1. The following question had been referred under s. 27(1) of the W.T. Act :
'Whether action can be initiated and penalty levied on onthe legal representative of a deceased-assessee for the belated filing of the return by the latter for any assessment year under section 18(1)(a) of the Wealth- tax Act, 1957 ?'
2. One Venkateswara Iyer should have filed the wealth-tax returns for the assessment years 1963-64 to 1968-69 on or before the June 30 of each of those years. He had not done so. Therefore, notices were issued to him under s. 17 of the W.T. Act for the years 1963-64 to 1967-68 and under s. 14(2) for the assessment year 1967-69, requiring him to file the returns within 30 days from the date of receipt of the notices. He filed the returns on March 31, 1969, disclosing various amountu as his net wealth as on the relevant dates. The tax due on the basis of the said returns was also paid.
3. The WTO initiated penalty proceedings for the delay in finding the returns and required Venkateswara Iyer's legal representative to show cause against the levy of such penalties. The legal representative filed a petition under s. 18(2A) praying for the waiver of the penalty. By his order dated March 17, 1972, the Commissioner rejected the petition on the ground that s. 18(2A) was not applicable since the returns had not been filed voluntarily but had been filed only after notices were issued. The WTO completed the penalty proceedings on March 25, 1972, by levying various amounts as penalty for these years.
4. The assessee appealed to the AAC for each of these years contesting that sincd the default had been committed by Venkateswara Iyer, the son could not be penalised as there was no provision in the W.T. Act enabling levy of penalty on a legal representative for a default committed by the deceased. The AAC pointed out that was no provision in the W.T. Act corresponding to s. 159(2)(b) of the I.T. Act, 1961, and that s. 19(3) of the W.T. Act did not provide for the application of s. 18 to a legal representative. He, therefore, held that there was no provision for the levy of penalty on the legal representative
and cancelled the penalty for each of these years.
5. Appeals were filed before the Tribunal by the WTO contesting the conclusions of the AAC for the several years. The Tribunal held that no penalty could be levied on the legal representative for a default of the deceased in the absence of a provision similar to s. 159(2) of the I.T. Act, 1961, was also pointed out. The result was that the penalties levied for several years were cancelled.
6. The question that has now been referred arises out of this order of the Tribunal. Section 18 contemplates levy of penalty where any person has without reasonable cause failed to furnish the return which he was required to furnish under s. 14(1) among other provisions. Section 19 deals with the position regarding the death of the particular person who was liable to be assessed and the liabilities of the legal representative.
Section 19 runs as follows :
'(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 wealth-tax assessed as payable by such person, or any sum, which would have been payable by him under this Act if he had not died.
(2) Where a person dies without having furnished a return under the provisions of section 14 or after having furnished a return which the Wealth-tax Officer has reason to believer to be incorrect or incomplete, the Wealth-tax Officer may make an assessment of the net wealth of such person and determine the wealth-tax payable by the person 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 if he had survived, require from the executor, administrator or other legal representative of the deceased person any accounts, documents or other evidence which high under thi provisions of section 16 have been required from the deceased person.
(3) The provisions of sections 14 15 and 17 shall apply to an executor, administrator or other legal representative as they apply to any person referred to in those sections.'
7. Section 19(1) casts liability to pay out of the estate of the deceased person the wealth-tax assessed as payable by the deceased. Thus, s. 19(1) would apply to all cases where the assessment had been completed on the deceased and the tax alone remained to be paid. It would also apply to the recovery of penalty because the section uses the words 'or any sum, which would have been payable by him under this Act, if he had not died'. The words 'any sum' would include even a penalty levied on the deceased but remaining unpaid during his lifetime. This sub-section does not apply to the facts here.
8. We shall not turn to sub-s. (2) of, s. 19. It provides for cases where a person dies without having furnished a return under the provisions of s. 14 or where, after having furnished the return, the WTO finds that the return was incorrect or incomplete. In either case, the WTO is empowered to make an assessment of the net wealth of the deceased person and determine the wealth-tax payable by him on the basis of such assessment. For this purpose, appropriate notices which could have been served on the deceased, if he had survived, could be served on the executor, administrator or other legal representative. They may be called upon to produce any accounts, documents or other evidence which might under the provisions of s. 16 have been required from the deceased person, if he were alive. This provision would be attracted here because the person who was liable to pay tax died on February 16, 1970, and the assessment itself was completed on March 31, 1971. Even at the time of the assessment, the respondent, Varadarajan, was treated as the legal representative. The result is that sub-s. (2) of s. 19 would apply here.
