Court Quashes Reassessment Notice Issued to Deceased Taxpayer, Emphasizing Proper Procedure

Get the full picture - access the original judgement of the court order here

Case Name:

Jaydeep kumar Dhirajlal Thakkar vs Income Tax Officer (High Court of Gujarat)

Special Civil Application No.17186 of 2017

Date: 22nd January 2018

Key Takeaways:

1. Reassessment notices must be issued to legal heirs, not deceased taxpayers.

2. Section 159 of the Income Tax Act requires proceedings against legal representatives, not the deceased.

3. Section 292BB doesn't apply when objections are raised before assessment completion.

4. The court emphasized the importance of proper procedure in tax reassessment cases.

Issue: 

Is a reassessment notice issued to a deceased person valid under the Income Tax Act, especially when the tax authorities were aware of the taxpayer's death?

Facts:

1. Dhirajlal Dayaljibhai Thakkar, the petitioner's father, was a businessman with PAN AAXPT0185C. 

2. Dhirajlal Thakkar passed away on 19.08.2012. 

3. The petitioner informed the tax authorities about his father's death in 2013. 

4. On 30.03.2017, the Income Tax Department issued a reassessment notice under section 148 of the Income Tax Act for the assessment year 2010-11 in the name of the deceased Dhirajlal Thakkar. 

5. The petitioner, as the legal heir, had participated in previous appellate proceedings related to his father's taxes. 

Arguments:

Petitioner's Arguments:

1. The notice issued to a dead person is a nullity and should be quashed.

2. The tax department was aware of the death and should have issued the notice to the legal heir.

3. Section 159 of the Income Tax Act requires proceedings against legal representatives, not the deceased.

Respondent's (Tax Department) Arguments:

1. The notice was computer-generated based on the deceased's PAN.

2. Section 159 of the Act allows proceedings to continue against legal representatives.

3. Sections 292B and 292BB of the Act prevent the notice from being treated as invalid.

Key Legal Precedents:

1. Rasid Lala v. Income-tax Officer [2017] 77 taxmann.com 39 (Gujarat): The court held that reassessment notices should be issued to heirs, not deceased persons, even if Section 159 applies. 

2. Vipin Walia v. Income Tax Officer, (2016) 381 ITR 0019 (Delhi): Cited for a similar proposition of law. 

3. Commissioner of Income Tax v. M.Hemanathan, (2016) 285 CTR 0182 (Mad): Clarified the applicability of Section 292BB. 

Judgement:

1. The court ruled in favor of the petitioner, quashing the reassessment notice.

2. The notice issued to a deceased person was deemed a nullity and unsustainable.

3. Section 159 of the Act requires proceedings against legal representatives, not the deceased.

4. Section 292BB was found inapplicable as the petitioner raised objections before the reassessment's completion.

5. The court emphasized that the tax department should have issued the notice to the legal heir, not the deceased taxpayer. 

FAQs:

1. Q: Why was the reassessment notice quashed?

  A: The notice was issued to a deceased person instead of their legal heir, making it invalid under the law.

2. Q: What is the significance of Section 159 of the Income Tax Act in this case?

  A: Section 159 requires proceedings to be initiated against legal representatives of a deceased taxpayer, not the deceased person themselves.

3. Q: Why didn't Section 292BB of the Income Tax Act save the notice from being invalidated?

  A: Section 292BB doesn't apply when objections are raised before the completion of the assessment or reassessment, which happened in this case.

4. Q: What should the tax department have done differently?

  A: They should have issued the reassessment notice to the petitioner as the legal heir of the deceased taxpayer, not to the deceased person.

5. Q: Does this judgment set a precedent for similar cases?

  A: Yes, it reinforces the importance of proper procedure in tax reassessment cases, especially when dealing with deceased taxpayers.

1. RULE. Mrs. Mauna Bhatt, learned senior standing counsel waives service of rule on behalf of the respondent.

2. This petition under Article 226 of the Constitution of India challenges the notice dated 30.03.2017 issued by the respondent under section 148 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”).

