'.... where a plaintiff or an appellant after diligent and bona fideenquiry ascertains who the legal representatives of a deceased defendant orrespondent are and brings them on record within the time limited by law,there is no abatement of the suit or appeal, that the impleaded legalrepresentatives sufficiently represent the estate of the deceased and that adecision obtained with them on record will bind not merely those impleaded but the entire estate including those not brought on record.'

14. Though this rule has been laid down by the Supreme Court in the context of suits and appeals, it is one of general application and there is no reason why it should not be invoked in the case of assessment of income of a deceased person in the hands of his legal representatives. If this priciplewere rejected in its application to assessment proceedings, it wouldin many cases frustrate the proceedings for assesssment of income of a deceased person and result in escapement of such income from taxation without any fault on the part of the revenue authorities. What more can be expected from an Income-tax Officer than to make diligent and bona fide inquiry to find out who the legal representatives of a deceased assessee are and to serve notice on all those who are as a result of such inquiry ascertained to be the legal representatives? If the Income-tax Officer does this, it is all that as a reasonable man he can be expected to do and the legal representatives who are served would sufficiently represent the estate of the assessee: vide First Addl, Income-tax Officerv. Mrs. Suseela Sadanandan1. These are some kinds of cases where the assessment would be valid even if one or some only of the legal representatives are served with notice. They constitute exceptions to the general rule which requires that where an assessee dies leaving more than one legal representative, the Income-tax Officer must proceed to assess the income of the deceased by serving notice on all the legal representatives. These exceptions proceed on the same principle on which the general rule is based, namely, that there must be complete representation of the estate of the deceased in the proceedings before the Income-tax Officer and it is because in the cases falling within the exceptions one or more legal representatives completely represent theestate of the deceased that it is held that service on them is enough to bind the estate of the deceased.

15. Now turning to the facts found by the Tribunal, it is clear that the present case does not fall within any of the exceptions. There is nothing toshow that Daulatram was in management or administration of the entireestate of the deceased Chooharmal Wadhuram. On the contrary, the finding of the Tribunal is that Daulatram had administered only that part of the estate of Chooharmal Wadhuram which consisted of the amounts deposited in the account with Messrs. Narandas Parshottamdas. It also appears from the record referred to in the supplemental statement of the case that the return showing the income of the deceased, Chooharmal Wadhuram for the assessment year 1953-54 was filed by his widow, Bai Lilavati and the assessment order was also made on Bai Lilavati as legal representative of the deceased, Chooharmal Wadhuram, on 31st December, 1953, long before the impugned notices were issued. It is, therefore, not possible to say that: Daulatram managed or administered the whole of the estate of the deceased so as to be able to represent completely the estate of the deceased in the proceedings initiated by issue of the impugned notices. There is also no finding of the Tribunal nor any material on record to show that Daulatram represented the estate of the deceased with the consent, express or implied, of the other legal representatives. Merely because Daulatram appeared pursuant to the notice served on him and contested the proceedings, it does not follow that he did so with the consent, express or implied of his brothers and widowed mother who were the other legal representatives. As a matter of fact, he raised an objection that the proceedings were not validly initiated since the notices were served on him alone though there were other legal representatives of the deceased. The second exception which we have set out above cannot, therefore, apply. The supplemental statement of the case also negatives the applicability of the last exception. It is clear from the supplemental statement of the case that the Income-tax Officer knew that there were, besides Daulatram, other legal representatives of the deceased and yet he did not choose to serve notices on them. The Tribunal has found in the supplemental statement of the case that the Income-tax Officer did not believe and could not possibly have believed Daulatram to be the sole legal representative of Chooharmal Wadhuram and, since he knew that there were other legal representatives, there was no occasion for him to make any inquiry and there was, therefore, no inquiry, much less a diligent and bona fide inquiry. It is, therefore, not possible to hold that service of the notices on Daulatram alone was sufficient to bind the estate of Chooharmal Wadhuram. Daulatram did not completely represent the estate of the deceased, the estate was only partially represented and, thereforer, the assessment of the income of the deceased, Chooharmal Wadhuram, was not in compliance with the requirements of Section 24B, Sub-section (2).

