Case: Commissioner Of Income-Tax, Madras Vs. Ajax Products Ltd. Through Its Liquidator

him under S. 46 (1) of the Act. Under S. 24-B, the Income-tax Officer may proceed to assess the total income of the deceased person as if such legal representative was the assessee. It was argued that after the assessment was made on the legal representative, the fiction came to an end and thereafter, he remained a mere debtor to the department, and, therefore, S. 46 (1) could not be applied to him. Dealing with that argument, Hidyatullah, J., speaking for the Court said:"When a thing is deemed to be something else, it is to be treated as if it is that thing, though, in fact, it is not. .. .. . It is in this sense that the legal representative becomes an assessee by the fiction, and it is this fiction, which has to be fully worked out, without allowing the mind to boggle.The above decision is of no help to the appellant. There, the statute treated him as an assessee and as he made a default as in assessee, he became liable for the penalty under S. 46 (1). The statutory fiction was given full effect.20. This Court in Commr. of Income-tax Bombay City 1, v. Amarchand N. Shroff, (1963) 48 ITR 59 : (AIR 1963 SC 1448 ), rightly administered a caution that fictions should not be stretched beyond the purpose for which they were enacted. In that case, the question arose whether under S. 24B of the Act the Income-tax Officer could levy tax on receipts by the legal representative of the deceased person in the years of assessment succeeding the year of account being the previous year in which such person died. Under S. 24-B the legal personality of the deceased assessee was 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 became assessable in the relevant assessment year. The Court held that the section was enacted to bring to tax after the death, income received during his life time. In that context, Kapur, J. speaking for the Court observed at p. 66 (of ITR): (at p. 1452 of AIR) thus:"By section 24-B 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. State of Bihar, (S) AIR 1955 SC 661 , 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 S. 24-B and cannot be extended further than the liability for the income received in the previous year."The fiction in the second proviso is a limited one. The surplus is deemed to be the profits of the previous year. As we have pointed out earlier, it adequately serves the purpose of the section. It was given a limited meaning under the earlier decisions. To sustain the argument of the Revenue, it has to be enlarged in its scope. Many words have to be read into it which are not there. We cannot accept this argument.21. It is said that the words previous year need not necessarily be an accounting year wedded to the assessment year and it can be given a different meaning if the context demands it. This Court in Dhandhania Kedia and Co. v. Commr. of Income-tax, (1959) 35 ITR 400 : (AIR 1959 SC 219 ), approved of the observations of Mahajan J. in Commr. of Income-tax v. K. Srinivasan, (1953) 23 ITR 87 : (AIR 1953 SC 113 ). The observations of Mahajan are to the following effect:"..... For purposes of the charging sections of the Act unless otherwise provided for it is co-related to a year of assessment immediately following it, but it is not necessarily wedded to an assessment year in all cases and it cannot be said that the expression previous year has no meaning unless it is used in relation to a financial year. In a certain context, it may well mean a completed accounting year immediately preceding the happening of a contingency."22. Be that as it may, in the present case in the context, as we have already indicated, there is no reason to give the expression a meaning different from that it bears under the definition.23. If the argument advanced on behalf of the Revenue were accepted it would lead to some anomalies. By the fiction, if the business must be deemed to be in existence during the previous year and that the buildings sold must be deemed to have been used for the business during that year the amendment was not necessary. If it existed there could not have been a cessation of it during the previous year. On that reasoning the judgment in Pursas case, (1954) 25 ITR 265 : (AIR 1954 SC 253 ), would have been the other way. If the argument was correct there would be no time limit for the assessment of the surplus. Whenever a building was sold, whatever might be the time lag, by fiction, the business, as well as the user of the building in that business would be in the previous year by the year of assessment. We cannot accept a contention yielding such a result unless it is so clearly expressed. Indeed, the expressed intention of the legislature is the other way. We, therefore hold that the amendment only removed one of the conditions for the eligibility of the said surplus to tax namely the cessation of the business and in other respects the construction put upon the proviso by the earlier decisions of this Court is still good law. I

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]23. If the argument advanced on behalf of the Revenue were accepted it would lead to some anomalies. By the fiction, if the business must be deemed to be in existence during the previous year and that the buildings sold must be deemed to have been used for the business during that year the amendment was not necessary. If it existed there could not have been a cessation of it during the previous year. On that reasoning the judgment in Pursas case, (1954) 25 ITR 265  : (AIR 1954 SC 253  ), would have been the other way. If the argument was correct there would be no time limit for the assessment of the surplus. Whenever a building was sold, whatever might be the time lag, by fiction, the business, as well as the user of the building in that business would be in the previous year by the year of assessment. We cannot accept a contention