Allahabad H.C : Whether, on the facts and circumstances of the case, penalty under s. 18(1)(a) could be imposed on a legal heir, in view of the specific omission of ss. 18 and 16 from s. 19(3) in Chapter V of the WT Act, determining the liability and tax of a deceased person payable by the legal representative ?

OM PRAKASH, J.:

At the instance of the assessee, the Tribunal, Allahabad Bench, has referred the following two questions for our opinion under s. 27(1) of the WT Act, 1957 (briefly the Act, 1957):

“1. Whether, on the facts and circumstances of the case, penalty under s. 18(1)(a) could be imposed on a legal heir, in view of the specific omission of ss. 18 and 16 from s. 19(3) in Chapter V of the WT Act, determining the liability and tax of a deceased person payable by the legal representative ?

2. Whether, on the facts and circumstances of the case, and the absence of mens rea and of the returns having been filed in good faith by the legal representative, penalty was imposable even if it could be imposed ?”

The facts as stated by the Tribunal, briefly, are that one Keshav Ram Narang died on 19th Jan., 1969. On 22nd Jan., 1969, a partition of his property was made between his heirs. The assessee, being one of the heirs, applied for obtaining a succession certificate in respect of some of the assets to the civil Court on 24th Nov., 1969, and the certificate was granted on 17th Jan., 1970. The dispute relates to the assessment years 1969-70 and 1970- 71, the relevant valuation dates for the said assessment years being 31st March, 1969, and 31st March, 1970, respectively. For both the years, the due dates for filing the returns were 30th June, 1969, and 30th June, 1970, but they were filed on 1st May, 1972. The WTO, therefore, initiated penalty proceedings for default under s. 18(1)(a) of the Act of 1957, by issuing a show cause notice to the assessee. In reply, the assessee stated that s. 18 is not included in s. 19(3) of the Act of 1957, and, therefore, no penalty proceedings could be commenced against the legal representative for late filing of the returns. The contention was repelled by the WTO and he imposed penalties in the sums of Rs. 56,950 and 40,040 for these two years respectively. The assessee appealed to the AAC. The latter rejected the legal contention of the assessee that no penalty proceedings can be initiated as s. 19(3) does not refer to s. 18 of the Act of 1957. He, however, accepted the contention of the assessee that he was prevented in not having filed returns within time by sufficient cause in part for the asst. yr. 1969-70. The assessee contended before the AAC that he was under the bona fide belief that the value of the assets left behind by the deceased was to be included by the heirs in their own returns and as it was necessary to obtain the succession certificate in respect of some of the assets, the returns were filed only after having obtained the succession certificate. The AAC, therefore, held that the assessee was prevented by reasonable cause for not having furnished the returns for the asst. yr. 1969-70 up to 17th Jan., 1970. So the penalty for the asst. yr. 1969-70 was upheld in part and the penalty imposed for the asst. yr. 1970-71 was fully upheld. The assessee carried the dispute in appeal to the Tribunal. The latter also rejected the legal contention of the assessee that since s. 18 does not find a berth in s. 19(3), no penalty proceedings could be initiated against the legal representatives. The Tribunal took the view that to the case of the assessee, s. 19A is applicable and not s. 19, that s. 19A is not a subsection of s. 19, but the two sections, s. 19 and s. 19A, are distinct and they have been enacted for different purposes. The Tribunal also held that when an assessment was made on the assessee, then to take it to a logical end, it would be within the powers of the WTO to levy penalty for not having filed the returns for both the years within time. In short, the finding of the Tribunal is that when an assessment can be made on the assessee, penalty proceedings can also be initiated against the legal representatives. Coming to the question of sufficient cause, the Tribunal observed that the assessee was prevented by sufficient cause for not having filed the returns for the asst. yr. 1969-70 till 17th Jan., 1970, when the succession certificate was obtained. The Tribunal condoned the delay of two months observing:” We would further allow a period of two months during which the assessee could have collected the relevant details and then filed the return for 1969-70. The default for this year is, therefore, restricted to 25 months and the penalty would be recalculated accordingly. “So far as the asst. yr. 1970-71 is concerned, the order of the AAC confirming the penalty imposed by the WTO was affirmed by the Tribunal.

