http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8  

PETITIONER: COMMISSIONER OF INCOME-TAX, BOMBAY

       Vs.

RESPONDENT: JAMES ANDERSON

DATE OF JUDGMENT: 02/12/1963

BENCH: SHAH, J.C. BENCH: SHAH, J.C. SARKAR, A.K. HIDAYATULLAH, M.

CITATION:  1964 AIR 1761            1964 SCR  (6) 590  CITATOR INFO :  R          1971 SC2591  (1)  R          1975 SC2299  (633)

ACT: Income tax Act (XIof 1922), s. 24B-Scope of-Death of  Share- holder-Liability of legal representative-Extent of.

HEADNOTE: G, a  holder of certain shares of a private limited  company made  a  will disposing of his estate and died  on  May  13, 1945.   The  respondent obtained Letters  of  Administration "durante  absentia"  to the estate, and in pursuance  of  an agreement between himself, the company and one M to sell the shares to M, handed over the share certificates to M against payment  of  the  price.   M failed  to  present  the  share certificates for registration and the name 591 of  G  remained  on  the register  of  shareholders  of  the Company.  The Income-tax Officer made an order under s.  23A of  the  Income-tax  Act (as it  then  stood)  that  certain undistributed  part of the assessable income of the  company shall be deemed to have been distributed as dividend amongst the  shareholders as at the dates of the  general  meetings, viz.,  May 26, 1947 and December 22, 1947.   The  Income-tax Officer  then  issued  a notice under s. 34(1)  (b)  to  the respondent  proposing  to re-assess his income  and  calling upon  him  to  file a return for  the  relevant  year.   The respondent  submitted  a  return, but did  not  include  the dividend deemed to have been distributed by the order passed under  s. 23A The Income-tax Officer included the  dividends in  the total income of the respondent and levied tax.   The respondent’s appeals to the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal were unsuccessful.  On reference,  the High Court held that the assessment made  on the  respondent Administrator to the estate of G  (deceased) was not valid in law.  In appeal by special leave: Held  (i) The legal representative does not acquire  in  all cases,  the right of a share-holder in respect of shares  of which  the  deceased was registered as holder.  But  if  the estate  of a share-holder of a company is by virtue  of  the Articles  of the Company liable in respect of calls  whether

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8  

made during the life-time of the holder or after his  death, the legal representative is obliged to satisfy the calls  in his representative character. (ii) There is no special machinery devised by the Income-tax Act  enabling assessment and levy of tax in respect of  such deemed  income from the estate of the share-holder,  in  the hands  of  his legal representative when the  order  of  the Income-tax  Officer pursuant to which the income was  to  be deemed  to be distributed becomes effective was  made  after the death of the share-holder.  The provision in s. 24B  for enforcement of liability against the legal representative of a  deceased person to pay tax which would have been  payable if such person had not died, has a limited application. The expression "tax which would have been payable under this Act,  if he had not died," in s. 24B is intended  to  impose liability  for  tax on income actually  received  or  deemed fictionally  to  be received in the year of account  in  the course of which the taxpayer died.  This expression does not supply machinery for taxation of income received by a  legal representative after the expiry of the year in the course of which such person died. Commissioner  of  Income-tax  Bombay  v.  Amarchand  Shroff, [1963]  Supp.  I S.C.R. 699 and Commissioner of  Income-tax, Bombay v. Ellis C. Reid.  I.L.R. 55 Bom. 312, referred to. (iii)     To assess tax on such receipts after the expiry of the  year in the course of which the original owner died  on the  footing  that it is the personal income  of  the  legal representative  is to charge tax not in accordance with  the provisions of the Act. 592

