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Arvind Bhogilal Vs. Commissioner of Income-tax, Bombay City Ii - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 61 of 1965 and connected Income-tax Reference No. 83 of 1965
Judge
Reported in[1976]105ITR764(Bom)
ActsIncome Tax Act, 1922 - Sections 24B and 24B(1)
AppellantArvind Bhogilal
RespondentCommissioner of Income-tax, Bombay City Ii
Appellant AdvocateS.P. Mehta, Adv.
Respondent AdvocateR.M. Hajarnavis, Adv.
Excerpt:
direct taxation - accrued income - section 24b (1) of income tax act, 1922 - whether certain amount derived from firm accrued to deceased at any time on or before 31.08.1950 - no profits or income of firm could accrue until accounts made up on divali day at end of accounting year - amount derived from firm cannot be regarded as having accrued to deceased at any time or before 31.03.1950 - section 24b not attracted. - section 31(4) (since repealed) :[tarun chatterjee & h.l.dattu, jj] jurisdiction of high court - respondent, a government company, chartered appellants vessel to carry rock phosphate from togo to west coast india - dispute arose between parties - under agreement, respondent had chosen mumbai as port of delivery vessel carrying rock phosphate was delivered at port of bombay.....tulzapurkar, j. 1. this is a reference under section 66(1) of the indian income-tax act, 1922, and at the instance of the assessee the following two questions of law stated to be arising out of the tribunal's order have been referred to us for our determination : '(1) whether, on the facts and in the circumstances of the case, and having regard to the terms of annexure 'a' (partnership deed dated august 28, 1950) the amount of rs. 2,61,821 derived from the firm of m/s. bhogilal laherchand accrued to arvind at any time on or before august 31, 1950, so as to attract section 24b of the income-tax act (2) whether, on the facts and in the circumstances of this case, the sum of rs. 2,61,821 was exempt as capital receipt ?' 2. the questions relate to the assessment year 1951-52, the.....
Judgment:

Tulzapurkar, J.

1. This is a reference under section 66(1) of the Indian Income-tax Act, 1922, and at the instance of the assessee the following two questions of law stated to be arising out of the Tribunal's order have been referred to us for our determination :

'(1) Whether, on the facts and in the circumstances of the case, and having regard to the terms of annexure 'A' (partnership deed dated August 28, 1950) the amount of Rs. 2,61,821 derived from the firm of M/s. Bhogilal Laherchand accrued to Arvind at any time on or before August 31, 1950, so as to attract section 24B of the Income-tax Act

(2) Whether, on the facts and in the circumstances of this case, the sum of Rs. 2,61,821 was exempt as capital receipt ?'

2. The questions relate to the assessment year 1951-52, the corresponding accounting year being S.Y. 2006 (October 22, 1949, to November, 9, 1950) and arise out of these facts Ms. Bhogilal Laherchand is a firm originally constituted under a deed of partnership dated April 14, 1943. Initially, Bhogilal and his major son, Pratap, were partners in the said firm and two minor sons of Bhogilal by names Arvind and Mahesh were admitted to the benefits of the partnership. Arvind attained majority on August 23, 1950, and elected to become a full-fledged partner. A fresh deed of partnership was entered into on August 28, 1950, a copy whereof is annexed as annexure 'A' to the statement of case. Unfortunately, within three days of the execution of the partnership deed, Arvind met with a plane crash in Cairo which resulted in his death on August 31, 1950. However, in accordance with clause 8 of the partnership deed, the partnership business was continued by the surviving partners and on November 9, 1950, the books of account of the firm were closed wherein a sum of Rs. 2,64,450 was credited to the account of Arvind as his share of profits for the period October 22, 1949 to August 31, 1950. On February 27, 1954, the firm was assessed for the assessment year 1951-52 as a registered firm and thereafter the assessment of the share of profits of Arvind from the firm was taken up and the Income-tax Officer applying the provisions of section 16(3)(a)(iii) of the Act included a sum of Rs. 2,49,459 being the proportionate part of his share up to August 22, 1950, in the assessment of his father, Bhogilal. In other words, Arvind's share of profits during his minority was included in the assessment of his father. A proportionate part of profits of Arvind for the period between August 22, 1950, and August 31, 1950, was calculated at Rs. 11,153 and was assessed by an assessment order dated January 17, 1953. This assessment was revised by an order dated November 20, 1954, whereunder the amount brought to tax was raised to Rs. 58,917.

3. Against the order whereby the amount of Rs. 2,49,459 was included by the Income-tax Officer in the assessment of Arvind's father, Bhogilal, Bhogilal preferred an appeal first to the Appellate Assistant Commissioner and thereafter to the Tribunal and ultimately he contested this inclusion in his assessment up to this court. The reference was decided by this court on September 15, 1955 - which decision is reported as Bhogilal Laherchand v. Commissioner of Income-tax - and this court answered the question referred to it in favour of Bhogilal and held that the said sum of Rs. 2,49,459 included in his assessment on account of Arvind did not represent profits of the partnership to which Arvind, as a minor, was entitled.

4. After Arvind's father's reference was thus answered in his favour, proceedings under section 34(1)(b) were initiated by issuance of a notice which was served on Bhogilal on January 24, 1956, as the father and legal heir of deceased Arvind. On January 22, 1957, reassessment was made on the income of Rs. 3,20,738 which was computed as under :

Rs.(a) Income as originally assessed as per the order 58,917dated 20-11-1954(b) Share from M/s. Bhogilal Laherchand betweenthe beginning of S.Y. 2006 and 22-8-1951 2,61,821---------3,20,738---------

5. The aforesaid assessment order dated January 22, 1957, was passed under section 23(4) of the Act as, according to the Income-tax Officer, no proper return had been filed in response to the notice under section 34. An application under section 27 of the Act for setting aside the aforesaid ex parte assessment was made, but it was dismissed by the Income-tax Officer on September 8, 1961. However, in appeal, which was preferred to the Appellate Assistant Commissioner, the assessment made under section 23(4) was cancelled on March 15, 1963. Pursuant to the directions given by the Appellate Assistant Commissioner the Income-tax Officer again took up to the assessment and completed the same on June 22, 1962, when the amount brought to tax was Rs. 3,20,869. The difference of the total to be found in the order dated January 22, 1957, which was cancelled by the Appellate Assistant Commissioner was due to the addition of Rs. 114 and interest of Rs. 17. Before the Income-tax Officer principally two contentions were urged : (a) that the sum of Rs. 2,61,821 was not an income of the deceased, but it was actually a receipt forming part of the share of the deceased, that is to say, the sum represented inheritance and capital and could not be taxed as income, and (b) that section 24B of the Act could not be applied. These contentions were rejected by the Income-tax Officer.