yielding such a result unless it is so clearly expressed. Indeed, the expressed intention of the legislature is the other way. We, therefore hold that the amendment only removed one of the conditions for the eligibility of the said surplus to tax namely the cessation of the business and in other respects the construction put upon the proviso by the earlier decisions of this Court is still goodwould at once be noticed that both the reasons given and the conclusion arrived at by the Tribunal were based on surmises. There is nothing on the record to disclose that the valuation certificate was issued in connection with the floatation of the company; nor is there any material to suggest that any particualar building was omitted from the estimate and that those omitted had any marketable value, at all. What is more, the estimate of the value given by the Tribunal was pure guess unrelated to the material plated before it. The High Court in dealing with this matterwas however no basis for the finding of the Tribunal, that the assessee should have made a profit of Rs. 1,25,000 by the sale of the building. The position was that the Tribunal did not reject the genuineness of the valuation made by the experts, and it had no material either for the estimates it purported to make, the estimate either of the sale value or of the profits realised by the sale of the buildings.As the finding of the Tribunal was not based upon any evidence, the High Court was certainly entitled to go behind that finding and answer the question referred to it in the negative.It is, therefore, clear that if the amendment was not there, the present case is directly covered by the said two decisions the plant and machinery were not used during the accounting year and were sold only after the cessation of the business.To put it in other words, the subject is not to be taxed unless the charging provision clearly imposes the obligation. Equally important the rule of construction is that if the words of a statute are precise and unambiguous, they must be accepted as declaring the express intentions of the legislature. Giving a close scrutiny to the second proviso, it will be clear that by giving the natural meaning to every word used therein, it clearly fits in within the scheme of the entire section. The key expressions in the proviso are (1) such building, (2) whether during the continuance of the business or after the cessation thereof and (3) "deemed to be the profits of the previous year" The words such building have already been given an authoritative interpretation by this Court in the aforesaid two decisions.The words "whether during the continuance of the business or after the cessation thereof" were not present in the unamended proviso. In the two decisions cited earlier, in the absence of such words, this Court held that to attract the said proviso the machinery shall have been sold before the business was closed down. This clause omits that condition for the eligibility of thethe present case, the previous year is the calendar year preceding the assessment year. Deemed profits must, therefore, relate to the calendar year preceding the assessment year. By giving the natural meaning to every expression used in the proviso, we reach the result namely that the surplus mentioned in the said proviso is not exigible to tax unless the assessee did business during the accounting year preceding the assessment year and unless such buildings or machinery yielding surplus were used for the business in the said year or at any rate part of the year, though they were sold after the cessation of the business. To illustrate an assessee did business during some part of the accounting year 1955 but closed it in October of that year. He used the machinery during some part of the year for the business. He sold it in December. The price realised yielded a surplus within the meaning of the proviso. During the assessment yearthe said surplus could be brought into charge notwithstanding the fact that the machinery was sold after the cessation of the business. Before the amendment, the said surplus could not be taxed as the sale was subsequent to the cessation of the business. By giving the natural meaning to every expression in the proviso, the proviso serves the purpose intended by themay be cases in which the language of the statute may be so clear that a proviso may be construed as a substantive clause. But whether a proviso is construed as restricting the main provision or as a substantive clause, it cannot be divorced from the provision to which it stands as a proviso. It must be construed harmoniously with the main enactment. So construed, we have already stated earlier the result that flows from such athe legal personality of the deceased assessee was 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 became assessable in the relevant assessment year. The Court held that the section was enacted to bring to tax after the death, income received during his life time. In that context, Kapur, J. speaking for the Court observed at p. 66 (of ITR): (at p. 1452 of AIR)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. State of Bihar, (S) AIR 1955 SC 661  , 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 threeB and cannot be extended further than the liability for the income received in the previousfiction in the second proviso is a limited one. The surplus is deemed to be the profits of the previous year. As we have pointed out earlier, it adequately serves the purpose of the section. It was given a limited meaning under the earlier decisions. To sustain the argument of the Revenue, it has to be enlarged in its scope. Many words have to be read into it which are not there. We cannot accept this argument.Be that as it may, in the present case in the context, as we have already indicated, there is no reason to give the expression a meaning different from that it bears under the definition.