The short question for decision upon this petition is whether the petitioners, appointed by the court as joint receivers upon the decease of the previous receiver, can be assessed in respect of income chargeable for an assessment year prior to their appointment.
Once upon a time, the John family were the exclusive owners of three spinning mills and one roller flour mill, all situated at Agra, and popularly known as the John Mills of Agra. During the passage of time, with the vicissitude of fortune, the exclusive ownership of the John family gave way to co-ownership with a number of others. In 1949, one Seth Loon Karan Sethiya filed a suit for money in the court of the Civil Judge, Agra, against the co-owners. In this suit, the court appointed two receivers over the mills for the purpose of protecting and preserving them. To their powers was subsequently added the power of realising rent and income accuring from the property. Pursuant to directions issued by the court, the several mills were given out on lease on payment by the lessees of specific sums as lease money by the month. The joint receivers were replaced about the year 1955 by a single receiver, Bishambhar Dayal Agrawal and upon his death in 1958, Rameshwar Nath Agarwal was appointed to fill the office. This receiver continued until his death on April 17, 1963. By an order dated May 1, 1963, the court at Agra appointed the petitioners as joint receivers, and it is admitted that they assumed charge as receivers on being so appointed.
The respondent, the Income-tax Officer, served on the petitions three separate notices dated February 14, 1964, under section 148 of the Income-tax Act, 1961, in respect of three assessment year 1959-60, 1960-61 and 1961-62. The notices which were addressed to 'M/s. John Mills through Sarvari Prem Narain Agarwal and Roop Kishore Mehra, Advocates, Agra' recited that the Income-tax Officer had reason to believe that income chargeable to tax for the respective assessment years had escaped assessment within the meaning of section 147 of the Act.
On the same date, February 14, 1964, the respondent made a provisional assessment under section 141 of the Act in respect of the assessment year 1962-63 and served it upon the petitioners calling for the payment of Rs. 1,43,179.73 as tax. Upon default by the petitioners in making the payment, the respondent initiated penalty proceedings. The petitioners challenged the validity of the provisional assessment by a petition (Civil Misc. Writ No. 162 of 1964) in this court, and on October 20, 1964, Manchanda J. allowed the petition and quashed the provisional assessment with its notice of demand.
The petitioners were then required by the respondent to file returns in respect of the assessment years 1959-60 onwards but the petitioners demurred on the ground that they were not liable to file any returns for the period prior to their appointment as receivers. The respondent pressed for the returns, taking his stand on the contents of the judgment to Manchanda J. which he understood as determining that the petitioners were liable to assessement as successors of the earlier receiver. Thereupon the petitioners filed the instant petition for certiorari and prohibition against the notices dated February 14, 1964, and the consequential proceedings.
At the outset a preliminary objection has been raised by the respondent. It is pointed out that in the petition heard by Manchanda J. two grounds had been taken, among others, by the petitioner : (1) that the petitioners were not liable to assessment in respect of the income chargeable for the assessment years before they were appointed as receivers and could not be treated as legal representatives or successors of Rameshwar Nath Agarwal, the proceeding receiver, and (2) that they were not liable to be assessed in the status of an association of persons. These grounds, it is said, were rejected by Manchanda J. who allowed the petition only on the ground that the Income-tax Officer had not applied his mind to the determination of the status in which the petitioners were to be assessed. The preliminary objection is without substance. It is true that the petitioners raised a number of grounds in support of the relief claimed by them, the relief essentially being that the provisional assessment and the consequent notice of demand be quashed. The relief was granted by Manchanda J. on the ground to which I have referred and the remaining grounds were disposed of by the observation that most of them had no force. The doctrine of res judicata does not operate where no appeal can be filed by a party because the relief sought by him has been granted. Manchanda J. granted all the relief which was essential to the decision of the petition; it was not open to the petitioners to file an appeal against his judgment. Consequently, if the judgment contained any finding against them on some of the grounds, that cannot operate as res judicata.
The respondent also urges that the petitioners are barred by estoppel, but have not indicated how that is so.
Whether the petitioners are liable to assessment for the assessment years before they were appointed as receivers may now be considered.
Chapter XV of the Income-tax Act, 1961, makes provision for liability in special cases. The Chapter attempts to cover those cases where, apart from making an assessment directly upon the persons who may have earned the assessable income, an assessment may be directed alternatively against others who stand in a representative capacity in relation to them. Such persons have been described as 'representative assessee' by the Act, and section 160(1)(iii) defines one class of representive assesses as :
'Representative assessee' means -
(iii) In respect of income which......... any receiver......... appointed by or under any order of a court, receives or is entitled to receive on behalf or for the benefit of any person, such............. receiver.........................................;
Sub-section(2) of section 160 declares that every representative assessee shall be deemed to be an assessee for the purposes of the Act.