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 128 of 1963. Appeal  by special leave from the judgment and  order  dated September  21, 1961 of the Bombay High Court  in  Income-Tax Reference No. 32 of 1959. N.D.  Karkhanis, R.N. Sachthey and B.R.G.K. Achar,  for  the appellant. R.J.  Kolah,  J.B.  Dadachanji,  O.C.  Mathur  and  Ravinder Narain, for the respondent. December  2, 1963.  The Judgment of the Court was  delivered by SHAH,  J.-Henry Gannon who was a registered holder  of  2674 shares  of  Gannon Dunkerley &  Company--a  private  Limited Company with its registered office in Bombay-died on May 13, 1945,  having  made and published a will  disposing  of  his extensive estate in the United Kingdom and in British India. The National Bank of India Ltd. obtained probate of Gannon’s will  in  the United Kingdom and  appointed  the  respondent James  Anderson  its attorney to administer  the  estate  in British  India.  Anderson applied for and obtained in  India on  August  14,  1946, Letters  of  Administration  "durante absentia" to the estate of Gannon in British India. 450  out of  the  shares were specifically bequeathed  by  Gannon  to certain legatees, and in the course of administration, share certificates   with  transfer  forms  duly   executed   were delivered to the legatees in respect of those shares and  no question arises in this appeal in regard to those shares. By agreement dated August 14, 1946, between the executor  to the estate, the Company and one Morarka, the executor agreed to sell the remaining 2224 shares of the Company to  Morarka and  pursuant thereto the relevant share  certificates  with transfer  deeds were handed over to Morarka on  October  12,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8  

1946,  against payment of the price at the rate of  Rs.  140 per share.  Morarka, for some reason which is not clear from the  record,  failed to present the transfer deeds  and  the share certificates for registration at 593 the office of the Company and the name of Gannon remained at all  material  times  on the  register  of  shareholders  in respect of those 2224 shares. In  the assessment of the Company for the  assessment  years 1946-47 and 1947-48 the Income-tax Officer, Bombay, made  an order on March 26, 1953, under s. 23A of the Income-tax Act, 1922 (as it then stood) that certain undistributed parts  of the assessable income of the Company shall be deemed to have been distributed as dividends amongst the shareholders as at the dates, viz., May 26, 1947, and December 22, 1947, of the General  Meetings  of  the Company.  The  net  dividends  so deemed  to be distributed in respect of the shares were  Rs. 61,051 and Rs. 3,73,099.  The Income-tax Officer then issued on March 28, 1953, a notice under s. 34(1)(b) of the Income- tax  Act addressed to "James Anderson, Administrator to  the Estate of late Mr. Henry Gannon" reciting that he had reason to believe that Anderson’s "income assessable to  income-tax for  the  year  ending  31st  of  March  1949"  had  escaped assessment  and  that he proposed to re-assess  the  escaped income  and for that purpose called upon Anderson to make  a return  of  his  total income and  the  total  world  income assessable  for the year ending March 31, 1949.  In  compli- ance  with the requisition Anderson submitted a return,  but did  not  include therein the dividend deemed to  have  been distributed  under  the  order dated March  26,  1953.   The Income-tax  Officer  in  his order  of  assessment  included dividends deemed to be distributed and after processing  the amount  under  s. 18(5) included it in the total  income  of Anderson  and  levied tax thereon at the  appropriate  rate. Anderson’s  appeals  against  the order  of  the  Income-tax Officer  to the Appellate Assistant Commissioner and to  the Income-tax Appellate Tribunal, Bombay, were unsuccessful. At  the  instance of Anderson the following  questions  were referred  by the Tribunal to the High Court of Bombay  under s. 66(1) of the Income-tax Act:- 1/SCI/64-38 594               "(1)Whether   in   the  facts   and   in   the               circumstances of the case the assessment  made               on  Mr. James Anderson, Administrator  to  the               estate in India of Mr. Henry Gannon (deceased)               is valid in law?               If  the  above  question is  answered  in  the               affirmative  (2 ) whether in the facts and  in               the circumstances of the case the dividends of               Rs.  61,051 and "Rs. 3,73,099 deemed  to  have               been  distributed  on 26th May 1947  and  22nd               December 1947 respectively under s. 23A of the               Income-tax Act were assessable in the hands of               the applicant?" The  High Court answered the first question in the  negative and declined to answer the second question. With special leave, the Commissioner of Income-tax,  Bombay, has appealed to this Court. The estate of Gannon to which the Letters of  Administration relate, vested by virtue of s. 211 of the Indian  Succession Act, in Anderson, but he did not take steps to get his  name entered  in the register of shareholders maintained  by  the Company,  and  the  Income-tax Officer  sought  to  tax  the dividends  deemed to have been distributed in the  hands  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8  

