THE COMMISSIONER OF INCOME TAX V. SRI A THIMMAIAH REDDY

ITA/759/2008

AI Insights

The case revolves around a block assessment conducted against the late Sri. A.Thimmaiah Reddy, initiated following a search under Section 132 of the Income Tax Act, 1961. The search was authorized in the name of his wife, Smt. Muniyamma, who was in possession of the residence. The assessments were challenged on the grounds that they were improperly directed against a deceased person and that the legal heirs were not in possession or enjoyment of the properties as owners, due to the unexecuted will of the deceased. The Tribunal's decision, which the High Court upheld, found that the block assessment did not satisfy the continuous ten-year period requirement from the date of search and that the legal heirs were not the correct parties to be assessed until the will was executed.

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 728902 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 09-01-2015
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: K V ARAVIND
• Keywords: Assessment Order; Block assessment; Legal heirs; Search and seizure; Undisclosed income
• Section: 132; 158BC; 158BD; 260A; 159

Judgement Text

"IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 9th DAY OF JANUARY 2015 PRESENT THE HON’BLE MR. JUSTICE N.KUMAR AND THE HON’BLE MR. JUSTICE B.VEERAPPA I.T.A. NO.759/2008 BETWEEN : 1. The Commissioner of Income-tax, C.R.Building, Queens Road, Bangalore. 2. The Deputy Commissioner Of Income-Tax (Inv.), Circle – 5(1), C.R.Building, Queens Road, Bangalore. ...APPELLANTS (By Sri.K.V.Aravind, Adv.) AND : Sri.A.Thimmaiah Reddy, Since deceased rep. by his L.Rs., Smt.Muniyamma, No.9, Baretena Agrahara, - 2 - Singasandra Post, Hosur Road, Bangalore. …RESPONDENT . . . . This I.T.A. is filed under Section 260A of the Income Tax Act, 1961, arising out of order dated 29.02.2008 passed in IT(SS)A No.55/Bang/2002, for the Block Assessment Period 01.04.1989 to 24.06.1999, praying to : (i) formulate the substantial questions of law stated therein, (ii) Allow the appeal and set-aside the orders passed by the Income Tax Appellate Tribunal, Bangalore in IT(SS)A No.55/Bang/2002 dated 29.02.2008 and confirm the order of the Appellate Commissioner confirming the order passed by the Deputy Commissioner of Income Tax (Inv.), Circle – 5(1), Bangalore, in the interest of justice and equity. This I.T.A. coming on for hearing, this day, N.Kumar J., delivered the following: JUDGMENT The revenue has preferred this appeal against the order passed by the Tribunal holding that the assessment as framed on the assesses, as legal heirs - 3 - are incorrect and not valid in law and also on the ground that no proceedings for Block Assessment could have been initiated against a dead person. 2. A search was conducted under Section 132 of the Income-tax Act (for short, hereinafter referred to as `the Act’) on 16.04.1999 in the residence of Late Sri. A.Thimmaiah Reddy by an authorization issued in the name of Smt.Muniyamma, his wife and Legal representative, as she was in occupation of his residence. The income earned and the property acquired by Late Sri. A.Thimmaiah Reddy had not been disclosed. Therefore, it was treated as an undisclosed income and hence, proceedings were initiated under Section 158BC read with Section 158 BD of the Act against Sri. A.Thimmaiah Reddy. The Assessing Authority passed a Block Assessment Order levying tax, surcharge and also directed initiation of penalty - 4 - proceedings. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals), who dismissed the appeal confirming the order passed by the Assessing Authority. 3. In appeal by the assessee before the Tribunal, the Tribunal held that insofar as the immovable properties are concerned, they are covered by the Will and the Will still remains to be executed. From the date of death of Sri. A.Thimmaiah Reddy i.e., on 17.06.1997, any income from the property will have to be assessed in the hands of the executor of the Will and not on the assessee as legal heir because without the Will having been acted upon by the executors, the assessee though by virtue of the Will become entitled to the property consequent to the execution of the Will, the assessee could not be said to be in enjoyment of the property as an owner. Therefore, the Tribunal held that the - 5 - assessments as framed on the assessee as legal heirs are incorrect and not valid in law. It was also held that the term `Block Period’ as defined under Section 158B(a) of the Act requires ten years backwards from the date of search. The said 10 years period should start from the date of search and go backwards and it should be a continuous period. In the instant case going backwards from the date of search had collapsed after two years because Late Sri. A.Thimmaiah Reddy had passed away on 17.06.1997. Therefore, the condition of Block period not having been satisfied, the assessement is bad in law and therefore, the order was quashed by the Tribunal. Aggrieved by the said order, the present appeal is filed. 4. The substantial questions of law that arise for consideration in this appeal as framed on 30.11.2010 are as under: - 6 - i) Whether the Tribunal was correct in holding that the Block Assessment had been framed with reference to bank deposits and accounts made during the life time of deceased Late Sri.A.Thimmaiah Reddy and as these deposits / accounts were not in the possession of the legal representatives on the date of search 16.04.1999 no assessments on them can be framed? ii) Whether the Tribunal was correct in holding that as per the Will executed by late Sri. A.Thimmaiah Reddy it was the executor who was liable to be treated as party respondent and not the legal representatives of late A.Thimmaiah Reddy who were not in enjoyment of the properties of late A.Thimmaiah Reddy as owners? iii) Whether the Tribunal was correct in holding that the proceedings initiated by the Assessing Officer against the legal - 7 - representatives of late A.Thimmaiah Reddy namely Smt.Muniyamma and the other legal heirs Smt.Janakamma, Smt.T.Premavathi, Smt.T.Manjula, Smt.Chandravadana, Sri.Dasaratharam Reddy and Sri.T.Sathyanarayana Reddy to bring to tax the undisclosed income of Rs.1,55,30,300/- in accordance with Section 159 of the Act was incorrect, invalid and not valid in law? iv) Whether the Tribunal was correct in holding that the computation of undisclosed income for the Block Period 1.4.1989 to 24.06.1999 collapses after two years as late Sri.Thimmaiah Reddy died on 17.06.1997 and the computation cannot be made for the entire ten years Block period? 5. We have heard the learned counsel appearing for the parties. Admittedly, on the date of search Sri. A.Thimmaiah Reddy was not alive. His wife was residing - 8 - in his premises. It is not clear that in whose name the search warrant was issued. Even if search were conducted in the premises of his wife, if incriminating materials were found in respect of Late Sri.A.Thimmaiah Reddy and proceedings are initiated against Late Sri. A.Thimmaiah Reddy, the conditions stipulated in Section 158BD of the Act, have to be satisfied. The materials on record do not disclose the satisfaction of the said legal requirements. Therefore, as rightly pointed out by the Tribunal, ten years period is to be reckoned from the date of search continuously. The material on record shows that the search warrant was issued in the name of Smt.Muniamma, who was in possession and occupation of the residential premises of Late Sri. A.Thimmaiah Reddy, but there is nothing on record to show that the requirements under Section 158BD of the Act have been complied with. In those circumstances, the order passed by the Tribunal - 9 - specifying the Block Assessment year against the deceased Sri.A.Thimmaiah Reddy cannot be found fault with. The third substantial question of law is answered in favour of the assessee and against the Revenue. 7. In view of the fact that the requirements of Section 158BD of the Act are not complied with, the entire Block assessment proceedings which are initiated, is liable to be set-aside. Therefore, we have not gone into the other substantial questions of law framed in this appeal. Accordingly appeal is dismissed. Sd/- JUDGE Sd/- JUDGE SPS "