S. K. MAL LODHA J. - At the instance of the Commissioner of Income-tax, Jodhpur, the following question has been referred by the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur ('the Tribunal' herein), for the opinion of this court :
'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was in law justified in holding that the Appellate Assistant Commissioner of Income-tax was right in annulling the assessment for the assessment year 1965-66 made by the Income-tax Officer ?'
This question is said to arise out of the order of the Tribunal dated May 31, 1978, passed in I.T.A. No. 1277(JP) /1977-78, in respect of the assessment years 1965-66 and 1967-68.
The assessments for the assessment years 1965-66 and 1967-68 were completed under section 143(3) of the Income-tax Act, 1961 (No. XLIII of 1961) for short ('the Act'). It was discovered by the Income-tax Officer ('the ITO') that the assessee, Mohanlal (deceased), failed to disclose the material facts truly and correctly and as such income has escaped assessment. The case of the assessee was that a plot was purchased for Rs. 9,900 on March 27, 1965. A house was constructed on the plot and the construction was completed by March, 1966. The major portion of the construction was completed in the assessment year 1966-67 and a sum of Rs. 27,387 was spent. A sum of Rs. 650 only was spent by Mohanlal Gupta (assessee) in the assessment year 1967-68. The cost of construction, as per the version of the assessee, was Rs. 31,200. The Income-tax Officer estimated the cost of construction at Rs. 38,000. This cost of construction estimated by the Income-tax Officer was wrong according to the assessee. After issuance of a notice under section 148 of the Act for the aforesaid assessment years, Mohanlal filed a return declaring income below the taxable limit, on March 13, 1974. After the filing of the return, he died on December 7, 1974. After his death, a notice under section 142(1) of the Act was issued in the name of Mohanlal Gupta (deceased-assessee). In other words, the notice was issued against a dead person. This notice was received by his son, Gyan Prakash Gupta (legal heir of Mohanlal Gupta). After receipt of the notice, Gyan Prakash Gupta wrote a letter dated December 11, 1975, to the Income-tax Officer stating that Mohanlal Gupta had expired on December 7, 1974, and that he is survived by his widow, Smt. Bhagwati Devi Gupta, two sons and one married daughter. The names of the legal representatives were mentioned. It was also stated that Mohanlal Gupta had executed a will according to which his house in the industrial area was bequeathed to Gyan Prakash Guptas wife, Smt. Dayawti Gupta by name. It was also mentioned that Mohanlal Gupta was served with a notice under section 148 for the assessment years 1965-66 and 1967-68. The Income-tax Officer completed the assessments on February 27, 1976, for both the years. The legal heir of the deceased-assessee, Gyan Prakash, went up in appeal. The Appellate Assistant Commissioner, by his order dated December 30, 1977, reached the conclusion that the assessment. The reasons given by the Appellate Assistant Commissioner in support of his conclusion are :
(1) that no assessments could be completed in the name of Gyan Prakash Gupta;
(2) that in the will executed by Mohanlal, the house in the industrial area was the property of Smt. Dayawati and, therefore, if any assessment was to be made, it should have been made in the name of Smt. Dayawati.
(3) that the Income-tax Officer was informed about the names and addresses of the legal representatives of the deceased, Mohanlal, but he did not issue notice to any other legal representative.
On merits, the Appellate Assistant Commissioner found that a substantial part of the house was constructed in the assessment year 1966-67 and as such the addition in question could not be made in the assessment years 1965-66 and 1967-68. A further appeal was taken. It was submitted on behalf of the Commissioner of Income-tax that the Appellate Assistant Commissioner erred in annulling the assessments and at the most, he could only set aside them on the ground of the failure on the part of the Income-tax Officer to issue notices to the legal representatives after the death of Mohanlal which was merely an irregularity and the same could be rectified by setting aside the assessments. The Tribunal dismissed the appeal and agreed with the Appellate Assistant Commissioner that the assessments were rightly annulled. In this view of the matter, the Tribunal did not go into the other points raised before it. An application was filed by the Commissioner of Income-tax under section 256(1) of the Act. Hence, the aforesaid question has been referred.
We have heard Mr. B. R. Arora, for the Revenue, and Mr. Rajesh Balia, learned counsel for Gyan Prakash (non-petitioner).
