TAXAP/59820/2008 1/39 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 598 of 2008 With TAX APPEAL No. 599 of 2008 With TAX APPEAL No. 600 of 2008 With TAX APPEAL No. 601 of 2008 With TAX APPEAL No. 602 of 2008 For Approval and Signature: HONOURABLE MR.JUSTICE K.A.PUJ HONOURABLE MR.JUSTICE BANKIM.N.MEHTA ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================================= THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 5, BARODA THRO. - Appellant(s) Versus LATE SHRIMANT F.P. GAEKWAD THRO. L/H. MRINALINI PUAR - Opponent(s) ========================================================= Appearance : MR KM PARIKH for Appellant(s) : 1, MR MANISH J SHAH for Opponent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE K.A.PUJ and TAXAP/59820/2008 2/39 JUDGMENT HONOURABLE MR.JUSTICE BANKIM.N.MEHTA Date : 02/09/2008 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE K.A.PUJ) 1. All these five Tax Appeals are filed by the Revenue under Section 27A of the Wealth Tax Act, 1957, raising the substantial question of law for determination and consideration of this Court. In tax Appeal No.598 of 2008 following substantial question of law is raised. “Whether the ITAT was right in law and on facts in upholding the order of the CWT(A) whereby deleting the penalty levied under Section 18(1) (c) of the Wealth Tax Act, without considering the provisions of Section 19(1) of the Wealth Tax Act ? 2. The Tribunal has passed the common order dealing with the penalties under Section 15B, 18(1)(a) and 18(1)(c) of the Wealth Tax Act, 1957. The assessment years involved are TAXAP/59820/2008 3/39 JUDGMENT assessment years 1968-69, 1970-71, 1971-72, 1983-84 and 1984-85. 3. Tax Appeal No.598 of 2008 is in respect of penalty under Section 18(1)(c) for the assessment year 1984-85. Tax Appeal No.599 of 2008 is in respect of penalty under Section 18(1)(c) for the assessment year 1983-84. Tax Appeal No.600 of 2008 is in respect of penalty under Section 18(1)(a) for the assessment year 1968-69. Tax Appeal No.601 of 2008 is in respect of penalty under Section 15B for the assessment year 1970-71 and Tax Appeal No.602 of 2008 is in respect of penalty under Section 15B for the assessment year 1971-72. The question is identical in all these tax appeals except change of section. Since the common issue is involved in all these Tax Appeals, the same are being disposed of by this common judgment and order. TAXAP/59820/2008 4/39 JUDGMENT 4. The brief facts of the case are that the deceased assessee, namely, late Shrimant F.P.Gaekwad, had furnished the returns of wealth during his life time declaring his net wealth for the relevant assessment year as under. Assessed wealth is also indicated below. Assessment year New Wealth as per return Assessed wealth 1970-71 4,04,85,145/- Original) 3,97,88,205 (revised) 6,97,08,015/- 1971-72 6,06,76,472/- (Original) 5,50,62,100/- (revised) 6,96,23,293/- 1968-69 4,18,37,550/- (Original) 4,10,19,350/- (revised) 5,99,55,822/- 1983-84 2,09,48,900/- (Original) 2,18,42,900/- (revised) 10,89,65,050/- 1984-85 1,65,46,800/- (Original) 1,65,46,756/- (revised) 10,91,95,668/- 5. At the time of assessments and during life time of deceased assessee, penalty proceedings were initiated under Section 18(1)(a), 18(1)(c) and 15B of the Wealth Tax Act, 1957. 6. Before the penalty proceedings could be completed, the assessee expired in 1988 and TAXAP/59820/2008 5/39 JUDGMENT the estate devolved upon Maharani Shantadevi Gaekwad, who was passed away. Thereafter, Smt.Mrinalini Devi Puar, became legal heir of late Shrimant F.P. Gaekwad. Subsequently, the penalties were imposed on the legal heir of the original assessee, late Maharaja Shrimant F.P.Gaekwad i.e. Smt. Mrinalini Devi Puar. The Assessing Officer vide his order dated 29.8.2003 passed penalty orders under Section 18(1)(a), 18(1)(c) and 15B of the Wealth Tax, 1957. Sr.No. Penalty u/s. Amount of penalty (Rs.) Assessment year 1 18(1)(c) 13,23,503/- 1984-85 2 18(1)(c) 11,07,357/- 1983-84 3 18(1)(a) 1,44,509/- 1968-69 4 15B 58,282/- 1970-71 5 15B 1,35,105/- 1971-72 7. Being aggrieved by the said orders, the legal representative of the deceased assessee challenged the said orders before the Commissioner of Wealth Tax (A). The issue was at length discussed by the Commissioner and TAXAP/59820/2008 6/39 JUDGMENT considering various authorities cited before him, the Commissioner of Wealth Tax has taken the view that since the original assessee, late Maharaja Shrimant Fatehsingh Gaekwad had passed away long back in the year 1988 and the estate of the deceased