6. Against the order passed by the Income-tax Officer on June 22, 1962, an appeal was preferred to the Appellate Assistant Commissioner wherein the same contentions were urged, but the Appellate Assistant Commissioner also rejected the same and by his order dated October 30, 1962, confirmed the order of the Income-tax Officer. In the further appeal that was carried to the Tribunal, three contentions were raised, viz., (a) that section 24B could not be applied since the profits had not accrued or arisen till the end of the accounting year and, therefore, they could not be deemed to have accrued at any time prior to that date by virtue of the death of the assessee, (b) that section 34(1)(b) had no application as the Income-tax Officer was aware of all the facts when he completed the assessment originally taking the view that the income after August 22, 1950, alone was assessable, and (c) that the sum of Rs. 2,61,821 represented inheritance and capital and hence could not be taxed as income. The Tribunal rejected all the three contentions and held that the Income-tax Officer, who had information through the decision of this court dated September 15, 1955, reported as Bhogilal Laherchand v. Commissioner of Income-tax to the effect that the father could not be taxed by applying section 16(3)(a)(iii) and that no income had accrued to any minor, rightly brought section 34(1)(b) into operation. Further, the Tribunal agreed with the department's representative that the question of applicability of section 24B in respect of the previous year in which the person had died was concluded against the assessee by reason of the Supreme Court decision in Commissioner of Income-tax v. Amarchand N. Shroff. Lastly, on the facts of the case, it took a view that profits or income had accrued to Arvind as on August 31, 1950, and that the sum of Rs. 2,61,821 was rightly brought to tax. It further held that even assuming that profits accrued upon death, as was contended by the assessee, section 24B read in the light of the Supreme Court decision in Amarchand N. Shroff's case would justify the assessment as in the case of a living partner the income of the business on being ascertained and allocated to the share of the partner can be assessed, there was nothing in law which required a different result being reached in this case. As stated earlier, at the instance of the assessee the two questions which have been set out at the commencement of this judgment have been referred to this court for decision.

7. On the first question, Mr. Mehta for the assessee has raised a two-fold contention before us. In the first place, he contended that having regard to the provisions clauses 6 and 8 of the deed of partnership deed dated August 28, 1950 (annexure 'A' to the statement of case), it could not be said that the sum of Rs. 2,61,821, which was credited to the share of Arvind in the books of account of the partnership, was an income that had accrued to the deceased, Arvind, at any time prior to or on August 31, 1950, for, according to him, under clauses 6 and 8 of the deed in question, it could not be predicated of the firm of M/s. Bhogilal Laherchand that it had either made profits or suffered losses until the accounts were made up as at the end of the accounting year, S.Y. 2006, that is to say, on the Divali day of that year. He pointed out that under clause 6 of the deed during the continuance of the partnership, accounts of the partnership were to be made up on the Divali day of each year and it was on making up of such accounts at the end of the year on the Divali day that profits and losses were to be ascertained and under clause 8, notwithstanding the death of Arvind on the August 31, 1950, i.e., in the middle of S.Y. 2006, the partnership continued and the business was actually carried on till the end of the accounting year and it was only at the end of the accounting year that profits were ascertained. In view of these facts, urged Mr. Mehta, no income could be said to have accrued to Arvind at any time prior to or on August 31, 1950, and the sum of Rs. 2,61,821 must be regarded as representing inheritance or capital received by the heirs of Arvind and, therefore, exempt from taxation. In support of the said contention Mr. Mehta relied upon the decision of this court in Bhogilal Laherchand v. Commissioner of Income-tax as also on the observations of the Supreme Court in Commissioner of Income-tax v. Ashokbhai Chimanbhai. Secondly, he contended that, if at all the sum of Rs. 2,61,821 could be brought to tax, it could be done only under section 24B of the Act. However, according to him, section 24B was not applicable to the present case inasmuch as the fictional existence of the legal personality of a deceased person up to the end of the accounting year thereunder is only for a limited purpose and the same cannot be extended so as to convert what is not his income into an income of the deceased. According to him, the Tribunal has erred in taking the view that section 24B was applicable to the facts of the present case.

8. Mr. Hajarnavis appearing for the revenue has, on the other hand, contended that it is not as if that in every case where a provision like clause 6 obtaining in the deed of partnership in the present case is in operation, accounts of a partnership firm are required to be made at the end of the accounting year. But occasions could be conceived where such accounting might be required to be undertaken during the middle of the year as, for instance, when a partner dies or a firm is dissolved. He pointed out that as, in the instant case, Arvind had died on August 31, 1950, his share of profits had to be ascertained up to the date of his death and that was what actually done by the assessee-firm when accounts were made up and in the books of account of the firm a sum of Rs. 2,64,450 was credited to the account of Arvind as his share of profits for the period October 22, 1949, to August 31, 1950. In fact, he relied upon certain observations of Chief Justice in Bhogilal Laherchand's case for pressing his contention that a debt due by the firm to Arvind or his estate could be said to have come into existence as on August 31, 1950, though the ascertainment of that debt had been postponed up to the end of the accounting period. He also contended that on a proper construction of section 24B of the Act, having regard to the Supreme Court decision in Amarchand N. Shroff's case it should beheld that so far as the previous year or the year of account in question was concerned, not only the income that was received by the deceased during his lifetime but also the income that was received by the heirs after his death up to the end of the accounting year could be brought to tax under section 24B of the Act. In support of this construction he strongly relied upon the Supreme Court decision in Amarchand N. Shroff's case which was followed by the Supreme Court in the case of Commissioner of Income-tax v. James Anderson and by the Madhya Pradesh High Court in Commissioner of Income-tax v. Hukumchand Mohanlal. He also pointed out that this decision of the Madhya Pradesh High Court in Commissioner of Income-tax v. Hukumchand Mohanlal has been affirmed by the Supreme Court in Commissioner of Income-tax v. Hukumchand Mohanlal.

9. As regards the first contention urged by Mr. Mehta the question undoubtedly will have to be decided with reference to the relevant clauses which obtain in the relevant deed of partnership dated August 28, 1950, as also having regard to the facts obtaining in the case. We have already indicated above that initially Arvind had been admitted to the benefits of the partnership as a minor and on attaining majority of August 22, 1950, he elected to become a full-fledged partner and a fresh deed of partnership was executed on August 28, 1950, which governed the rights and relations of partners inter se so far as taking of account and sharing of profits and losses were concerned. Clause 6 of the deed ran as follows :

'On the Divali in each year during the continuance of the partnership, an account shall be taken of all the assets and liabilities for the time being of the partnership and a balance-sheet and profit and loss account making due allowance for depreciation shall be prepared and a copy thereof, if so required, furnished to each of the partners. Immediately after the preparation of the said balance-sheet and profit and loss account the net profits, if any, shown by such accounts shall be divided and the profits coming to the share of each partner shall be credited to his account with the partnership. In case of loss the share of each partner therein shall be debited to his account with the partnership.'

10. Clause 8, which is a material clause, ran as follows :

'The death of any partner hereto shall not dissolve the partnership which shall be carried on in the same name by the surviving partners but so that the shares of the deceased partner shall be paid with interest at 4 1/2 per cent. as soon after the Divali of the year in which such death takes place as may be convenient to the surviving partners.'

