I.TA. NO.707/LB OF 1987-88, DECIDED ON 21ST NOVEMBER, 1994. VS I.TA. NO.707/LB OF 1987-88, DECIDED ON 21ST NOVEMBER, 1994.
1995 P T D (Trib.) 451
[Income-tax Appellate Tribunal Pakistan]
Before Nasim Sikandar, Judicial Member and Khalid Mahmood, Accountant Member
I.TA. No.707/LB of 1987-88, decided on 21/11/1994.
1(a) Income Tax Ordinance (XXXI of 1979)---
----S. 74---Liability in the case .of a deceased person---Deceased assessee had not been sued through a legal heir---Effect---Notice for appearance had been returned with the report that the assessee had died and the shop had closed since long---Held, department ought to have arrayed the legal representatives of the assessee, on whom the ultimate burden of tax was likely to fall as without doing so appeal was neither competent nor an order passed against assessee, if any, could be of any significance.
(b) Income Tax Ordinance (XXXI of 1979)---
----S. 74---Income Tax Rules, 1982, R. 172---Liability in the case of a deceased person---Default---Recovery---Procedure---Application of provisions of Civil Procedure Code---Scope.
Section 74 of the Income Tax Ordinance, 1979 details the liability in case of a. deceased person. It provides that where a person dies his legal representatives shall be liable to pay any tax which the deceased person would have been liable to pay, if he had not died, in the like manner and to the same extent as the deceased. The section further provides that the proceedings taken against the deceased person before his death shall be deemed to have been taken against the legal representatives which could be continued from the stage at which it stood on the date of death of the deceased. These provisions also visualize initiation of proceedings against legal representatives in the same manner in which these could have been taken against the deceased if he had survived. Subsection (2) of section 74 of the Ordinance clearly indicates the two different aspects of the matter viz. making of an assessment and recovery of tax as dealt with under rule 172 of the Income Tax Rules, 1982. The making of assessment has to proceed in the manner contemplated under section 74 which holds the legal representatives of a deceased assessee to be an "assessee" and then liability to the extent to which the deceased person would have been liable subject to the condition of devolution of adequate estate. Assessment proceedings are not completed till all the involved steps including appeal have been exhausted. Assessment orders as such do not have touch of finality unless all the forums are exhausted in which such order can be challenged, so that the orders take the shape of final decision. In other words the tax liability against legal representatives will not be final unless the remedies provided under the Ordinance have been exhausted or otherwise lapsed by flux of time.
Accordingly in case of death of an assessee all the matters qua framing of assessment and its travel through appellate forums have to be read with reference to the provisions contained in section 74 of the Ordinance. After the death of an assessee, at whatever stage of the proceedings it may have occurred, these shall be continued against the deemed assessee viz. the legal representatives. The legal representatives of the assessee shall step into shoes of assessee on his death and shall be entitled to all the rights which the assessee could enjoy in his lifetime. Foremost of them being the right to be heard. Even if no mechanism has been provided for in the statute for this purpose, settled law remains that principles of audi alteram partem shall be presumed to be embodied in every statute in absence of any provisions to the contrary.
Provisions of Civil Procedure Code, 1908 do not apply to the Income tax proceedings unless these are so made applicable: However principles underlying Civil Procedure Code, 1908 could properly be invoked in aid just as rules of natural justice are invoked and applied. Thus, provisions of C.P.O. as contained in sections 50, 146, Order 1, Order XXII, Order XXXI and Order XXXII do not strictly apply to the proceedings under the Income Tax Ordinance, their essence may be borrowed to fulfil the requirements of natural justice.. For example, provisions of Order XXXII may loosely be involved where an assessee is succeeded by minor children only and the proceedings are still in progress before the assessing officer or these are pending before appellate authorities.
Recovery proceedings against the legal representatives of a deceased defaulter can be started as per provisions of Rule 172 of the Income Tax Rules, 1982. These Rules hold the legal representatives of a deceased to be a deemed defaulter. However, before holding a legal representative liable for the tax liability of his predecessor necessary conditions are that the liability cannot extend beyond the estate that devolved upon him on the death of the deceased assessee and that the deemed assessee has a fair and adequate notice. In case an assessee dies during the assessment proceedings, these may continue under section 74(2) but not without properly serving the legal representatives. The persons representing the assessee having been placed in the shoes of the assessee by fiction of law in view of the aforesaid provisions of the Ordinance, the whole body of the Ordinance that pertains to the rights, duties and privileges of an assessee shall automatically become applicable to the legal representatives of the deceased. Therefore, the legal representatives and all of them if they are more than one shall be entitled to a notice in the like manner as the assessee would have been if he was living.
C.B.R. v. Chanda Motors 1992 PTD 1681; PLD 1964 SC 410; 1990 PTD (Trib.) 282; 1983 PTD (Trib.) 184; (1961) 4 Tax 31 (Trib.) and 1963 PTD 219 ref.