9. The question is whether penalty proceedings could be taken as against him for the default alleged to have been committed by the deceased. It is in this context that the provision in sub-s. (3) of s. 19 was relied on by the learned counsel for the commissioner. Sub-section (3) provides that ss. 14. 15 and 17 would apply to the legal representative among others as they apply to any person referred to in those sections. Section 15 enables a revised return being filed in a case where a person has furnished a return or a return being filed where no return was filed. This provision is not applicable to the facts here. Similarly, s. 17 applies to wealth escaping assessment. That provision also does not apply. The learned counsel for the Commissioner, therefore, confined his attention to s. 14 having been attracted by s. 19(3).
Section 14(1) provides :
'Every person, if his net wealth or the net wealth of any other person in respect of which he is assessable under this Act on the valuation date was of such an amount as to render him liable to wealth-tax under this Act, shall, before June 30 of the corresponding assessment year, furnish to the Wealth-tax Officer a return in the prescribed form and verified in the prescribed manner setting forth the net wealth as on that valuation date :'.......
10. There is a proviso which it is unnecessary for our present purpose to refer to here. The contention was that Varadarajan, the legal representative, was the person who was assessable the net wealth of another person referred to in s. 14. In other words, the point sought to be made out was that Varadarajan was assessable on the net wealth of his father, Vankateshwara Iyer, and that, therefore, he would be a person falling within s. 14. The purpose of s. 14 being imported into s. 19 is to enable the legal representative to file a return in respect of the wealth of the deceased. All the consequences of the filing of such a return may follow in his hands when once he filed such a return. But this is a case where the legal representative did not file the return, as the deceased himself had done so. Thus. Reference to s. 14 in s. 19(3) does not appear to improve the matter in this case, so as to clothe the department with a right to levy penalty on the legal representative with referencd to the default committed by the deceased.
11. It is in this context that reference has to be made to the corresponding provisions of the I.T. Act. Section 24B of the Indian I. T. Act, 1922, dealt with the liability of the legal representative as regards the tax payable by a deceased person. Where a person died, his legal representative was liable to pay out of the estate of the deceased to the extent to which the estate of the deceased was capable of meeting the charge, the tax as payable by such person, or any tax which would have been payable by him under the Act, if he had not died. This is almost in identical terms with s. 19(1) which we have already considered and which we have already found is not applicable to the facts here, as there was no assessment on the deceased by the time of his death, so that the legal representative could be proceeded against with reference to the amount due under such an assessment. Sub-section (2) of s. 24B provided that where a person died before he was liable to submit a return, his legal representative should, on the service of the notice under sub-s. (2) of s. 22 or under s. 34, as the case may be, comply with such notice, and the ITO may proceed to assessee the total income of the deceased person as if such executor, administrator or other legal representative were the assessee. There was a legal fiction in s. 24B(2), so as to deem a legal representative to be the assessee where the deceased had not submitted a return and where notices were served on the legal representative. Sub-section (3) of s. 24B dealt with a case where a person died without having furnished a return which he was required to do under the Act. Or where the deceased has furnished a return which the ITO had reason to believe to be incorrect or incomplete; the ITO could in such a case take further proceedings to make the assessment on the total income of the said person ask determine the tax payable by him and, for this purpose, he could issue appropriate notice and serve them on the legal representatives or require them to produce any accounts, documents, etc., which he might have called upon the deceased person to produce.
