AJIT KUMAR SENGUPTA, J. - (1.) IN this reference under S. 26(1) of the GT Act, 1958, the following question of law has been referred to this Court for the asst. yr. 1968-69. The question is : "Whether on the facts and in the circumstances of the case and having regard to the provisions of s. 41C of the GT Act, 1958, the Tribunal was justified in law in annulling the assessment made by the GTO ?"
(2.) THE facts, in brief, are that Late Ashutosh Pati gifted a house property and some agricultural lands in favour of his three sons, viz., (1) Shri Ramesh Ch. Pati, (2) Shri Harish Ch. Pati, and (3) Shri Jogesh Ch. Pati. The GTO initiated proceedings under S. 16(1) of the GT Act, in reply to which a return was filed. Notice under S. 15(2) of the Act was issued and served on Shri Ramesh Ch. Pati since at the material time the donee (?) had died. In the absence of any compliance on behalf of Shri Ramesh Ch. Pati, the assessment was made under S. 15(5) of the Act. The assessee preferred appeal before the AAC. It was contended on behalf of the donee before the AAC that the assessment so made was without any legal sanction so also the valuation of the gifted properties was made excessive and without basis. The AAC rejected this submission made before him as he was of the opinion that the proceedings were initiated within the strict frame-work of the GT Rules. He was also of the view that the valuation made by the GTO in respect of the gifted properties was reasonable. He, therefore, confirmed the action of the GTO. The assessee appealed before the Tribunal. On behalf of the assessee, it was vehemently urged that the assessment was void ab initio inasmuch as necessary notices were not served on all the legal heirs of the deceased-donor. It was submitted that if the notice was served on only one of the legal heirs, there would be no complete representation of the estate and the proceedings would be wholly invalid. It was, therefore, urged that the orders of the lower authorities should be set aside on grounds. On merit, it was contended that the valuation made in respect of the gifted properties was excessive and without any basis whatsoever. On behalf of the Department, it was contended that it was the duty of the legal heirs of the donor to bring the names of all the legal heirs to the notice of the GTO. It was pointed out that in response to the notice served by the GTO the donee had filed a return. In view of this fact, it was submitted that the assessee could not challenge the validity of the assessment on the ground that notice were not served on all the legal heirs of the donee. On merit, the Revenue contended that the value of the building and agricultural lands measuring about 17 acres was not less than Rs. 1,25,000. It was, therefore, submitted that the value determined by the lower authorities in respect of the gifted properties was fair and reasonable. The Tribunal following the principles laid down in the cases of ITO vs. Meramreddy Solochanamma (1971) 79 ITR 1 (SC) and in Chooharmal Wadhuram vs. CIT (1971) 80 ITR 360 (Guj) came to the conclusion that the assessment made by the GTO in the present case, without serving notices on all the legal representatives of the donor, was void and was fit to be annulled. At the hearing it has been contended that the Tribunal was not right in annulling the assessment on the ground that notice was not served on all the heirs and legal representatives. As indicated earlier, the Tribunal relied on a decision of the Supreme Court in ITO & Anr. vs. Meramreddy Sulochanamma (supra). In that case the assessee Narayana Reddy died leaving behind him his widow Ramanamma and five daughters. On his death, his widow took possession of his estate and managed it. His wife died on 5th September, 1956. Before her death, she bequeathed the property to her three daughters. After the death of the assessee, Narayana Reddy, the IT authorities dealt with his wife as his sole legal representative. On that basis the authorities collected from her the tax due from the estate of the deceased Narayana Reddy. They also took reassessment proceedings under S. 34 of the Act and collected some additional tax from her. On 17th March, 1962, one of the daughters of the deceased assessee and who had obtained a share in the estate of Narayana Reddy under the compromise decree was served with notices under S. 34 of the Act seeking to reopen the assessment of the deceased assessee Narayana Reddy. She filed as many as seven writ petitions challenging the validity of the notices served on her. There, the Supreme Court observed as follows : "Sec. 24B(1) of the Act provides : '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.' Interpreting that provision this Court ruled in First Addl. ITO vs. Mrs. Suseela Sadanandan (1965) 57 ITR 168 (SC) that if a person dies executing a will appointing more than one executor or dies intestate leaving behind