W.TAS. NOS.189/LB TO 207/LB OF 1986-87, DECIDED ON 19TH FEBRUARY, 1995. VS W.TAS. NOS.189/LB TO 207/LB OF 1986-87, DECIDED ON 19TH FEBRUARY, 1995.
1995 P T D (Trib.) 1450
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mushtaq, Accountant Member and Ch. Muhammad Ishaq,
Judicial Member
W.TAs. Nos.189/LB to 207/LB of 1986-87, decided on 19/02/1995.
(a) Income Tax Appellate Tribunal Procedure Rules, 1981---
----R. 21---Wealth Tax Act (XV of 1963), S.19---Civil Procedure Code (V of 1908), 0.1, R.9---Appeal---Death of assessee---Non-joinder or misjoinder-- Effect---Appeal proceedings does not abate with the death of assessee-- Appeal, however, also does not abate simply on account of non-joinder or misjoinder.
1986 SCMR 514; Saleem and another v. Kazi Inayat Ahmad Civil Appeal No:131 of 1974, dated 1-12-1985; I.T.A. No.707/LB of 1986-87; 1994 PTD 453 (Delhi High Court) and Rangalal Jejodia's case (1971) 79 ITR 505 ref.
(b) Wealth Tax Act (XV of 1963)---
----Ss. 24 & 19---Income Tax Appellate Tribunal Procedure Rules, 1981, R.21---Appeal to Appellate Tribunal---Death of assessee---Impleading of legal representatives of deceased---Record showed that counsel of the assessee informed the Tribunal regarding death of assessee and the addresses of legal representatives of the deceased---Call notices were sent to all the legal heirs of the deceased by registered post twice and one of the legal representatives appeared on the hearing of the appeals---Objection that legal representatives of the deceased having not been impleaded, appeal was not competent, was not correct in circumstances.
(c) Wealth tax---
---- Liabilities of assessee---Admissibility---Assessee had entered into an agreement, with his other partners in a registered firm taking over all the liabilities of the firm which was dissolved---Action of recovery of debts of the said firm was also taken against the assessee only and not against other partners of the said firm--- Held, agreement of assessee with other partners taking over the liabilities of the dissolved firm could be enforced under law and fact; that action for recovery of debts was only taken against the assessee indicated that the assessee had incurred the liabilities quite genuinely.
Mrs. Sabiha Mujahid, D.R. for Appellant.
Ch. Muhammad Nawaz for Respondent.
ORDER
All these appeals have been filed on behalf of the Wealth Tax Department challenging a combined order of the learned CTT(Appeals) Zone-III, Lahore vide A.O. Nos.482 to 500/A-III dated 31-g-1986. The appeals relate to the Wealth Tax Assessments. The appeals for the assessment years 1963-64 to 1968-69 are in respect of the order under section 16(3)/23 of the Wealth Tax Act, 1963. The other appeals relate to order under section 16(3).
2. The disputed issues being common in all these appeals and the appeals arise out of a combined order of the learned CIT(A), hence, these appeals are being disposed of by a combined order as under.
3.A preliminary objection 'was raised by Ch.' Muhammad Nawaz, Advocate, the learned counsel for one of the legal representative of respondent Makhdumzada Syed Hassan Mahmood (hereinafter also referred to as the assessee) challenging these proceedings on the ground that the appeals filed by the Wealth Tax Department are not competent and liable to be dismissed summarily because the respondent Makhdumzada Syed Hassan Mahmood had died and that the appellant, i.e. Wealth Tax Department has not impleaded the legal heirs of Makhdumzada Syed Hassan Mahmood as respondent. The objection raised by the learned counsel is important. Hence, before the merits of these appeals are taken up, it is pertinent to discuss the issue raised by the learned counsel.