The only point involved in this reference is whether the Appellate Assistant Commissioner was right in annulling the assessment for the assessment year 1965-66. There is no dispute that after service of the notice under section 148 of the Act, Mohanlal Gupta had filed the return on March 13, 1974, declaring income below the taxable limit. It was after the filing of the return that he died on December 7, 1974. The notice under section 142(1) of the Act was issued to Mohanlal Gupta though he had already died before the issuance of it. That notice was received by his sons, Gyan Prakash Gupta, and on receipt of that notice, he appraised the Income-tax Officer by his letter dated December 11, 1975, about the legal representatives of Mohanlal Gupta and that the will was executed by Mohanlal Gupta before his death in favour of Smt. Dayawati Gupta who is his wife. Despite the letter dated December 11, 1975, containing the aforesaid facts, no notice was issued to all the legal representatives of Mohanlal Gupta or Smt. Dayawati in whose favour the will is said to have been executed by the deceased, Mohanlal Gupta. The Income-tax Officer completed the assessment on February 20, 1976, on Gyan Prakash Gupta.
Now, we may notice the relevant provisions of the Act.
Section 142 of the Act deals with enquiry before assessment. A notice under section 142(1) was issued in the name of the deceased, Mohanlal Gupta. Section 143 of the Act lays down the procedure for completing the assessment. It provides that a notice, before making an assessment under section 143 of the Act, should be served on the assessee mentioning the date on which he is required to attend the Income-tax Officers office or to produce or to cause to be there produced any evidence on which the assessee wants to rely in support of his return. Section 153 lays down the time-limit for completing the assessment and reassessment. We have made mention of these provisions, as learned counsel for the assessee has referred to them during the course of arguments, to impress upon us that the period for completing the reassessment having been expired, the Appellate Assistant Commissioner was justified in annulling the assessments. The other important section, to which reference may be made is section 159, which is with respect to the legal representatives. It deals with the liability of the legal representatives. Sub-section (3) of section 159 is as under :
'(3) The legal representative of the deceased shall, for the purposes of this Act, be deemed to be an assessee.'
According to sub-section (6) of section 159, the liability of a legal representative under this hall, 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. Under section 251, in an appeal against the assessment, the Appellate Assistant Commissioner has, inter alia, power to annul the assessment or set aside the assessment and refer the case back to the Income-tax Officer for making a fresh assessment in accordance with the directions of the Appellate Assistant Commissioner.
The question is whether the completion of the assessment without serving notice under section 143(2) of the Act, on all the legal representatives of the deceased-assessee, renders the assessment order a nullity, so that it has to be annulled or failure to serve notices on the legal representatives is not a defect of a fundamental nature so as to warrant annulling of it, but merely makes the assessment order invalid.
Mr. B. R. Arora, learned counsel for the Revenue, has referred to Estate of Late Rangalal Jajodia v. CIT : 79ITR505(SC) and Kamalesh Kumar Mehta v. CIT : 106ITR855(Cal) . On facts, Estate of Late Rangalal Jajodias case : 79ITR505(SC) is distinguishable from the case on hand. However, the important observations in this decision are to the effect that an assessment proceeding does not cease to be a proceeding under the Act merely by reason of want of notice and that it will be a proceeding liable to be challenged and corrected.
Before the Calcutta High Court, in Kamalesh Kumar Mehtas case : 106ITR855(Cal) , at the time of the assessment by the Income-tax Officer, the assessee had died and no notice was given to the assessees legal representatives before the assessment. The Appellate Assistant Commissioner set aside the order of assessment and directed the Income-tax Officer to reframe the assessment after issuing notices to the legal representatives. In second appeal before the Tribunal, a contention was raised that the Appellate Assistant Commissioner should have annulled the assessments instead of setting them aside. The Tribunal sustained the order of the Appellate Assistant Commissioner. On a reference, the learned judges observed as under (at page 857) :
'Section 159 of the Act does not provide for annulment of any assessment, reassessment or recomputation under section 147 of the Act. On the other hand, it expressly provides for continuance of the assessment, reassessment and recomputation from the stage at which they stood on the date of the death of the assessee against his legal representative who in terms of sub-section (3) of section 159 of the Act is deemed to be an assessee and he is liable to pay tax which the deceased assessee would have been liable to pay if he was alive, as stated in section 159(1) of the Act.'
In that case, it may be stated that the Income-tax Officer was unable to comply with the provisions of the notice, as he was wholly unaware of the death of the assessee. The reasons given are that the assessment or reassessment or recomputation of income of a person who has died during the pendency of those proceedings is kept alive by clauses (a) and (b) of sub-section (2) of section 159 of the Act and those proceedings are to be continued against the legal representatives from the stage at which they stood on the death of the assessee. In the Calcutta case, there is no doubt that it has been laid down that if an assessee is dead at the time of assessment and no notice is issued to the assessees legal representatives before the assessment, the order that can be passed is to set aside the assessment and not to annul it.