assessee was thereby devolved upon late Maharani Shantadevi Gaekwad (mother of the original assessee) who also passed away and now the same is contested in Civil Court to manage the estate of late Maharani Shantadevi Gaekwad by Shrimati Mrinalini Paur (sister of the original assessee and daughter of late Shrimati Maharani Shantadevi Gaekwad), the levy of penalty is not justified and the penalty for all the five years stand deleted. The Commissioner, Wealth Tax (A) had taken the view that since Section 15B and Section 18 are not included in Section 19(3) penalty cannot be levied on the legal representative of the deceased assessee. TAXAP/59820/2008 7/39 JUDGMENT 8. Being aggrieved by the order of the learned Commissioner of Wealth Tax(A), the Revenue took up the matter before the Tribunal and the Tribunal vide its order dated 30.4.2007 confirmed the order of learned Commissioner, Wealth Tax(A) and dismissed the appeals filed by the Revenue. After careful consideration of the rival submissions, facts and circumstances of the case and the decision relied upon before the Commissioner of Income-Tax (A) and in view of the legal provisions and authorities of various High Courts referred to in the order of the Commissioner of Wealth Tax(A) the Tribunal did not find any infirmity in the order of the Commissioner of Wealth Tax (A) and hence the said order was confirmed. 9. It is this order of the Tribunal which gives rise to the present Tax Appeals. 10. Mr.K. M. Parikh, learned Standing Counsel TAXAP/59820/2008 8/39 JUDGMENT appearing for the Revenue has submitted that Section 19(1) clearly states that, 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 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. He has, therefore, submitted that Section 19(1) empowers the Assessing Officer to recover the amount of penalty levied on the legal representative and the legal representative is liable to pay penalty out of the estate of deceased assessee. He has further referred to the provisions contained in Section 19A of the Wealth Tax Act. He has further submitted that “or any sum” requires interpretation by this Court and it gives rise to the substantial question of law and hence, the Court should formulate the substantial TAXAP/59820/2008 9/39 JUDGMENT question of law as proposed by the Revenue. 11. He relied on the decision of Patna High Court in the case of Rani H.R.Laxmi (Estate) (Late) through B.K.Singh Vs. Commissioner of Wealth Tax, reported in 228 ITR 372, wherein it is held that a bare perusal of sub-section (1) of section 14 of the Wealth-tax Act, 1957, makes it cleat that under the said sub- section a person is assessable to payment of wealth-tax on his own net wealth. It further lays down that a person is liable to pay wealth-tax on the net wealth of any other person in respect of which he is assessable under this Act. An executor is liable to pay wealth-tax in relation to the net wealth of the testator under section 14(1) of the Act read with section 19A(1) of the Act. Under Section 18(1)(a) penalty can be imposed against those persons who have failed to furnish the return which they are required to furnish under Section 14(1) of the Act. If he TAXAP/59820/2008 10/39 JUDGMENT fails to furnish the return in time he would be liable to pay penalty under Section 18(1) (a) of the Act. Based on the statutory provisions contained in Section 19(1) as well as the above judgment of the Patna High Court Mr.Parikh has urged that the substantial question of law arises out of the order of the Tribunal and hence these Appeals should be admitted. 12. Mr.Manish J. Shah, learned advocate appears on issuance of notice on the respondent assessee. He has submitted that the Tribunal has arrived at the just, proper, correct and legal conclusion and the provisions contained under Section 19(1) as well as 19(3) of the Act are correctly interpreted. All decisions cited before the Tribunal as well as referred to in the order of the Tribunal are in favour of the assessee and consistent view is taken by all the High Courts that the penalty cannot be levied on legal representative. TAXAP/59820/2008 11/39 JUDGMENT Such levy of penalty under Section 18(1)(a), 18(1)(c) or 15B is neither covered under Section 19(1) nor in Section 19(3) of the Wealth Tax Act, 1957. 