Case: Commissioner of Income Tax, Bombay City I, Bombay Vs. Amarchand N. Shroff, By His Heirs &amp; Legal Representatives

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, Remesh 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 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 Income-tax the following question of law was referred to the High Courton 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 referenceHigh 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.

Reasoning: 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 year becomes assessable to income-tax in the relevant assessmentis nothing said in that case which supports the contention raised by the Commissioner ofobservations also are of no assistance to the Commissioner of Incomethe present case the fiction is limited to the cases provided in the three sub-sections of s. 24B and cannot be extended further than the liability for the income received in the previousthe present case the amounts which are sought to be taxed and which have been held not 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.