“Only two things are certain in life: Death and taxes- Benjamin Franklin".
We all agree with the above quote. Death will certainly put end to so many issues but not tax issues! In this article, we shall understand the assessment proceedings pertaining to a deceased assessee with the help of judgment of Honourable High Court in the case of CIT vs. M Hemanathan.
The background of the caseis that the Department even though they had notice of death of the assessee, proceeded to initiate revision proceedings against the deceased assessee.
The issue before the Honourable High Court of Madras is whether the proceedings initiated against the deceased assessee are valid when the legal heir has participated in the proceedings?
Facts of the case:
Assessee filed the return of income and the return was processed under Section 143(1) of the Act. Later the assessee case was selected for scrutiny and notice under Section 143(2) issued. A refund order was passed after taking into account the information submitted by the assessee.
After two years of passing assessment order, the CIT issued a notice under Section 263. The show cause notice was addressed to the assessee. Three months before the issue of show cause notice the assessee has passed away.
The show cause notice returned with the endorsement "assessee deceased". This fact was informed by the ITO to the Commissioner. Thereafter department served the same show cause notice to the son of the deceased assessee through messenger. Son participated in the proceedings through authorised representative.
Pursuant to show cause notice the case was remitted back to the assessing officer for passing a fresh order. The assessing officer passed an order raising the demand for payment of tax.
Son (legal heir) preferred an appeal against the order passed under Section 263 to the Tribunal. The appeal is allowed by the Tribunal holding that the order U/S 263 against a deceased person is null. Department has filed an appeal against the order of the Tribunal before Honourable High Court.
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Department Contention:
- The Tribunal was wrong in setting aside the order under Section 263 as null as it was passed against a deceased person as the legal heir participated in proceedings;
- Though the notice was issued on the deceased person it was served on the legal heir and legal heir participated in the proceedings. Therefore, the provisions of section 292BB will apply;
- As per the provisions of section 159(2) legal representative will deemed to be an assessee.
High Court Verdict:-
- Any proceedings initiated against the deceased person is a nullity. Law permits the proceedings to continue after the death of the assessee provided they initiated when he was alive and not otherwise.
- The purpose of issue of notice is to make the person aware of the nature of the proceedings. Once the nature of proceedings is made known and understood by the assessee, he should not be allowed to take advantage of certain procedural defects. The provisions of section 292BB cannot be invoked where the very initiation of proceedings is against deceased person.
- Provisions of section 159(1) would apply to a case where a liability has already crystallized. In this case the very initiation of proceedings was done after the death of the assessee. Despite the known fact that the assessee had passed away the department chose to pursue very same notice and hence department can't take the advantage of Section 159(2)(b).
- As the notice issued against deceased person the provisions of section 159(3) are not applicable.
- The very initiation of the proceedings against the deceased person and the continuation of the same despite having noticed the factum of death of the assessee, cannot be approved.
Remarks:
As the notice was issued in the name of the deceased assessee the proceedings are null. There is distinction between a case where proceedings are initiated against person, who is alive, but continued after his death and a case where proceedings are initiated against a deceased person himself. Former case is valid as per the Act while later is null.
This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.
