ORDER
P. VISHWANATHA SHETTY, J. :
The petitioner in these petitions has prayed for quashing the intimation dt. 22nd March, 1993, issued by the first respondent under s. 143(1)(a) of the IT Act, (hereinafter referred to as the Act) for the asst. yrs. 1991-92 and 1992-93, copies of the same have been produced as Annexures B and C, respectively; and also the order dt. 19th April, 1994 passed by the second respondent, a copy of which has been produced as Annexure-H, rejecting the appeal filed by the petitioner against the orders passed by the first respondent refusing to rectify the intimations, Annexures B and C, issued by him pursuant to the applications filed under s. 154 of the Act and for a further direction in the nature of mandamus directing the first respondent to assess the income in the status of HUF at Nil for the said assessment years and to issue refund of advance tax paid for the said assessment years by the petitioner with appropriate interest thereon under s. 244A of the Act.
2. The brief facts of the case which are relevant for the disposal of these petitions may be set out as hereunder :
3. The petitioner in both the petitions was a member of the HUF consisting of himself and his wife Smt. Godavari Bai and they were assessed as HUF till the asst. yr. 1991-92. The said Godavari Bai expired on 19th September, 1991. The return for the asst. yr. 1991-92 was filed on 30th December, 1991 declaring total income of Rs. 1,49,960 in the status of HUF. Return for the asst. yr. 1992-93 was filed on 8th February, 1993 declaring total income of Rs. 77,390 in the status of HUF. The returns filed by the petitioner for the years 1991-92 and 1992-93 were processed by the first respondent on 22nd March, 1993, accepting the income shown in the returns filed and an intimation under s. 143(1)(a) was issued to the petitioner along with the challan for Rs. 16,154 for the asst. yr. 1991-92 and intimation was also issued for the asst. yr. 1992-93 along with the challan for Rs. 3,645.
4. Aggrieved by the intimation issued by the first respondent, as stated above for the asst. yrs. 1991-92 and 1992-93, the petitioner filed two applications seeking for rectification of the intimation issued under s. 154 of the Act. The first respondent by means of his two orders dt. 21st July, 1993, rejected the applications filed by the petitioner under s. 154 of the Act for the asst. yrs. 1991-92 and 1992-93. Copies of the said orders have been produced as Annexure F and G in these petitions.
5. Not satisfied with the said orders, the petitioner filed two appeals against the said orders before the second respondent under s. 249 of the Act. The second respondent by means of his common order dt. 19th April, 1994, a copy of which has been filed as Annexure-H, rejected the said two appeals at the admission stage itself on the ground that the petitioner had failed to pay the tax amount due by him before filing the appeals and, therefore, in view of sub-s. (4) of s. 249 of the Act no appeal was maintainable. Aggrieved by the said order, these petitions have been presented by the petitioner.
6. Sri Sarangan, learned Senior Counsel appearing along with Sri S. Parthasarathy, submitted that the orders impugned are totally illegal and suffer from errors apparent on the face of the records, inasmuch as, since there was no HUF both on the date of filing of the returns and also on the date of assessment, the intimation given by the first respondent as per the orders impugned is one beyond the power conferred on the first respondent under s. 143(1)(a) of the Act. He further submitted that the first respondent has seriously erred in law in not rectifying the intimation issued when applications were filed seeking rectification of the same under s. 154 of the Act. In support of his submission, he relied upon a Division Bench decision of this Court in the case of CWT vs . G. E. Narayana & Ors. : [1992]193ITR41(KAR) , wherein this Court has taken the view while considering the provisions of the WT Act that without the presence of the assessee, it is not possible to make an order of assessment unless the law provides a machinery to assess the erstwhile HUF, by enabling the assessment proceedings to be initiated or continued against a proper successor. Secondly, he submitted that the view taken by the second respondent that the appeal filed by the petitioner was not maintainable as the petitioner had not deposited the balance of return income of Rs. 16,154 and Rs. 3,645 for the asst. yrs. 1991-92 and 1992-93 is erroneous in law. According to the learned Senior Counsel, since it was the case of the petitioner that the intimation given was one without the authority of law and the petitioner was not liable to be assessed for tax and the petitioner was not liable to pay the amount in question, the question of petitioner paying amount in question before filing the appeal did not arise for consideration and therefore the interpretation placed by the second respondent on sub-s. (4) of s. 249 of the Act is erroneous in law.
