Recovery from a legal representative not from his/her assets in the recovery proceedings but from the assets of the deceased. Issue a writ , order or direction commanding the respondents to compensate the petitioner for mental agony and harassment caused solely on account of grossly illegal acts of the said respondents and its officers for no fault of the petitioner. Case of the respondents has no legs to stand. Section 159 says liability of a legal representative shall be limited to the value of the assets so charged. The result is that the tax due of a deceased can be recovered only from the properties left by the deceased and coming into the hands of the legal representative. As held by the Hon’ble Allahabad High Court . Smt . Shobha Sengar 244 ITR 10
Allahabad High Court
Smt. Shobha Sengar vs Commissioner Of Income-Tax 1
Equivalent citations: 2000 244 ITR 10 All, 1999 105 TAXMAN 142 All
Dated: 5 March, 1999
Author: M Agrawal
Bench: M Agrawal, R Agrawal
JUDGMENT M.C. Agrawal, J.
Prayer made by the petitioner by way of filing writ under article 226.
1. By this petition under article 226of the Constitution of India, the petitioner prays for the following reliefs :
“(i) issue a writ, order or direction in the nature of certiorari and to quash the impugned order dated September 29, 1997, passed by respondent No. 1 (annexure-16 to the writ petition) ;
(ii) issue a writ, order or direction in the nature of mandamus commanding respondent No. 1 to forthwith release the jewellery seized from locker No. 47-A, New Bank of India, Unnao, on August 6, 1986 (details contained in annexure-1 to the writ petition) and the two N. S. Cs. Nos. 092455 and 092456 of Rs. 5,000 each ;
(iii) issue a writ, order or direction commanding the respondents to compensate the petitioner to the tune of Rs. 20,000 for the loss caused by illegally detaining the N. S. Cs. for a period of more than five years ;
(iv) issue a writ, order or direction commanding the respondents to compensate the petitioner for mental agony and harassment caused solely on account of grossly illegal acts of the said respondents and its officers for no fault of the petitioner, such compensation being not less than Rs. 50,000.”
Facts of the case of the petitioner. Jewellry and NSC of the petitioner were seized during search operation .
2. The petitioner’s case is that during the period July 25, 1986, to August 6, 1986, a search and seizure operation was carried out by the income-tax authorities at the residential premises of the petitioner and her husband, Sri Kripa Shanker Sengar. During the course of the said search several items of property were seized. Amongst them were two National Savings Certificates bearing Nos. 092455 and 092456 of Rs. 5,000 each that were purchased by the petitioner on March 5, 1986. The petitioner claimed the same belong to her and have been found to belong to her. In addition jewellery valued at Rs. 1,74,788 was also seized which the petitioner claimed to belong to her and was held to be so. The petitioner’s case is that her assessments for the relevant assessment years, i.e., 1986-87 and 1987-88 were settled on March 27, 1989 and March 28, 1989 respectively. The assessment for the assessment year 1986-87 dealt with the National Savings Certificates while the assessment for the assessment year 1987-88 dealt with the jewellery. She claims that the resultant demand for the two years has been paid off and yet the aforesaid items of her property have not been returned.
Liability due against the petitioner husband who died and CIT asked for recover of the same from the petitioner .
3. The petitioner had earlier come to this court in Writ Petition No. 312 of 1997 seeking release of the aforesaid properties and this court quashed a non-speaking order dated January 15, 1996, passed by the Commissioner of Income-tax, Kanpur, and directed him to pass a fresh speaking order after affording an opportunity of hearing to the petitioner. In compliance with the said order of this court, the Commissioner passed an order dated September 29, 1997, which is the subject of the present writ petition. The Commissioner has again rejected the petitioner’s claim for the return of the said properties on the ground that there were income-tax liabilities amounting to Rs. 1,34,248 and interest under Section 220(2) in respect of the petitioner’s husband, Sri K. S. Sengar, who had died and from whom the petitioner inherited property No. 655-A, A. B. Nagar, Unnao, and, therefore, as a legal representative of the deceased, Sri K. S. Sengar, the petitioner is liable to pay the aforesaid dues and, therefore, the aforesaid items of property cannot be released. The learned Commissioner further observed that the Department can realise the outstanding taxes of Shri K. S. Sengar from Smt. Shobha Sengar (the petitioner) even by selling immovable assets which are under the possession of the petitioner.