Anderson  as  administrator of the estate  of  Gannon.   The order made by the Income-tax Officer under s. 23A gives rise to  a  notional income: it merely creates  a  fiction  about distribution  and  consequential receipt of  dividend.   The order by its own force however does not charge the income to tax: it has to be followed by an order of assessment to make tax on such income eligible. The sole question in this appeal is whether the Act contains machinery  for  assessing  dividends  deemed  to  have  been distributed by virtue of an order under s. 23A in respect of the  shares held by a shareholder, when before the  date  on which  the fiction of distribution  becomes  effective-viz., the date of the relevant General Meeting of the Company -the registered shareholder has died and his representatives have not been substituted in the register of the Company. 595 It  was  held by this Court in Commissioner  of  Income-tax, Bombay City II v. Shakumtala and others(1) following  Howrah Trading Company Ltd. v. Commissioner of Income-tax,  Central Calcutta(2)  that the expression "shareholder" in s. 23A  of the  Indian  Income-tax  Act,  1922,  means  a   shareholder registered in the books of the company, and such shareholder alone  is  liable  to be taxed in respect  of  the  dividend deemed  to  be distributed.  Counsel  for  the  Commissioner submits that the principle of those cases applies only  when the  registered  share-holder is alive  and  the  beneficial ownership  in  the  shares is vested as  a  result  of  some transaction inter vivos in a person in whose name the shares do not stand in the Company’s register, but not where by the grant  of  representation  to the  estate  of  a  registered shareholder  who has died, the representative  is  invested, without  his  name being entered in the register,  with  the rights of the shareholder. Whether  on  the  death of a  shareholder  his  executor  or administrator  may enforce the rights of the shareholder  or incur  liability  in respect of the shares to  the  Company, depends upon the nature of the right and the obligation, and terms  of the statute and the articles of the Company  which create   those   rights   and   obligations.    The    legal representative of a deceased person cannot vote on behalf of the shareholder and may not become a director of the Company on  the strength of the representation alone.  Again by  the express provision contained in s. 35 of the Indian Companies Act,  1913, a transfer of the share or other interest  of  a deceased  member by his legal representative although he  is himself  not a member is as valid as if he were a member  at the  time  of the execution of the transfer.   This  implies that the legal representative does not acquire in all  cases the  rights  of  a shareholder of a company  in  respect  of shares  of which the name of the deceased was registered  as holder.  But if the estate of a shareholder of a com- (1) 43 I.T.R. 352. (2) 36 I.T.R. 215. 596 pany  is by virtue of the Articles of the Company liable  in respect  of calls upon shares whether made during the  life- time   of  the  holder  or  after  his  death,   the   legal representative  is  obliged  to satisfy  the  calls  in  his representative   character.   This  obligation  arises   not because  the  legal  representative becomes,  by  virtue  of probate or Letters of Administration, a shareholder in place of the person whose estate is vested in him, but because  as a representative it is his duty to discharge the obligations enforceable against the estate. Under  an order made by the Income-tax Officer under s.  23A