7. Sri M. V. Seshachala, learned counsel appearing for the respondents strongly supported the orders impugned. He submitted that the first respondent has accepted the returns filed and consequently sent the intimation to the petitioner asking him to pay the balance tax after adjusting advance tax as per the return submitted and, therefore, no fault can be found with regard to the intimation issued by the first respondent in exercise of the power conferred on him under s. 143(1)(a) of the Act. Therefore, he would further submit that the first respondent was also fully justified in rejecting the applications filed for rectification of the intimation issued under s. 154 of the Act. It is his further submission that there is no error in order Annexure H passed by the second respondent rejecting the appeal at the admission stage as the petitioner did not pay the amount as per the challan along with the intimations issued to the petitioner. According to him, since as per the return filed by the petitioner himself, the petitioner was required to pay the arrears of tax of Rs. 16,154 for the asst. yr. 1991-92 and a sum of Rs. 3,645 for the asst. yr. 1992-93, the second respondent was fully justified in dismissing the appeals at the admission stage itself. He further submitted that the decision relied upon by the learned counsel has no bearing to the facts of the present case as the said decision was rendered while considering the provisions of the WT Act. He further submitted as rightly pointed out by the respondents, the decision relied upon by the petitioner and also the cases referred to in the said decision where the HUF ceased to be HUF after filing of the return and before return was assessed, and this is not one such case as the returns were admittedly filed after HUF ceased to be a HUF consequent upon the death of Smt. Godavari Bai.
8. In the light of the submissions made by the learned counsel appearing for the parties, as stated above, the two questions that would fall for my consideration are :
(1) Whether the view taken by the second respondent that the appeal filed by the petitioner was not maintainable was justified having regard to the provisions of s. 249(4) of the Act ?
(2) Since the HUF of which the petitioner was a member has ceased to be an HUF w.e.f. 19th September, 1991, whether it was not permissible for the first respondent to issue an intimation as provided under s. 143(1)(a) of the Act treating the return filed as the one on behalf of the HUF ?
9. Now let me deal with the first question that arises for consideration. Sec. 249 of the Act provides for the form of appeals and limitation. It is useful to extract sub-s. (4) of s. 249 of the Act, which has a direct bearing to decide this question. It reads thus :
'(4) No appeal under this Chapter shall be admitted unless at the time of filing of the appeal. -
(a) where a return has been filed by the assessee, the assessee has paid the tax due on the income returned by him; or
(b) where no return has been filed by the assessee, the assessee has paid an amount equal to the amount of advance tax which was payable by him :
Provided that, in a case falling under cl. (b) and on an application made by the appellant in this behalf, the Dy. CIT(A) or, as the case may be, the CIT(A) may, for any good and sufficient reason to be recorded in writing, exempt him from the operation of the provisions of that clause'.
Sub-s. (4) of s. 249 of the Act, extracted above, provides that no appeal under Chapter XX is admitted unless at the time of filing of the appeal, where the return is filed by the assessee, the assessee has paid the tax due on the income, or where no return has been filed by the assessee, the assessee has paid an amount equal to the amount of the advance tax which was payable by him.
10. Relying upon cl. (a) of sub-s. (4) of s. 249, Sri Seshachala submitted that since the petitioner has filed the return and as per the return filed the petitioner was liable to pay the tax notified in the intimation issued and the same has not been paid, the appellate authority was justified in not admitting the appeal on the ground that the petitioner has not paid the tax due on the income returned by him. I am unable to accept the submission of Sri Seshachala. What is contemplated by cl. (a) of sub-s. (4) of s. 249 is that when there is an undisputed liability, the appeal filed by the assessee in respect of the disputed liability cannot be admitted unless the assessee pays the admitted liability. The object of cl. (a) of sub-s. (4) of s. 249 is not to entertain the appeal where the assessee fails to pay the undisputed tax liability.
