By TIOL News Service

CHENNAI, APR 06, 2016: THE issue is - Whether provisions of Section 292BB can be invoked in a case where the very initiation of proceedings is against a dead person. NO is the verdict.

Facts of the case

The assessee is the legal heir (the son) of one late M.A.Margesan. For the A.Y 2009-10, the assessee filed a return admitting total income at Rs.39,26,390/- and the same was processed u/s 143(1). Subsequently, the case was selected for scrutiny and a notice u/s 143(2) was issued. Thereafter, the AO passed an order recomputing the income and arrived at the conclusion that an amount of Rs.57,162/- was due as refund by the Department to the assessee. After two years of passing of the assessment order, the CIT issued a show cause notice u/s 263 to the assessee Mr.M.A. Margesan. But, at least three months before the date of issue of the show cause notice, the assessee passed away. As a result, the show cause notice was returned with the endorsement 'addressee deceased'. This fact was intimated by the ITO to the Asst CIT. Thereafter the Department served the very same show cause notice on the son of the deceased assessee through a messenger. Eventually, an order was passed by the Commissioner, sustaining the show cause notice and remitting the matter back to the AO to pass orders afresh. Pursuant to the said order, the AO passed a giving effect order computing the total tax payable as Rs.29,01,959/-. On appeal, the Tribunal held that the order passed u/s 263 against a dead person was a nullity.

Having heard the parties, the High Court held that,

++ it is a settled position that any proceeding initiated against a dead person is a nullity. The contention of the Revenue's counsel loses sight of one important distinction between a case where the proceedings are initiated against a person, who is alive, but continued after his death and a case of proceedings initiated against a dead person himself. If the proceedings had been initiated against a person, who was alive, and they were continued after his death after putting his legal heirs on notice, those proceedings, under certain circumstances, may be saved. The cases where the very proceedings are initiated against a dead person stand apart from those proceedings where they are initiated against a live person, but continued after his death against the legal heirs. Hence, the first contention is rejected. The second contention revolves around Section 292BB. A cursory look at Section 292BB would show 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. In the case on hand, the assessee was dead. It was the assessee's son, who appeared and perhaps cooperated. Therefore, the primary condition for the invocation of Section 292BB is absent in the case on hand. Section 292BB is in place to take care of contingencies where an assessee is put on notice of the initiation of proceedings, but who takes advantage of defective notices or defective service of notice on him. It is trite to point out that the purpose of issue of notice is to make the noticee aware of the nature of the proceedings. Once the nature of the proceedings is made known and understood by the assessee, he should not be allowed to take advantage of certain procedural defects. That was the purpose behind the enactment of Section 292BB. In cannot be invoked in cases where the very initiation of proceedings is against a dead person. Hence, the second contention cannot also be upheld;

++ the third contention revolves around Section 159(2). Section 159(1) would apply to a case where a liability has already crystallised. The death of an assessee would not absolve the legal heirs of the assessee of any liability that the assessee had incurred during his life time. In the case on hand, the liability, if any, would have arisen only after an order is passed u/s 263. Therefore, Section 159(1) will not apply to the case on hand. Sub-Section (2) of Section 159 deals primarily with two contingencies. The first is dealt with in Clause (a) of Sub-Section (2) of Section 159. This Clause (a) contemplates the contingency of a proceeding taken against the deceased before his death. In this case, the very initiation of proceedings u/s 263 was done after the death. Clause (a) of Sub-Section (2) uses the expression 'before his death'. Therefore, Clause (a) would not apply to the case on hand. Clause (b) is probably more advantageous to the Revenue, if at all it could be taken advantage by the Revenue. Clause (b) attempts to save the situation where the right of the Revenue to proceed against the assessee was available at the time when the assessee had passed away. In any case, in the case on hand, the Department was made aware of the fact that the assessee was dead. The ITO's letter informing his superior that the notice u/s 263 returned with the endorsement of the Postal Department to the effect that the addressee was dead, clinches the fact. Despite being put on notice that the noticee was dead, the Department chose to pursue the very same notice. In such circumstances, Section 159(2)(b) cannot be taken advantage of by the Department. Section 159(3) contains a deeming fiction. It states that the legal representative of the deceased shall, for the purposes of this Act, be deemed to be an assessee. Therefore, it is contended by Revenue's counsel the legl hier should be deemed to be an assessee and the service of notice on him should be deemed to be sufficient service. In other words, the contention of the Revenue's counsel is that the legal hier herein automatically becomes a deemed assessee in terms of Sub-Section (3) and hence, his participation would pre-empt him from taking objection to the fact that the notice was addressed to a dead person;

++ we can give the benefit to the Department that they were not aware of the death of the assessee on that date. But, this notice, sent by post, returned with the endorsement that the addressee was dead. Thereafter, the Department served the very same notice on the legal heir through a messenger. Therefore, the Department cannot now take advantage of Section 159(3). If the Department had issued the notice addressed to the legal heir himself, by taking recourse to Section 159(3), the deeming fiction could have been taken advantage of by the Department. It is too late in the day for the Department to take advantage of the same. A notice sent to a dead person is actually a nullity. There is only one exception in so far as civil proceedings are concerned, which could be traced to Order XXII Rule 4. Section 159 of the Income Tax Act also carves out an exception. Since service of notice on the legal heir of a dead person falls under the category of an exception to the general rule, the same cannot overtake the rule in the absence of a specific provision. The case on hand will not fall under the said exception. Therefore, the very initiation of the proceedings against the dead person and the continuation of the same despite having noticed the factum of death of the assessee, cannot be approved.

(See 2016-TIOL-688-HC-MAD-IT)