The petitioners say that they are not representative assessees within this definition for the assessment years 1959-60 to 1961-62 because the income relevant to those assessment years was neither received by them nor were they entitled to receive it. The respondent contends that the petitioners fall within the definition, because as receivers they are entitled to receive the income. It is immaterial and it is urged that the income arose or accrued or was receivable during the period relevant to an assessment year before the receiver was appointed. The definition, it is said, is not concerned with the year for which the income is taxable. It seems to me that the contention of the respondent rests upon a fallacy. A receiver falls within the definition of 'representative assessee' by reference to income, the income being that which he receives or is entitled to receive as receiver on behalf, or for the benefit of, any person, A receiver appointed to manage property is ordinarily entitled to receive income arising from that property. The right to receive the income is one of the incidents flowing from the right to manage the property. It was not for that purpose, therefore, that Parliament considered it necessary to specifically include the words 'receives or is entitled to receive' in the definition. On the contrary, those words must be taken to have the meaning familiar to them in the law of income-tax. It is well known that income may accrue to a person and it may be received by him, and for the purposes of income-tax liability, depending upon the system of accounting, mercantile or receipt, a person is liable to tax for the assessment year relevant to the previous year in which the income accrues to him or is received by him. Income accures to a person when he acquires the right to receive it or, in other words, is entitled to receive it. 'Accrue' is used in contradistinction to 'receive'. A person may not have received income yet but he may have acquired the right to receive it. In that event, if he follows the mercantile system of accounting, the income accrues to him on the a date when he acquires that right and it becomes taxable in his hands, even though he may not have actually received it. The words 'receives or is entitled to receive' in section 160(1)(iii) have been used in respect of income in a taxation statute and in may opinion refer to the earning of income. That this is the construction contemplated by Parliament is borne out by the use of the words 'income-received by or accuring to..........' in section 161(1) of the Act, where the incidence of the liability of a representative assessee has been set out. Now, income can accrue or be received only once by the same assessee. If the income accrued in the hands of the earlier received, it became taxable at the time of accural, and its subsequent receipt by the later receiver will not make it liable to tax again. It cannot be said that, in respect of that income, the earlier receiver was a representative assessee because he was entitled to receive it, and the later receiver is also a representative assessee in respect of the same income because he has actually received it. It must be remembered that the purpose of the definition is to define a class of assessees. That is plain from sub-section (2) of the section 160. An 'assessee' is defined by section 2(7) as a person by whom income-tax is payable. The category of 'representative assessees' has been created for the purpose of subjecting them to assessment. A representative assessee therefore can be so only in respect of income which is liable to be assessed in his hands, and such income can only be that which is earned at time when he occupies that status. In my opinion, the contention of the respondent that the petitioners are 'representative assessees' within the meaning of section 160(1)(iii) must fail.
The respondent then contends that the petitioners are legal representatives of the earlier receiver, and, therefore, are liable to assessment by virtue of Section 159. Section 159 provides for the liability of legal representatives of a deceased person. Sub-section (1) declares that upon the death of a person his legal representative shall be liable to pay any sum which the deceased would have been liable to pay if he had not died, in the like manner and to the same extent as the deceased. Such legal representative is, by virtue of sub-section (3), deemed to be an assessee. Now the expression 'legal representative' has been defined by section 2(29) of the Act as having 'the meaning assigned to it in clause(11) of section 2 of the Code of Civil Procedure, 1908. ' Section 2(11) of that Code contains the following definition :
'Legal representative' means :
a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased and where a party sues or is sued in a representative character the person on whom the estate devolves on the death of the party so suing or sued.'
The respondent contends that although the petitioners may not be said to represent the estate of the deceased receiver or to intermeddle with that estate, yet, inasmuch as the deceased receiver was functioning in a representative character and his estate devolved upon the petitioners as receivers, the receivers must be considered to be his legal representatives. I am unable to accept the contention. In order that a person should be a 'legal representative', the estate of the party, who sues or is sued in his representative character, should devolve on that person on the death of the party. A receiver is merely an officer of the court. The property over which he is a receiver does not vest in him. It does not appear that there was any estate of the deceased receiver which devolved upon the petitioners. Moreover, the petitioners were appointed receivers some days after the death of the previous receiver and their appointment took effect from the date of the order of appointment. It cannot be said that the state, assuming there was one, devolved on the death of the previous receiver. It came to them by virtue of their appointment by the court, an appointment which had no retrospective operation. I am unable to hold that the petitioners are the legal representatives of the deceased receiver.
The proceedings initiated by the impugned notices under section 148 of the Act against the petitioners are without jurisdiction.
The respondent urges that the question should be left for consideration in the assessment proceedings. It seems to me that when there is no dispute on the facts and the question is one of jurisdiction of the respondent to take those proceedings, I should be justified ex debito justitiae in interfering at this stage.
In the circumstances, it is not necessary to consider the submissions of the petitioners that they are not liable to be assessed as an association of persons or as to the extent of their liability.
The petition is allowed. A writ in the nature of certiorari shall issue quashing the notices under section 148 of the Income-tax Act in respect of the assessment years 1959-60, 1960-61 and 1961-62 and the proceedings taken consequent thereto. The petitioners are entitled to their costs.