The Commissioner of Income-Tax, Bombay
City I, Bombay Vs. Amarchand N. Shroff [1962] INSC 280 (10 October 1962)
10/10/1962 KAPUR, J.L.
KAPUR, J.L.
HIDAYATULLAH, M.
SHAH, J.C.
CITATION: 1963 AIR 1448 1963 SCR Supl. (1)
699
CITATOR INFO :
R 1964 SC1761 (13,14) R 1965 SC1358 (20) RF
1966 SC1260 (14) D 1967 SC 193 (28) R 1971 SC2591 (1) RF 1973 SC1016 (12) RF
1976 SC 313 (17) D 1982 SC 865 (12) R 1984 SC 790 (17) R 1989 SC2113 (28)
ACT:
Income Tax-Liability to tax of income of
deceased person- Such income in hands of the legal representative Income of the
previous year-Indian income-tax Act, 1922 (11 of 1922), s. 24 B.
HEADNOTE:
Sub-section (1) of s. 24B of the Indian
Income-tax Act, 1922, provided that where a person dies his heirs and legal
representatives ate liable to pay out of the estate of the deceased the tax
assessed as payable by the deceased or any tax which would have been payable
under the Art by the deceased if he had not died.
A who, was one of the three partners in a
firm of solicitors died. on July 7,1949, and thereafter the partnership was
carried on by the other two partners till December 1, 1949.
when R, son of A, joined the firm as the
third partner.
After the death of A the arrangement between
the various partners in regard to the' realisations of the old out standings
was that in respect of the work done up to the death of A the realisations were
to be divided between A and the other two partners. The firm 700 kept its
accounts on cash basis For each of the five assessment years, 1950-1955,
certain amounts were received by the heirs and legal representatives of A out
of the out standings. Proceedings were started by the Income-tax Officer under
s. 34 of the Indian Income-tax Act, 1922, in respect of the aforesaid. income,
and the various amounts were assessed to income-tax in the hands of the
respondents, the heirs and legal representatives of A, under s. 34 (1) (b) read
with s. 24B of the Act, for the five respective assessment years, on the
footing that the amounts which were received by the heirs and legal
representatives of A after his death should be deemed by virtue of the words in
sub-s. (1) of s. 24B to be income received by A and liable to tax under that
sub-section.
Held, that the words "or any tax which
would have been payable by him under this Act if he had not died" under s.
24B(1) of the Indian Income-tax Act, 1922, are restricted to the income
received by the deceased person before his death and to the income received
after his death by his heirs and legal representatives in the "previous
year" and which had not been assessed but would have been assessed as
income received by him, if death had not taken place. The provisions of s. 24B
do not extend to tax liability of the estate of a deceased person beyond the
previous or the account year in which that person dies. Apart from s. 24B no
assessment can be made in respect of the income of a person after his death.
Held, that as the income was received after
the expiry of the previous year in which A died it was not liable to be taxed
as the income of A in the hands of his legal representatives in the several
years of assessment.
Allen v. Trehearne, (1938) 22 Tax Cas. 15,
Ellis C Reid v. Commissioner of Income-tax Bombay, 5 I. T. C. 100 and Wallace
Brother & Co. Ltd. v. Commissioner of Income-tax, Bombay City, [1948] 16 1.
T. R. 240, referred to.
CIVIL APPELLATE, JURISDICTION: Civil Appeals
Nos. 15 to 19 of 1962.
Appeal from the Judgment and order dated
October 10, 1958, of the Bombay High Court in Income-tax Reference No. 22 of 1
958.
H. N. Sanyal,, Additional Solicitor-General
of India, N. D. Karkhanis and R. N. Sachthey, for the appellant.
701 A. V. Viswanatha Sastri, J. B.
Dadachanji, O. C. Mathur and Ravinder Narain, for the respondents.
1962. October, 23. The judgment of the Court
was delivered by KAPUR, J.-These a peals pursuant to a certificate of the High
Court of Bombay raise the question of interpretation of s. 24B of the
Income-tax Act in an Income-tax Reference.
The question referred was answered in the
negative and against the Commissioner of Income-tax who is the appellant in
these appeals, the respondents being the heirs and legal representatives of one
Amarchand N. Shroff deceased. The appeals relate to the assessment years
1950-51, 1951-52, 1952-53, 1953-54 and- 1954-55.