11. There is no doubt that under clause 6 quoted above, normally the partnership accounts were to be made up at the end of the year on the Divali day and under clause 8 death of any partner was not to have the effect of dissolution of the partnership and the same was to be continued in the same name by the surviving partners and the share of the deceased partner was to be paid with interest at 4 1/2% as soon after Divali of the year in which such death took place as would have been convenient to the surviving partners. Provision of clause 8 would be a contract to the contrary as contemplated by section 42 of the Partnership Act and it is in view of these two clauses that the question will have to be considered as to whether upon the death of Arvind in the middle of S.Y. 2006, viz., on August 31, 1950, any profits or income accrued to him at any time prior to or as on the date of his death or whether any profits or income could accrue to him only at the end of the year in question on the Divali day when accounts were to be made up in accordance with clause 6 of the deed. We may mention here that this aspect was considered by this court in Bhogilal Laherchand's case wherein the question that actually arose for decision was whether the sum of Rs. 2,49,459 could be legally included in the assessee's (Bhogilal's) total income of S.Y. 2006 liable to be assessed in the assessment year 1951-52. The question arose in the context of the action taken by the department to include proportionate share of Arvind's profits during his minority in the assessment of his father, Bhogilal, and the same was answered in favour of the assessee and against the department. However, on the aspect as to when profits accrue or arise in the case of a partnership which is continuing, Chief Justice Chagla has made certain important observations at page 924 of the report which run as follows :

'It is important to note that under both the partnership deeds, the partnership deed of the April 14, 1943, and the partnership deed of August 28, 1950, it is specifically provided that on the Divali in each year during the continuance of the partnership, accounts will be taken of all the assets and liabilities for the time being of the partnership and a balance-sheet and profit and loss account is to be made up on a certain basis. Therefore, the profits or the losses of this partnership from the commercial point of view can only be ascertained on the Divali of each year, and it would be impossible to predicate of this partnership that it had made any profit or loss on any day preceding or prior to the Divali a particular year....

The simple question, therefore, that we have to consider is whether in the circumstances of this case Arvind could ever have claimed from the partnership the sum of Rs. 2,49,459. As soon as the partnership deed of the August 28, 1950, was executed and he elected to continue as a partner, the only right that Arvind had was to receive his share in the profits when the accounts were made up at Divali. He had no right to receive the profits that may have arisen when he attained majority on the August 22, 1950.... On the facts of this case the date, August 22, 1950, has no particular charm or magic. Arvind may have attained majority on that date, but what we have to consider is what Arvind did after he attained majority and unless he exercised his option to get out of the partnership, it could be said that on the August 22, 1950, the partnership had either made profits or losses.'

12. The above observations clearly go to show that in the matter of this very partnership deed dated August 28, 1950, a clear view was taken by this court that having regard to the relevant clauses in the two deeds pertaining to accounts (clause 6 in the deed dated August 28, 1950), it was impossible to predicate of this partnership that it had made either profits or losses on any day preceding or prior to the Divali of any particular year. In other words, unless accounts were made up as per clause 6 of the deed, no profits or income could be said to have accrued or arisen to the firm or to an individual partner of partners constituting the firm.

13. Apart from the above observations which apply with equal force to the deed of partnership in question, even the principle has been generally accepted by the Supreme Court in yet another decision in Commissioner of Income-tax v. Ashokbhai Chimanbhai. In that case A, the manager of a Hindu undivided family, held, on behalf of the family, a share of five-anna in a rupee in the profit and loss of a firm. Under the partnership deed the accounts of the firm had to be adjusted every calendar year. On November 12, 1955, there was a partition in the family in which A was allotted the five-anna share in the firm and he became the full owner thereof. In proceedings for the assessment to income-tax of the income of the family for the accounting period October 27, 1954, to November 14, 1955, a question arose whether the whole or any part of the five-anna share of the profits of the firm for the calendar year 1955 accrued to the family and it was held by the court that the right to receive the share of the profits of the firm for the calendar year 1955 arose on settlement of accounts of the firm on December 31, 1955. On that date A alone was the owner of the share of the profits and the family had no right therein. No part of the share of profits of the firm for the calendar year 1955 was liable to be included in the income of the family and the taxing authorities could not claim that the profits should be apportioned income. The relevant part of the head-note, which concisely sets out the material observations made by the court in its judgment, run as follows :

'Income becomes taxable on the footing of accrual only after the right of the tax payer to the income accrues or arises, and in the case of an agreement which makes profits receivable at or on the happening of a contingency, the fact that the profits are the result of transaction spread over a period which covers a period preceding the happening of that contingency would not make the receipt liable to be paid to persons other than those who are entitled to receive it on the date on which it is actually received or becomes receivable.

In the gross receipts of a business day after day or from transaction to transaction lies embedded or dormant profit or loss. On such dormant profit or loss undoubtedly taxable profits, if any, of the business will be computed, but dormant profits cannot be equated to profits charged to tax under sections 3 and 4 of the Indian Income-tax Act, 1922. The concept of accrual of profits of a business involved their determination by the method of accounting at the end of the accounting year or any shorter period determined by law.

'Profits' do not accrue from day to day or even from month to month and have to be ascertained by a comparison of assets at two stated points. Unless the right to profits comes into existence there is no accrual of profits and the destination of profits must be determined by the title thereto on the day on which they arise.

In the case of a partnership, where the accounts are to be made at stated intervals, the right of a partner to demand his share of the profits does not arise until the contingency which by operation of law or under a covenant of the partnership deed gives rise to that right has arisen.'

14. In view of the above position, which has been clearly stated by this court in Bhogilal Laherchand v. Commissioner of Income-tax and by the Supreme Court in Commissioner of Income-tax v. Ashokbhai Chimanbhai, it is clear beyond any doubt that having regard to clauses 6 and 8, which obtain in the partnership deed in question, it would be difficult to come to conclusion that any profits or income accrued to Arvind until the last day of the accounting year (S.Y. 2006) was reached and accounts were made up.

15. Mr. Hajarnavis for the revenue has relied upon two aspects touching this question. In the first place, he has pointed out that after the accounts had been made up as at the end of S.Y. 2006 on the Divali day and profits were ascertained, in the books of the firm a sum of Rs. 2,64,450 was credited to the account of Arvind as his share of profits for the period October 22, 1949, to August 31, 1950. Relying on this conduct on the part of the surviving partners, he contended that even the partners had chosen to credit Arvind's account in the partnership books with proportionate share of profits - relevant to the period commencing from the beginning of S.Y. 2006 and ending with August 31, 1950, which coincided with the death of Arvind. He, therefore, urged that this conduct clearly suggests that this proportionate share of profits, which was credited to Arvind's account, must be taken to have accrued to him as the same was credited to his account by the partnership for the aforesaid period and such accrual must be taken to be as on August 31, 1950. It is not possible to accept this contention of Mr. Hajarnavis for the simple reason that too much is being read into this piece of conduct on the part of the surviving partners. All that had happened was that accounts for S.Y.No. 2006 were actually made up at the end of that Samvat year on the Divali day and the total profits for the year were ascertained and by applying the simple rule of three, Arvind's proportionate share relevant to the period during which he was alive was merely credited to his account in the books. This conduct cannot lead to an inference that the partners had themselves treated that share as having accrued to or arisen to Arvind as on August 31, 1950.

16. Secondly, reliance was placed upon certain observations of this court in Bhogilal Laherchand v. Commissioner of Income-tax, particularly those appearing at page 927 of the report which, according to Mr. Hajarnavis, suggest an inference contrary to the view which we are inclined to take. After accepting the test that if the assesses acquired a right to receive an income the income could be said to have accrued to him, though it may be received later on its being ascertained, and after referring to the basic concept that unless and until there was credited in favour of the assesses a debt due by somebody, it could not be said that he had acquired a right to receive the income or that the income had accrued to him, this court has gone to observe at page 927 as follows :

'The only debt that came into existence and with regard to which Arvind or rather his estate acquired a right to received the payment was debt which could only be ascertained on making up the accounts of the partnership as of the August 31, 1950.'

