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PETITIONER: THE COMMISSIONER OF INCOME-TAX,BOMBAY CITY I, BOMBAY

       Vs.

RESPONDENT: AMARCHAND N. SHROFF, BY HIS HEIRSAND LEGAL REPRESENTATIVES

DATE OF JUDGMENT: 10/10/1962

BENCH: KAPUR, J.L. BENCH: 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,

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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.

JUDGMENT: 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,

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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

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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

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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

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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 an nd 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

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             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               instalment   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.