Court heard both the counsel of the petitioner and the respondent.
4. We have heard Sri S. D. Singh, learned counsel for the petitioner, and Sri Ashok Kumar, learned standing counsel for the respondents.
Contention of the petitioner that the the retention of her property is illegal
5. The contention on behalf of the petitioner is that the property in question having been seized during a search and seizure operation against her, the same has to be dealt with in terms of the provisions of Section 132(5) and Section 132Bof the Income-tax Act, 1961 (hereinafter referred to as “the Act”), and that since the dues assessed on the petitioner had already been cleared the property had to be returned to her and their retention by the respondents is illegal. The case of the respondents, on the other hand, is what has been stated in the Commissioner’s order under challenge and reliance is placed on the provisions of Section 159of the Act which deals with the liability of a legal representative.
Section 132 (5) and 132(6) of the Act .
6. Before proceeding further it would be appropriate to reproduce the relevant provisions of the Act on a consideration of which the answer to the controversy between the parties would depend. Sub-sections (5) and (6) of Section 132of the Act reads as under :
“(5) Where any money, bullion, jewellery or other valuable article or thing (hereafter in this section and in Sections 132A and 132B referred to as the assets) is seized under Sub-section (1) or Sub-section (1A), as a result of a search initiated or requisition made before the 1st day of July, 1995, the Income-tax Officer, after affording a reasonable opportunity to the person concerned of being heard and making such enquiry as may be prescribed, shall, within one hundred and twenty days of the seizure, make an order, with the previous approval of the Joint Commissioner,–
(i) estimating the undisclosed income (including the income from the undisclosed property) in a summary manner to the best of his judgment on the basis of such materials as are available with him ;
(ii) calculating the amount of tax on the income so estimated in accordance with the provisions of the Indian Income-tax Act, 1922 (11 of 1922). or this Act ;
(iia) determining the amount of interest payable and the amount of penalty imposable in accordance with the provisions of the Indian Income-tax Act, 1922 (11 of 1922), or this Act, as if the order had been the order of regular assessment ;
(iii) specifying the amount that will be required to satisfy any existing liability under this Act and any one or more of the Acts specified in Clause (a) of Sub-section (1) of Section 230A in respect of which such person is in default or is deemed to be in default, and retain in his custody such assets or part thereof as are in his opinion sufficient to satisfy the aggregate of the amounts referred to in Clauses (ii), (iia) and (iii) and forthwith release the remaining portion, if any, of the assets to the person from whose custody they were seized :
Provided that if, after taking into account the materials available with him, the Income-tax Officer is of the view that it is not possible to ascertain to which particular previous year or years such income or any part thereof relates, he may calculate the tax on such income or part, as the case may be, as if such income or part were the total income chargeable to tax at the rates in force in the financial year in which the assets Were seized and may also determine the interest or penalty, if any, payable or imposable accordingly :
Provided further that where a person has paid or made satisfactory arrangements for payment of all the amounts referred to in Clauses (ii), (iia) and (iii) or any part thereof, the Income-tax Officer may, with the previous approval of the Chief Commissioner or Commissioner, release the assets or such part thereof as he may deem fit in the circumstances of the case.
(6) The assets retained under Sub-section (5) may be dealt with in accordance with the provisions of Section 132B”.