3. The petitioner is the son of late Shri Dhirajlal Dayaljibhai Thakkar, who was engaged in the business of general merchant, commission agent and commodity broker, besides finance under the name and style of M/s. D.M. Finance and had been allotted PAN AAXPT0185C. Shri Dhirajlal Thakkar passed away on 19.08.2012 despite which the impugned notice dated 30.03.2017 came to be issued to Shri Dhirajlal Dayaljibhai Thakkar, viz. a dead person. The impugned notice having been issued to a dead person, the petitioner being his heir and legal representative has filed the present petition.

4. Mr. Umaidsingh Bhati, learned advocate for the petitioner, assailed the impugned notice by submitting that it has been issued against a dead person and is, therefore, a nullity. It was pointed out that Shri Dhirajlal Dayaljibhai Thakkar had passed away on 19.08.2012 during the course of the assessment proceedings and the petitioner had been brought on record as his legal heir. The attention of the court was invited to the communication dated 05.12.2013 addressed by the petitioner to the Income Tax Officer, Ward­3, Palanpur, informing him about the death of his father on 19.08.2012 and submitting certain documents. It was further pointed out that in the appellate proceedings before the Commissioner (Appeals), the petitioner has been shown to be the legal heir of late Shri Dhirajlal Dayaljibhai Thakkar. It was further pointed out that against the order of the Commissioner (Appeals), the revenue had preferred an appeal before the Tribunal wherein also the petitioner has been shown to be the legal heir of late Shri Dhirajlal Dayaljibhai Thakkar to submit that therefore, it was well within the knowledge of the department that the petitioner's father passed away and that the petitioner is the heir and legal representative of late Shri Dhirajlal Dayaljibhai Thakkar. It was submitted that in these circumstances, the impugned notice under section 148 of the Act which has been issued against a dead person, is bad in law.

4.1 The learned advocate drew the attention of the court to the provisions of section 159 of the Act, which bears the heading “Legal representatives” to point out that sub­section (2) thereof provides that 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 sub­section (1) any proceeding which could have been taken against the deceased if he had survived, may be taken against the legal representative. It was submitted that therefore, in view of the provisions of section 159 of the Act, the respondent was required to issue the notice to the present petitioner and that the impugned notice issued in the name of the deceased father of the petitioner, is a nullity and, is therefore, required to be quashed and set aside.

4.2 In support of his submissions, the learned advocate placed reliance upon a decision of this court in the case of Rasid Lala v. Income­tax Officer, [2017] 77 taxmann.com 39 (Gujarat), wherein the court in similar set of facts had set aside the notice issued under section 148 of the Act by holding that notice under section 148 of the Act was required to be issued in the name of the heir and the provisions of section 159 of the Act would be of no assistance. It was submitted that this decision would be squarely applicable to the facts of the present case. Reliance was also placed on the decision of Delhi High Court in the case of Vipin Walia v. Income Tax Officer, (2016) 381 ITR 0019 (Delhi), for a similar proposition of law. It was, accordingly, urged that the impugned notice being a nullity in the eyes of law, is required to be quashed and set aside.

5. Opposing the petition Mr. M.R. Bhatt, Senior Advocate, learned counsel for the respondent submitted that the notice under section 148 of the Act is a computer generated notice and is based upon PAN of the deceased assessee. It was submitted that at the time when the transaction took place on 2010­11 Shri Dhirajlal Dayaljibhai Thakkar was alive and he passed away only on 19.08.2012. Therefore, in view of the provisions of section 159 of the Act, the proceedings would not stand vitiated. It was further submitted that having regard to the provisions of section 292B read with section 292BB of the Act, the notice cannot be treated as invalid as the legal heir of the assessee had participated in the appellate proceedings which are pending. Reiterating the grounds stated in the affidavit­in­reply filed on behalf of the respondent, the learned counsel submitted that the impugned notice does not suffer any legal infirmity warranting interference by this court.

