PETITIONER:
HOMELY INDUSTRIES
Vs.
RESPONDENT:
THE SALES TAX OFFICER, SECTOR V, KANPUR
DATE OF JUDGMENT24/03/1976
BENCH:
GOSWAMI, P.K.
BENCH:
GOSWAMI, P.K.
KHANNA, HANS RAJ
CITATION:
1976 AIR 2086 1976 SCR (3) 862
1976 SCC (3) 705
ACT:
U.P. Sales Tax Act-Secs. 7C(3)-8(1)(2)-Liability of
heirs and legal representatives of a deceased assessee-
Whether service of a notice condition precedent, to recovery
proceedings.
HEADNOTE:
Rashidul Hasan was a dealer registered under the U.P.
Sales Tax Act. During the lifetime of Rashidul Hasan, the
Sales Tax Officer sent a notice to him asking him to appear
and to produce all books of account, cash memos, bills,
receipts, bank pass books, statement of income and
expenditure which he may desire to produce. He died in
December, 1968 leaving behind three adult sons. At the time
of his death assessment proceedings relating to the
assessment years 1960-61 and 1961-62 were pending before the
Sales Tax Officer. After the death of Rashidul Hasan, the
business was continued by his sons by forming a partnership.
His legal representatives obtained a number of adjournments
in order to make an effective representation. After granting
6 adjournments the 7th Application for adjournment was
rejected by the Sales Tax Officer and an ex-parte order of
assessment was made in April, 1969. The Sales Tax Officer
thereafter initiated recovery proceedings in pursuance of
the assessment orders and the demand was sought to be
realised from the sons of the deceased by coercive measure.
Section 7C(3) of the Act provides that where a person
having furnished a return dies and the assessing authority
may determine the turnover of such person and assess the tax
payable by him on the basis of such determination and for
this purpose may by notice require from the legal
representative of the deceased person any accounts,
documents or other evidence which he might under the
provisions of this Act require from the deceased person.
Section 8(1) provides that the tax assessed under the Act
shall be paid within such time not being less than 15 days
from the date of service of the notice of assessment. It
further provides that in default of such payment the same
may be recovered as arrears of land revenue. The appellant
filed two Writ Petitions before the High Court of Allahabad
challenging the orders and recovery certificates issued
under section 8 of the Act. The High Court rejected the
application.
On appeal by certificate under Article 133(1)(a) of the
Constitution, the appellant contended:
(1) The assessment orders are invalid as they are
made against a dead person, and that no
notice as required by section 7C(3) was
served on the legal representative to produce
accounts, documents and other evidence.
(2) A proper and valid notice which is a
condition precedent for fixing liability
under section 8 has not been served on the
legal representatives and therefore the
recovery proceedings were illegal.
^
HELD : (1) The notice was already served on the
deceased when he was alive. It was not necessary to serve
the notice on legal representatives again under Sec. 7C(3).
The legal representatives would have been entitled to a
notice to produce documents and evidence if the deceased had
not earlier been served with a similar notice during his
life time. The orders of assessment cannot, therefore, he
held to be invalid on account of non-service of notice for
production of documents upon the legal representatives in
this case. Besides the legal representatives were aware of
the proceedings and took several adjournments and if they
did not choose to produce any further evidence it was
entirely their fault. [865 E, G, 866 A-B]
863
(2) It is clear that before a certificate proceeding
can be instituted under section 8 a notice of demand is
condition precedent. There can be no recovery without
service of a demand notice. It is admitted that such notice
has not been served on the legal representatives. That being
the position, the recovery proceedings are not maintainable
in law and are invalid and the same along with certificates
are liable to be quashed. [867 C-D]
Sahu Rajeshwar Nath v. Income-Tax Officer I.C. Ward
Meerut, 72 I.T.R. 6971 S.C. distinguished.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1176-
77 of 1971.
From the Judgment and order dated the 17th March, 1970
of the Allahabad Court in Civil Misc. Writ Nos. 2681-82 of
1968.
S. C. Manchanda, J. D. Jain, Ujjal Singh and Miss
Kawaljit Miglani for the Appellant.