(c) Income Tax Ordinance (XXXI of 1979)---
----Ss. 74 & 134(3)---Liability in the case of deceased person ---Default-- Recovery---Appeal---Limitation---Appeal would not be competent if the legal heirs of deceased assessee were not made respondent---Appeal against the legal heirs of deceased assessee would be legally filed on the date they were made or had been impleaded as party---If the legal heirs were made party at a belated stage Revenue would have to clear to the hurdle of limitation which expires against them from the passing of 60 days as prescribed in S. 134(3) of the Income Tax Ordinance, 1979---Where no request for an opportunity to bring the legal heirs on record and for the condonation of delay already occurred had come forth from the Revenue, appeal was not competent and not maintainable and was liable to be dismissed as such.
Ordinarily non-joinder of 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 continue without a necessary party being on r--cord. An assessee, the original or deemed, is without any doubt a necessary party to the assessment as well 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 assessee admittedly being a dead person at the time of filing of appeal, it was not competent on the date it was filed. The revenue was obliged to trace out the legal representatives and to make them respondents in order to obtain an executable relief against them. An appeal against the legal representatives of a deceased assessee is legally filed on the date they are made or have been impleaded as a party. Therefore, if they are made party at 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 the Tribunal. No request for an opportunity to bring the legal representatives on record and the condonation of delay already occurred had come forth from the Revenue either.
This having not been done at any earlier stage and limitation for filing of appeal having long expired, appeal was clearly not maintainable, and therefore, stood dismissed as such.
C.B.R. v. Chanda Motors 1992 PTD 1681; PLD 1964 SC 410; 1990 PTD (Trib.) 282; 1983 PTD (Trib.) 184; (1961) 4 Tax 31(Trib.) and 1963 PTD 219 ref.
Mrs. Shahnaz Rafique, D.R. for Appellant.
Nemo for Respondent.
Date of hearing: 23rd September, 1994.
ORDER
NASIM SIKANDAR (JUDICIAL MEMBER): --In this departmental appeal an, order of AAC Sialkot Range, Sialkot dated 15-6-1987 is assailed on the ground that the Appellate Authority was not justified in annulling the assessment framed under section 62/65 of the Income Tax Ordinance.
2. Learned D.R. is present and has been heard. The notice to respondent has been returned by the Postal Authorities with the remarks that the addressee is dead and that the shop has been closed down. The Revenue having failed to bring on record the legal heirs of the deceased assessee, we will proceed to decide this appeal in the following manners:--
3. The respondent, now deceased, derived income from "wan sootri" business and from property. Original assessment framed in his respect under section 59(1) of the Ordinance at Rs.19,500 was reopened on the ground that he enjoyed rental income which was not disclosed to the Revenue. Thereupon, income from business was assessed at Rs.33,000 and an addition at Rs.1,25,600 was made under section 13(1)(d) of the Ordinance. The property income was assessed at Rs.28,600, and therefore, the total income at Rs.1,87,200. Learned first Appellate Authority by way of the impugned order found that no notice under section 65 of the Ordinance was property served upon the assessee. It was in this connection noticed that the assessee being an illiterate person invariably put his thumb-impression on the returns filed while the alleged notice was received by a person who signed his name in fairly legible Urdu. For these reasons the assessment framed after reopening was ordered to be annulled.
4. Learned D.R. in terms of the grounds of appeal states that the assessee having expired even before hearing of the first appeal nothing can be said of the actual recipient of the notice. Therefore, the observations of the appellate authority that the assessee did not receive the notice himself was patently incorrect. It is also stated that the assessee having complied with and filed a return in compliance to the notice under section 65 of the Ordinance, no objection to its validity could be taken as per provisions contained in section 154(6) of the Ordinance.
5. The contentions, made by the Revenue cannot be ruled upon as far the merits of the case are concerned. This would be an exercise in futility. For, this departmental appeal ex facie appears not maintainable inasmuch as the deceased assessee has not been sued through a legal heir. As stated above, the' notice for appearance has been returned with the report that he had died and the shop had closed since long. The department ought to have arrayed the legal representatives of the assessee on whom the ultimate burden of tax was likely to fall. The Revenue has not assailed the impugned order on the ground of absence of legal representatives before the first-appellate authority. The impugned appellate order opens with the observations that the assessee is dead. An Advocate, Mr. Saeed Ahmed Shah represented the assessee at the stage of first appeal. We assume that the legal representatives of the deceased had authorised and arranged the representation. However, the appellate order does not indicate their names and addresses and other particulars. In any event their names and addresses ought to have been brought on record as a party to the proceedings before us. Without doing so this appeal is neither competent nor an order passed against the assessee, if any, could be of any significance.