We may, however, notice the following authorities which have a bearing on the question. In Sant Baba Mohan Singh v. CIT : 90ITR197(All) , the Appellate Assistant Commissioner had set aside the assessment which was made by the Income-tax Officer on the ground that the assessment order was completed under section 23(3) of the Indian Income-tax Act, 1922 (the old Act), without issuing notice under section 23(2) of the old Act and directed the Income-tax Officer to make a fresh assessment after issuing notice under section 23(2) of the old Act. The Tribunal had confirmed that order. R. S. Pathak J., as he then was, speaking for the court, held that failure of the Income-tax Officer to issue a notice under section 23(2) does not call for an order by the Appellate Assistant Commissioner annulling the assessment and the Appellate Assistant Commissioner was right in merely setting aside the assessment. It was observed as under (at page 199) :
'That is a power to be exercised where the assessment proceeding is a nullity in the sense that the Income-tax Officer had no jurisdiction ab initio to take the proceedings. A proceeding is a nullity when the authority taking it has no jurisdiction either because of want of pecuniary jurisdiction or of territorial jurisdiction or of jurisdiction over the subject-matter of the proceeding. A proceeding is a nullity when the authority taking it has no power to have seisin over the case. The omission of the Income-tax Officer to issue a notice under section 23(2) does not affect the ab initio jurisdiction enjoyed by the Income-tax Officer in respect of the proceeding.' (Underlining is ours).
In Rattan Lal Tiku v. CIT , section 143 of the Act came up for consideration. It was held in that case that section 143 is purely procedural and deals with the various modes of making an order of assessment. The Division Bench of the Jammu and Kashmir High Court, ruled as under (at page 557) :
'For these reasons we hold that the provisions of section 143(2) are mandatory and non-compliance with these provisions vitiates the order of the Income-tax Officer.'
In that connection, it was held that the power to set aside an order of assessment where it is illegal is inherent in an appellate court and it would be perfectly legal for the Appellate Assistant Commissioner to set aside an order of assessment and remand the case to the Income-tax Officer directing him to comply with the mandatory requirements of section 143(2) and make an order of assessment de novo.
In CIT v. Sumantbhai C. Munshaw : 128ITR142(Guj) , the assessee had died after the filing of the return. The notices were issued and the assessment proceedings were continued in the name of the deceased. The legal representative appeared during the proceedings and did not raise any objection. It was observed as under (at page 161) :
'....... Section 159, which merely prescribes the method for making assessment of tax in a special case, does not bear upon the initial jurisdiction of the taxing authority but deals with matters incidental to it. If the assessing authority, in the exercise of his jurisdiction, omits to take one for more of the various procedural steps therein laid down or in taking any of such steps commits an error or even deviates from the statutory mandate, the assessment would be null and void, only if the omission, error or breach, as the case may be, is so fundamental as could not be waived because it affects inherent jurisdiction.'
In Jai Prakash Singh v. CIT , which is a decision of the Gauhati High Court, a notice under section 143(2) of the Act was issued to only one of the several representatives. The assessment was completed. The assessment was not valid and the question was whether it was the duty of the Appellate Authority to annul such assessments. The provisions of section 143(2), 153 and 159 of the Act were noticed and thereafter the following observations were made (at pages 513 and 514) :
'Thus, it was the legal duty of the Appellate Assistant Commissioner and also of the Tribunal to annul the assessments in the instant case. After annulment of the assessment orders, if law permits and there is no bar under the limitation prescribed by law, fresh assessment proceedings may be drawn up in appropriate cases but instead of passing an annulment order, by passing an order setting aside the assessments and directing completion of the assessments by issuing notices on the remaining legal representatives, as has been done in the instant case, the authority may not be allowed to nullify the provisions of law as laid down in section 153 of the Act.'
In that case, it was held that the estate of the deceased was not fully represented, for, on the death of deceased B. N. Singh, the entire estate of the deceased B. N. Singh was represented by his legal representatives. It was also observed as under (at page 513) :
'That being so, by serving a notice on one of the legal representatives and without serving on the other nine legal representatives and without proving that one of the legal representatives, namely, Jaiprakash Singh, represented the other legal representatives, there could not be any valid assessment proceeding. That being so, the assessment proceedings and the assessment orders must be held to be null and void.'
It was further observed (at page 513) :
'Violation of the principles of natural justice, and, more particularly, violation of statutory principles of natural justice, as in the instant case, takes away the jurisdiction of the authority concerned to proceed with the proceedings and make the assessment orders and necessarily invalidates the proceedings and the orders passed therein. If you want to assess the estate of the deceased assessee, the estate must be fully represented by impleading all the legal representatives and serving notices on all of them who represent the entire estate. If you do not do that, the assessment proceedings and assessment orders passed therein will cease to be valid proceedings and valid orders in the eye of law.'