7. Section 132B of the Act pertains to the application of retained assets and it stands as under :
“132B.(1) The assets retained under Sub-section (5) of Section 132 may be dealt with in the following manner, namely :
(i) The amount of the existing liability referred to in Clause (iii) of the said sub-section and the amount of the liability determined on completion of the regular assessment or reassessment for all the assessment years relevant to the previous years to which the income referred to in Clause (i) of that sub-section relates (including any penalty levied or interest payable in connection with such assessment or reassessment) and in respect of which he is in default or is deemed to be in default may be recovered out of such assets.
(ii) If the assets consist solely of money, or partly of money and partly of other assets, the Assessing Officer may apply such money in the discharge of the liabilities referred to in Clause (i) and the assessee shall be discharged of such liability to the extent of the money so applied.
(iii) The assets other than money may also be applied for the discharge of any such liability referred to in Clause (i) as remains, undischarged and for this purpose such assets shall be deemed to be under distraint as if such distraint was effected by the Assessing Officer or, as the case may be, Tax Recovery Officer under authorisation from the Chief Commissioner or Commissioner under Sub-section (5) of Section 226 and the Assessing Officer or, as the case may be, Tax Recovery Officer may recover the amount of such liabilities by the sale of such assets and such sale shall be effected in the manner laid down in the Third Schedule.
(2) Nothing contained in Sub-section (1) shall preclude the recovery of the amount of liabilities aforesaid by any other mode laid down in this Act.
(3) Any assets or proceeds thereof which remain after the liabilities referred to in Clause (i) of Sub-section (1) are discharged shall be forthwith made over or paid to the persons from whose custody the assets were seized.
(4) (a) The Central Government shall pay simple interest at the rate of fifteen per cent. per annum on the amount by which the aggregate of money retained under Section 132 and of the proceeds, if any, of the assets sold towards the discharge of the existing liability referred to in Clause (iii) of Sub-section (5) of that section exceeds the aggregate of the amounts required to meet the liabilities referred to in Clause (i) of Sub-section (1) of this section.
(b) Such interest shall run from the date immediately following the expiry of the period of six months from the date of the order under Sub-section (5) of Section 132 to the date of the regular assessment or reassessment referred to in Clause (i) of Sub-section (1) or, as the case may be, to the date of last of such assessments or reassessments.”
8. Lastly, Section 159of the Act which deals with legal representatives is as under :
159.(1) Where a person dies, his legal representatives shall be liable to pay any sum which the deceased would have been liable to pay if he had not died, in the like manner and to the same extent as the deceased. (2) For the purpose of making an assessment (including an assessment, reassessment or recomputation under Section 147) of the income of the deceased and for the purpose of levying any sum in the hands of the legal representative in accordance with the provisions of Sub-section (1),–
(a) any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from the stage at which it stood on the date of the death of the deceased ;
(b) any proceeding which could have been taken against the deceased if he had survived, may be taken against the legal representative ; and
(c) all the provisions of this Act shall apply accordingly.
(3) The legal representative of the deceased shall, for the purposes of this Act, be deemed to be an assessee.
(4) Every legal representative shall be personally liable for any tax payable by him in his capacity as legal representative if, while his liability for tax remains undischarged, he creates a charge on or disposes of or parts with any assets of the estate of the deceased, which are in, or may come into, his possession, but such liability shall be limited to the value of the asset so charged, disposed of or parted with.
(5) The provisions of Sub-section (2) of Section 161, Section 162 and Section 167, shall, so far as may be and to the extent to which they are, not inconsistent with the provisions of this section, apply in relation to a legal representative.
(6) The liability of a legal representative under this section shall, subject to the provisions of Sub-section (4) and Sub-section (5), be limited to the extent to which the estate is capable of meeting the liability.”
9. Sub-section (5) of Section 132 of the Act shows that the Income-tax Officer has to make an order regarding the retention/return of the assets within a specified time and the assets to the extent they are not required for discharging the liabilities have to be returned forthwith. Sub-section (6) of the Act then provides that the assets retained under Sub-section (5) may be dealt with in accordance with the provisions of Section 132Bwhich in its turn again makes provisions in Sub-section (3) for returning the assets forthwith to the persons from whose custody the assets were seized after the demands have been met.