G. N. Dikshit and O. P. Rana for the Respondent.
The Judgment of the Court was delivered by
GOSWAMI, J.-These are two appeals on certificates by
the High Court of Allahabad from the judgments and orders of
March 17, 1970.
The facts may briefly be stated:
The appellant Homely Industries is registered under the
Uttar Pradesh Sales Tax Act (briefly the Act). Its sole
proprietor was one Rashidul Hasan. He died on December 10,
1968, leaving behind three adult sons, namely, Syed Mohd.
Ibrahim, Syed Mohd. Ismail and Syed Mohd. Ilias. The
business was carried on by Rashidul Hasan under the name and
style of Homely Industries. At the time of his death the
assessment proceedings relating to the assessment years
1960-61 and 1961-62 were pending before the Sales Tax
Officer on remand from the Assistant Commissioner
(Judicial), Sales Tax, in pursuance of his order dated
October 26, 1966.
It is said that after the death of Rashidul Hasan the
business was continued by the sons by forming a partnership
and Nazir Husain continued as the munim and also appeared
before the Sales Tax Officer in the pending proceedings.
On December 19, 1968, Syed Mohd. Ibrahim, as legal heir
and partner, sent an application through Nazir Husain
informing the Sales Tax Officer, Kanpur, in connection with
the two assessment proceedings that his father had expired
on December 10, 1968 and that it was not possible for them
to proceed with the case on that day.
It appears that the Sales Tax Officer during the life
time of Rashidul Hasan had addressed a notice to Homely
Industries calling upon it to appear in person or through
pleader, or authorised representative on November 29, 1968,
and to produce all books of accounts, cash memos, bills,
receipts, bank pass-books, statement of income and
expenditure and other documents which it may desire to
produce in connection with the assessment. This notice was
served on November 20, 1968, on the son of the proprietor of
Homely Industries.
It appears that a number of adjournments were taken
after the death of Hashidul Hasan, sometimes on the
application of the munim
864
and once even on the application of the son, Syed Mohd.
Ismail, to enable the assessee to make an effective
representation. While as many as six adjournments were
granted on the application of Nazir Husain and once of the
son of the deceased between 19-12-1968 and 26-4-1969, on the
last date a further application by Nazir Husain for
adjournment was rejected by the Sales Tax Officer and an ex-
parte order of assessment was made on April 28, 1969.
The Sales Tax Officer initiated recovery proceedings in
pursuance of the assessment orders and the demand was sought
to be realised from the sons of the deceased proprietor by
coercive measures. That led to two writ applications before
the High Court of Allahabad challenging the assessment
orders and the recovery certificates issued under section 8
of the Act. The High Court rejected the applications and
granted certificates under Article 133(1)(a) of the
Constitution.
It is contended by Mr. Manchanda on behalf of the
appellant that the assessment orders are invalid as they
were made against a dead person. Secondly, he submits that a
proper and valid service of a demand notice is a condition
precedent for fixing liability on the person from whom the
tax is sought to be recovered and in this case there was no
service of notice on the heirs and legal representatives
prior to the attempt of recovery through a coercive process.
With regard to the first submission, the learned
counsel draws our attention to section 7C of the Act which
reads as follows:-
“7-C(1). Where a person dies, his executor,
administrator or other legal representative
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 tax assessed as payable by such person,
or any penalty which would have been payable
by him under this Act, if he had not died.
(2) Where a person dies before the service upon
him of the notice, if any, issued in
pursuance of section 7, his executor,
administrator or other legal representative
shall, on the serving of the notice
aforesaid, comply therewith and the Assessing
Authority may proceed to assess the turnover
of the deceased person as if such executor,
administrator or other legal representative
were the assessee.
(3) Where a person dies without having furnished
a return which he has been required to
furnish under the provisions of section 7 or
having furnished a return which the Assessing
Authority has reason to believe to be
incorrect or incomplete, the Assessing
Authority may determine the turnover of such
person and assess the tax payable by him on
the basis of such determination, and for this
purpose may, by notice, require from the
executor, administrator or other legal
representative of the deceased person any
accounts, documents, or other
865
evidence which he might under the provisions
of this Act have required from the deceased
person”.
