THE COMMISSIONER OF INCOME TAX vs. SHRI I MAHABALESHWARAPPA

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 16TH DAY OF JUNE 2021 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE HEMANT CHANDANGOUDAR I.T.A. NO.561 OF 2013 BETWEEN: 1. THE COMMISSIONER OF INCOME TAX

CENTRAL CIRCLE

C.R. BUILDING, QUEENS ROAD

BANGALORE. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX

CENTRAL CIRCLE-1(2)

C R BUILDING, QUEENS ROAD

BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,) AND: SHRI. I. MAHABALESHWARAPPA BY LEGAL HEIR MANU ITTINA ITTINA HOUSE, SARJAPUR ROAD KAIKONDANAHALLI, CARMELRAM POST, BANGALORE-560005. ... RESPONDENT (BY SRI. V. CHANDRASHEKAR, ADV.) - - - THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 12.07.2013 PASSED IN ITA NO.155/BANG/2012 FOR THE ASSESSMENT YEAR 2005-06, PRAYING TO:

2 (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN ITA NO.155/BANG/2012 DATED 12.07.2013 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE- 1(2), BANGALORE. THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2005-06. The appeal was admitted by a bench of this Court on the following substantial questions of law: "(i) Whether on the facts and in the circumstances and in law the Tribunal was correct in holding that the order of assessment passed after the death of the assessee in invalid without taking into consideration the scope of section 159 of the Act and recorded a perverse finding?

3 (ii) Whether on the facts and in the circumstances and in law the Tribunal was correct in holding that the order of assessment passed on the basis of the return filed by the assessee for the relevant previous year is bad in law on the ground the order is passed after the death of assessee?" 2. Facts leading to filing of this appeal briefly stated are that a search under Section 132 of the Act was conducted in case of M/s. Ittina Properties Pvt. Ltd., Bangalore and in the residential premises of the assessee viz., Late I.Mahabaleshwarappa viz., who was the Managing Director of the said company, a search was also conducted on 28.02.2008. A notice under Section 153A of the Act was issued to the aforesaid assessee on 21.10.2008 for the Assessment Year 2005- 06 amongst other Assessment Years. The assessee did not comply with the notice and Miss Mona Ittina requested on behalf of the assessee to postpone the hearing on the ground that the assessee is indisposed.

4 The assessee filed the return of income on 16.07.2009. Thereafter, a notice under Section 143(2) of the Act was issued on 31.08.2009. A chartered Accountant appeared on behalf of the assessee and the filed the details on 23.11.2009. On the aforesaid date, the arguments were heard. In the meanwhile, before passing the order of assessment, the assessee expired on 18.12.2009. The Assessing Officer passed an order of assessment on 31.12.2009 by which the income of the assessee was assessed at Rs.81,08,359/-. 3. The legal representatives of the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 03.11.2011 decided the appeal on merits. The Commissioner of Income Tax (Appeals) confirmed the addition made by the Assessing Officer and made an enhancement of Rs.4,71,23,166/- under Section 2(22)(e) of the Act to the assessed income. The legal heirs thereupon filed an appeal before the Income Tax Appellate Tribunal

5 (hereinafter referred to as 'the tribunal' for short). The tribunal by an order dated 12.07.2013 inter alia held that since, the order of assessment was passed by the Assessing Officer after the death of the assessee, therefore, the order passed by the Assessing Officer against a dead person is a nullity. In the result, orders of assessment passed by the Assessing Officer in respect of Assessment Years 2002-03 and 2005-06 were held to be null and void and were annulled and the appeals preferred by the assessee were allowed. In the aforesaid factual background, this appeal has been filed. 4. Learned counsel for the revenue submitted that the tribunal ought to have appreciated that the hearing of the case was concluded by the Assessing Officer on 23.11.2009 and thereafter, the assessee has expired. It is also contended that the factum of death of assessee was not made known to the Assessing Officer. It is also submitted that Section 159 of the Act provides for an opportunity of hearing to the legal heirs who have

6 succeeded the estate of the assessee before determining the liability. It is further submitted that the tribunal ought to have therefore, remitted the matter to the Assessing Officer to pass a fresh order after affording an opportunity of hearing to the legal heirs of deceased assessee. It is also urged that Supreme Court has dealt with the issue of notice on the non existing person and has held that issuance of notice under Section 143(2) of the Act on the non existing company after intimation of amalgamation to the Assessing Officer is illegal. However, in the instant case, no intimation was given to the Assessing Officer. It is also contended that issuance of notice under Section 148 of the Act in the name of non existing company is a curable defect under Section 292B of the Act and initiation of proceeding under Section 148 of the Act in the name of non existing company has been held to be valid with reference to Section 292B of the Act. In support of aforesaid submissions, reliance has been placed on decisions in