13. From the plain reading of Section 19(1) of the Wealth Tax he has submitted that this Section does not call for any other interpretation even the word “any sum” included in Section 19(1) does not include penalty. The Section clearly states that 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 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. Admittedly in the case of assessee penalty orders are passed after the death of the deceased assessee and hence the word “any TAXAP/59820/2008 12/39 JUDGMENT sum” cannot cover the penalty levied after the death of the deceased assessee. He has further submitted that Sub Section (3) of Section 19 specifically excludes Section 15B or Section 18 of the Act and hence provisions contained in Section 15B or Section 18 shall not apply to the executor, administrator or other legal representative as they apply to any person referred to in those Sections. 14. In support of his submissions Mr.Shah has relied on the decision of Andhra Pradesh High Court in the case of Smt. Yawarunnissa Begum Vs. Wealth-tax Officer, A Ward, Circle I, Hyderabad, reported in (1975) 100 ITR 645, wherein it is held that the legal representatives of the deceased assessee are not liable for penalty for the default committed by the deceased assessee under Section 18 of the Wealth-tax Act. The liability of the legal representatives is only to pay the tax assessed as payable or TAXAP/59820/2008 13/39 JUDGMENT any other sums which would have been payable by the deceased had he been alive, out of the estate of the deceased. It is further held that the words “any sum” which would have been payable by him under the Act if he had not died” mentioned in Section 19(1) of the Act does not authorise the department to levy penalty on the legal representatives for the default committed by the deceased assessee under Section 18, inasmuch as Section 19(3) of the Act has not included any liability of the legal representatives in this respect. 15. Mr. Shah further relied on the decision of Madras High Court in the case of Commissioner of Wealth Tax, Tamil Nadu IV vs. V. Varadrajan, reported in (1980) 122 ITR 1014, wherein it is held that the absence of a legal fiction as found in Sec.24B(2) of the Indian I.T.Act, 1922, would militate against the acceptance of the contention that the legal representative should be deemed to be TAXAP/59820/2008 14/39 JUDGMENT assessee in the present case so that he may be made liable to the penalty, if any, leviable on the deceased. In the absence of any provision similar to Sec.159(2)(b) of the I.T. Act, by which Parliament clearly intended to levy penalty in the hands of the legal representatives also in a case where the default had been committed by the deceased person, it is not possible to attribute to the Legislature the intention to penalise the legal representatives for the default, if any, committed by the deceased person under the W.T. Act. The theory of treating penalty as an additional tax is only for certain purposes and cannot be extended beyond its scope. 16. Mr. Shah further relied on the decision of Allahbad High Court in the case of Rameshwar Prasad Vs. Commissioner of Wealth-tax, reported in (1980) 124 ITR 77, wherein it is held that Chapter V of the W.T. Act, 1957, TAXAP/59820/2008 15/39 JUDGMENT deals with liability to assessment in special cases and by Section 19 provides for situations where a legal representative is either liable to proceedings or is liable to pay the wealth-tax or any sum. Liability of a legal representative to assessment or liability to pay has to be positively found within the statutory provisions of Chapter V. If in a given situation there is no statutory provision for initiation or continuance of proceedings against a legal representative, they cannot either be initiated or continued. Liability to assessment, to tax, interest, fine, penalty, etc, is different from liability to pay. The phrase “which would have been payable under the Act if he had not died” occurring in Sec.19 refers not to liability to assessment but liability to pay in consequence of an order passed under the Act. The existence of an order passed under the Act is a prerequisite to accrual of liability to pay. Liability to pay continues TAXAP/59820/2008 16/39 JUDGMENT till payment is made. Sub Section (1) of Sec.