12. The absence of a legal fiction as found in s. 24B(2) would militate against the acceptance of the contention that the legal representatives should be deemed to be the assessee in the present case, so that he was liable to pay the penalty, if any, leviable on the deceased. In fact, the contention of the learned counsel for the Commissioner would involve the importing of a double fiction, namely, (i) treating the legal representative as if he was himself the assessee; and (ii) treating him to have committed a default which had not been committed by him. For the importing of this double fiction, there is absolutely no warrant in the statute. Even in the context of s. 24B(2), there is an element of doubt as to whether this double fiction exists though the Caluctta High Court in Sukumar Mukherjee v. CIT : 33ITR231(Cal) appears to proceed as if the default of the decease could be deemed to be the default committed by the legal representative by the mere fiction of the legal representative being treated to be the assessee. However, on the facts of the Calcutta case, the point, which was in a way assumed, did not actually arise. That was a case where on the death of the assessee a notice under s. 22(2) of the Indian I.T. Act, 1922, was served on the son, as legal representative for the submission of the return. In compliance with that notice, the son submitted a return in which there were omission and, therefore, penalty proceedings came to be initiated under s. 28 of that Act. It was held that the imposition of penalty on the son was valid. That would appear to us to be a clear case where the person by submitting a false return invited the application of the penalty provisions and brought upon himself the liability to penalty. No deeming provision was necessary in that case, because the son himself had committed the default. That was also not a case coming within had committed the default. That was also not a case coming within the scope of s. 24B(3) as the deceased had not been required to furnish a return, or the return filed by him was incorrect or incomplete.
13. Section 159 of the I.T. Act, 1961, made certain changes in the previous law as enacted under s. 24B. Sub-section (1) of section 159 practically was the same was as s. 24B(1.) Sub-section (2) provides that for the purpose of making an assessment of the income of the deceased and for the purpose of levying any sum in the hands of the legal representative in accordance with the provisions of sub-s. (1) of s. 159. Any proceedings taken against the deceased before his death could be deemed to have been taken against the legal representative and may be continued and any proceedings which could have been taken against the deceased, if he had survived, might be taken against the legal representative and all the provisions of the Act would apply accordingly. A penalty proceeding would be a proceeding which could have been taken against the deceased on the facts here, because he invited levy of penalty by not submitting the return within the time allowed under the law. Such a proceedings can be taken against the legal representative, if as contemplated by s. 159(2)(b), if the proceedings were under the I.T. Act, 1961. Parliament must have deliberately intended to levy penalty in the hands to the legal representative also in the case where the default has been committed by a deceased person and with this end in view brought about the changes in income-tax law. In the absence of such a change in the W.T. Act, it is not possible to attribute to the Legislature the intention to penalise the legal representative for the default, if any, committed by the deceased person. In order to visit the sin of the father on the son, there must be some warrant under the law, and there is none in the W.T. Act, as it is. The learned counsel for the Commissioner contended that even the process of assessment would include the process of levy of penaltu and for this purpose drew out attention to two decisions of the Supreme Court.
14. In CIT v. Bhikaji Dadabhai & Co. : 42ITR123(SC) , the question arose on the following facts :
Hyderabad became part of the taxable territory as it merged with the Indian Union. The Indian Legislature enacted s. 13(1) of the Finance Act, 1950, which provided : 'If immediately before April 1, 1950, there is in force in any Part B State...... any law relating to income-tax or super-tax...... that law shall cease to have effect except for the purposes of the levy, assessment and collection of income-tax and super-tax in respect of any period not included in the previous year of the purposes of assessment under the Indian Income-tax Act. 1922.'......
15. The Hyderabad I.T. Act thus ceased to have effect from April 1, 1950. The portion of that Act in respect of the levy of assessment and collection of income-tax and super-tax in respect of the periods prior thereto, for which liability of income-tax could not be imposed under the Indian I.T. Act, 1922, was saved. The ITO issued on December 22, 1949, a notice to the assessee requiring him to show cause why penalty should not be imposed and by an order dated October 31, 1951, imposed penalty on the assessee. The assessee challenged the validity of the penalty order before the AAC who confirmed it. The Appellate Tribunal. On further appeal, took the view that the order imposing penalty was not valid. And the High Court on reference upheld the order of the Tribunal. On further appeal to the Supreme Court, it was held that the view taken by the High Court was proper. Their Lordships referred to an earlier case in Abraham v. ITO : 41ITR425(SC) and followed it. In Abraham's case, it was held that penalty was only additional tax, which was designated as penalty. And which was imposed in view of the dishonest or contumacious conduct of the assessee. The Supreme Court held, following this decision that the levy, assessment and collection of income-tax would comprehend the levy of penalty also. The Supreme Court in Jain Brothers v. Union of India : 77ITR107(SC) had to deal with the legality of the levy of penalty under the I.T. Act, 1961, with reference to a return filed under the 1922 Act before April 1, 1962, when the I.T. Act, 1961, came into force. While upholding the levy of penalty in such a case, the Supreme Court observed in page 166 :
'Although penalty has been regarded as an additional tax in a certain sense and for certain purposes, it is not possible to hold that penalty proceedings are essentially continuation of the proceedings relating to assessment where a return has been filed.'