4. A perusal of the record indicate that all the re-assessment orders and assessment orders for the above years which are the subject-matter of these appals, were made by the W.T.O. on 28-6-1986. The assessee filed appeals against these orders before the learned C.I.T. (Appeals) on 12-8-1986. The assessee expired on 26-8-1986. The present appeals were filed by the Wealth Tax Department. with .the Income Tax Appellate Tribunal on 8-1-1987. Mr. Muhammad Nawaz, the learned counsel of the assessee has contended that since then the Wealth- Tax Department has not amended the memorandum of appeals. Since the respondent has expired the appeals are incompetent. The learned counsel has relied on a case reported as 1986 SCMR 514 Re: Saleem and another v. Kazi Inayat Ahmad Civil Appeal No.131. of 1974 dated 1-12-1985(SA). On the other hand, the learned D.R. contended that the legal heirs of the assessee never informed the Wealth Tax Department regarding the death of Makhdumzada Syed Hassan Mahmood. It was the duty of the legal heirs of the assessee to inform the Wealth Tax Department that Makhdumzada Syed Hassan Mahmood had expired and bring on record the list of the legal heirs with complete addresses but since it was not done the Wealth Tax Department could not be blamed for impleading Makhdumzada Syed Hassan Mahmood as respondent instead of the legal heirs. It has also been contended that Department's right to sue the respondent does not end because of amendment made in Rules, 3, 4 and 9 of Order XXII of C.P.C. in 1972 and the appeals are not abated.
5. We have carefully considered the arguments advanced from both the sides. In order to see whether these appeals are competent or not, we have to examine the relevant provisions of Wealth Tax Act. Subsection (1) and sub section (2) of Section 19 of the Wealth Tax Act, 1963 are re-produced as under:--
"Tax of deceased person payable by legal representative.--(1) Where a person does, his executor, administrator or other legal representative shall be liable to pay out 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 believe 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 might under the provisions of Section 16 have been required from the deceased person."
From a perusal of the above provisions, it is quite evident that section 19 of the Wealth Tax Act provides for the recovery of Wealth Tax due from a deceased person from his legal representatives as also for making the assessment on the legal Representatives in respect of the net Wealth of the deceased person who would have been liable to tax if he had not died. Subsection (2) of this section empowers the W.T.O. to follow the same provisions for making the assessment on the deceased person which should have been applied to the deceased person himself if he had not died. The legal proposition that appal proceedings are a continuation of amendment proceeding is by now well settled by judicial pronouncements of the higher Courts. It is also an established fact that legal heirs step in the shoes after the death of the assessee. The learned counsel of the assessee has relied on the decision of the Hon'ble Supreme Court of Pakistan reported as 1986 SCMR 514 to support his arguments. The above order of the Hon'ble Supreme- Court is re-produced as under:--
'The appellant were granted leave to appal by an order of this Court passed on 9-10-1974. The appeal has come up for hearing today, after over 11 years. In the meanwhile, the respondent Kazi Inayat Ahmed died at Lahore on 31-10-1977. No steps have, however, been taken by the appllants to bring his legal heirs representatives on record so far.
Under Order XV, rule 7 of the Supreme Court Rules--
"An application to bring on record the legal representatives of an appellant or a respondent who has died or suffered a change of status, shall be made within 90 days of. such occurrence Provided that the Court may, for sufficient cause, extend time."
The appellants have not, as mentioned already, submitted any application to bring the legal representatives of the respondent on the record, although thisshould have been done by them within 90 days of 31-10-1977. The result is that this appal has become improperly constituted and cannot proceed as it is. No good ground is shown for extending the time to allow the legal representatives of the deceased -respondent to be brought on the record after 8 years of his demise.
The appeal accordingly, stands dismissed. Order accordingly. No orders as to costs.
From a perusal of the above order, it is quite evident that the Hon'ble Supreme Court dismissed the above appeal on the ground that the application to bring on record the legal representatives of the appellant or respondent who died or suffered a change of status should have been made within 90 days of such occurrence keeping in view the rule 7, Order XV of the Supreme Court Rules but this was not done.
6.But the proceeding in ITAT are governed by the ITAT Rules 1981, The relevant rule is 21. It is reproduced as under:
"21.Where an assessee dies or is adjudged as insolvent or in the case of a company under liquidation, the appeal shall not abate and may be continued by or against an executor, administrator, successor or other legal representative of the assessee, or by or against the assignee, receiver or liquidator, as the case may be."
From the above, it is quite evident that with the death of the respondent, the appeal proceedings, do not abate.