First, the question for consideration is whether a penalty for default under s. 18(1)(a) of the Act can be imposed on a legal heir or a legal representative under the special provisions of s. 19 or s. 19A as stated in Chapter V of the Act of 1957. The Tribunal has given a clear finding that as Keshav Ram Narang died before the valuation date, viz., 31st March, 1969, relevant to the asst. yr. 1969-70, s. 19A is applicable to the assessee’s case. What the Tribunal says is that since the case is covered by s. 19A, it is immaterial whether sub-s. (3) of s. 19 refers to s. 18 or not. Then the Tribunal refers to its earlier decisions given in the cases of Late Babu Ram Gupta, W.T.A. No. 35 (Alld) of 1974-75 and of Ram Shanker Agrawal, W.T.A. Nos. 158 to 163 (Alld) of 1974-75. In those cases, the Tribunal says that a view was taken :” … that even though s. 18 does not find a place in sub-section (3) of s. 19, the words ‘or any sum, which would have been payable by him under this Act if he had not died’ could not be lost sight of and the expression `any sum’ was quite exhaustive and would include penalty amount also. If this section is r/w s. 14, it could not be doubted that s. 18 is also covered by sub-s. (3) of s. 19…” Thus, the Tribunal recorded two findings: (1) that the case of the assessee is governed by s. 19A and not by s. 19; and (2) that s. 19(3) takes within its ambit s. 18 as well. It is the propriety of these findings that has to be seen by us. To answer the questions: Whether to the case of the assessee, s. 19A can be attracted and whether sub-s. (3) of s. 19 takes within its sweep s. 18 as well, it will be apposite to see the scope and object of ss. 19 and 19A. The Tribunal has recorded a finding that these two sections are applicable to two different situations. We quite agree with this view of the Tribunal but the question is as to which are the two situations attracting these provisions. Chapter V is headed as “Liability to assessment in special cases”. It is, therefore, clear that the provisions contained in Chapter V deal with special cases. Sec. 19 occurring in Chapter V is preceded by the words “Tax of deceased person payable by legal representative.” s. 19(1) states that where a person dies, his executor, administrator or other legal representatives shall be liable to pay out of 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. The delineated portion clearly shows that s. 19(1) applies to a situation where wealth- tax has been assessed and the tax becomes payable as a result of the assessment order. Sec. 19(1) will have no application to a case where there is no tax assessed and where the tax has not become payable as a result of assessment. In Rameshwar Prasad vs. CWT (1980) 124 ITR 77, a Division Bench of this Court, referring to the relevant provisions of the Act, held on page 82: ” Sub-s. (1) of s. 19 is confined to liability to pay, and it casts upon the legal representative liability to pay wealth-tax or any sum which would have been payable by the deceased if he had not died. s. 19(1) by itself does not create on the legal representative liability to pay which was non-existent till the date of death of the deceased. In other words, if an order creating liability to pay under the Act had not been passed till the date of death of the original assessee, sub-s. (1) does not authorise creation of the liability to pay on the legal representative.” This authority clearly supports our view that s. 19(1) deals with a case where liability was already assessed in the hands of the deceased who died before discharging the liability. It is such liability which will be payable by the legal representative under s. 19(1). A similar view was taken in A. & F. Harvey Ltd. (as agents to Executors of the Estate of Late Andrew Harvey) vs. CWT (1977) 107 ITR 326, in which the Madras High Court succinctly stated the legal position on pages 335 and 336 as follows : “s. 19(1) deals with the situation where an assessee has been already assessed to tax, but is dead before the payment of tax. In that context, it says that the tax shall be payable by the executor, administrator or other legal representative out of the estate of the deceased to the extent to which the estate is capable of meeting the charge ………… Sub-s. (2) of s. 19 deals with a situation where the assessee is dead after having filed the return, but before the tax is quantified ……… Therefore, a reading of sub-s. (1) and sub-s. (2) of s. 19 makes it absolutely clear that the said section has nothing whatever to do with the assessment to wealth-tax of the estate of a deceased who died even before the valuation date. The provisions contained therein clearly show that that section is concerned with a case where an assessee dies after the valuation date and has been assessed to tax before his death or dies after the valuation date but before filing a return or dies after the valuation date and after having filed a return which the WTO considers to be incomplete or incorrect. “Let us be clear as to which wealth attracts the charge under s. 3 of the Act of 1957, which is the charging section. Sec. 3 provides for a charge of tax in respect of the net wealth on the corresponding valuation date of an assessable