Present case of the petitioner.
In the present case, the dues assessed on the petitioner have admittedly been paid off and nothing remains due. According to the petitioner, the dues had been paid off as far back as on March 29, 1989, and the averments to this effect are contained in a letter dated April 7, 1989, from the assessee’s counsel to the Assistant Commissioner of Income-tax, Central Circle-1, Kanpur. It is not the case of the Revenue that anything remained due from the petitioner and the date on which the dues have been cleared off is not very relevant. The result, therefore, is that in terms of Sub-section (3) of Section 132B of the Act the respondents should have returned the aforesaid assets to the petitioner as soon as the demands had been paid off.
According to the High Court
10. As regards the reliance of the respondents on the fact that certain dues were outstanding against Sri K. S. Sengar, the husband of the petitioner who died on or about January 23, 1991, and the reliance on the provisions of Section 159, we find that the case of the respondents has no legs to stand. When this court directed the Commissioner to dispose of the matter afresh, the direction was to decide the matter of the assessee, Smt. Shobha Sengar, in the light of the provisions contained in Section 132and Section 132Bof the Act because both these provisions have reference to the Chief Commissioner, Commissioner and the Deputy Commissioner under whose approval and guidance, the Assessing Officer has to take a decision and in exercise of those powers, the Commissioner could not pass an order for retaining the assets any further since nothing was due from the petitioner towards her tax liability. The Commissioner while dealing with the question of the return of the seized assets under these provisions of law could not have converted himself as a Recovery Officer and passed an order that would amount to an attachment of the aforesaid assets for the recovery of the dues pertaining to the late Shri K. S. Sengar.
11. In any case, so far the matter as it stands at present the reliance on the provisions of Section 159is premature. Sub-section (4) of Section 159of the Act provides that every legal representative shall be personally liable for any tax payable by him in his capacity as legal representative if, while his liability for tax remains undischarged, he creates a charge on or disposes of or parts with any assets of the estate of the deceased, which are in, or may come into, his possession, but such liability shall be limited to the value of the asset so charged, disposed of or parted with. Sub-section (4), therefore, limits the liability of a legal representative to the extent of the properties which are or which may come into his possession and Sub-section (4) can be invoked only by the Recovery Officer while proceeding for the recovery of the dues pertaining to Shri K. S. Sengar. For appreciating the provisions of Sub-section (4) aforesaid, we may usefully refer to the provisions of Sections 50 and 52 of the Code of Civil Procedure which stand as under :
“50. Legal representative.–(1) Where a judgment debtor dies before the decree has been fully satisfied, the holder of the decree may apply to the court which passed it to execute the same against the legal representative of the deceased.
(2) Where the decree is executed against such legal representative, he shall be liable only to the extent of the property of the deceased which has come to his hands and has not been duly disposed of ; and, for the purpose of ascertaining such liability, the court executing the decree may, of its own motion or on the application of the decree-holder, compel such legal representative to produce such accounts as it thinks fit.”
“52. Enforcement of decree against legal representative.–(1) Where a decree is passed against a party as the legal representative of a deceased person, and the decree is for the payment of money out of the property of the deceased, it may be executed by the attachment and sale of any such property.
(2) Where no such property remains in the possession of the judgment-debtor and he fails to satisfy the court that he has duly applied such property of the deceased as is proved to have come into his possession, the decree may be executed against the judgment-debtor to the extent of the property in respect of which he has failed so to satisfy the court in the same manner as if the decree had been against him personally.”