6. Section 74 of the Income Tax Ordinance, 1979 details the liability in case of a deceased person. It provides that where a person dies his legal representatives shall be liable to pay any tax which the deceased person would have been liable to pay, if he had not died, in the like manner and to the same extent as the deceased. The section further provides that the proceedings taken against the deceased person before his death shall be deemed to have been taken against the legal representatives which could be continued from the stage at which it stood on the date of death of the deceased. These provisions also visualize initiation of proceedings against a legal representative in the same manner in which these could have been taken against the deceased if he had survived. Subsection (2) of section 74 of the Ordinance clearly indicates the two different aspects of the matter viz. making of an assessment and recovery of tax as dealt with under Rule 172 of the Income Tax Rules, 1982. The making of assessment has to proceed in the manner contemplated under section 74 which holds the legal representatives of a deceased assessee to be an "assessee" and then liability to the extent to which the deceased person would have been liable subject to the condition of devolution of adequate estate. In the context of completion of assessment proceedings we may refer to a recent decision of the Supreme Court of Pakistan wherein it was confirmed that assessment proceedings are not completed till all the involved steps including appeal have been exhausted. In this case 1992 PTD 1681 SC re: CBR v. Chanda Motors the Court held that "assessment orders as such do not have touch of finality unless all the forums are exhausted in which such orders can be challenged, so that the orders take the shape of final decisions". In other words the tax liability against legal representatives will not be final unless the remedies provided under the Ordinance have been exhausted or otherwise lapsed by flux of time.
7. Accordingly in case of death of an assessee all the matters qua framing of assessment and its travel through appellate forums have to be read with reference to the provisions contained in section 74 of the Ordinance. After the death of an assessee, at whatever stage of the proceedings it may have occurred, these shall be continued against the deemed assessee viz., the legal representatives. The legal representatives of the assessee shall step into his shoes on his death and shall be entitled to all the rights which the assessee could enjoy in his lifetime. Foremost of them being the right to be heard. Even if no mechanism has been provided for in the statute for this purpose, settled law remains that principles of audi altram partem shall be presumed to be embodied in every statute in absence of any provisions to the contrary. The Supreme Court of Pakistan in PLD 1964 SC 410 re-affirmed the principle.
8. In 1990 PTD Trib 282 a Full Bench of this Tribunal held that provisions of Civil Procedure Code, 1908 do not apply to the Income-tax proceedings unless these are so made applicable. It was also found that principles underlying Civil Procedure Code, 1908 could properly be invoked in aid just as rules of natural justice are invoked and applied. Thus, provisions of C.P.C. as contained in sections 50, 146, Order I, Order XXII, Order XXXI and Order XXXII do not strictly apply to the proceedings under the Income Tax Ordinance, their essence may be borrowed to fulfil the requirements of natural justice. For example, provisions of Order XXXII may loosely be involved where an assessee is succeeded by minor children only and the proceedings are still in progress before the assessing officer or these are pending before appellate authorities.
9. As stated above, recovery proceedings against the legal representatives of a deceased defaulter can be started as per provisions of Rule 172 of the Income Tax Rules, 1982. These Rules hold the legal representatives of a deceased to be a deemed defaulter. However, before holding a legal representative liable for the tax liability of his predecessor necessary conditions are that the liability cannot extend beyond the estate that devolved upon him on the death of the deceased assessee and that the deemed assessee has a fair and adequate notice. In case, an assessee dies during the assessment proceedings, these may continue under section 74(2) but not without properly serving the legal representative. The persons representing the assessee having been placed in the shoes of the assessee by fiction of law in view of the aforesaid provision of the Ordinance, the whole body of the Ordinance that pertains to the rights, duties and privileges of an assessee shall automatically become applicable to the legal representatives of the deceased. Therefore, the 1 legal representatives and all of them if they are more than one shall be entitled to a notice in the like manner as the assessee would have been if he was living. In 1983 PTD (Trib.) 184 this Tribunal cancelled a penalty imposed under section 91(1) of the Income Tax Ordinance on the ground that while imposing the penalty, no opportunity of hearing was provided to all the legal representatives of the deceased assessee. In cases of personal liability no Court or Tribunal will pass an order against a dead person. In another case reported as (1961) 4 Tax 31 (Trib.) this Tribunal found that there was no provision in the erstwhile Income-tax Act, 1922 for levy of penalty upon a person after his death for a default committed in his lifetime. It was in this connection further found that penalty proceedings keeping in view the various provisions of the Income-tax Act, 1922 could not be started against the representatives for any default committed by the deceased nor could any penalty proceedings be continued against the representatives after the death of the original assessee though the representatives being the assessee within the meaning of the Act would be liable to penalty for their own default. This situation, therefore, is different where an assessee dies in the middle of the assessment proceedings and his legal representatives are duly brought on record, served, heard and an assessment framed. In such a situation the tax liability having crystallised legal representatives would be obliged to pay the tax and also the penalty which may be imposed on their failure to do so. This was approved by the Supreme Court of India in Additional Income Tax Officer, Circle-I and others v. Elford reported as 1963 PTD 219.
10. Ordinarily non-joinder of 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 continue 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 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 being 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 in order to obtain an executable relief against them. An appeal against the legal representatives of a deceased assessee is legally filed on the date they are made or have been I 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 occurred has come forth from the Revenue either.
11. 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 a therefore, shall stand dismissed as such.
M.BA./680/T Appeal dismissed.