him more than one heir, under S. 24B of the Act, the ITO has to proceed to assess the total income of the deceased against all the executor or all the legal representatives, as the case may be. It was further ruled therein that if there are more than one executor of the deceased person all of them will be his representatives and for the purpose of S. 24B(2) all of them jointly represent the estate of the deceased. In that decision the principle laid down by this Court in Dayaram vs. Shyam Sundari AIR 1965 SC 1049 that where a plaintiff or an appellant, after diligent and bona fide enquiry, ascertains who the legal representatives of a deceased defendant or respondent are, and brings them on record within the time limited by law, there is no abatement of the suit or appeal and those legal representatives sufficiently represent the estate of the deceased and a decision obtained with them on record was held to be not confined to any suit and appeals but is of general application. It was observed therein that there is no reason why that principle cannot be invoked in the case of assessment of the income of a deceased person in the hands of his legal representatives." There, the Supreme Court directed the High Court to ascertain whether the ITO had made any bona fide enquiry before issuing notices under S. 34 or whether he had issued notices to all the legal representatives of Narayana Reddy.
(3.) OUR attention has been drawn to the decision of the Karnataka High Court in the case of K. Ashok Kumar & Ors. vs. CIT (1987) 59 CTR (Kar) 124 : (1986) 162 ITR 543 (Kar). One Muddusuvarna was the original assessee. For the asst. yr. 1973-74 he was served with a notice under S. 139(2) of the IT Act, 1961, but he did not file the return. He died on 29th January, 1975, leaving behind him his wife and children including the eldest son, Ashok Kumar. After his death, the ITO again issued a notice to Ashok Kumar under S. 139(2). Ashok Kumar filed a return on 6th March, 1976, and continued to participate in the assessment proceedings. The ITO sent a draft assessment order to Ashok Kumar as required under S. 144B. At that stage, Ashok Kumar, pointed out in his letter dt. 4th March, 1977, that there are also other legal representatives and the estate of Muddusuvarna was, therefore, not properly represented since they were not notified. The ITO however, did not issue notices to the other legal representatives. The proceedings continued and the IAC made an order under S. 144B whereby the assessment was completed on 30th August, 1977. At that stage, the ITO intimated all the legal representatives about the income assessed, etc. The assessment was made on Ashok Kumar as the legal representative of the estate of Muddusuvarna. Against the assessment order, Ashok Kumar preferred an appeal to the CIT(A). One of the contentions raised in the appeal was that the estate of Muddusuvarna was not properly represented and all his legal representative ought to have been notified. The CIT rejected that contention, although he gave some relief on the merits of the matter. Thereupon, the assessee preferred an appeal before the Tribunal. It was contended before the Tribunal that the assessment order was invalid since all the legal representatives of Muddusuvarna were not notified. On behalf of the Revenue, it was contended that Ashok Kumar, having participated in the proceedings as a legal representative of Muddusuvarna, he could not raise the contention regarding the validity of the assessment. It was urged that if any such contention could be raised, it could be only by the other legal representatives of Muddusuvarna and not by the Ashok Kumar himself. The Tribunal rejected the contention urged for the Revenue. It held that Ashok Kumar could raise the objection of procedural irregularities as to the want of notice to all the legal representatives of the late Muddusuvarna. It also held that the invalidity has occurred from the stage of S. 144B proceedings when Ashok Kumar raised the said objection before the ITO. Consequently, the Tribunal set aside the assessment order and directed the ITO to proceed with the assessment de novo from the stage of S. 144B proceedings after issuing notices to all the legal representatives. However, it did not agree with the contention of Ashok Kumar that the entire assessment proceedings should be annulled. The question was whether the Tribunal was right in holding that the assessment should be done de novo from the stage of S. 144B proceedings after issuing notices to all the legal representatives. There the contention raised was that the initiation of the assessment proceedings was bad since the estate of the late Muddusuvarna was not fully represented before the ITO and the ITO issued a notice under S. 139(2) only to Ashok Kumar and he ought to have issued such notices to all the legal representatives. There the Karnataka High Court held thus : "Ordinarily, we would have accepted this contention. If a person dies, it is necessary for the ITO to issue notices to all the legal representatives before initiation of proceedings because the estate of the deceased cannot properly be represented by only one of the legal representatives. All legal representatives must be notified. But, in the instant case, that contention is not relevant. Notice under S. 139(2) was served on Muddusuvarna when he was alive. He did not file the return. Under the law, there was a valid initiation of the proceedings. There is no requirement under the law to issue another notice under S. 139(2) to the legal representatives. However, having come to know that Muddusuvarna died leaving behind him more than one legal representative, the ITO issued a notice again to Ashok Kumar. That was not a legal requirement under the statute. The fact that the ITO had issued a notice under S. 139(2) to Ashok Kumar will not make it obligatory to issue similar notices to the other legal representative to make the proceedings valid. The Tribunal, in our opinion, was justified in stating that the proceedings should be de novo held from the stage of s. 144B , since it was brought to the notice of the ITO that there are other legal representatives and their contentions also should be considered before making a reference to the IAC." It may be mentioned that the Karnataka High Court drew inspiration from the decision of the Supreme Court in Guduthur Bros. vs. ITO (1960) 40 ITR 298 (SC). There, for the asst. yr. 1948- 49, the appellants failed to file a return within the prescribed time and the ITO acting under S. 28 (1)(a) of the Indian IT Act, issued a notice to them to show cause why penalty should not be imposed. In answer to this notice, the appellants filed a written reply and the ITO proceeded to levy a penalty of Rs. 16,000 without affording a hearing to them as required by the third sub- section of S. 28 of the IT Act. The matter was taken up in appeal before the AAC, who, pointing out that an opportunity of being heard was not granted to the appellants, held that the order was defective. He, therefore, set aside that order and directed the refund of the penalty if it had been recovered. On receipt of the order, the ITO issued a further notice calling upon the appellants to appear before him, so that they might be given an opportunity of being heard. He also intimated that if no appearance was made, then he would proceed to determine the question of penalty, taking into consideration only the written statement which had been filed earlier. Before, however, the ITO could decide the case, the appellants filed a petition under Art. 226 of the Constitution for the issuance of the writs mentioned above. This petition was dismissed in limine by the High Court holding that the contention raised by the appellants may perhaps be raised before the IT authorities. Thereafter the appellants went to the Supreme Court by special leave. There the Supreme Court held as follows: "There is no question here that the requirements of S. 28(1)(a) of the IT Act were not completely fulfilled. If the appellants had not filed their return, as they were required by law to do, the omission would attract cl. (a) of sub-s. (1) of S. 28. We say nothing as to that, sub-s. (3) of S. 28, however, requires that the penalty shall not be imposed without affording to the assessee a reasonable opportunity of being heard. This opportunity was denied to the appellants and, therefore, the order of the ITO was vitiated by an illegality which supervened, not at the initial stage of the proceedings, but during the course of it. The order of the learned AAC pointed out the ground on which the illegality proceeded and his order directing the refund of the penalty, if recovered, cannot be interpreted as correcting the error and leaving it open to the ITO to continue his proceedings from the stage at which the illegality occurred. No express remand for this purpose, as is contended, was necessary." The Supreme Court in Dayaram vs. Shyam Sundari AIR 1965 SC 1049 laid down that where a plaintiff or an appellant, after diligent and bona fide enquiry, ascertains who the legal representatives of a deceased defendant or respondent are, and brings them on record within the time limited by law, there is no abatement of the suit or appeal and those legal representatives sufficiently represent the estate of the deceased and a decision obtained with them on record will bind not merely those impleaded but the estate including those not brought on record. The Supreme Court in First Addl. ITO vs. Mrs. Suseela Sadanandan (1965) 57 ITR 168 (SC) has held that although the aforesaid rule was laid down in the context of suits and appeals, it is one of general application and it may be invoked in the case of assessment of income of a deceased person in the hands of his legal representative.;