6. Now the question is whether non-joinder of the legal heirs by the Wealth Tax Department as a party to the appeals can be fatal to relevant warrant dismissal of the appeals as incompetent appeals or not. There are no express provisions in the Wealth; Tax Act, 1963 or ITAT Rules to indicate the consequences of non-joinder or mis-joinder. However, guidance can be taken from Order 1, rule 9, C.P.C. An appeal does not abate simply on account of non-joinder or mis-joinder: It is pertinent to point out that a Division Bench of the ITAT have recently decided case vide ITA No. 707/LB of 1986-87 (Assessment-year 1985-86) dated 21-1-1994. In the above appeal was filed by the Income Tax Department but call notices to the respondent was returned by the postal authorities with the remarks that the respondent died. The learned Bench of the Tribunal dismissed the appeal of the Department on the ground that legal heirs of the assessee were not impleaded as party to the appeal. The relevant portion of the order is re-produced as under:
"Ordinarily, non joinder of the parties to a suit or proceedings cannot by itself defeat an action. However, taking a phrase from the Civil Procedure Code, no proceedings can be initiated or continued, without a necessary party being on record. An assessee, the original or deemed, is without any doubt a necessary party to the assessment as well as the appeal proceedings. If some of the legal representatives of an assessee are not brought on record the situation may be different. However, if none of them is brought on record in assessment proceedings or made a respondent in appeal proceedings then these shall be against a dead person and the situation will change altogether. Every such proceedings being against a dead person shall be a nullity. The position confronting us in this appeal is exactly the same. The assessee admittedly a dead person at the time of filing of this appeal on 9-9-1987 it was not competent on the date it was filed. The Revenue was obliged to trace out the legal representatives and to make them respondent -m order to obtain an executable relief against them. An appeal against the legal representatives of deceased assessee legally filed on the date they are made or have been impleaded as a party. Therefore, if they are made party at this belated stage the Revenue will have to clear the hurdle of limitation which expired against them on the expiry of 60 days prescribed in Section 134(3) of the Ordinance for filing of appeal in this Tribunal. No request for an opportunity to bring the legal representatives on record and the condonation of delay already has come forth from the Revenue either.
This having not been done at any earlier stage and limitation for filing of appeal having long gone, this appeal is clearly not maintainable, and therefore, shall stand dismissed as such."
Even in the above order, the learned Members of this Tribunal have observed very clearly that non-joinder of the parties to a suit or proceedings cannot by itself defeat an action. Secondly, the facts in case under discussion, which will be discussed presently are different than in the above case. However, before we discuss the facts it is important to discuss two very important cases which are much pertinent to the facts of the case under appeal. The first case is reported as 1994 PTD 457 (Delhi High Court) Vijaysarian v. Income Tax Officer. The facts in this case were that the assessee died during the pendency of assessment proceedings. The concerned Income Tax Officer gave an intimation to the A.R. of the assessee regarding pending assessment proceedings. The A.R. sought adjournment of the proceedings on the ground that bereaved family was in mourning. However, assessment was completed by the I.T.O. Some of the legal heirs of the assessee filed appeal before the AA.C. and challenged the assessment to be null and void being against a dead man. The AA.C. came to the conclusion that in spite of death of the assessee the proceeding could be continued against legal representatives and, therefore were not invalid or a nullity but held it was necessary to issue notice to legal representatives and assessment order was set aside and directed the Income Tax Officer to make fresh assessment in accordance with law after making legal representatives party to the proceedings. This decision was up-held by the I.TA.T. However, one of the legal heir filed writ petition against the above decision of AA.C. The Honourable Delhi High Court dismissed the petition with the following observations:
"On a consideration of the matter, we are of the view that, in view of the provisions of section 159(2), relating to liabilities in such cases of the legal representatives, section 251, relating to the powers of the Appellate Assistant Commissioner, including the power to refer back to the assessing authority for making a fresh assessment in accordance with law and the decision of the Supreme Court in the Estate of Late Rangalal Jajodai v. CIT (1971) 79 ITR 505 there is no scope for interference in the exercise of the extraordinary writ jurisdiction of this Court.
