Case: Commissioner Of Income-Tax, Bombay Vs. James Anderson

1. Henry Gannon who was a registered holder of 2674 shares of Gannon Dunkerley and Company-a private Limited Company with its registered office in Bombay-died on May 13, 1945, having made and published a will disposing of extensive estate in the United Kingdom and in British India. The National Bank of India Ltd. obtained probate of Gannons 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.2. 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, 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 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.3. 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 Andersons "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 compliance 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. Andersons appeals against the order of the Income-tax Officer to the Appellate Assistant Commissioner and to the Income-tax Appellate Tribunal, Bombay, were unsuccessful.4. 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 ActWhether 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 26-5-47 and 22-12-1947 respectively under S. 23A of the Income-tax Act were assessable in the hands of the applicantThe High Court answered the first question in the negative and declined to answer the second question.6. With special leave, the Commissioner of Income-tax, Bombay, has appealed to this Court.7. 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 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 exigible.

Court's reasoning:
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.15. 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 sum of money is payable under the Act, and includes every person in respect of whom any proceeding under 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 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.