16. This passage shows that the theory of treating penalty as an additional tax is only for certain purposes and cannot be extended beyond its scope. The I.T. Act carries within it a dichotomy of treating the tax and penalty separately. This dichotomy would be destroyed if we construe penalty as only a part of the tax. The learned counsel for the Commissioner drew our attention to two other Supreme Court decisions, namely, (1) Addl. ITO v. E. Alfred : 44ITR442(SC) and (2) Ist Addl. ITO v. T. M. K. Abdul Kassim : 46ITR149(SC) . These are decisiono which were rendered in connection with the recovery proceedings under s. 46 of the Indian I.T. Act, 1922. As we are not concerned with any such proceedings before us, we do not think it necessary to go into these decisions for our present purpose.
17. The Andhra Prakesh High Court in Smt. Yawarunnissa Begum v. WTO : 100ITR645(AP) dealt with a case where the WTO accepted the return filed by an assessee which was belated, and the assessment was completed on February 18, 1971. Subsequently, after the death of the assessee on September 17, 1971, a notice was issued to the legal representative proposing to levy penalty for the late filing of the return. The legal representative took proceedings under art. 226 of the Constitution for quashing the said notice. It was held that the legal representative was not liable for penalty of the default committed by the deceased under s. 18 of the W.T.Act, and the liability of the legal representatives was only to pay the tax assessed as payable or any other sums which should have been payable by the deceased had he been alive, out of the deceased. Though there is no discussion of the relevant provisions, we find that the conclusion reached GAXX reached by the Andhra Pradesh High Court is the same as ours. One aspect which may be noticed about the Andhra Pradesh High Court's decision is that it is a case which came only within the scope of s. 19(3) if at all. Section 19(2), as we have already seen, provides for cases where a person dies without furnishing a return or where the return furnished by him was found to be incorrect or incomplete. In that case, the deceased had filed the return which had also ended in an assessment on the basis of the return. Therefore, there was no scope for the WTO treating the return to be incorrect or incomplete. As that was a case where the person died after furnishing a return, s. 19(2) did not have any scope for application. Apparently because of this, the learned judges have referred to only s. 19(3) and extracted it at page 647 of the judgment.
18. In A & F. Harvey Ltd. v. CWT : 107ITR326(Mad) , a Bench of this court went into the scope of s. 19(1) and (2). In that case, the deceased died before the valuation date and the question was whether any proceedings could be taken against the executors. At page 339, it was observed :
'There is no fiction in section 19 to the effect that even though the deceased died before the valuation date, he must be deemed to have lived till the valuation date. For the reasons we have already indicated, section 19 is purely procedural.'....
19. After referring to the relevant provisions of the I.T. Act, it was pointed out in the same page :
'In the case of the Income-tax Act, a person even if he died in the middle of an accounting year, might have earned taxable income during the course of that year before his death and, therefore, with reference to that income, he was liable to pay tax and assessment proceedings could be taken and tax could be recovered in the hands of has legal representatives out of the assets left behind by the deceased. But, as far as the Act (Wealth-tax Act) is concerned, it is not an assessment in respect of the wealth continuing over a period, but in respect of the wealth as available on a particular date, namely, the valuation date. Therefore, there cannot be any analogy, true or false, between the relevant provisions of the Income-tax Act and the Act in this behalf, in view of the basic and fundamental difference existing between the chargeable events themselves.'
20. This decision also shows that the we cannot borrow any analogy from the I.T. Act and the decisions under that Act would have no application.
21. We may point out that the question has been framed in rather abstract terms as if any academic investigation of such a questions is called for in the case on reference. The Tribunal should have related the question to the facts and should not have couched it in such broad, wide or abstract terms. However, the purpose of the question is clear, in view of the facts mentioned already, and taking into accouno the question as framed, we answer it by stating that penalty cannot be levied on the legal representative of a deceased assessee for the belated filing of the return by the deceased assessee.
22. The assessee would be entitled to his costs. Counsel's fee Rs. 500 (one set).