Apart from the fact that some other legal representatives failed in scuttling the proceedings by issuing fresh notice to the legal representatives from the stage when Basheshar Nath, the assessee, died up to the Tribunal and then in not pursuing the reference made to this Court in view of section 159(2) of the Act, the Income Tax Officer was justified in continuing the proceedings against the legal representative of 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 deceased. The Income Tax Officer committed an error of procedure in not issuing notice to the legal representatives regarding further proceedings to be continued and, therefore, the Appellate Assistant Commissioner and the Tribunal were right in coming to the conclusion that there is a procedural defect and not absence of jurisdiction and were right in remanding the matter to the Income Tax Officer for proceeding afresh from the stage at which the proceedings stood on the date of death of the deceased by issuing notice to the legal representatives."
Still another very important case (Ranglal Jajodia's case) reported as (1971) 79 ITR 505, Honourable Judges of Supreme Court of India observed as under:--
"What happened in the present assessment proceedings was that the proceedings were commenced during the lifetime of Ranglal Jajodia by reason of the returns being filed by and notices under sections 22(3) and 23(2) of the Act having been served on Rangalal Jajodia during his lifetime. The assessment order contains intrinsic evidence to that effect as also of repeated intimation having been given to Shankarlal Jajodia after the death of Rangalal Jajodia. No reply having been received from Shankarlal Jajodia, the assessment was competed under section 24-B of the Act though the legal heirs and representatives including Aruna Devi. The Appellate Assistant Commissioner on an appeal preferred by Shankarlal Jajodia set aside the assessment because no notice was given to Aruna Devi though the assessment proceeding was against her as a legal representatives. The lack of a notice does not amount to the Revenue authority having had no jurisdiction, to assess, but that the assessment was defective by reason of notice not having been given to her. An assessment proceeding does not cease to be a proceeding liable to be challenged and corrected. Similarly, if there is a mistake as to name or there is a misdescription of the name, the proceeding will be liable to be challenged and corrected by giving notice to the assessee subject to such just exceptions as an assessee can take under law. The direction given by the Appellate Assistant - Commissioner was to make fresh assessment on Aruna Devi in accordance with the provisions of the Act."
Reverting to the facts of this case, Mr Muhammad Nawaz, learned counsel represented one of the legal heir Makhdumzada Syed Ahmed Mahmood has been representing assessment proceedings as well as appeal proceedings in respect of the appeal of the assessee at various states. A perusal of the record indicates that first appeal before the learned CIT(A) was instituted on 12-8-1986 when the assessee was surviving. However, as per appeal order date of hearing of these appeals was 31-8-1986, when the assessee had died. Mr. Muhammad Nawaz, the learned counsel also represented the appeal at first appellate stage. The learned counsel did not inform the learned CIT(A) that assessee had died and never tried to amend the appeal memorandum so as to incorporate the legal heirs of the assessee as the appellants.
7.The said counsel wrote a letter to the ITAT on 20-6-1988 which is re produced as under:
"1.That the respondent Makhdumzada Syed Hassan Mahmud was dead at the time of the institution of the above appeals. No legal Representatives have been made the party in the appeals. The deceased has following legal representative of the Estate in the deceased, as such they may be also served before the appeal is heard and decided:
(1)Syed Ahmad Mahmud S/o Makhdum Syed Hassan Mahmood, 81-E-I, Gulberg III, Lahore.
(2)Syed Ali Akbar Mahmud s/o Makhdoomzada Syed Hassan Mahmud, Jamaldin Wali, Teh. Sadiqabad, District Rahimyar Khan.
(3)Syeda Amina Mahmud D/o Makhdoomzada Syed Hassan Mahmud, C/o Jahangir Khan Tareen, Officers Colony, Multan.
(4)Syeda Bushra Mahmud D/o Makhdoomzada Syed Hassan, Jail Road, Near Medical College, Multan."
(5)Syeda Sohada Mahmud D/o Makhdoomzada Syed Hassan Mahmud, C/o Syed Zahid Akbar Kothi No. 50, Street No. 15, Cavalery Ground, Lahore Cantt.
(6)Syeda Rabia Mahmud D/o Makhdoomzada Syed Hassan Mahmud, Makhdum House, 81-E-I, Gulberg-111, Lahore.