Shortly stated the facts of the case are
these Amarchand N. Shroff, Mangaldas and Hiralal were partners in a firm of
solicitors. Amarchand died on July 7, 1949. Thereafter the partnership was
carried on by Mangaldas and Hiralal up to November 30, 1949, and on December 1,
1949, Ramesh son of Amarchand who had by then qualified as a solicitor joined
the firm as the third partner. After the death of Amarchand the arrangement
between the various partners in regard to the realisations of the old
outstandings was that in respect of the work done up to the death of Amarchand
the realisations were to be divided amongst Amarchand, Mangaldas and Hiralal,
in respect of the work between July 8, 1949, and November 30, 1919, the
realisations were to be divided between Mangaldas and Hiralal'and in respect of
work done after December 1, 1949, the realisations were to be divided amongst
Mangaldas, Hiralal and Ramesh. The firm kept its accounts on cash basis. For
the five assessment years 1950- 51 to 1954-55 the following amounts were
received : Rs. 37,847/-, As. 43,162/-, Rs. 34,899/-, Rs. 13,402/- and 702 Rs.
32,523/- by the heirs and legal representatives of Amarchand out of the
outstandings. The Income-tax Officer sought to tax these realisations. For the
assessment years 1950-51 and 1951-52 he assessed the amounts in the hands of
the heirs and legal representatives of Amarchand as a Hindu undivided family.
Against that order an appeal was taken to the Appellate Assistant Commissioner
and then to the Appellate Tribunal. The two members of the Tribunal agreed in
holding, though for different reasons, that the amounts were not the income of
the Hindu undivided family but merely represented inheritance or realisations
of the assets of Amarchand.
The matter was not pursued further by the
Revenue but sometime later proceedings were started by the Income-tax Officer
under s. 34 in respect of the same income in the hands of "Amarchand N.
Shroff by his heirs and legal representatives". The status of that entity
was taken to be that of an individual and not Hindu undivided family. The
various amounts were assessed to income-tax in the hands of the respondents
under s. 34(1) (b) read with s. 24B of the Income-tax Act. The assessments so
made were for the assessment years 1950-51, 1951-52, 1952-53, 1953-54 and
1954-55: On appeal the Appellate Assistant Commissioner held that. the notice
under s. 34 could validly be served only for the assessment years 1950-51 and
notices for the subsequent years were invalid. The assessments for 1951-52 to
1954-55 were therefore quashed. The Commissioner of Income-tax took an appeal
to the Appellate Tribunal and the Tribunal-held that assessment could not be
made on Amarchand and that s. 24B had no application to the income received
after the death of Amarchand and that it was capital receipt and not revenue
receipt. The order of the Appellate Assistant Commissioner was therefore
upheld, On the application of the Commissioner of 703 Income-tax the following-
question of law was referred to the High Court :- "Whether on the facts
and in the circumstances of the case, the sums of Rs. 37,847/-, Rs.
43,162/-, Rs. 34,899/-, Rs. 13,402,/- and Rs.
32,523/- were assessable to income-tax in the
hands of the assessee "Amarchand N. Shroff by his legal heirs and
representatives" in the five respective years under reference ?".
The High Court answered the question in the
negative. It held that apart from s. 24E of the Income-tax Act the amounts were
not taxable and that the section had no application to the case.
It was argued by counsel for the Commissioner
of Income-tax that on a correct interpretation of s. 24B the amounts which were
received by the heirs and legal representatives of Amarchand after his death
should be deemed by the fiction incorporated in sub-s. (1) to be income
received by Amarchand and liable to tax under s. 24B (1) of the Income- tax
Act. In other words the respondents as heirs and legal representatives of the
deceased Amarchand were liable to pay out of the estate of the deceased
Amarchand on those amounts to the extent of the estate as the estate was liable
for tax on the amounts received by the heirs and legal representatives just as
the deceased Amarchand would have been had he not died. The emphasis was on
words in s. 24B (1) "or any tax which would have been payable by him under
this Act if he had not died". Section 24B is as follows :- S. 24B 11,Tax
of deceased person payable by represen- tative- (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 704
is capable of meeting the charge the tax assessed as payable by such person or
any tax which would have been payable by him under this Act if he had not died.