entity. Therefore, the net wealth of the individual has to be ascertained as belonging to him on the corresponding valuation date defined in s. 2(q) as meaning the last date of the previous year as defined in s. 3 of the IT Act, 1961. Sec. 3 of the Act of 1957 does not create a charge in respect of the net wealth ” held” by an assessee on the valuation date but the charge is created only in respect of the net wealth of an assessee on the valuation date. Unlike income-tax which is in relation to income which is spread over a period in the form of accrual or receipt of income, wealth-tax is in relation to the wealth quantified or crystallised with reference to a particular date, namely, the valuation date. Therefore, for a person to be liable to pay wealth-tax, he must be alive on the valuation date and must have the wealth which is liable to tax as provided in that section on that date. Sec. 19(1) is applicable to a situation where a person was alive on the valuation date and assessed to tax but dies later. On these facts, the tax payable by that person can be recovered from his legal representative, the executor or the administrator and for that purpose, the proceedings will be continued against them. Sec. 19(2) provides for a case where a person dies without having furnished the return or he dies after having furnished the return and in such a case, the power is given to the WTO to make an assessment of the net wealth of such person. The power under sub-section (2), therefore, is to assess the wealth of a person as on the valuation date before his death. Both sub-ss. (1) and (2) will apply when a person having wealth was alive on the valuation date, but died later. The distinction between the two is that s. 19(1) envisages a case of a person who was assessed to tax before his death and sub-s. (2) of s. 19 takes care of the cases where no assessment was made prior to the death or even no return was filed, but the person having wealth died after the valuation date. If no return was filed by the person who died after the valuation date, then s. 14(1) r/w sub-s. (3) of s. 19 obligates a legal representative to file the return and get the assessment done. In the case on hand, Keshav Ram Narang died on 19th Jan., 1969, i.e., prior to the valuation date, being 31st March, 1969, for the asst. yr. 1969-70, and this being so, neither sub-s. (1) nor sub-s. (2) of s. 19 is attracted to the facts of the instant case. Then comes s. 19A. Sub-s. (1) of this section states that subject as hereinafter provided, the net wealth of the estate of a deceased person shall be chargeable to tax in the hands of the executor or executors. Sub-s. (2) says that the executor will be treated for the purposes of this Act as an individual. Sub-s. (6)of s. 19A states that in computing the net wealth on any valuation date under this section, any assets of the estate distributed to or applied to the benefit of any specific legatee of the estate prior to that valuation date shall be excluded, but the assets so excluded shall, to the extent such assets are held by the legatee on any valuation date, be included in the net wealth of such specific legatee on that valuation date. It is clear from the express language of this section that it provides for the assessment of the assets of a deceased person in the hands of the executor or executors. Form the very nature of the case, this section will apply only to a case where an assessee dies having executed a will and appointed an executor or executors. If he had died intestate, the estate would have gone to his heirs and, therefore, it is in the hands of the heirs that the assessment will have to be made and not in the hands of anybody else. Consequently, s. 19A is confined only to a case where an assessee dies after executing a will and appointing the executor. In such a case, s. 19A provides for the assessment of the estate of the deceased in the hands of the executor till the administration is completed. The executors will not be liable to be assessed in respect of the assets which have already been passed on or applied to the benefits of the legatees under the will in view of sub-s. (6) of s. 19A. The scheme of s. 19A is thus clear that executors, who hold the property as representatives of the testator for the purposes of distribution of property to the beneficiaries in accordance with the directions made in the will of the testator, are artificially given the status of an individual so that the estate of the deceased which is not vested in any particular individual, does not escape liability to wealth-tax. Then the question is whether any will was executed in this case. The Tribunal has given a clear finding: “It was not a case of an executor or an administrator or issue of letters of administration. It was a case where one of the heirs gave an application for succession certificate only and hence the use of the word administrator for him is not correct.” This finding was recorded as the AAC referred to the assessee as ” administrator” in his order. This shows that no will was executed by Keshav Ram Narang in favour of the assessee and that the assessee is not an executor or administrator but that he is a pure and simple legal heir of the deceased.