In the instant case, it is the case of the petitioner that the intimations issued were wholly illegal and on that basis the petitioner sought for rectification of the intimations issued by filing applications under s. 154 of the Act; and since the first respondent failed to allow the applications filed by the petitioner or rectify the intimations issued, the petitioner had preferred appeals against the intimations issued and the orders passed under s. 154 of the Act. Therefore, it is clear that though the petitioner had filed the returns, the petitioner had disputed his liability to be assessed as HUF and pay the tax liability imposed on him. Under these circumstances, I am of the opinion that the view taken by the second respondent that the appeals filed by the petitioner cannot be admitted since the petitioner had failed to pay the tax due on income shown by him in the return filed by him is erroneous in law. Sub-s. (4) of s. 249 has to be construed in the backdrop of the right to appeal provided to an assessee under s. 249 of the Act. Under these circumstances, while interpreting sub-s. (4) of s. 249 of the Act, the Court will have to keep in mind the object of sub-s. (4) of s. 249 of the Act and also the right to prefer an appeal guaranteed to an assessee. In that view of the matter, sub-s. (4) has to be liberally construed to serve the object of the right of appeal provided to an assessee, and not with a view to deprive the right provided to an assessee to prefer an appeal. When the very liability is disputed by the petitioner on the ground that the petitioner could not have been assessed as a HUF as on the date of filing of the return and on the date of the assessment there was no HUF in existence, the right guaranteed to the petitioner to prefer an appeal cannot be deprived of by taking the view that the petitioner has failed to pay the tax due on the income shown in the return filed. Therefore, I am of the view that the order Annexure-H passed by the second respondent is liable to be quashed.
11. So far as the second question is concerned, I find considerable force in the submission of Sri Sarangan, learned senior counsel appearing for the petitioner. In the case of CWT vs. G. E. Narayana (supra), this Court while considering the provisions of the WT Act, took the view that the existence of the assessee as an HUF at the time of making the assessment order was an absolute necessity and where it is not in existence, in the absence of specific provisions to assess the income of the erstwhile HUF, it is not permissible to assess the erstwhile HUF or a member of the erstwhile HUF. In the present case, admittedly, Smt. Godavari Bai who was a member of the HUF expired on 19th September, 1991. No doubt, return of income for the asst. yrs. 1991-92 and 1992-93 were filed on 31st December, 1991 and 8th February, 1993 respectively i.e., after the death of Smt. Godavari Bai, treating the status of the assessee as HUF as was done for the earlier period. The first respondent accepting the return filed by the petitioner issued intimations as per Annexures B and C for the years 1991-92 and 1992-93. The petitioner aggrieved by the intimations, Annexures B and C, filed applications under s. 154 of the Act seeking rectification of the error. It is the case of the petitioner that in the statement accompanying the return of income filed, the petitioner had specifically by means of a note annexed to the return filed brought to the notice of the first respondent that his wife Smt. Godavari Bai had died on 19th September, 1991 and, therefore, there was no HUF in existence. Further, it is also on record that before issue of intimations, the petitioner wrote a letter dt. 18th July, 1992, a copy of which has been produced as Annexure A to the petition, claiming that HUF was no more in existence and therefore the assessee cannot be assessed as HUF. It is not in dispute that though the petitioner in his application Annexures D and E filed seeking rectification of the intimations issued for the asst. yrs. 1991-92 and 1992-93 respectively had made a specific statement that in the note filed by the petitioner along with the return of income filed that he had brought to the notice of the first respondent that his wife had expired on 19th September, 1991, the said position has not been denied or controverted in the orders Annexures F and G dt. 21st July, 1993 passed by the first respondent rejecting the applications of the petitioner seeking rectification of the intimations issued to the petitioner for the asst. yrs. 1991-92 and 1992-93. The first respondent has rejected the prayer of the petitioner for rectification on the sole ground that the first respondent has proceeded to issue intimations under s. 143(1)(a) of the Act without making any additions or deletions to the income return filed by the assessee and the status of the assessee shown in the return was also not altered. It is further observed in the said orders that the statement or note filed by the assessee along with the return was not taken into consideration as, according to the first respondent, it has nothing to do with the adjustment under s. 143(1)(a). It is useful to extract the said portion of the order Annexure-F dt. 21st September, 1993, passed rejecting the request of the petitioner seeking rectification of the intimation issued for the year 1991-92. It reads as hereunder :
'On receipt of the return filed by the assessee the return of income was merely processed under s. 143(1)(a) without making any additions or deletions to the income returned by the assessee. The status of the assessee shown in the return was also not altered. The only point which was not taken into consideration was the note of the assessee in the statement of total income, since it has nothing to do with the adjustment under s. 143(1)(a), the intimation under s. 143(1)(a) was accordingly issued for the tax on the income returned by the assessee'.