17. It was sought to be urged by Mr. Hajarnavis that these observations of Chief Justice Chagla show that it was accept by the court in that case that the right to receive an income had accrued to Arvind as on August 31, 1950, for a debt could be said to have been owned by the firm to Arvind or his estate on the death of Arvind which took place on August 31, 1950, though the debt could be ascertained after making up of accounts later. It is not possible to accept the submission of Mr. Hajarnavis for two reasons. In the first place, the court at that time was not really concerned with the question as to whether any right to receive the income or profits from the firm had accrued to Arvind as on August 31, 1950, or not and the only question that had arisen for consideration of the court was whether the sum of Rs. 2,49,459, which represented the share of profits of Arvind during his minority, could be said to have accrued to him or not, that is to say, as on August 22, 1950, and that too for the purpose of considering the question as to whether the inclusion of that share of profits of Arvind in his father's assessment, under section 16(3)(a)(iii) of the Act, was justified or not. Secondly, it does appear that the court seems to have assumed that upon the death of Arvind on August 31, 1950, the partnership came to be dissolved and presumably clause 8 of the deed of partnership, which contained a provision to the contrary, came to be overlooked. Neither of the two aspects pressed into service by Mr. Hajarnavis, therefore, can avail him for the purpose of advancing his case that the sum of Rs. 2,61,821 had accrued to Arvind as on August 31, 1950. As we have said above, clauses 6 and 8 of the deed of partnership are very eloquent and in view of those clauses it is abundantly clear to us that no profits or income of the firm as such, must less of the individual partners thereof, could at all accrue or arise until the end of the accounting year, that is to say, until the accounts were made up on the Divali day at the end of such accounting year. Having regard to the aforesaid discussion of the material on record, therefore, we are clearly of the view that the sum of Rs. 2,61,821 derived from the firm of M/s. Bhogilal Laherchand cannot be regarded as having accrued to Arvind at any time on or before August 31, 1950. In view of clauses 6 and 8 of the deed of partnership it is clear that accounts had to be made up at the end of S.Y. 2006 on the Divali day and it was only on making up of such accounts of the firm as on that day that the profits could be said to have accrued to the firm as also to the individual partners thereof.

18. The second aspect of Mr. Mehta's contention relates to the proper construction of the provisions of section 24B of the Indian Income-tax Act, 1922. On the one hand it has been contended by Mr. Mehta that section 24B was inapplicable to the facts of the present case for the simple reason that no income or profits could be said to have accrued to Arvind at all till he was alive, for accounts were made up as at the end of S.Y. 2006 on the Divali day and it was only then that any income or profits could be said to have accrued to the firm or to the individual partners thereof, while, on the other hand, it has been the contention of the revenue that in view of the legal fiction, which has been enacted in section 24B(1) of the Act, the sum of Rs. 2,61,821 could be brought to tax under the said provisions of section 24B. It would, therefore, be necessary to set out the relevant provisions of section 24B. They areas follows :

'24B. (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 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 section 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, administrator or other legal representative were the assesses.

(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, be the issue of the appropriate notice which would have had to be served upon the deceased person had he survived, require from the executor, administrator or other legal representative of the deceased person any accounts, documents or other evidence which he might under the provisions of section 22 and 23 have required from the deceased person.'

19. Before going to the decided cases it would be necessary to consider the question on a proper reading of the aforesaid relevant provisions of the section. Sub-section (1) of section 24B provides that where a person dies, his heirs and legal representatives are 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 Act by the deceased if he had not died. In other words, a fiction is created whereby the personality of the deceased is extended for the duration of the entire previous year in which such person has died. According to Mr. Mehta, the legal fiction created by the use of the words 'if he had not died' is only limited for the purpose of providing a machinery which was absent for taxing the income of a dead person after his death and this legal fiction cannot be extended so as to render what is not an income of a deceased person to be his deemed income and in support of his contention he relied upon an old decision of this court in the case of Ellis C. Reid v. Commissioner of Income-tax, where a lacuna obtaining in the provisions of the Income-tax Act had been pointed out. To remove which the provisions of section 24B came to be enacted. He also relied upon the Statement of Objects and Reasons which has clearly set out the purpose for which section 24B came to be enacted. On the other hand, it was urged by Mr.Hajarnavis for the revenue that under sub-section (1) of section 24B the fictional extension of the legal personality of the deceased must be given full effect to and the legal fiction created by the words 'if he had not died' cannot be regarded as merely providing a machinery dealing with assessment or recovery of payment of tax from the estate of the deceased. According to him, sub-section (1) of section 24B should be regarded as containing a charging provision, a provision which creates a liability, and as such it should be held that by the legal fiction created during the period after the death of the deceased till the end of the accounting year should be regarded as deemed income of the deceased. In view of these rival submissions, which have been put forward before us, the narrow question, which this court is called upon to decide, is whether the fictional extension of the legal personality of the deceased as contemplated by sub-section (1) of section 24B could be regarded as having been enacted for the purpose of merely providing a machinery for dealing with assessment or recovery of payment of tax from the estate of the deceased or whether the same has been enacted with a view to create an additional liability to pay tax on that part of the income said to have been received by the heirs and legal representatives of the deceased after the death of the deceased till the end of the relevant accounting year.

20. In order to decide this question it will be necessary to consider the purpose for which the legal fiction came to be enacted in sub-section (1) of section 24B and on this aspect of the matter two things would be relevant, viz., the position which obtained in law prior to the enactment of section 24B and whether any lacuna was there in the Act - an indication of which has been given by this court in Ellis C. Reid's case - and the Statement of Objects and Reasons which may set out the purpose for which section 24B came to be enacted. In Ellis C. Reid's case, the income-tax department sought to assess the deceased person's estate in the hands of his legal representative to tax and when the person served with a notice under section 22(1) of the Act failed to make a return and died after expiration of the period specified in the notice, assessment under section 23(4) was sought to be made on him after his death. After considering the definition of the expression 'assesses' given in section 2(2) of the Act (as it stood at the material date), the court took the view that the said definition applied only to a living person and in the absence of appropriate provisions for collecting tax from the estate of the deceased person in the Act the claim of the income-tax department to make assessment under section 23(4) must fail. This court further observed that through out the Income-tax Act there was no reference to the decease of a person on whom the tax had been originally charged and it was difficult to support that the omission was unintentional. This court further observed as follows :

'Every person liable to pay tax must necessarily 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... If the legislature intends to assess the estate of a deceased person to tax charged on the deceased in his lifetime, the legislature must provide proper machinery and not leave it to the court endeavour to extract the appropriate machinery out of the very unsuitable language of the statute'. It was with a view to rectify this lacuna that the provisions of section 24B came to be enacted. We might refer to the Supreme Court decision in the case of Commissioner of Income-tax v. James Anderson. The Supreme Court has expressly referred to this aspect of the matter in the following words : 'To rectify the lacuna in the machinery of assessment the legislature enacted section 24B, by the Indian Income-tax (Second Amendment) Act (18 of 1933).'

21. It is thus clear that the provisions of section 24B came to be enacted by the India Income-tax (Second Amendment) Act (18 of 1933) with the avowed object of filling in the lacuna that was pointed out by this court in Ellis C. Reid's case, and the lacuna was that there was no machinery in the Act till then which dealt with the assessment of or recovering payment from the assets of the deceased person. The above position also becomes clear if the Statement of Objects and Reasons appended to the Bill that was introduced in the Central Legislature is seen. The provisions of new section 24B were contained in clause 9 of the Bill and the note on clause 9 of the Bill runs as follows :

'The new section 24B supplies a lacuna in the Act which at present fails to provide either for assessment or the giving of refunds in respect of the income of persons deceased.'