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8  

of  the  Indian Income-tax, 1922, dividend is deemed  to  be distributed  among  the  shareholders  and  by  the  express provision  contained in the statute the proportionate  share of  the dividend of each shareholder has to be  included  in the  total  income of such shareholder for  the  purpose  of assessing his total income.  The statute therefore in  terms applies to the shareholder and makes the dividend taxable as his  income.  The obligation to pay the tax on the  dividend so  deemed to be distributed is of the shareholder, and  may be  enforced against him or his legal representative in  the manner  and to the extent the statute permits.  There is  no special  machinery  devised by the Income-tax  Act  enabling assessment and levy of tax in respect of such deemed  income from the estate of the shareholder in the hands of his legal representative  when  the order of  the  Income-tax  Officer pursuant  to  which  the  income was  to  be  deemed  to  be distributed  becomes effective was made after the  death  of the  shareholder,  and the general provision in s.  24B  for enforcement of liability against the legal representative of a  deceased person to pay tax which would have been  payable if such person had  not died, has a limited application. In Commissioner of Income-tax Bombay v. Ellis C.  Reid("  it was observed by the Bombay High Court in rejecting the claim made  by  the  Income-tax Department to  assess  a  deceased person’s estate (1)  I.L.R. 5 Bom. 312: 5 I.T.C 100. 597 in  the hands of his legal representative to tax,  that  the definition of "assessee" in s. 2(2) of the Indian Income-tax Act,  1922 (as it stood at the material date) in terms  only applied  to  a living person, the words being "a  person  by whom income-tax is payable" and not "a person by whom or  by whose  estate Income-tax is payable", and in the absence  of appropriate  provisions, for collecting tax from the  estate of a deceased person in the Act, the claim of the Income-tax Officer  to make an assessment under s. - 23(4)  must  fail. The  Court also observed that throughout the Income-tax  Act there is no reference to the decease of a person on whom the tax  had  been originally charged, and it was  difficult  to suppose  that  the omission was  unintentional.   In  Reid’s case(" the tax payer had died after the commencement of  the financial  year but before the income of the  previous  year was  assessed, and it was held that the executors under  the will of the tax-payer were not liable to pay tax on  receipt of income due to the deceased, notwithstanding that he  died while  assessment  proceedings  were  pending,  because  the proceedings could not be continued and the assessment  could not be made after the tax-payer’s death. To  rectify  the lacuna in the machinery of  assessment  the Legislature enacted s. 24B, by the Indian Income-tax (Second Amendment) Act, 18 of 1933.  The first sub-section of s. 24B provided:               "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." In  interpreting that enactment this Court held in a  recent case: Commissioner of Income-tax, Bombay City 1 v. Amarchand Shroff  (2)  that  by  the  incorporation  of  s.  24B   the Legislature has extended the legal personality of a deceased person for the duration

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8  

(1) I.L.R. 55 Bom. 312: 5 I.T.C. 100. (2) 48 I.T.R. 59. 598 of the entire previous year in the course of which he  died, and  therefore the income either received by him before  his death or by his heirs and representatives after his death in that previous year becomes assessable to tax in the relevant assessment  year,  but not the income received in  the  year subsequent  to the previous or account year.   In  Amarchand Shroff’s  case(1),  ’A’  who  was a partner  in  a  firm  of solicitors which maintained accounts "on cash basis" died on July  7,  1949.   Outstandings of the  firm  in  respect  of professional  services  rendered prior to the death  of  ’A’ were realized during five years subsequent to ’A’s death and were  divided between the partners of the firm  and  certain sums were paid to the heirs and legal representatives of ’A’ as  his share.  The Income-tax Department sought  to  assess the  amounts received by the legal representative of ’A’  as his  share to tax under s. 34-(1)(b) read with s.  24B.   It was  held that s. 24B did not authorise the levy of  tax  on receipts by the legal representative of a deceased person in the  years of assessment succeeding the year of  account  in which  such person died and accordingly the income  received by  him before his death and that received by his heirs  and legal representatives after his death in that previous  year became  assessable to income-tax in the relevant  assessment year,  but not receipts by the legal  representatives  after the expiry of the account year in which ’A’ died. In  the  case  before us Gannon died in May  1945,  and  the dividend in respect of which orders under s. 23A were passed was  deemed to be distributed in the year of account  ending March 31, 1949.  The legal personality of Gannon as held  in Amarchand Shroff’s case(1) came to an end for the purpose of s.  24B at the end of the account year in which Gannon  died and  no  tax could be levied under s. 24B on  the  dividends deemed   to  have  been  received  by  him  or   his   legal representatives after the end of that year.  Counsel for the Commissioner  sought to rely on the  following  observations made  by  Kapur,  J, who spoke for the  Court  in  Amarchand Shroff’s case(1) (at p. 67): (1)48 I.T.R. 59. 599               "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               there-fore  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 beer 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", and  on the latter part of the opinion sought to  raise  two arguments  (1) that even if after the expiry of the year  of account  receipts which if the person earning had  not  died would  have been treated as his income, ceased to be  liable to assessment as income of the deceased, they could still be taxed   as   his   income  in  the  hands   of   the   legal representatives  and (2) that where the income was  notional as  under s. 23A the legal personality of the deceased  must be regarded as extended to the end of the year in which such