12. Similar is the view expressed in Annexure G for the year 1992-93. The first respondent further proceeded to distinguish the decision of this Court in the case of CWT vs. G. E. Narayana (supra) on the ground that the facts of the said case are different from the facts of the present case, inasmuch as, in the case of CWT vs. G. E. Narayana (supra) the return was filed at the time when the HUF was still in existence, but was reduced to a singular member at the time of passing of the assessment, whereas in the case of the petitioner, the return itself was filed when the HUF consisted of only one member. I am of the view that both the reasons assigned by the first respondent refusing to rectify the intimations issued are unsustainable in law and in that view of the matter I am unable to accede to the strenuous submissions made by Sri Seshachala in support of the orders impugned.
13. When it is not in dispute that the petitioner has annexed a note to the return filed bringing to the notice of the first respondent that one of the members of the HUF i.e., Smt. Godavari Bai had expired on 19th September, therefore, it would be manifest that Smt. Godavari Bai had expired during the middle of the asst. yr. 1991-92 and there was no HUF either on the date of completion of the assessment or issuance of intimations to the petitioner. Further, the note filed clearly demonstrates that the HUF had ceased to be a HUF long prior to the commencement of the asst. yr. 1992-93 consequent upon the death of Smt. Godavari Bai. When a note is annexed to the return filed, the said note or a statement filed along with the return must be treated as a part and parcel of the return filed, especially when the assessing authority proceeds under s. 143(1)(a) of the Act. It is not permissible for the assessing authority to ignore the statement or note filed along with the return of income filed by the assessee and proceed under s. 143(1)(a) of the Act. It is relevant to point out that the assessing authority is proceeding to assess under s. 143(1)(a) of the Act without giving an opportunity to the assessee and hearing him. Under these circumstances, the assessing authority must consider the return filed along with the note, explanation or statement annexed to the return filed. Further, as stated earlier, it is on record that the petitioner also in his letter Annexure A dt. 18th July, 1992, asserted that the assessee had ceased to be an HUF. Therefore, the view taken by the first respondent that the assessing authority was not required to consider the note or the statement filed by the petitioner that the HUF had ceased to be an HUF consequent upon the death of Smt. Godavari Bai was not required to be taken into account, is erroneous in law.
14. The next question that would arise for consideration is whether the principle laid down by this Court in the case of CWT vs. G. E. Narayana (supra) applies to the facts of the present case. In the case of CWT vs. G. E. Narayana (supra), this Court while considering the provisions of WT Act, after referring to the decisions of the Bombay High Court in the case of CWT vs. Keshub Mahindra : [1983]139ITR22(Bom) , and also of the Madras High Court in the case of Seethammal vs. CIT : [1981]130ITR597(Mad) has taken the view that on the valuation date under the WT Act, an order of assessment cannot be made if there is no HUF on the said date. In the said decision, this Court, at page 47, has observed thus :
'The forerunner to this principle is found in the decision of the Bombay High Court in Ellis C. Reid vs. CIT : AIR1931Bom333 , wherein the Bombay High Court held that, when a person died after the commencement of the assessment year but before his income for the relevant accounting year was assessed, his executor was not liable to pay the tax. After this decision, s. 24B was introduced in the earlier IT Act, 1922 (similar to the present s. 159). That the existence of the assessee at the time of the assessment order is an absolute necessity is a matter which has been recognised in all these decisions and if the assessee is not in existence, there should be a specific provision to assess the said income which was liable to be taxed under the provisions of the IT Act. The same logic governs the WT Act also.
In CWT vs. Keshub Mahindra : [1983]139ITR22(Bom) , the Bombay High Court has pointed out the distinction between the IT Act and the WT Act and there is an observation that the liability to tax arises on the valuation date under the WT Act. This observation was sought to be developed by Mr. G. Chander kumar in support of his contention, but we are of the view that the observation has to be understood in the context of the case and, actually, the Bombay High Court held that, if a person is not alive on the valuation date and he dies during the course of the previous year before the valuation date, then no liability arises under the Act so far as the said person is concerned. Similarly, the decision of the Madras High Court in A&F; Harvey Ltd. (As Agents to executors of the Estate of late Andrew Harvey) vs. CWT : [1977]107ITR326(Mad) is of no assistance to Mr. Chander kumar. The decision of the Calcutta High Court in CWT vs. Executors to the Estate of Sir E. C. Benthal : [1977]106ITR57(Cal) , at page 62, is also of no avail to learned counsel for the Revenue. CWT vs. Ridhkaran is a decision of the Rajasthan High Court which again has no relevance to the facts of the instant case. The Rajasthan High Court pointed out that, when a return is filed under a particular status and the AO does not accept it as a proper status, a fresh notice shall have to be issued to the proper person.