(7)Syeda Sania Mahmood D/o Makhdoomzada Syed Hassan Mahmud,
(Resident of Kashana Hyderi, 315-Lawarance Road, Karachi).
Respondent (Legal Representative)
Syed Ahmad Mahmud
Through
Councel
(M. Nawaz Chaudhry, Advocate)."
From a perusal of the above letter it is quite evident that the counsel informed the ITAT regarding death of the assessee and the addresses of the legal representatives on 20-8-1988. After the receipt of this intimation call notices were sent through registered post to all the legal heirs on 25-6-1988 fixing these appeals for hearing on 4-7-1988 but none of the legal heirs appeared. Again, these appeals were fixed for hearing and call notices were sent to all the legal heirs on 23-7-1988 through registered post. Again, none of the legal representatives put up his or her appearance. So far as these appeals are concerned, the legal heirs were duly informed regarding these appeals and at least one of the legal heirs Makhdoomzada Syed Ahmad Mahmud is represented in the hearing of these appeals. Hence, the objection raised by the learned counsel does not appear to be correct and is rejected.
8.Now as far as the merits of these appeals are concerned there is only one dispute. i.e. regarding the admissibility of liabilities of M/s. Mehmood & Co. The facts briefly are that the assessee in this case was an individual. He claimed liabilities of a firm M/s. Mehmood & Co. for various years as per details indicated in various assessment orders. The liabilities were originally disallowed. by the W.T.O. for the assessment years 1963-64 to 1968-69 which resulted in litigation to the level of the ITAT. The ITAT remanded the case with the following observations:
"We find it difficult to decide as to why the appellant took up himself the liability of defunct firm M/s. Mahmood & Co. if he has taken at all when Mahmood & Co. assets that appears to have fallen into appellant hand was- at small amount of spare parts of Sakoda Car. The liability of the firm are the joint responsibility of all the partners and he could not be festened on the appellant, above. However, the Bank satisfied about quite substantial amounts were said to be due to the Banks. The appellant may have mortgaged his agricultural land against the liabilities and in that case they will not rank for deduction."
At the time of re-assessment for the assessment years 1963-64 to 1968-69 the liabilities of M/s. Mehmood 8s Co. were again disallowed with the, observations that the assessee had not brought on record any solid documentary evidence in respect of the claim. The relevant observations of the W.T.O, are as under:
"The explanation tendered by the 'A.R.' of the assessee has no documentary on the legal sanction behind it. The same, therefore, cannot be accepted as the assessee was having equal shares m the registered firm the assets and liability of the Firm were liable to be shared in accordance with the stipulated shares amongst the partners. It is worth while to point out that the taken over, assets of the defunct firm were not commensurate with the amount of liability claimed."
The observations made by the W.T.O. for other years disallowing the liabilities of M/s. Mahmood & Co. are identical to above.
9. Aggrieved by this treatment the assessee preferred first appeal. The learned CIT(A) allowed the liabilities on the ground that the firm M/s. , Mahmood & Co. had been dissolved and on the dissolution of the firm all the liabilities were taken by Hassan Mehmood and this fact was incorporated in clause (3) of the Dissolution Deed. According to the learned CIT(A) the assessee entered into a contract with the other partners of the registered firm for taking up the liabilities and this contract could be enforced under law. Secondly, the action for recovery of debts of M/s. Mahmood & Co. was taken against Hassan Mahmood and not against other partners which also indicates that the assessee incurred the liabilities quite genuinely.
10. The Wealth Tax Officer feels aggrieved by the relief allowed by the learned CIT(A) as above and as per grounds of appeal the contention of the Wealth Tax Department which. is identical for all the years is as under:--
"(1) Liabilities of M/s. Mahmood & Co. have wrongly been allowed in the hands of the assessee as they are not his personal liabilities.
(2) Liabilities are so old that they are bad debts and no longer recoverable from the assessee.
(3) That the assets for which liabilities were created here not assessed for wealth tax."
11. Mr. Muhammad Nawaz, the learned counsel appearing on behalf of one of legal heirs vociferously defended the order of the learned CIT(A). He has explained that the firm M/s, Mahmood & Co. was constituted by the following three partners:
(1) Makhdumzada Syed Hassan Mehmood
(2) Ahmad Nawaz Gardezi.