It appears that the Tribunal was considerably influenced by the aforesaid observations in upholding the order of the Appellate Assistant Commissioner that he was right in annulling the assessment. The decision rests on its own facts and apart from that, if it is considered to lay down that on failure to serve notices on the legal representatives of the deceased, who are deemed to be the assessee, the order is null and void and therefore, should be annulled, we regret we cannot subscribe to this view Jai Prakash Singhs case is not of much assistance to the assessee though at the risk of repetition, it may be stated that it was on the basis of this decision that the Tribunal has recorded the finding in favour of the assessee.
Mr. Balia has invited our attention to Chooharmal Wadhuram v. CIT : 80ITR360(Guj) and, in particular, referred to the following observations (at page 375) :
'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, therefore, the assessment of the income of the deceased, Chooharmal Wadhuram, was not in compliance with the requirements of section 24B, sub-section (2).'
While repelling the contention raised on behalf of the Revenue, it was held 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 and that there must be complete representation of the estate of the deceased in the proceedings. Much emphasis was laid on the following observations (at page 376) :
'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 of the deceased is completely represented before him and the assessment made by him is binding on the estate.'
We may at once state that there cannot be any quarrel with the above statement of law, but the question before us is whether failure to serve the notice on the legal representatives of the deceased renders the assessment order null and so it has to be annulled.'Annulment' means to make null, to reduce to nothing, to abolish. The Appellate Assistant Commissioner has power to annual the assessment under section 251(1)(a) of the Act. Equally, he has power to set it aside. It is not disputed by learned to be given to the legal representatives of the deceased, Mohanlal Gupta, or for that matter to Smt. Dayawati Gupta before completing the assessment under section 143(2), according to which, principles of natural justice would have been complied with or that an opportunity of hearing should have been given before making the assessment. This is what is statutorily required. To issue a notice under section 143(2) is mandatory and, therefore, if the assessment is made without complying with section 143(2), then the assessment is, ordinarily, invalid. But the contention of Mr. Arora is that in such a situation, the correct order to be passed by the Appellate Assistant Commissioner is to set aside the assessment, whereas according to Mr. Balia, it should have been annulled. As stated above, the assessment order passed without notice under section 143(2) is invalid and it is vitiated, but the invalidity is not, however, of such a nature which goes to the root of the proceedings and that being so, the Appellate Assistant Commissioner having found it to be invalid, that invalidity did not go to the root of the matter. It could be set aside for being redone de novo. He should not have annulled it. Failure to serve notice on the assessee under section 143(2) of the Act is merely an irregularity and the Income-tax Officer, until and unless he gets the notices served, cannot complete the assessment. We find it difficult to hold that the Income-tax Officer has no jurisdiction in respect of the proceedings. As soon as the return is filed, he gets seisin over the case. He has jurisdiction over it, but on failure to comply with section 143(2) of the Act, the only limited restriction is that he cannot complete the assessment. In these circumstances, the assessment orders completed without service of notice under section 143(2) cannot be said to be ab initio void and when it is not so, the assessment order cannot be annulled.
Having considered the reasons given by the Allahabad and Jammu and Kashmir High Courts in Sant Babu Mohan Singhs case : 90ITR197(All) and Rattan Lal Tikus case , we are of the opinion that, in the circumstances of the case which have already been adverted to above, the order that the Appellate Assistant Commissioner should have passed on account of the failure of the Income-tax Officer to serve notices on all the legal representatives of Mohan Gupta or for that matter on Smt.Dayawati Gupta, in whose favour, the will was executed by the deceased, Mohanlal Gupta, was to set aside the assessment order passed by the Income-tax Officer in respect of the assessment year 1965-66 and not to annul the assessment. We respectfully agree with the view taken by the Allahabad High Court and the Jammu and Kashmir High Court, as it is in conformity with the provisions of section 143(3) and section 159 of the Act.
Mr. Rajesh Balia, learned counsel for the assessee, submitted that in view of section 153 of the Act, which lays down the time-limit for completing the assessment and reassessment, the directions given by the Appellate Assistant Commissioner were justified, for, the time-limit provided in section 153 of the Act has expired. We regret, this contention cannot be accepted, for, we are to answer the question referred to us by the Tribunal, which is said to arise out of its order.
No benefit can be taken on the basis of section 153 of the Act by learned counsel for the assessee in the reference before us.
For the reasons mentioned above, we answer the question referred to us in the negative, i.e., in favour of the Revenue and against the assessee.
There will be no order as to costs of this reference.
Let a copy of this order be sent to the Tribunal as required by section 260(1) of the Act.