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. Section 19(1) by itself does not create on the legal representative liability to pay that 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 Section (1) of Section 19 does not authorise creation of liability to pay on the legal representative. The absence of Section 18 from being mentioned in Section 19(3) is significant. Penalty proceedings under Section 18 cannot be initiated against a legal representative because a legal representative has not been made liable to be assessed to penalty. A notice to show cause cannot be issued to a legal representative, TAXAP/59820/2008 17/39 JUDGMENT firstly, because he has not been made liable to show any such cause, and, in the next place, the legal representative cannot be said to have committed any default in cases where the deceased assessee delayed filing of the return. Default was committed by the original assessee. The legal representative has not been made liable to be assessed for such a default of the original assessee. If in a given situation a legal representative is not liable to be assessed under the Act, he cannot be assessed by passing an order, and consequently no liability to pay will arise against him. If, for example, penalty proceedings had been initiated by issuance of show cause notice to the original assessee and during the pendency of the proceedings the original assessee dies, the proceedings will come to an end. They cannot be continued against the legal representative because the legal representative is not liable to be assessed to penalty and since no TAXAP/59820/2008 18/39 JUDGMENT order determining liability can be passed after the death of the person who was liable to be assessed, no order can be passed after his death against the legal representative. Under Section 3, wealth-tax is a charge on an individual, HUF and company. It is assessable in respect of the net wealth. Penalty under Section 18 is a liability imposed on the assessee for defaults committed by him. It has nothing to do with the estate or the assets held by him. Therefore, penalty proceedings under Section 18(1)(a) for late filing of returns commenced against the person who had filed the returns cannot validly be continued after his death against his legal representative. 17. Mr. Shah has further relied on the decision of the Madhya Pradesh High Court in the case of Commissioner of Wealth-tax M.P.II Vs. Abdul Mazid Khan, reported in (1984) 147 ITR 53, wherein it is held that a reading of TAXAP/59820/2008 19/39 JUDGMENT Section 18 of the W.T.Act, 1957 shows that penalty is imposed on “such person”, which means the person who has concealed the particulars of assets or furnished inaccurate particulars of the same. Section 18 does not provide for continuation of penalty proceedings against the legal representatives of such person. Section 19(1) which deals with the liability of a legal representative inheriting the estate of the deceased who is liable for payment of wealth tax, does not provide for the continuation of penalty proceedings against the legal representative when the assessee dies before the proceedings are concluded. The omission of Section 18 from Section 19(3) shows that Section 18 cannot be made applicable to a legal representative. Further, the definition of “assessee” in section 2(c) does not provide that the legal representative of an assessee would be deemed to be an assessee for all purposes under the Act. In the absence of any TAXAP/59820/2008 20/39 JUDGMENT provision like Section 159 of the I.T.Act of 1961 in the W.T. Act, it could not be held that penalty proceedings started against an assessee under Section 18 could be continued against his legal representative. 18. Mr. Shah further relied on the decision of Madhya Pradesh High Court in the case of Commissioner of Wealth Tax, Bhopal Vs. Smt. Banoo E. Cowasji, reported in (1985) 152 ITR 16, wherein it is held that, (i) there was no provision of law under which the legal representative of the deceased was bound to submit the W.T. Return for the assessment year 1967-68, immediately after the death of her husband or on or before September 30, 1968. (ii) The deceased was alive on September 30, 1967, on which date he had to file the return. Hence, till that date, the legal representative did not come into the picture and so no default could be said to have been committed by her. (iii) Since TAXAP/59820/2008 21/39 JUDGMENT there could be only one default in delayed filing of return the legal representative could not be held liable for not submitting the wealth-tax return on or before September 30, 1967, and, consequently, no penalty proceedings could be initiated against her in view of the provisions of Sub Section (3) of Section 19 according to which only provisions of Sections 14, 15 and 17 were applied to an executor, administrator or other legal representative as they apply to any person referred to in those sections. (iv) Though Section 2(c), which defined an assessee, also included a legal representative, the assessee could not be held liable for payment of any penalty under Section 18(1)(a) as this was not a case where the original assessee had died before the expiry of the date for submitting his wealth-tax return so that, after the death of the original assessee, the legal representative became the assessee, who should have filed the return before the TAXAP/59820/2008 22/39 JUDGMENT expiry of the date on which the original assessee had to submit his wealth-tax returns. Therefore, the initiation of penalty proceedings for late filing of the wealth-tax return against the legal representative of the deceased were not valid. 