Proceedings of Commissioner of Income Tax (Appeals) [CIT(A)] Archives

Can Notice under Section 148 of the Income Tax Act be issued to a dead person?

Section 147 of the Income Tax Act deals with provisions of “income escaping assessment”. The grounds or reasons which led to formation of the belief that income chargeable to tax has escaped assessment must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. However, can notice under Section 148 pertaining to “income escaping assessment” be issued to a dead person? A similar issue was raised before the ITAT in the case of Lalita Agarwal vs ACIT.

Writ petition had been filed seeking a direction to the respondent to quash the notice issued to the deceased-assessee (husband of the petitioner) and all the consequential proceedings emanating passed by the respondent.

Facts of the Case:

Shri Subhash Chandra Agarwal passed away on 4th December, 2014.
On 16th January, 2015 the Income Tax Officer, Investigation, issued a query letter in the name of deceased person Shri Subhash Chandra Agarwal raising certain queries.
Legal heir of Late Shri Subhash Chandra Agarwal, the wife of the assessee, Ms. Lalita Agarwal informed the Revenue about the demise submitting the copy of death certificate.
Such letter was duly acknowledged by the Revenue.
Subsequently, a notice under Section 148 was issued on the deceased person.
Subsequently assessment order was passed in the hands of legal heir.
Later, once again notice for Assessment Year 2009-10 was issued in the name of the deceased.
An assessment order under Section 144 read with Section 147 was also passed in the name of the deceased.
Assessee challenged those assessment orders which were passed in the name of the deceased.

Proceedings of Commissioner of Income Tax (Appeals) [CIT(A)]

The assessee challenged the same before the CIT (Appeals) who held that in the present case the Assessing Officer was not having any knowledge of assessee being deceased on the date of issue of notice under Section 148 of the Act.
Therefore, he rejected the arguments of the assessee on that ground.

Observations of Income Tax Appellate Tribunal (ITAT)

ITAT observed that the issue before them was squarely covered by the decision of Savita Kapila (supra) wherein it was held that there was no legal requirement that legal representative should report death of an assessee to the Income Tax Department.
Therefore, the order of the CIT (A) in sustaining the assessment order was not correct.
The sustenance of a notice under section 148 was the foundation stone on which subsequent re- assessment proceedings were built up.
To acquire the valid jurisdiction necessarily such notices were to be addressed to the correct person and not to a deceased
As in the present case proceedings were not initiated/pending against the assessee when he was alive and after his death the legal representative did not step into the shoes of the deceased-assessee, section 159 did not apply to the present case.
Section 159 applies to a situation where proceedings are initiated/pending against the assessee when he is alive and after his death the legal representative steps into the shoes of the deceased- assessee.
This court is of the view that in the absence of a statutory provision it was difficult to cast a duty upon the legal representatives to intimate the factum of death of an assessee to the Income-tax Department.
After all, there may be cases where the legal representatives were estranged from the deceased- assessee or the deceased-assessee could have bequeathed his entire wealth to a charity.
Consequently, whether the Department was made aware by the legal representatives or not was irrelevant.
Section 292BB applicable to an assessee and not to a legal representative.
Further, in the present case one of the legal heirs of the deceased-assessee, i.e., the petitioner, had neither co-operated in the assessment proceedings nor filed return or waived the requirement of section 148 or submitted to jurisdiction of the Assessing Officer.
She had merely uploaded the death certificate of the deceased-assessee.
Keeping in view the aforesaid, the present writ petition was allowed by the ITAT and the impugned notice and all consequential orders/ proceedings passed/initiated thereto were quashed.

To conclude, the arguments advanced by the respondent were no longer an untouched matter and were consistently rejected by different High Courts including this jurisdictional court. In view of consistent, uniform and settled position of law, to accept the submissions of the respondent would amount to unsettling the “settled law”

ITAT also found no reason to take a different view. There was a value which the court must abide by in promoting the interest of certainty in tax litigation. Not doing so would only result in uncertainty and displacement of settled expectations.

There was a significant value which must attach to observing the requirement of consistency and certainty. Individual affairs are conducted and business decisions are made in the expectation of consistency, uniformity and certainty. To detract from those principles is neither expedient nor desirable.

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Interest for TDS Default is leviable on buyer of property even if an NRI seller has already paid the taxes

The concept of TDS was introduced with an aim to collect tax from the very source of income. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. Section 195 of the Income Tax Act provides for the deduction of tax at source on payments made to Non-Residents.

A person is liable to pay interest for various delays/defaults. Interest under section 201(1A) is charged for failure to deduct tax at source/delay in payment of tax deducted at source.