An identical situation arose before the Madras High Court in Seethammal vs. CIT : [1981]130ITR597(Mad) , though under provisions of the IT Act. There were only two members constituting an HUF; one of them died; consequently, the HUF ceased to exist. The question was whether s. 171(1) of the IT Act could be applied to make an order of assessment assessing the erstwhile HUF. The Madras High Court pointed out that there was no provision at all to make the assessment on the HUF, even though the income was earned during the accounting year when there was an HUF. Sec. 171 of the IT Act did not make any provision to meet such a contingency. It is thus clear that a specific provision is necessary to make an order of assessment against a taxable entity which does not exist on the date of the assessment, even though the said entity was in existence when the liability to tax arose.
The HUF is an assessable entity; without the presence of the assessee, it is not possible to make an order of assessment, unless the law provides a machinery to assess the erstwhile HUF by enabling the assessment proceedings to be initiated or continued against a proper successor. Sec. 19 is one such provision which enables the initiation of proceedings against the legal representatives of the deceased person who was liable to pay the tax under the Act. Secs. 19A, 20 and 21 are also enacted to provide for certain similar contingencies. But, nowhere is a provision found in the Act, enabling the AO to make an order of assessment against the person who succeeded to the wealth of an erstwhile HUF which was in existence on the date of the valuation date, but ceased to exist by the time the order of assessment is made, the said cessation being due to natural causes as happened in the instant case. Sec. 20 covers an entirely different field wherein the HUF ceases to exist by act of parties'.
15. The first respondent has also distinguished the decision of this Court in the case of CWT vs. G. E. Narayana (supra) on the ground that in the said case on the date of filing of the return the HUF was in existence and the same ceased to exist at the time of passing an order of assessment, which is not the position in the present case. I am of the view whether the HUF was in existence on the date of filing of the return and ceased to be in existence only on the date of passing of order of assessment or HUF was not in existence both on the date of filing of the return and passing of the order, does not make any difference. The principle is that in the absence of any machinery provided under the Act to assess the erstwhile HUF, it is not possible to assess either the erstwhile HUF or a member of the erstwhile HUF. Since, admittedly the HUF was not in existence both on the date of filing of the return and also on the date of issue of intimations, which are impugned in these petitions, which position was made clear in the note given to the statement filed along with the return, the first respondent ought not have issued the intimations to the petitioner assessing the petitioner as an HUF. Under these circumstances, the first respondent pursuant to the applications filed by the petitioner under s. 154 of the Act ought to have rectified the mistake that had crept in which was apparent from the records. The conclusion I have reached above shows that the intimations issued which are impugned in these petitions were erroneous in law and, therefore, I am of the view that the first respondent ought to have exercised the power conferred on him under s. 154 and rectified the error. Since an intimation is issued under s. 143(1)(a) of the Act without hearing the assessee and issuing notice to him, when an apparent error is brought to the notice of the assessing authority, the concerned authority is required to rectify the error. That is the object and purpose behind s. 154 of the Act.
16. As stated earlier, while considering the first question, since I have taken the view that the order Annexure H passed by the second respondent rejecting the appeal at the stage of admission was unsustainable in law, I would have normally remitted these matters for fresh consideration to the appellate authority; however, since these petitions are pending before this Court ever since the year 1994, and in view of my finding recorded above that the intimations issued are unsustainable in law, I am of the view, it is in the interest of justice to quash the impugned intimations and the orders, instead of compelling the parties to again approach the appellate authority. Therefore, the intimations which are impugned in these petitions and also the orders passed rejecting the applications filed by the petitioner seeking rectification of the intimations issued are liable to be quashed.
17. In the light of the conclusions I have reached above, I make the following order :
(i) Intimations, Annexures B and C, both dt. 22nd March, 1993, and the orders Annexure F dt. 21st July, 1993; Annexure G dt. 21st July 1993 and Annexure H dt. 19th April, 1994 are hereby quashed.
(ii) The respondents are directed to refund the advance tax paid for the asst. yrs. 1991-92 and 1992-93 within three months from today.
(iii) Accordingly, these petitions are allowed. Rule issued is made absolute.
(iv) However, having regard to the facts and circumstances of the case, no order is made as to costs.