(4) & (5) x x x x x
Relying upon section 7C(3), it is submitted that no
notice as required under that sub-section was served on the
legal heirs and representatives to produce accounts,
documents and other evidence for the purpose of
determination of the turnover and assessment of tax. Counsel
submits that after death of the father no assessment order
could be passed without notice under section 7C(3) upon the
heirs and legal representatives of the deceased assessee.
It is true that the Sales Tax Officer did not accept
the returns submitted by the dealer. It was, therefore,
incumbent under the proviso to section 7(3) of the Act to
give a reasonable opportunity to the dealer for the purpose
of proving the correctness and completeness of the returns
already submitted. If the returns were accepted as correct
there was no necessity for giving any opportunity to the
dealer as the case will then be governed by section 7(2) of
the Act. Mr. Manchanda, therefore, submits that under
section 7C(3) read with the proviso to section 7(3) it was
obligatory on the part of the Sales Tax Officer to give a
reasonable opportunity to the legal representatives to
produce the documents and accounts before completion of the
assessment. Admittedly no notice under section 7C(3) had
been served on the legal representatives. It is, therefore,
submitted that the orders of assessment are invalid.
Although the submission on the first blush is
attractive it does not bear a close scrutiny. This is a case
where the assessee had submitted the returns and since the
Sales Tax Officer was not prepared to accept the returns as
correct and complete, he served a notice on the sole
proprietor of the assessee, when he was alive, to produce
documents and books of accounts under the proviso to section
7(3). We have already referred to the said notice which was
served on the son of the proprietor on November 20, 1968,
calling upon the dealer to produce the accounts on November
29, 1968. It was, therefore, an obligation on the part of
the dealer to produce documents, books of accounts and other
evidence to prove before the Sales Tax Officer that the
returns were correct. This being the factual position about
service of notice on the deceased while he was alive, there
was no legal entitlement to any further notice to the dealer
even if the sole proprietor were alive.
Under section 7C(3) the Sales Tax Officer may by notice
require from the legal representative of the deceased such
accounts, documents or other evidence as “he might under the
provisions of the Act have required from the deceased
person”. The Sales Tax Officer had already demanded by
notice from the deceased while he was alive production of
documents and the books of accounts. Hence no valid
objection can be taken under section 7C(3) that a further
notice for production of documents and accounts should have
been served on the legal representatives. The legal
representatives would have been entitled to a notice to
produce documents and evidence if the deceased had not
earlier been served with a similar notice during his life
time. Section 7C(3)
866
does not entitle the legal representatives to any notice
which the deceased, if alive, would not have been entitled
to under the provisions of the Act. Since there was no
obligation under the Act for service of a second notice on
the dealer, if he were alive, the legal representatives were
not entitled to a notice as claimed under section 7C(3) of
the Act. The orders of assessment cannot, therefore, be held
to be invalid on account of non-service of notice for
production of documents upon the legal representatives in
this case. Besides, we find that the legal representatives
were aware of the proceedings and took several it
adjournments and if they did not choose to produce any
further evidence it was entirely their fault and they cannot
blame the Officer when the request for adjournment was not
granted after so many requests had already been acceded to.
We, however, express no opinion on the merits of their
claim.
Mr. Dikshit appearing on behalf of the respondent
strenuously contends that the word “may” in section 7C(3)
makes it optional for the Sales Tax Officer to give or not
to give notice to the legal representative for production of
documents after death of an assessee. We are unable to
accede to this submission.
The scheme of the relevant provisions of the Act is as
follows:-
Omitting the non-essentials for the purpose of this
case, under subsection (1) of section 7 a return is required
to be submitted by a dealer showing his turnover. Under sub-
section (2) of section 7, if the Sales Tax Officer is
satisfied that the return submitted by a dealer is correct
and complete he shall assess the tax on the basis of that
return. Under sub-section (3) of section 7 read with the
proviso, if, according to the Officer, the return submitted
by a dealer is incorrect or incomplete, he shall make, what
is called, a best judgment assessment after making such
enquiry as he considers necessary but must, under the
proviso thereto, give a reasonable opportunity to the dealer
to prove the correctness and completeness of the return
submitted by him.