According to Section 201(1A), if any person, principal officer or company does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest:-

at 1% for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and
at 1.5% for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of section 200(3)

Let us refer to the case of Sh. Harpal Singh Vs DCIT (ITAT Chandigarh), where the issue to be dealt was whether or not the assessee was liable to deduct TDS when payment was made to a power of attorney holder even when the ownership of the property purchased was with the NRI.

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Facts of the Case:-

The assessee had purchased property from a NRI.
The assessee had failed to deduct tax (TDS) from the payment of purchase of property made to the non residents.
The assessee submitted before the Assessing Officer (AO) that the assessee had entered into an agreement for purchase of property and the transaction was through POA (Power of Attorney) Holder who was a resident and hence the assessee was under the impression that as he was dealing with a resident person and was not required to deduct TDS.
Assessee argued that since he was dealing with an Indian resident, so no tax was to be deducted by the purchaser and since the seller had already paid the taxes the interest cannot be charged in the hands of the assessee.
According to the AO, the property was sold by the seller through a registered deed which proved that the person was only an agent of the owner but not an actual owner by virtue of having any right.
The non-resident seller later declared the capital gain arising on the sale of the property in their returns and paid taxes thereof.
The AO held that the assessee was liable to pay interest under section 201(1)(A) calculated @12% p.a.

Proceedings of Commissioner of Income Tax (Appeals) [CIT(A)]

Assessee filed an appeal before the CIT(A) against the order of the AO.
The CIT(A) had upheld the order of the AO that the assessee was in default u/s 201(IA) of the Income Tax Act, 1961.
An appeal was filed by the assessee against the order of the CIT(A) before the Income Tax Appellate Tribunal (ITAT) praying that the order under section 201(IA) of the Income Tax Act 1961 to be quashed.

Reference to the Provisions of Law by the ITAT

The provisions of 201(1) stipulated that the assessee was liable to deduct tax on the payment.
Section 201(1)(A) casted liability on the assessee to pay interest on the default.
Though the statutory provisions casted a liability on the assessee, keeping in view the fact that payment was received by the exchequer, whether by the assessee(purchaser) or by the recipient(seller), leverage was given by the authorities not to burden the assessee with the strict liability of the TDS deduction when the recipient paid the taxes vide Circular No. 275/201/95-IT dt. 29/01/1997.

Basically, according to Circular No. 275/201/95-IT dt. 29/01/1997, tax cannot be recovered from deductor if the same is paid by the deductee.
Interest will be charged only till date of payment of tax by deductee
However, this did not mean that the assessee was absolved totally of the responsibility to deduct the taxes and also interest if any.
This Circular released the assessee in cases where the due payments of tax or interest were duly paid by the recipient.

Reference to the case of DIT vs. Jacabs Civil Incorporate by the ITAT:-

Delhi High Court in the case of DIT vs. Jacabs Civil Incorporate (2011) held that:-

The assessee was a non resident company. The question of law which arose for consideration in the appeal related to whether the levy of interest under Section 234B of the Income Tax Act, 1961 for short deduction of TDS was mandatory and was leviable automatically.
Section 201(1A) specifically provided that if a person/authority who was bound to make a deduction of tax at source did not deduct or after deducting failed to pay the tax, then such a person/authority was liable to pay simple interest on the amount of tax not deducted from the date on which such tax was deductible to the date on which the said tax was actually paid.
Thus, in respect of interest income on which deduction of tax at source should have been made, the liability to pay interest was fastened on the person/authority who failed, to make deduction as required under section 194A.
Therefore, in respect of the tax payable on the said interest income, the assessee also cannot be taken to be liable to pay interest.
Otherwise, it would mean that there were two persons under the Act liable to pay interest on tax on the same income.
The legislature would not have contemplated such a situation where in respect of the tax on interest income, two persons were liable to pay interest for the delayed payment of tax.
Delhi HC, therefore, was inclined to hold that the person who had failed to deduct tax at source was liable to pay interest and not the assesses as there would be charging of interest twice on the payment of tax in relation to the same income.

Observations of ITAT pertaining to the present case

It was held, that Section 201(1A) goes against the assessee, which says that an authority which was bound to make a deduction of tax at source as per statute, if it did not deduct, or after deducting failed to pay the tax, than such a person or authority was liable to pay simple Interest on the amount of tax not deducted.
This indicated that, liability of the tax deductor was absolute.
The assessee who should be the deductor as per statute failed to deduct taxes and was seeking to benefit itself by claiming the benefits which were available to the deductee.

Therefore, keeping in view the provisions of the Act and facts of the case ITAT held that the interest under section 201(1)(A) was rightly confirmed by the CIT(A) and hence the appeal was dismissed.

Hence, Interest for TDS Default is leviable on buyer of property even if an NRI seller has already paid the taxes in his Return.

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