16. The revenue, however, contended that even if service of the notices on Daulatram alone was not sufficient to bind the estate of the deceased in the sense that the order of assessment could not be enforced against the other legal representatives who were not served with the notices, it was valid as-against Daulatram since Daulatram was a legal representative of the deceased and he was served with the notices. This contention overlooks the basic principle that in order to assess the income of a deceased person the assessment must be made on all those who represent his interest or estate wholly and completely. There must be complete representation, of the estate of the deceased in the proceedings. Otherwise, the position, would be as if the decased is not before the Income-tax Officer and obviously no assessment of income of a person can be made in his absence. One legal representative does not represent the deceased ; all the legal representatives together represent him and, therefore, they must all be before the Income-tax Officer in order to enable him to make a valid assessment of the income of the deceased. The assessment which is made is the assessment of the income of the deceased and it cannot be valid as against one legal representative and invalid as against another. Once the assessment is made in compliance with the requirement of Section 24B, Sub-section (2), and it is a valid assessment, the amount of tax assessed can be recovered from all the legal representatives under Section 24B(i). Section 24B(1), as pointed out by Hidayatullah J. in Addl. Income-tax Officer v. Alfred, makes the legal representative liable to pay not only the tax which might have been assessed but not paid by the deceased but also the tax which might be assessed after his death. The tax which is determined by the Income-tax Officer by serving notice only on one or some of the legal representatives is tax which would have been payable by the deceased if he had not died and it would, therefore, logically seem that it should be recoverable from the estate of the deceased in whosoever's hands, whether he be a legal representative who is served or a legal representative who is not served and that is exactly what is provided by Section 24B(1). But this would lead to a highly anomalous situtation that assessment of income of a deceased person made by serving notice on one legal representative would be enforceable against another legal representative though he is not served with notice and had no opportunity of contesting the assessment proceedings. The legislature surely could not have intended to bring about such an extraordinary result. The correct view seems to be that if the Income-tax Officer wants to assess the income of a deceased person after his death, he must serve notice on all the legal representatives so that the interest or estate or of the deceased is completely represented before him and the assessment made by him is binding on the estate.

17. Strong reliance was placed on behalf of the revenue on the decision of the Supreme Court in Additional Income-tax Officer v. E. Alfred, but we do not see how this decision is of any help to us in determining the question before us. The only point which fell for determination before the Supreme Court in this case was whether a legal representative who was served with notice under Section 22(2) and against whom the proceedings were initiated for assessing the income of a deceased person was an 'assessee' on whom penalty could be imposed under Section 46(1). The Supreme Court held that, since a legal representative is deemed to be an assessee under section 24B(2), the fiction must be carried to its logical conclusion and the legal represnetative must be held to be an assessee also for the purpose of applicability of Sections 45 and 46(1). There was no question before the Supreme Court whether service of notice on only one of the legal representatives was sufficient for valid initiation of proceedings. It was assumedbefore the Supreme Court as before the revenue authorities, the Tribunaland the High Court, that the assessment proceedings were validly initiatedand the amount of tax validly determined and the only question put inissue was whether penalty could be imposed on a legal representative under Section 46(1) if he defaulted in payment of tax and it was this questionwhich was answered against the legal representatives. This decision doesnot, therefore, throw any light on the question before us. We are, therefore, of the view that proceedings for the assessmentyears 1946-47 and 1947-48 under Section 34(1)(a) were not validly initiatedby serving notices on Daulatram alone since there were admittedly, besidesDaulatram, other legal representatives of the deceased who were notserved. Our answer to the fifth question would, therefore, be in thenegative. There will be no order as to costs.


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