6. In rejoinder, the learned advocate for the petitioner invited the attention of the court to the decision of the Madras High Court in the case of Commissioner of Income Tax v. M.Hemanathan, (2016) 285 CTR 0182 (Mad), wherein the court, in the context of section 292BB of the Act, has held that the same would apply only to two types of proceedings namely – (i) proceedings, in which, the assessee had appeared; and (ii) any inquiry, in which, the assessee had cooperated. The court observed that in the case on hand, the assessee was dead and it was the assessee's son, who appeared and perhaps cooperated and therefore, the primary condition for the invocation of section 292BB of the Act is absent. It was submitted that in the present case also, the provisions of section 292BB of the Act would not be applicable and that the petition deserves to be allowed by setting aside the impugned notice.

7. This court has considered the submissions advanced on behalf of the respective parties and has perused the decisions cited at the bar.

8. It is an admitted position that Shri Dhirajlal Dayaljibhai Thakkar, father of the petitioner has passed away on 19.08.2012. Against the assessment order passed against the deceased, the petitioner herein had preferred an appeal as a legal heir of late Shri Dhirajlal Dayaljibhai Thakkar and, therefore, the respondent was well aware of this fact. Against the order passed by the Commissioner (Appeals) the department has preferred an appeal before the Tribunal, wherein the name of the petitioner is reflected as the legal heir of Shri Dhirajlal Dayaljibhai Thakkar. While seeking to reopen the assessment, the Assessing Officer has issued notice dated 30.03.2017 in relation to the assessment year 2010­11 to Shri Dhirajlal Dayaljibhai Thakkar. Admittedly, the notice has been issued against a dead person. This court in the case of Rasid Lala (supra) wherein the re­assessment proceedings had been initiated after the death of the assessee and the notice was issued against a dead person, held that the reassessment proceedings having been initiated against the dead person and that too after a long delay, even if section 159 of the Act is attracted, in that case also, the notice was required to be issued against and in the name of the heir of the deceased assessee. The court held that in the facts and circumstances of the case, section 159 of the Act would not be of any assistance to the revenue and, accordingly, set aside the impugned notice issued under section 148 of the Act.

9. The facts of the present case are similar to the facts of that case, inasmuch as the original assessee viz. father of the petitioner passed away on 19.08.2012. The petitioner had informed the revenue authorities about the same in the year 2013. The authorities were very well aware that the petitioner is the heir and legal representative of the deceased assessee, despite which, more than four years after the death of the assessee, the impugned notice has been issued in his name, namely against the deceased assessee. The above decision would be therefore squarely applicable to the present case.

10. On behalf of the respondent, reliance was placed upon section 159 and section 292B read with section 292BB of the Act. Insofar as the provisions of section 159 of the Act are concerned, this court in the above decision has held that the same would not be applicable where the assessee had passed away and the notice has not been issued in favour of the heir of the deceased. On a plain reading of section 159 of the Act, it is apparent that 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 sub­section (1) any proceeding which could have been taken against the deceased if he had survived, may be taken against the legal representative. Therefore, in the light of the provisions of section 159 of the Act the proceedings are required to be initiated against a legal representative and not against the deceased. The impugned notice under section 148 of the Act is therefore, not in consonance with the provisions of section 159 of the Act.

11. Insofar as the provisions of section 292B of the Act are concerned, the same would not be applicable in the facts of the present case. As regards section 292BB of the Act, the same provides that where an assessee appears in any proceeding and cooperates in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of the Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of the Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under the Act that the notice was – (a) not served upon him; or (b) not served upon him in time; or (c) served upon him in an improper manner. The proviso thereto says that nothing contained in the section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment. In the present case, apart from the petitioner is not the assessee, the petitioner has raised objection before completion of the reassessment and, therefore, the provisions of section 292BB would not be applicable in the facts of the present case.

12. In the light of the above discussion, the impugned notice under section 148 of the Act having been issued against a dead person, is a nullity and cannot be sustained. The petition, therefore, succeeds and is accordingly allowed. The impugned notice dated 30.03.2017 issued against late Shri Dhirajlal Dayaljibhai Thakkar, father of the petitioner, for assessment year 2010­11 is hereby quashed and set aside. RULE is made absolute accordingly.

Sd/­

[HARSHA DEVANI, J]

Sd/­ [A. S. SUPEHIA, J]