So far as material for the purpose of this case,
section 7C(3), properly construed, provides, inter alia,
that if a person dies after furnishing a return and his
return, which was submitted, is not accepted by the Officer
as correct or complete, the obligation to give a reasonable
opportunity to prove the correctness and completeness of the
return under section 7(3) read with the proviso cannot be
given a go-by if the person who submitted the return dies
without a notice having been given for such an opportunity.
The word “may” in section 7C(3) does not clothe the Sales
Tax Officer with arbitrary power of assessment without
notice to the legal representative to produce evidence or
documents which, if the dealer were alive, he would have
been entitled to do under section 7(3) read with the
proviso. The submission of Mr. Dikshit is, therefore, devoid
of substance.
In the view we have taken that no fresh notice to the
legal representatives was called for prior to the passing of
the assessment orders in this case, we are not called upon
to decide whether the legal representatives had waived their
right to notice as urged in the alternative by Mr. Dikshit.
867
We may now deal with the second submission of Mr.
Manchanda that no recovery proceedings could be instituted
unless a notice of demand had been served on the legal
representative under section 8 of the Act. That section
reads as under:-
“8 (1) The tax assessed under this Act shall be
paid in such manner and in such instalments,
if any, and within such time, not being less
than fifteen days from the date of service of
the notice of assessment, as may be specified
in the notice. In default of such payment,
the whole of the amount then remaining due
shall become recoverable in accordance with
sub-section (2).
(2) Any tax or other dues payable to the State
Government under this Act shall be
recoverable as arrears of land revenue”.
It is clear that before a certificate proceeding can be
instituted under sub-section (2) of section 8 a notice of
demand under sub-section (1) thereof is a condition
precedent. There can be no recovery without service of a
demand notice. It is admitted that such notice has not been
served on the legal representatives. That being the position
the recovery proceedings are not maintainable in law and are
invalid and the same along with the certificates are liable
to be quashed.
Mr. Dikshit has drawn our attention to a decision of
this Court in Sahu Rajeshwar Nath v. Income-tax Officer, C-W
and, Meerut, and Another(1) and submitted that this decision
is an authority for the proposition that no notice on the
legal representative is required under the law prior to the
institution of recovery proceedings by certificate.
In that case this Court was considering the liability
of a partner of an unregistered firm which was the assessee
and a notice under section 29 of the Income-tax Act, 1922,
had been served on the unregistered firm and all the tax
assessed against the firm was sought to be recovered from
the partner in proceedings under section 46(2) of the
Income-tax Act. It was contended on behalf of the partner
that a fresh notice of demand upon the partner was necessary
under the law and in its absence the recovery proceedings
were invalid. This Court repelled the contention holding
that although the unregistered firm was the assessee the
partner was liable under section 25 of the Partnership Act
and since the appellant, therein, conceded that he was a
partner of that firm during the accounting year, no separate
notice under section 29 of the Income-tax Act upon the
partner was necessary. It was further held that the notice
contemplated under section 29 of the Income-tax Act, 1922,
was to the assessee or to any other person liable and “any
other person liable under section 29” meant “liable under
the Income-tax Act” and not under any other law such as the
Partnership Act.
That was a case where no question arose about the
liability of the appellant therein under the provisions of
the Income-tax Act such as section 24B of the Income-tax
Act, 1922, which is almost identical with section 7C(1) of
the Act and that because of that under section
868
29 of the Income-tax Act a notice of demand was obligatory
as a condition precedent to the institution of certificate
proceedings for recovery of the dues as arrears of land
revenue. The aforesaid decision of this Court in Sahu
Rajeshwar Nath’s case (supra) is, therefore, of no
assistance to the learned counsel.
In the result the judgments of the High Court are
affirmed but the orders with regard to the recovery
proceedings, which are invalid, are set aside. The appeals
are partly allowed. There will be, however, no order as to
costs.
We should observe that we express no opinion about the
appeals which are said to be pending before the Assistant
Commissioner (Judicial), Sales Tax.
P.H.P. Appeals partly allowed.
869