(2) Where a person dies before the
publication of the notice referred to in sub- section (1) of section 22 or
before he is served with a notice under sub-section (2) of section 22 or
section 34, as the case may be, his executor, administrator or other legal
representative shall, on the serving of the notice under sub-section (2) of
section 22 or under s. 34, as the case may be, comply therewith and the
Income-tax Officer may proceed to assess the total income of the deceased
person as if such executor, ad- ministrator 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 22, or having furnished a return which the Income- tax Officer has
reason to believe to be incorrect or incomplete, the Income-tax Officer may
make an assessment of the total income of such person and determine the tax
payable by him on the basis of such assessment, and for this purpose may by the
issue of the,, appropriate notice which would have had to be served upon the
deceased person had he survived require any accounts, documents or other
evidence which he might under the provisions of sections 22 and 23 have
required from the deceased person." Sub-section (1) provides that where a
person dies his heirs and legal representatives are liable to pay out 705 of
the estate of the deceased the tax assessed as payable by the deceased or any
tax which would have been payable under the Act by the deceased if he had not
died. According to the 'submission of counsel for the Commissioner of Income-
tax the words of sub-s. (1) "or any tax which would have been payable by
him under this Act if he had not died" mean that irrespective of the date
of' receipt of income receivable by a person, if the income is received by his
heirs and legal representatives after his death, they are liable for payment of
the tax just as the deceased would have been liable when the income was
received had he been living. But this interpretation is not in accord with the
language used in s.24B. All the sub-sections have to be read together.
Sub-section (1) can be divided into two parts; (1) where the income of the
deceased was assessed before his death and (2) where the income was not so
assessed but it would have been liable to tax had he not died. The second part
or the words above quoted when read with sub-ss.. (2) and (3) show that they
are confined to cases therein mentioned. They show that those words also have
to be restricted to the income received by the deceased person before his death
and to the income received after his death by his heirs and legal
representatives but in the previous" year and which had not been assessed
but would have been assessed as income received by him if death had not taken
place. See Allen v. Trehearne(1) where the words "if he had not died"
were interpreted. Sub-section (2) provides that if a person dies before the
publication of the public notice under s.22 (1) or before a notice is served on
him under sub-ss. 2 of s. 22 or s. 34 then the Income-tax Officer may proceed
to compute or assess the total income of the deceased person as if the heirs
and legal representatives were the assessees Sub-section (3) provides that when
a person dies before a return is furnished by him under the provisions of s. 22
or dies after having furnished the return which the (1) (1938) 22 Tax. CAS. 15,
706 Income-tax Officer finds incorrect or incomplete then the Income-tax
Officer can make assessment on the total income of the deceased person and
certain other consequences follow but in all the cases enumerated above the
language used in sub-ss. 1, 2 and 3 of s.24B contemplates that the heirs and
legal representatives of a deceased person are liable to pay income-tax out of
his estate (1) where assessment had already been made and (2) where he dies
before the assessment but the income was received before his death or by his
heirs and legal representatives after his death which occurs during the
previous year. If he dies before the publication of the notice under S.22(1) or
before the service under s.22(2) or after the service but before he has
furnished a return or filed an incorrect or incomplete return then the
Income-tax Officer should make an assessment of the total income of such
deceased person and determine the tax payable thereupon. Section 24B does not
authorise levy of tax on receipts by the legal representatives of a deceased
person in the years of assessment succeeding the year of account being the
previous year in which such person died.
Income-tax is exigible in reference to a
person's total income of the previous year. The question before us is whether
the income which was received subsequent to the previous year in which
Amarchand died is liable to be assessed to income-tax under s. 24B as his
income in the hands of his heirs and legal representatives. In the present case
the accounts were kept on cash basis. The assessee under the Act has-ordinarily
to be a living person and cannot be a dead person because his legal personality
ceases on his death. By s. 24B the Legal personality of a deceased assessee is
extended for the duration of the entire previous year in the course of which he
died and therefore the income received by him before his death and that received
by his heirs and legal representatives after his death but in that previous 707
year becomes assessable to income-tax in the relevant assessment year. The
section was enacted by the Legislature to bring to tax, after his death, income
received during his lifetime, and fill up the lacuna which was pointed out by
the High Court in Ellis C. Reid v. Commissioner of Income- tax, Bombay(1). Any
income received in the year subsequent to the previous or the account year
cannot be called income received by the person deceased. The provisions of s.
24B do not extend to tax liability of the estate of a deceased person beyond
the previous or the account year in which that person dies. In support of his
contention counsel for the Commissioner of Income-tax relied upon the scheme of
the Act as given in Additional Income-tax Officer v. E. Alfred(2).
There is nothing said in that case which
supports the contention raised by the Commissioner of Income-tax.