7 'PRINCIPAL COMMISSIONER OF INCOME TAX, NEW DELHI VS. MARUTI SUZUKI INDIA LTD., (2019) 107 TAXMANN.COM 375 (SC), 'SKY LIGHT HOSPITALITY LLP VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 28(1), NEW DELHI, (2018) 90 TAXMANN.COM 413 (DEL), 'COMMISSIONER OF INCOME-TAX VS. SMT. V. RUKMINI', (2011) 12 TAXMANN.COM 562 (KARNATAKA). 5. On the other hand, learned counsel for the assessee submitted that the order of assessment passed against a dead person is null and void. It is also submitted that admittedly, the Assessing Officer had not brought on record the legal representatives of the deceased assessee. It is further submitted that provisions of Section 159 of the Act are not applicable as the same applies only to regular assessment or re- assessment proceeding and in the instant case the proceeding was initiated under Section 153A of the Act.

8 During the course of hearing, it is asserted that a communication dated 18.12.2009 was submitted before the Assessing Officer intimating him about the death of the deceased. It is also submitted that if the Assessing Officer wanted to continue the assessment proceeding, he ought to have brought the legal representatives on record. It is also urged that order passed by the tribunal does not call for any interference in this case. In support of aforesaid submissions reliance has been placed on decisions in SARASWATI INDUSTRIAL SYNDICATE VS. CIT', (1990) 186 ITR 278, 'SPICE INFOTAINMENT LTD. VS. CIT', (2015) 65 DTR 391 (DEL), 'VIJAY KUMAR JAIN VS. CIT', (1975) 99 ITR 349 (PUNJAB AND HARYANA)', 'CIT VS. AMARCHAND N. SHROFF', (1963) 48 ITR 59 (SC)', 'R.C.JAIN VS. CIT', (2005) 273 ITR 384 (DEL.), 'PCIT VS. MARUTI SUZUKI INDIA LTD.', (2019) 416 ITR 613 (SC) and GVK INDUSTRIES LTD. VS. ITO', (2011) 332 ITR 130 (SC).

9 6. We have considered the submissions made by learned counsel for the parties and have perused the record. The solitary issue, which arises for consideration in this appeal is whether an order passed by the Assessing Officer, after the death of the assessee who dies after conclusion of the arguments and before an order is passed by the Assessing Officer is ab initio void. Before proceeding further, it is apposite to take note of Section 159 of the Act, which reads as under: 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 any sum in the hands of the legal representative in accordance with the provisions of sub-section (1),—

10 (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 assessee. (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 assets47 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,

11 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. 7. Thus, from perusal of Section 159(2) of the Act, it is evident that the aforesaid provision expressly provides that death of the party is of no consequence and proceeding under the Act can proceed against legal representatives of the assessee and proceedings initiated against the deceased assessee shall be deemed to be the proceeding initiated against legal representatives of the assessee from the inception which could be continued from the stage of his death. The concept of abatement of the proceeding is not contemplated under the provisions of the Act. Section 159(2)(a)(b) and Section 159(3) of the Act create a legal fiction. It is well settled rule of statutory

12 interpretation that in interpreting a provision creating a legal fiction, the court is to ascertain for what purpose the fiction is created, and after ascertaining this, the Court is to assume all those facts and consequences which are incidental or inevitable corollaries to the giving effect to the fiction. (State of Trav-Co. v. Shanmugha Vilas Cashewnut Factory, Quilon, AIR 1953 SC 244, East End Dwelling Co. Ltd. V. Finsbury Borough Council, (1951) 2 AII ER 587 and Corporation Bank v. Saraswati Abharansala (2009) 1 SCC 540) (See Principles of Statutory Interpretation Justice G.P.Sinch 14th edition page 417). 8. A division bench of this court in Smt.V.Rukmini supra while dealing with the question whether an appeal under Section 260A of the Act abates on account of death of the assessee during the pendency of the appeal, while dealing with scope and ambit of Section 159 of the Act has held that the concept of abatement is

13 excluded, from the provisions of the Act which is evident from Section 159(2) of the Act. In the instant case, admittedly, after conclusion of the submissions, before an order was passed by the Assessing Officer, the assessee expired. Therefore, by virtue of Section 159(2) of the Act, the proceeding could not have held to have been abated and could have been continued against the legal representatives. Section 159(2)(a) of the Act creates a legal fiction therefore, full effect has to be given to the same. It is not a case where the proceedings were initiated against the assessee who had already expired. Therefore, the proceeding could have been held to be ab initio void. For the aforementioned reasons, the substantial questions of law are answered in favour of the revenue and against the assessee. 9. In the result, the order passed by the tribunal dated 12.07.2013 is quashed and the matter is remitted to the Assessing Officer to issue notice to the legal

14 representatives of the deceased assessee and thereafter to pass a fresh order of assessment. In the result, the appeal is allowed. Sd/- JUDGE Sd/- JUDGE ss