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8  

notional income must be deemed to have been received by  the legal representatives of the deceased. The first argument is plainly  inconsistent  with what was  decided  in  Amarchand Shroff’s  case(1).   In that case the Court  held  that  the receipts   by   the  heir  or   legal   representative   for professional  services  rendered by the  deceased  solicitor were  liable to be brought to tax in the hands of the  legal representatives  only to the limited extent permitted by  s. 24B.  The second argument involves the importation into  the expression  "deemed  by  fiction to have  been  received"  a concept  which was wholly alien to what was decided  by  the Court,  for  in  Amarchand Shroffs  case(1)  the  Court  was dealing not with a fiction of distribution by an order under s.  23A of dividends which never reached the shareholder  or his  legal representative, but to a fiction of receipt by  a deceased person of income by extending (1)  48 I.T.R. 59. 600 his  legal  personality.  Section 24B does not  warrant  the application  of two different interpretations in the  matter of  extension  of  the legal  personality  of  the  deceased according as the income is actual or notional.  Section  24B in terms refers to the liability of the legal representative to  pay tax assessed as payable by such deceased person,  or any  tax which would have been payable by him under the  Act if  he had not died, and if the expression "tax which  would have  been  payable under this Act, if he had not  died"  is intended  to impose liability for tax on income received  in the  year  of account in the course of which  the  tax-payer died,  a different interpretation of the same expression  in the context of notional income would be impermissible.   The Legislature  not  having made any  provision  generally  for assessment  of  income  receivable  by  the  estate  of  the deceased  person, the expression "any tax which  would  have been  payable  by  him under this Act if he  had  not  died" cannot be deemed to have supplied the machinery for taxation of  income received by a legal representative to the  estate after  the  expiry of the year in the course of  which  such person died. It  was  then  urged  that apart  from  s.  24B,  the  legal representatives  of  a deceased person  also  represent  his estate  in  the  matter  of taxation of  income  and  it  is competent to the taxing authorities to assess them on income received on behalf of the estate.  Counsel did not rely upon any  specific  provision  of  the  Act  in  support  of  the contention,  and merely asserted that the Act seeks  to  tax all  assessable  incomes,  and income received  by  a  legal representative of the estate of a deceased person should not be  permitted  to  escape tax to  the  detriment  of  public revenue.   But if the Legislature has failed to set  up  the procedure  to assess such income, the Courts  cannot  supply it.  The expression "assessee" in s. 2(2) as substituted  by the  Indian  Income-tax (Amendment) Act, 25  of  1953,  with effect from April 1, 1952, means a person by whom income-tax or any other 601 every person in respect of whom any proceeding and this  Act has  been taken for the assessment of his income or  of  the loss sustained by him or of the amount of refund due to him. By  s. 3 where income-tax is chargeable for any year at  any rate  or  rates  prescribed  by  the  Act  of  the   Central Legislature, tax at that rate shall be charged for that year in accordance with and subject to the provisions of the  Act in respect of the total income of the previous year of every individual,  Hindu  undivided  family,  company  and   local

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8  

authority,  and  of  every firm  and  other  association  of persons  or the partners of the firm or the members  of  the association  individually.   The charge  to  income-tax  has therefore  to  be  in accordance with  and  subject  to  the provisions of the Act, and the Legislature has not  provided that  the  income received by a legal  representative  which would, but for the death of the deceased, have been received by  such deceased person, is to be regarded for the  purpose of   assessment  as  the  personal  income  of   the   legal representative To assess tax on such receipts on the footing that  it is the personal income of the legal  representative is  to charge tax not in accordance with the  provisions  of the Act. We therefore agree with the High Court, though for  somewhat different  reasons.   The  appeal  therefore  fails  and  is dismissed with costs. Appeal dismissed. 602