19. Mr. Shah further relied on the decision of the Rajasthan High Court, Jaipur Bench, in the case of Commissioner of Wealth-tax, Rajasthan-II Vs. Rani Sajjan Kumari, reported in (1985) 155 ITR 438, wherein it is held that no penalty under Section 18 can be imposed on a legal representative on whom assessment has been made under Section 19 of the W.T. Act, 1957. Sub Section (3) of Section 19 makes it abundantly clear that though the provisions of Sections 14,15 and 17 apply to an executor, administrator or other legal representative, Section 18 is not applicable. The omission of Section 18 in Sub Section (3) of Section 19 is quite TAXAP/59820/2008 23/39 JUDGMENT significant, which clearly shows that intention of the legislature that in case where action would be taken under Sub Section (2) of Section 19 of the Act, the question of imposing any penalty on the legal representative cannot arise. 20. Mr. Shah further relied on the decision of the Allahbad High Court in the case of Ved Prakash Narang Vs. Commissioner of Wealth- tax, reported in (1988) 172 ITR 184, wherein it is held that Section 19 and 19A of the Wealth-tax Act, 1957, are applicable to two different situations. Section 19A is confined to cases where an assessee dies after executing a will and appointing an executor. Section 19(1) is applicable to a situation where a person was alive on the valuation date and was assessed to tax but died later. Section 19(2) provides for a case where a person dies without furnishing the return or after furnishing the return. In TAXAP/59820/2008 24/39 JUDGMENT such a case, the Wealth-tax Officer is empowered to make an assessment. If no return was filed by a person and he dies after the valuation date, Section 19(3) imposes a duty on the legal representative to file the return. The absence of any mention of Section 18 in Section 19(3) is significant. Penalty proceedings under Section 18 cannot be initiated against a legal representative, because a legal representative has not been made liable to levy of 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 cannot be said to have committed any default in cases where the deceased assessee had delayed the filing of the return. Default was committed by the deceased assessee. The legal representative has not been made liable to penalty for such default of the deceased assessee. The word “any sum” TAXAP/59820/2008 25/39 JUDGMENT in sub Section (1) of Section 19 do not cover penalty. Hence penalty proceedings cannot be legally initiated in a case to which section 19(3) applies. 21. Lastly, Mr. Shah relied on the decision of Delhi High Court, in the case of Commissioner of Wealth-tax Vs. H.S.Chauhan, reported in (2000) 245 ITR 704, wherein it is held that Sub Section (3) of Section 19 of the Wealth- tax Act, 1957, provides that the provisions of Sections 14, 15 and 17 shall apply to an executor, administrator or other legal representative as they apply to any person referred to in those sections. Sub Section (1) deals with the liability of legal representative to pay tax of a deceased person. Sub Sections (2) and (3) deal with the liability to assessment. Sub Section (2) provides for initiating proceedings for assessment and determination of net wealth payable by the deceased person. It, TAXAP/59820/2008 26/39 JUDGMENT therefore, has no application to a proceeding in relation to imposition of penalty. Sections 14, 15 and 17 contemplate and authorise initiation as well as continuance of proceedings for determining wealth-tax on the basis of the return as well as on the basis of escapement of wealth against, inter alia, a legal representative. Therefore, the provisions of section 18 do not come within the ambit of Section 19. At this juncture, it will be relevant to note that under Section 159 of the Income-tax Act, 1961, there is a clear prescription for continuance of proceedings, inter alia, for imposing penalty against a legal representative, Sub Section (2) of Section 159 of the Income-tax