On these facts, the application of s. 19A cannot be conceived of and the Tribunal was in error in holding otherwise. It is settled law that inheritance never remains in abeyance. It being so, the inheritance was an open right on 19th Jan., 1969, when Keshav Ram Narang died and the assets belonging to him had devolved on his legal heirs then and there. Lastly, we come to the chief question whether the penalty proceedings can at all be initiated against a legal representative under ss. 19 and 19A. The Tribunal has held that s. 19(3) takes within its ambit s. 18 as well and that the words “any sum” occurring in sub-s. (1) of s. 19 take within their sweep “penalty” as well. This question directly came up for consideration before this Court in Rameshwar Prasad’s case (1980) 124 ITR 77 (All). This reference related to the asst. yrs. 1961-62 to 1969-70. For the first eight years, Rameshwar Prasad filed returns under the WT Act on 12th April, 1970, while for the asst. yr. 1969-70, the return was filed on 12th March, 1970.

For belated returns, the WTO initiated penalty proceedings under s. 18(1)(a) by issuing show-cause notice which was replied to in June, 1970. While the proceedings were pending, Rameshwar Prasad died on 22nd Feb., 1973. His son, Indra Bhushand, being a legal representative, was brought on record and the proceedings were continued. He submitted that penalty proceedings which were initiated against his deceased father could not legally be continued against him. His contention was repelled and penalty was imposed. His appeals right up to the Tribunal failed. Reproducing the relevant sections, this Court held on page 83 :”.. ……… the absence of s. 18 from being mentioned in sub-section (3) is significant. Penalty proceedings under s. 18 cannot be initiated against a legal representative, because a legal representative has not been made liable to assessment to penalty.. A notice to show cause cannot be issued to a legal representative, firstly, because he has not been made liable to show any such cause, and, in the next place, he, namely, the legal representative, cannot be said to have committed any default in cases where the deceased assessee delayed the filing of the return. Default was committed by the original assessee. Legal representative has not been made liable to be assessed for such a default of the original assessee.” In the next following paragraph on the same page 83, this Court further held : “If, for example, penalty proceedings had been initiated by the issuance of a show-cause notice to the original assessee and during the pendency of such proceedings the original assessee dies, such proceedings will come to an end. They cannot be continued against the legal representative, because the legal representative is not liable to be assessed; and since no order determining liability can be passed after the death of the person who was liable to be assessed, it is obvious that no valid order can be passed after his death against the legal representatives.” This Court also considered the submission of the Revenue that the words” or any sum “occurring in sub-s. (1) of s. 19 are of the widest amplitude embracing penalty also. But this submission also did not find favour with this Court. We see no good reason to deflect from the view taken by this Court in Rameshwar Prasad’s case (supra). We, therefore, follow the semantic view taken by this Court in Rameshwar Prasad’s case (supra) and hold that no penalty proceedings could be legally initiated under s. 18(1) (a), as s. 18 is not mentioned in s. 19(3) and hence the entire penalty imposed on the assessee has to be quashed. For the above reasons, we hold that the Tribunal was in error in holding that the cases are governed by s. 19A and that sub-s. (3) of s. 19 takes within its ambit s. 18 of the Act of 1957 as well. Then, we revert to question No. 2 : whether or not the assessee was prevented by sufficient cause in not having filed the return–this is a purely a question of fact, but since the question has already been referred by the Tribunal, we do not press this legal view and proceed to decide the second question giving a different reasoning. In view of our opinion given on question No.1 that the WTO had no juris-diction to initiate penalty proceedings against the assessee, a legal representative of Keshav Ram Narang (deceased), and that being so, it is not necessary to decide the question, whether or not the assessee was prevented by sufficient cause. This question would have been relevant only when the WTO was competent to initiate penalty proceedings. So in View of our findings on question No. 1, question No. 2 has become infructuous.

On the facts and circumstances of the case, question No. 1 is decided in favour of the applicant and against the Revenue and question No. 2, having become infructuous in view of the findings on question No. 1, is returned unanswered.

The assessee will be entitled to costs which we assess at Rs. 200. Let a copy of this judgment be sent to the Tribunal which shall pass an order deleting the penalty in entirety, conformably to this judgment.

[Citation : 172 ITR 184]