1962-VIL-32-SC-DT

Equivalent Citation: [1963] 48 ITR (SC) 59

SUPREME COURT OF INDIA

Dated:23.10.1962

COMMISSIONER OF INCOME-TAX

Vs

AMARCHAND N. SHROFF

Judgment / Order

JUDGMENT

The judgment of the court was delivered by KAPUR J. These appeals pursuant to a certificate of the High Court of Bombay raise the question of interpretation of section 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, 195152, 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, 1949, 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, Rs. 43,162, Rs. 34,899, Rs. 13,402 and 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 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 some time later proceedings were started by the Income-tax Officer under section 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 a Hindu undivided family. The various amounts were assessed to income-tax in the hands of the respondents under section 34(1)(b) read with section 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 section 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 section 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 Incometax the following question of law was referred to the High Court :

"Whether, on the facts and in the circumstances of the case, the sum 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 section 24B 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 section 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 subsection (1) to be income received by Amarchand and liable to tax under section 24(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 be not died. The emphasis was on the words in section 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 :

"24B. Tax of deceased person payable by representative. (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 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 section 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, administrator 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 from the executor, administrator or other legal representative of the deceased person 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 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-section (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 section 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-section (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 )[1938] 22 Tax, Cas. 15 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 section 22(1) or before a notice is served on him under sub-section (2) of section 22 or section 34 then the Incometax 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 section 22 or dies after having furnished the return which the 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-section (1), (2) and (3) of section 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 section 22(1) or before service under section 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 section 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 cases on his death. By section 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 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 [1930] 5 I.T.C. 100. 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 section 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 if his contention counsel for the Commissioner of Income-tax relied upon the scheme of the Act as given Additional Income-tax Officer v. E. Alfred [1946] 14 I.T.R. 10. 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 In re B. M. Kamdar[1962] I.T.R. 442,445,(S.C.). 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 calender year which was the previous year. The assessee was keeping his accounts on cash basis and he contended that, as he had discontinued his profession in the previous year, the source had come to an end 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 was received by him and section 24B had no application to the facts of the case.

Counsel also relied on the observations of Derbyshire C.J. in In re Sreemati Usharani Choudhurani [1942] 10 I.T.R. 199. In that case the managing agent of 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 under section 24B of the Income tax Act. It was held that this income was taxable. Derbyshire C.J. said at page 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 section 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 section 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 [1930] 5 I.T.C. 100. In that case, and that was a case before section 24B was enacted, a person was served with a notice under section 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 section 23(4) of the Act after his death. At page 106 it was observed :

"It is to be noticed that there is throughout 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 been present in 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 necessarily 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 [1948] 16 I.T.R. 240,244 (P.C). By section 24B the legal representatives have, by fiction of law, become assessee 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. State of Bihar [1955] 2 S.C.R. 603, 646 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 sub-sections of section 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 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 dismissed with costs. Appeals dismissed.