12. In Rajah of Kalahasti v. Prayag Dossjee Varu[1916] 35 IC 224, while dealing with the question of the liability of a legal representative the Madras High Court held that where a decree is passed against a party as the legal representative of a deceased person, it is for the decree holder in the first instance to prove that some assets came to the legal representative, and the onus is then shifted on the latter to show how the assets were applied. The court further observed that once it is admitted or proved that the legal representative sought to be made liable has come into possession of assets belonging to the estate of the deceased, it is for him to satisfy the court as to the extent of the assets received and to account for them. A similar view was taken by the Lahore High Court in Mian Mohammed Sharif v. Mehraj Din [1934] 148 1C 980. Similar was the view taken by the Calcutta High Court in Chintamony Dutt v. Mohesh Chundra Banerjee [1896] 23 ILR 454. In Leong Ah Choy v. T. D. Findlay and Sons [1937] 170 1C 766 (Rangoon), the question was whether the property that had not come into the possession of the legal representative could be attached. In that case a security deposit of the deceased judgment-debtor was lying with his employer and it was held by the Rangoon High Court that the security deposit not being in the possession of the legal representative could not be attached in execution against his legal representatives.
13. When we read the provisions of Sub-section (4) of Section 159of the Act and take guidance from the provisions contained in the Code of Civil Procedure and their interpretation by the various High Courts, the result is that the tax dues of a deceased can be recovered only from the properties left by the deceased and coming into the hands of the legal representative. Therefore, in the recovery proceedings in respect of the dues of Shri K. S. Sengar the house is said to have devolved from him to the deceased and any other property that also so devolved from the deceased to the present petitioner can be attached and sold and if the petitioner is found to have created a charge on or disposes of or parts with any assets of the estate of the deceased which came into his possession, then to the extent of the value of the assets so charged, disposed of or parted with, the petitioner can be held to be personally responsible and proceedings for realisation of such amounts can be taken against the personal properties of the petitioner. But as stated above that is to be done in the recovery proceedings in respect’ of the dues of Shri K. S. Sengar and not while dealing with the matter of the return of assets under Section 132(5)and Section 132B of the Act.
14. Learned counsel for the Revenue pressed into service the provisions of Section 159(2)(a)of the Act which say that any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from the stage at which it stood on the date of the death of the deceased. This contention is off the point and has no relevance to the present controversy.
15. In view of the above discussions, we find that the action of the respondents in not returning the aforesaid assets to the petitioner is wholly unwarranted and their conduct shows that instead of proceeding directly to recover the dues pertaining to Shri K. S. Sengar they have been adopting an arm-twisting approach by retaining the assets of a different asses-see, i.e., the petitioner. By doing so, they have achieved nothing and the Government dues from Shri K. S. Sengar remain unrealised while the petitioner has been deprived of the use of her property which consisted of two National Savings Certificates of Rs. 5,000 each which must have matured on March 5, 1992, and if the amount realised on their encashment, i.e., Rs. 20,000 had been reinvested the amount would have swollen to Rs. 40,000 while now the petitioner even after the return of the National Saving Certificates would get only Rs. 20,000. She has thus patently suffered a loss of Rs. 20,000 which she has claimed in this petition as damages. We are, however, not inclined to award any damages in exercise of jurisdiction under article 226of the Constitution of India. The loss has occurred in the discharge of sovereign functions of the State. Then the petitioner is not shown to have offered that the certificates be returned to her to enable her to encash them and purchase new ones and to substitute the new ones in their place. Lastly, she has come to this court very late.
Writ petition of the petitioner was allowed .
16. In the result, this writ petition is allowed. The impugned order dated September 29, 1997, passed by the Commissioner of Income-tax, Kanpur, is hereby quashed and the respondents are directed to return the jewellery and the National Saving Certificates referred to above and seized during the aforesaid search to the petitioner forthwith and in any case within a period of 15 days from the date the petitioner presents a certified copy of this judgment before respondent No. 1. We also direct the respondents to pay the petitioner the costs of this writ petition that we assess at Rs. 2,500 (rupees two thousand five hundred only).
Author Bio