22. Having regard to these aspects there can be no doubt that the provisions of section 24B must be taken to have been enacted for the purpose of the enactment, we feel Mr. Mehta would be right in contending that the legal fiction introduced in section 24B(1) should be restricted to the purpose for which it was meant and intended and could not be extended as has been suggested on behalf of the revenue, for the principle is well-settled that a legal fiction is to be limited for the purpose for which it has been created and cannot be extended beyond that legitimate field (vide Bengal Immunity Co. Ltd.'s case).

23. There are, in our view, two or three indications in section 24B itself which clearly suggest that the legal fiction created by the words 'if he had not died' used in sub-section (1) will have to be restricted to providing the machinery for assessment or giving refunds in respect of the deceased's income and that the said fiction cannot be said to have been enacted for the purpose of deeming what is not an income of a deceased person as his income in the hands of his heirs and legal representatives, for the purpose of bringing the same to tax. In the first place, the marginal note of section 24B reads, 'tax of deceased person payable by representative.' In other words, the marginal note speaks of the tax of the deceased person and surely the expression 'tax of deceased person' must mean 'tax on the income of the deceased person'. Secondly, the first part of sub-section (1) of section 24B clearly states that the heirs or legal representatives of a deceased person shall be liable to pay, out of the estate of the deceased person, 'the tax assessed as payable by such person' and this cannot be anything else but tax on the income of the deceased person which would be payable by such person. Thirdly, sub-section (2) of section 24B in terms refers to the 'total income of the deceased person'. It provides that where a person dies before the publication of the notice under section 22 22(1) or before he is served with a notice under section 22(2) or section 34, his heirs or legal representatives shall, on service of the concerned notice, 'comply therewith and the Income-tax Officer may proceed to assess the total income of the deceased person' as if such heirs or legal representatives were the assessees. Similarly, sub-section (3) also says that 'the Income-tax Officer may make an assessment of the total income of such person' (meaning 'deceased person'). The 'total income' contemplated in sub-sections (2) and (3) of section 24B has obviously reference to the total assessable income of the deceased person. In other words, under sub-sections (2) and (3) of section 24B of the Act the Income-tax Officer has to proceed to assess the total income of the deceased person as if the heirs or legal representatives were the assessees. It is in the context of these provisions that one has to consider the question as to whether the legal fiction created in sub-section (1) by using the words 'if he had not died' is referable to the actual income of the deceased person which might have been received by his heirs or legal representatives during the previous year or to any deemed income. In our view, the reference to 'the total income of the deceased person' as well as to 'the tax payable thereon' clearly suggest that the legal fiction created in sub-section (1) or rather the fictional extension of the legal personality of the deceased person must be confined to providing a machinery dealing with assessment of and recovering payment from the estate of the deceased person of the tax which could be recovered on what must be the actual total income of the deceased person.

24. On the other hand, Mr. Hajarnavis for the revenue contended that the legal fiction created by the words 'if he had not died' in the latter part of sub-section (1) of section 24B need not be confined to providing a machinery only, but according to him, the language of sub-section (1) created an additional liability and the legal fiction mist be given its full effect. In that behalf he pressed two aspects of section 24B before us. First, he pointed out that the sub-section (1) clearly provides that 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 or payable by such person, or any tax which would have been payable by him under this Act if he had not died. According to him, the expression 'shall be liable to pay' is clearly indicative of and attention to create an additional liability and sub-section (1) must be regarded as a charging provision making the heir of legal representatives of the deceased person liable to pay not merely the tax assessed as payable by a such deceased person, but also any tax which would have been payable by him under the Act if he had not died. Secondly, he urged that the last part of sub-section (1) of section 24B, viz., 'any tax which would have been payable by him under this Act if he had not died', clearly suggests that the legal personality of the deceased person is extended till the end of the accounting year or previous year, that is to say, notwithstanding his death such person is deemed to be alive till the end of the accounting year or previous year and, therefore, the legal fiction should be given full effect and what he would have received if he were alive during the whole of the accounting year, should be regarded as his income over which his heirs or legal representatives were enjoined to pay the tax. He sought to derive support for his said contention by relying upon sub-section (2) where the following words occur : '...... the Income-tax Officer may proceed to assess the total income of the deceased person as if such executor, administrator or other legal representative were the assesses. According to Mr. Hajarnavis, this provision contained in sub-section (2) lends support to his contention that the legal fiction created by the expression 'if he had not died' used in sub-section (1) of section 24B must be held to a provision creating an additional liability.

25. In other words, according to Mr. Hajarnavis, indisputably section 24B(1) creates a legal fiction and if that was so, the principle has been well-settled that such legal fiction must be given full effect, that is, it must be allowed to be worked out without allowing the mind 'to boggle' and in this behalf he placed strong reliance on Lord Asquith's famous dictum in East End Dwellings Co Ltd. v. Finsbury Borough Council. At page 132 of the report Lord Asquith observed thus :

'If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs; it does not say that, having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.' Mr. Hajarnavis pointed out that following this dictum the Supreme Court in the case of Additional Income-tax Officer v. E. Alfred allowed the legal fiction created in section 24B(2) to be worked out fully to its logical conclusion without permitting the court's mind to get boggled. In that case for the assessment year 1946-47 a notice was issued to the respondent under section 22(2) of the Income-tax Act in regard to his income (E having died) and the respondent was assessed under section 24B(2) of the Act and since after service of a notice of demand the respondent defaulted in payment of the tax, penalties were imposed upon him under section 41(1). The respondent challenged the levy of penalty and the High Court quashed the orders imposing penalty. On appeal the Supreme Court held, reversing the decision of the High Court, that the penalties could be imposed on the respondent as an assesses and that the orders levying penalties were valid. The court particularly took the view that by section 24B(1) of the Act a legal representative was made liable to pay the tax which might have been assessed but not paid by the deceased person or which might be assessed after his death. It covered all situations and contingencies and made the liability absolute, limited however to the extent to which the estate of the deceased was capable of meeting the charge. Further, since under section 24B(2) of the Act the legal representative of the deceased had been made an assesses by a fiction, the court took the view that this fiction had to be given full effect and the legal representative as the deemed assesses was liable to penalties for default committed by him. The relevant observations on which Mr. Hajarnavis relied appear at page 446 and run as follows : 'No doubt, the fiction made the respondent an assesses for the purpose of assessing the total income of Ebenezer. But the question is whether the fiction came to an end after the assessment, so that he remained a mere debtor thereafter to the department. The answer to this question would determine further application of other sections of the Act. 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. The original assesses being dead before the notice, either general of special, to him, he could not be treated as an assesses, and the process of the Act, is by the fiction, made available against a different person like a legal representative, who is fictionally deemed to be an assesses, for the purpose of assessment.... If we turn to the definition of assesses, it says that an assesses means a person by whom income-tax is payable. A legal representative who, by fiction is deemed to be as assesses, therefore, comes within this definition, because he is a person by whom income-tax is payable, though out of the assets left by a deceased person. The assessment of the legal representative is then made under section 23 of the Act, and he has the right to appeal under section 30, which he would not have, if he ceased to be an assesses after the determination of the tax.'