Reliance was next placed on certain
observations in a judgment of the Bombay High Court in re. B. M. Kamdar(3).
Those observations also are of no assistance
to the Commissioner of Income tax, Kania, J., as he then was) there observed
that the question whether a particular amount was income or not had nothing to
do with the time of its receipt and the question of receipt was material. only
for the purpose of determining whether on that amount tax was to be levied
under the Act in the year of assessment. That was a case where a consulting
engineer discontinued his practice as such from February 15, 1938, and he
received a sum of money representing the outstanding 'professional fees earned
by him prior to the discontinuance of his practice but realised by him during
the Calendar year which was the previous year. The assessee was keeping is
accounts on cash basis and he contended that as he had discontinued his
profession in the previous year the source had come to and the amounts received
by him were not liable to income- tax. It was held that the income was
assessable. The assessee in that case was still alive when the income (1) 5
I.T.C. 100. (2) [1962] 44 I.T.R. 442, 445.
(3) [1946] 14 l.T.R. 10.
708 was received by him and s. 24B had no
application to the facts of the case.
Counsel also relied on the observations of
Derbyshire, C.J., in re Sreemati Usharani Shoudhurani(1). In that case the
managing agent of a limited company died on May 12, 1938.
At the time of his death there was a credit
with the company of a sum of money on account of commission earned by him and
due to him prior to the date of his death. This sum was paid after his death in
the previous year 1938-39 and was sought to be taxed under s. 24B of the
Income-tax Act. It was held that this income was taxable. Derbyshire, C.J.,
said at p. 205 that the assessee who was the widow had received the salary due
to her husband; that the Income-tax Officer was entitled to assess the total
income of the deceased person as if the legal representatives were the
assessees and the amount was liable to tax under s. 24B (1), but in that case
also the amount was received by the widow in the previous year and it was
earned by the deceased during the previous year.
The correct position is that apart from s.24B
no assessment can be made in respect of the income of a person after his death.
See Ellis C. Reid v. Commissioner of Income-tax, Bombay(2). In that case, and
that was a case before s. 24B was enacted, a person was served with a notice
under s. 22(2) of the Income-tax Act but no return was made within the period
specified and he died. It was held that no assessment could be made under s.
23(4) of the Act after his death. At p.106 it was observed :- "The is to
be noticed that there is through the Act no reference to the decease of a
person on whom the tax has been originally charged, and it is very difficult to
suppose the omission to have been unintentional It must have (1) [1942] 10
I.T.R. 199.
(2) 5 I.T.C. 100.
709 been present to the mind of the
legislature that whatever privileges the payment of income-tax may confer, the
privilege of immortality is not amongst them. Every person liable to pay tax
must necessary die and, in practically every case, before the last installment
has been collected, and the legislature has not chosen to make any provisions
expressly dealing with assessment of, or recovering payment from the estate of
a deceased person".
The individual assessee has ordinarily to be
a living person and there can be no assessment on a dead person and the
assessment is a charge in respect of the income of the previous year and not a
charge in respect of the income of the year of assessment as measured by the
income of the previous year. Wallace Brothers & Co. Ltd. v Commissioner of
Income-tax, Bombay City(2). By s. 24B the legal representatives have, by fiction
of law, become assessees as provided in that section but that fiction cannot be
extended beyond the object for which it was enacted. As was observed by this
Court in Bengal Immunity Co. Ltd. v. The State of Bihar(2) legal fictions are
only for a definite purpose and they are limited to the purpose for which they
are created and should not be extended beyond that legitimate: field.
In the present case the fiction is limited to
the cases provided in the three subsections of s. 24B and cannot be extended further
than the liability for the income received in the previous year.
In the present case the amounts which are
sought to be taxed and which have been held not to be liable to tax are those
which were not received in the previous year and are therefore not liable to
tax in the several years of assessment. It cannot be said that they were income
which may be deemed by fiction to have been received by the dead person and
therefore they are not liable to be taxed as income (1) [1948] 16 I.T.R. 240,
244.
(2) [1953] 2 S.C.R. 603, 664.
710 of the deceased Amarchand and are not
liable to be taxed in the hands of the heirs and legal representatives who
cannot be deemed to be assessees for the purpose of assessment in regard to
those years.
In our view the High Court rightly answered
the question in the negative and against the Commissioner of Income-tax.
The appeals therefore fail and are dismissed
with costs.
Appeals dismissed.
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