(3) Lala Chaman Lal.
According to the leaned counsel this firm came into existence for import of Skoda Car and Mr. Muhammad Nawaz Gardezi and Lala Chaman Lal became partners in the above registered firm on the insistence of the assessee. However, this firm was dissolved on 1-7-1962 and all the liabilities were picked up by Makhdumzada Syed Hassan Mahmood. According to the learned counsel the liabilities accrued to Hassan Mehmood as per terms and conditions of dissolved deed dated 1-7-1962 which is on the record, the learned counsel further pointed out that the liabilities of M/s. Mahmood & Co. represented bank loans and the action for recovery of loans was taken by the Cooperative Bank authorities and Martial Law Authorities against the assessee and not against other partners. Hence, these liabilities were genuine liabilities, which are allowable to the assessee.
12. The learned D.R. on the other hand, supported the appeals and contended that the liabilities claimed by the assessee were, in fact, liabilities of M/s. Mahmood & Co. and these should have been claimed according to the share of the assessee in M/s. Mahmood & Co. It was also argued that these liabilities are so old and have become bad debts. Hence, cannot be allowed to the assessee. The other argument taken was that assets for which these liabilities were created were not assessed to wealth tax.
13.We have carefully considered the facts and arguments advanced from both the sides. We are afraid. We cannot accept the arguments of the learned D.R. In this case, we have also carefully considered the earlier decision of the ITAT and respectfully observe that in his case question is not as to why liabilities of firm M/s. Mahmood & Co. were taken over by the assessee. The question is whether actually the assessee had taken over the liabilities of M/s. Mahmood & Co. or not. As far as the question as to why entire liabilities of M/s. Mahmood & Co. were taken over by the assessee was not in the jurisdiction of the W.T.O. as this is an extraneous question as far as the wealth tax assessment is concerned. Unfortunately, the W.T.O. has wasted his entire efforts in proving that M/s. Mahmood & Co. was constituted by the three partners and the assessee could not take over the entire liabilities of M/s. Mahmood & Co. Even if for the sake of arguments, the W.T.O. had to go behind the reasons for taking over the entire liabilities of M/s. Mahmood & Co. even then the W.T.O. did not proceed on proper lines. The liabilities of M/s. Mahmood & Co. were taken over by the assessee on the basis of settlement amongst the partners as indicated in the dissolution deed, a copy of which is available in the assessment record.
14. In the assessment order the W.T.O. has observed that no solid evidence was produced by the assessee in respect of his contention but again no effort has been made by the W.T.O. to look into the matter carefully and find out whether actually the assessee had taken over the liabilities of M/s. Mahmood & Co. or not. The W.T.O. has not made any enquiries. He has not even bothered to obtain the explanation of the assessee regarding the genuineness of the liabilities of M/s. Mahmood & Co. He has simply disallowed the liabilities claimed by the assessee on the ground that the assessee could not take over the entire liabilities of M/s. Mahmood & Co. because he was one of the three partners. However, the W.T.O. has not even allowed proportionate liabilities of the assessee. It has also been observed that before the CIT(A) the assessee furnished evidence regarding action taken for the recovery of liabilities of M/s. Mahmood & Co. from the assessee by various departments and Martial Law Authorities on the ground that the loans were obtained by M/s. Mahmood & Co. on the personal guarantee of the assessee.
15. Another contention made by the Wealth Tax Department is that these liabilities are so old they have become bat debts and are not recoverable. This is hardly 'a reason for disallowing the assessee's claim under" the Wealth Tax Act because the W.T.O. did not have any proof for these observations.
16. It has also been contended that the assets against which these liabilities have been created have not been brought to tax. This observation is also without any basis. Secondly, if this was so, it was incumbent upon the W.T.O. concerned to include the assets of M/s. Mahmood & Co. in the wealth tax statement of the assessee.
17. Because of these reasons, we are not inclined to interfere in the orders of the learned CIT (Appeals). The appeals filed by the Income Tax Department are without any merit and are rejected for all the years.
M.B.A./134/T. Appeal dismissed.