26. Relying upon Lord Asquith's dictum and the aforesaid decision of the Supreme Court, Mr. Hajarnavis contended that the fictional extension of the legal personality of the deceased person under sub-section (1) of section 24B must be worked out fully and, according to him, the latter part of sub-section (1) of section 24B, viz., the words 'any tax which would have been payable by him under this Act if had not died', must be given full effect to, that is to say, a state of things must be taken to be existing viz., that the deceased person was alive throughout the previously year or accounting year, namely, S.Y. 2006, and even the sum of Rs. 2,61,821 is said to have accrued to the deceased on the Divali day of that year, the same should be deemed to be the income of the deceased Arvind having accrued to him during the previous year and as such the same was capable of being brought to tax under section 24B(1) of the Act. In support of his contention reliance was placed by him upon the Supreme Court's decision in Amarchand N. Shroff's case, the ration which has been followed in subsequent decision in Commissioner of Income-tax v. James Anderson, Commissioner of Income-tax v. Hukumchand Mohanlal and Commissioner of Income-tax v. Hukumchand Mohanlal.

27. We shall come to the decision on which Mr. Hajarnavis has relied, such as the decision in Amarchand N. Shroff's case and the other decisions in which the ratio of the case has been followed a little later. The question is whether the legal fiction created by the words 'if he had notified' in sub-section (1) of section 24B should be fully worked out in the sense in which it has been contended for by Mr. Hajarnavis in the instant case. It is no doubt true that as per Lord Asquith's dictum (quoted above) a legal fiction, once it is carried by statue had sit be fully worked out without allowing the mind to boggle but, at the same time, the rule of construction in connection with legal fictions that has been firmly establish by judicial decisions is that legal fictions are created only for some definite purpose and they are to be limited to the purpose for which they are created and should not be extended beyond that legitimate field. In State of Bombay v. Pandurang Vinayak, relying on English decision in Ex parte Walton, In re Levy, the Supreme Court stated the law thus :

'When a statue enacts that something shall be deemed to have been done, which in fact and truth was not done, the court is entitled and bond to ascertain for what purpose and between what persons the statutory fiction is to be resorted to and full effect must be given to its logical conclusion.'

28. Similarly, in Bengal Immunity Co. Ltd. v. State of Bihar, after referring to Lord Asquith's dictum in East End Dwellings Co. Ltd. v. Finsbury Borough Council, the Supreme Court has ruled that a legal fiction must be limited to the purpose for which it has been created and should not be extended beyond the legitimate files. In that case the court was concerned with the explanation to article 286(1)(a) of the Constitution which provided that to for the purpose of sub-clause (a) a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to the sale of goods the property in goods has, by reason of such case or purchase, passed in another State and the question was how far and to what extent the legal fiction created by the Explanation was to be given effect to. Acting Chief Justice Das, in paragraph 31 of the judgment as observed as follows :

'Whichever view is taken of the explanation it should be limited to the purpose the constitution makers had in view when they incorporated it in clause (1). It is quite obvious that it created a legal fiction. Legal fiction are created only for some definite purpose. Here the avowed purpose of the Explanation is to explain what an outside sale referred to in sub-clause (a) is. The judicial decisions referred to in the dissenting judgment in State of Travancore-Cochin v. Shanmugha Vilas Cashewnut Factory, there case of East End Dwellings Co. Ltd. v. Finsbury Borough Council, at page 132, clearly indicate that a legal fiction is to be limited to the purpose for which it was created and should not be extended beyond that legitimate field.'

29. With regard to the contention raised that by a legal fiction an inter-State sale was converted into an intra-State sale, Justice Bhagwati in paragraph 107 of the judgment has observed as follows :

'..... the argument totally ignores the purpose and efficacy of a legal fiction. A legal fiction purposes the correctness of the state of facts on which it is based and all the consequences which flow from that state of facts have got to be worked out of their logical extent. But due regard must be had in this behalf to the purpose for which the legal fiction has been created. If the purpose of this legal fiction contained in the explanation to article 286(1)(a) is solely for the purpose of sub-clause (a) as expressly stated it would not be legitimate to travel beyond the scope of that purpose and read into the provision any other purpose, howsoever attractive it may be.

The legal fiction which was created here was only for the purpose of determining whether a particular sale was an outside sale or one which could be deemed to have taken place inside the State and that was the only scope of the provision. It would be an illegitimate extension of the purpose of the legal fiction to say that it was also created for the purpose of converting the inter-State character of the transaction into an intra-State one. This type of conversion could not have been in the contemplation of the Constitution-makers and is contrary to the express purpose for which the legal fiction was created as set out in the Explanation to article 286(1)(a).'

30. That being the real scope and effect of a legal fiction created by any statute, it appears to us clear that it will not be permissible to carry the fiction beyond the purpose and object with which it is introduced, but at the same time it would be a correct proposition to state that within the limits set by the purpose the fiction must be carried to its logical conclusion. In the instant case having regard to the purpose expressly mentioned in the Statement of Objects and Reasons, to which we have already referred and having regard to the lacuna in the enactment as was indicated by this court in Ellis C. Reid's case, to remove which section 24B was introduced by Amending Act 18 of 1933, it will be clear that legal fiction in section 24B(1) was created only with a view to provide the machinery for making assessment or giving of refunds if respect of income of deceased persons and it would not be proper to travel beyond the scope of that purpose and read into the provisions any other purpose, howsoever attractive it may be. In other words, the purpose of creating the legal fiction being what is just indicated, it would not be proper to extend the legal fiction beyond its legitimate field and to say that it was also intended to serve the purpose of creating an additional liability, that is to say, for rendering what in fact is not an income of deceased person to be his deemed income. Moreover, as we have indicated above on the question of proper construction of the words, 'any tax which would have been payable by him under this Act if he had not died' occurring at the end of section 24B(1), there are clear indications furnished by the marginal note, the first part of sub-section (1) of section 24B as also the reference to the total income in sub-section (2) and (3) of section 24B - all of which clearly suggest that the fictional extension of the legal personality of the deceased person was undoubtedly to be given full effect to for the entire previous year or accounting year in question but only for the purpose of making a provision for assessment of the income of the deceased and the legal fiction cannot be extended any further so as to include within its scope any amount which is not the income of the deceased and make the heir and legal representative pay tax thereon to the revenue. The words 'his executor administrator or legal representative shall be liable to pay' occurring in the first part of section 24B(1) on which reliance was placed by Mr. Hajarnavis are not words creating a charge or an additional liability, but these words, in our view, merely indicate the person or persons by whom the tax payable by a deceased person is to be paid. Similarly, the provisions of sub-section (2) of section 24B which creates a legal fiction that the legal representative is deemed to be the assesses, on which Mr. Hajarnavis relied, also do not lend support to the contention that by the legal fiction created in sub-section (1) any additional liability was unintended to be created. In view of this discussion we are clearly of the view that on a proper construction of section 24B(1) of the Act the said provision is clearly inapplicable in regard to the amount of Rs. 2,61,821 and Arvind's heirs or legal representatives cannot be called upon to pay tax thereon, as the same was never the income of Arvind prior to or on August 31, 1950, nor could it be regarded as his income by reason of the legal fiction created thereunder.

31. Turning to the decided cases, strong reliance was placed by Mr. Hajarnavis on the decision of the Supreme Court in the Commissioner of Income-tax v. Amarchand N. Shroff. In that case A, was a partner in a firm of solicitors which maintained its accounts on cash basis died on July 7, 1949. The outstandings of the firm in respect of professional services rendered prior to the death of A were realised during five years subsequent to A's death and were divided between the partners of the firm and certain amounts were paid to the legal representatives of A as his share. The income-tax department sought to assess these amounts in the hands of the legal representatives of A as his share to tax under section 34(1)(b) read with section 24B of the Act. The court held that section 24B did not authorise the levy of tax on receipts by the legal representatives 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 but in that previous year became assessable to income-tax in the relevant assessment year but no receipts by the legal representatives after the expiry of the accounting year in which A died. Mr. Hajarnavis in particular placed reliance upon the following observations which appear at pages 64-65 of the report :

'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 section 24B as his income in the hand of his heirs and legal representatives. In the present case the accounts were kept on cash basis. The assesses under the Act has ordinarily to be a living person and cannot be dead person because his legal personality ceases on his death. By section 24B the legal personality of a deceased assesses 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 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 the High Court in Ellis C. Reid v. Commissioner of Income-tax. 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 section 24B do not extended to tax liability of the estate of a deceased person beyond the previous or the account year in which that person dies.'

32. Relying upon the aforesaid passage occurring in the judgment, particularly the portion which has been underlined by us, Mr. Hajarnavis strenuously contended before us that these observations clearly indicate the manner in which the Supreme Court has given effect to the legal fiction created by section 24B of the Act and according to him, the Supreme Court has clearly indicated that by section 24B the legal personality of a deceased person is extended for the duration of the entire year in the course of which he dies and that, therefore, the income received by him before hid death and that received by his heirs and legal representatives after his death but in that previous year become assessable to income-tax in the relevant assessment year, and applying this ratio to the facts of the present case he urged in the instant case also the legal personality of Arvind must be taken to have been extended under section 24B for the entire accounting year, viz., S.Y. 2006, and not only the income received by Arvind during his lifetime but also the income received by his heirs and legal representatives during the period subsequent to Arvind's death but up to the close of the previous year would also be assessable to income-tax. He further pointed out that the ratio in Amarchand N. Shroff's case was followed and applied by the Supreme Court in a later decision in the case of Commissioner of Income-tax v. James Anderson and by the Madhya Pradesh High Court in Commissioner of Income-tax v. Hukumchand Mohanlal and this decision of the Madhya Pradesh High court has been affirmed by the Supreme Court of Income-tax v. Hukumchand Mohanlal when the matter was carried in further appeal. There is no doubt that the observations in Amarchand N. Shroff's case on which reliance has been placed by Mr. Hajarnavis lend support to the contention urged by Mr. Hajarnavis before us in this case and, therefore, his contention as well as several decisions relied upon by him require careful examination.

33. After going through all the four decisions on which Mr. Hajarnavis has relied one thing becomes clear and it is this that the courts in these cases were principally concerned with the income that had been received in years subsequent to the relevant accounting year or previous year in which the deceased had died and no question actually arose for decision as to whether the section 24B could not be attracted or invoked with regard to the income that was to be received or had been received during the accounting year or previous year in which the deceased had died and it is in the context of this principal fact that the observations on which strong reliance was placed by Mr. Hajarnavis will have to be regarded or considered. For the present we shall keep aside the facts which were obtaining in Amarchand N. Shroff's case and will deal with the other three decisions on which Mr. Hajarnavis has relied. In Commissioner of Income-tax v. James Anderson, one G had died in 1945 leaving a will and the question of applying the provisions of section 24B was considered in connection with certain dividends received from a company in which the deceased held shares for the assessment years 1946-47 and 1947-48. Section 23A was applied and the amounts deemed to have been distributed as dividends in respect of these shares were Rs. 61,051 as on May 26, 1947, and Rs. 3,73,099 as on December 22, 1947. The Income-tax Officer served a notice under section 34(1)(b) of the Act read with section 24B on the respondent who was 'a deemed assesses' in place of the 'deceased person' and overruling his objection added the deemed dividends to the deemed assessee's income and the Supreme Court took the view that the assessment made on the assesses was not valid in law because the fictional extension of the legal personality of the deceased for the purpose of section 24B of the Act came to an end at the end of the accounting year in which G died and no tax could be levied on the assesses under section 24B in respect of the dividends deemed to have been disturbed on May 26 and December 22, 1947 after the end of the year. Similar was the position in the other case of Commissioner of Income-tax v. Hukumchand Mohanlal. the facts were that an allowance for sales tax paid by A was made in the assessment of A for the year 1950-51. A died in February 1960, and the amount so paid was refunded by the Government and received back by A's widow in November 1961. The court held that this amount could not be included in profits of A's widow for the assessment year 1962-63 under section 41(1) as the amount was not received by the widow in the accounting year in which A died. This decision was later on confirmed by the Supreme Court in Commissioner of Income-tax v. Hukumchand Mohanlal. It would thus appear clear that in both these cases the question of applicability of section 24B was considered in this context of an income which had been admittedly received by the heirs and legal representatives of the deceased in years subsequent to the accounting year in which the deceased had died and the court took the view that the amount that was received by their and legal representatives could not be brought to tax under section 24B of the Act. In each, of these decisions the observations in Amarchand N. Shroff's case (quoted above) were relied upon and its ration was applied. Question as to what happens in a case like the present one where the partnership accounts were maintained on mercantile basis and Arvind having died in the middle of the accounting year, viz., S.Y. 2006, no profits accrued to Arvind till he died and actually profits or income accrued to his estate at the end of the accounting year on the Divali day and whether in such a case the legal fiction created by section 24B could be invoked for bringing to tax such income did not arise for consideration in these cases.

34. Turning to the facts which obtained in Amarchand N. Shroff's case it will have to be stated that the question that arose for consideration in that case related to five sums of Rs. 37,847, Rs. 48,162 Rs. 34,899, Rs. 13,402 and Rs. 32,523 which pertained to the assessment years 1950-51, 1951-52, 1952-53, 1953-54, and 1954-55, respectively. It may also be mentioned that Amarchand died on July 7, 1949, and for the relevant accounting year the corresponding assessment year would be 1950-51. But it mist be stated that the first item of Rs. 37,847, which pertained to the assessment year 1950-51, was referable and actually related to the period after Amarchand death till the end of the accounting year. We may mention her that, as these facts were not clear from the judgment of the Supreme Court in Commissioner of Income-tax v. Amarchand N. Shroff's as also from the facts stated by this court in its own judgment in Commissioner of Income-tax, Amarchand N. Shroff only with a view to have them clearly on record we have, by consent of the parties, taken on record of the present case copies of the relevant orders passed by the taxing authority in the reassessment proceedings initiated against Amarchand N. Shroff (deceased by his heirs had legal representatives). They are : (1) reassessment order passed by the Income-tax Officer under section 23(3) read with section 34 and section 24B(1) of the Act in the assessment proceedings against Amarchand N. Shroff (deceased by his heirs and legal representatives) for the assessment year 1950-51, (2) Appellate Assistant Commissioner's order dated August 13, 1956, reserving the order passed by the Income-tax Officer, and (3) Tribunal's order dated June 13, 1957. It becomes very clear from the Appellate Assistant Commissioner's order dated August 13, 1956, that he did not accept the inclusion of that part of the receipt by the heirs and legal representatives of Amarchand N. Shroff, which was received after July 7, 1949, up to the end of the accounting year in the assessment of the heirs and legal representatives of Amarchand N. Shroff. In paragraph 6 of his order the Appellate Assistant Commissioner has stated as follows :

'It is next to be considered whether the assessment for 1950-51 was correctly made. It is seen that the appellant had died on July 7, 1949. By his death two important things had happened : (i) the partnership had been dissolved, and (ii) all his property had been automatically vested in a coparcenary consisting of legal heirs. The assets of the Appellant had, therefore, become automatically the assets of the family and any income from such assets was enjoyed by the family in its own rights and not as legal representatives of the appellant. Therefore, it was incorrect to treat the income from the firm up to July 7, 1949, on the same basis as the income after July 7, 1949. The first was undoubtedly the income of the appellant and the latter of the Hindu undivided family. Therefore, in my opinion, the Income-tax Officer was wrong in assessing the income of the whole year under section 24B. He should have assessed the income up to July 7, 1949, under section 24B as indeed had been done by him in the original assessment. As this was the only effect of reassessment, this assessment is also annulled.'

35. The accounts in that case were admittedly maintained on cash basis. From the aforesaid order the position becomes very clear that, according to the Appellate Assistant Commissioner, the income pertaining to the period subsequent to July 7, 1949, up to the end of the relevant accounting year was required to be treated differently from the income that was received by the heirs and legal representatives from the firm up to July 7, 1949, being the date of Amarchand's death and that the latter could be assessed under section 24B and the Income-tax Officer's order makers it clear that the item of Rs. 37,847 pertained to the period July 8, 1949, to March 31, 1950, while the income for the period April 1, 1949 to July 7, 1949, had been computed at Rs. 26,279. It is in the light of these facts, which we have carefully ascertained from the aforesaid three orders, that the decision of the Supreme Court will have not be considered and more particularly the observations on which Mr. Hajarnavis has relied. In other words, though the first item of Rs. 37,847, which pertained to the assessment year 1950-51, was in regard to the period between July 8, 1949, and March 31, 1950, period subsequent to the death of Amarchand, it fell within the relevant accounting year in which Amarchand died and it was reference to this item that the Supreme Court ultimately held that the same was not taxable under section 24B of the Act and this finding could be justified only on the basis that the said item was not deceased and it is in the context of these facts that the particular observations which reliance has been placed by Mr.Hajarnavis will have to be considered. In particular he laid considerable stress on the following observations appearing at page 65 of the report :

'By section 24B the legal personality of a deceased assesses 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 assessment year.'

36. These observations to the extent to which they pertain to 'that (income) received by his heirs and legal representatives after his death in that previous year' must be taken to have reference to the 'income' of the deceased which has been received by the heirs and legal representatives during such previous year. The expression cannot mean any amount of sum that was received by the heirs and legal representatives of the deceased during the previous year irrespective of whether it was the income of the deceased or not and if the above observations are read in this manner (and, in our view, they should be so read for, that is warranted by the interpretation which we are seeking to place on the provisions of section 24B(1) of the Act), it would become clear that the legal fiction created by the expression 'if he had not died' in the sub-section (1) of section 24B shall have been extended during the entire period of the accounting year in which the deceased has died, for the purpose of providing a machinery for assessment of the income of the deceased person notwithstanding the death of such person during such previous year. In other words, the legal fiction will have to be given full effect by extending the fictional personality of the deceased person up to the end of the accounting year but what will be the assessable in the hands of the heirs and legal representatives must only be the 'income' of the deceased received by them during the entire accounting year.

37. An attempt was made by Mr. Hajarnavis to show that the Supreme Court, while considering the matter before, it really addressed itself to the question as to whether the income which was received subsequent to the question as to whether the income which was received subsequent to the previous year in which Amarchand had died, was liable to be assessed to income-tax under section 24B as his income in the hands of his legal representatives or not and it was pointed out that not less than three places in the whole judgment the Supreme Court has expressed itself clearly to the effect that the question before it was whether the income, which was received subsequent to the previous year in which Amarchand died was liable to be assessed to income-tax under section 24B as his income in the hands of his heirs and legal representatives. In other words, according to Mr. Hajarnavis, if this was the question to which the Supreme Court had addressed itself, it should be taken for granted that even the first item of Rs. 37,847, which pertained to the year 1950-51 was regarded by the Supreme Court as having been received by the heirs or legal representatives of the deceased in the assessment years subsequent to the accounting year in which Amarchand died. We do not think that the submission of Mr. Hajarnavis is correct. It is true that at more than one place the Supreme Court has set before it for its determination the question whether the income received subsequent to the previous year in which Amarchand died was liable to income-tax under section 24B of the Act as his income in the hands of his heirs and legal representatives or not. But on this aspect of the matter, in view of the facts which we have ascertained and set out above, having regard to the three orders which we have taken on record, there can be no doubt that the amount of Rs. 37,847 really pertained to that part of the previous year in question in which Amarchand died, viz., the period between the death of Amarchand and the end of that accounting year and so even so, with regard to this item the Supreme Court affirmed the decision of this court in Commissioner of Income-tax v. Amarchand N. Shroff that the said item was not taxable under section 24B(1) of the Act as the deceased's income in the hands of his heirs and legal representatives.

38. It may be state at this stage that relying on the particular observations on which Mr. Hajarnavis laid stress and which we have quoted above and certain other observations appearing on the same page, an attempt was made by the revenue to file a review application before the Supreme Court for the purpose of excluding the item of Rs. 37,847 from the portion of its judgment on the ground that having regard to the ratio as understood by the revenue this item of income, which pertained to the relevant previous year, was liable to tax under section 24B of the Act. But we are informed at the Bar that the review application was rejected by the Supreme Court. It may be stated that in the connected Income-tax Reference No. 83 of 1965, which we have heard along with this reference, an agreed statement of case has been sent by the Tribunal to this court in which there is a reference to the rejection of the aforesaid review application by the Supreme Court in Amarchand N. Shroff's case. The relevant portion of the statement of case in Income-tax Reference No. 83 of 1965 is as follows :

'.... It was also pointed out that there was an application for view preferred by the department to the Supreme court to clarify the position that the amounts for the first of the years under consideration there, were actually received in the previous year and therefore the decision would not apply in any event to the first year. But now, we are told, that application has dismissed...'

39. Having regard to the above discussion we are clearly of the view that the ratio of the Supreme Court decision in Amarchand N. Shroff's case has to be understood in the manner in which we have understood it and that would be in consonance with the proper construction of the relevant provisions of section 24B of the Act. In other words, when it is stated by the Supreme Court that by section 24B the legal personality of the deceased assesses is extended for the duration of the entire previous year in the course of which he died and that, thereof, 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 is assessable to income-tax in the relevant assessment year, what is meant by that ratio is that whatever amounts are received by the heirs and legal representatives of a deceased person after his death but in that previous year in the course of which he died are assessable to income-tax in the relevant assessment year provided that the said receipts partake of the nature of the income of the deceased in the previous year. By interpreting the provisions of section 24B in this fashion we are not curtailing the full effect that is required to be given to the legal fiction that is created by section 24B(1) of the Act. On the other hand, we are giving full effect to it but only for the purpose for which the same has been created by the legislature.

40. Since we are accepting both the aspects of the contention urged by Mr. Mehta on the first question referred to us and particularly in view of the conclusion reached by us on the proper construction of section 24B of the Act, we do not think it necessary to consider the second question raised in this reference. The first question in the circumstances will have to be answered in favour of the assesses and the same is answered as follows :

'On the facts and in the circumstances of the case and having regard to the terms of annexure 'A' to the statement of case the sum of Rs. 2,61,821 derived from the firm of M/s. Bhogilal Laherchand did not accrue to Arvind at any time on or before August 31, 1950, and section 24B of the Indian Income-tax Act, 1922, is not attracted even where the income is received by the estate of the deceased.'

41. It is not necessary to decide question No. 2. The revenue will pay the costs of the reference.


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