1. Abdul Ralnman Sait is the heir of one Mohammed Jaffer Hussain Sait, who died on 6-5-1952. Thedeceased had earlier filed returns for the assessment year 1950-51 on 2-3-1951, and for the assessment year 1951-52 on 28-2-1952. Because of his death the assessment for 1950-51 was made on bis son, on 31-12-1954 and for 1951-52 on 18-2-1955. The tax for the first assessment year had amounted to Rs. 1,47,577-15-0 and was to be payable in threeequal instalments on January 21, February 25, and March 28, 1955. Similarly the tax for the other assessment year had come to Rs. 53,810-13-0 and was to be realised by two equal instalments on March 30, and April 30, 1955.
Demands under Section 29 of the Income-tax Actwere made from the assessee's son, and the noticeunder Section 29 of the Income-tax Act was served onthe legal representative on 7-1-1955. He requested on 27-1-1955, monthly instalments for payment of the tax for the assessment year 1950-51, and theIncome-tax Officer permitted instalment payments of Rs. 20,000 with interest beginning from 10-2-1955. The son, however, paid only Rs. 10,000 on 9-2-1955, and thereafter made irregular payments of varying amounts; the entire total of these payments towards the tax for the assessment year 1950-51 amounting to Rs. 22,500. As regards the tax for the other assessment year, there has been only one payment of Rs. 2,500.
The Income-tax Officer had for the failure topay the instalments imposed token penalties of Rs. 20 and Rs. 250. But these penalties have also not been paid. The son had earlier filed appeals against the main assessment orders and the Appellate Assistant Commissioner on 13-9-1955, passed orders reducing by Rs. 75,000 the tax for the year 1950-51, and by Rs. 23,845 the tax for the year 1951-52. Even these reduced amounts have not been paid.
2. In this reference we are, however, concerned with legality of the order imposing penalties for the Income-tax Officer had on 8-9-1955, imposed on the son the further penalties of Rs. 5,000 on ac-count of his failure to pay the tax for the first, andRs. 3,000 for the failure to pay the tax for the second assessment year. The son appealed to the Appellate Assistant Commissioner, but failed. Thereafter the Appellate Tribunal has allowed the appeal on the ground that the penalties under Section 46(1) of the Income-tax Act cannot be levied against the heirs of the deceased assessee. In support of this view the Tribunal has relied on E. Alfred v. Additional I. T. Officer Circle I, Salem : 29ITR708(Mad) which is conceded to be the only case law on the point. The Department asked & the following question has been thereafter referred:
'Whether the penalties levied for the assessment years 1950-51 and 1951-52 under Section 46(1) on the legal heir of the deceased whose income was assessed under Section 24B(2) on such legal heir is valid'.
3. There is the obvious error in the question concerning the sub-section; for Section 24B(2) does not cover the case of the assessee dying after furnishing returns. On the other hand the sub-section provides for returns being furnished by the legal representative of the assessee who dies before any notice under Section 22(1) or 22(2) or 34 has been served and because of death no assessment proceeding has been yet begun against the deceased. The statement of facts before us clearly states the assessee to have furnished returns and to have died thereafter, and in these circumstances this mention of Section 24B(2) in the question is obviously incorrect. Section 24B(3) is also not relevant, as1 it covers the case of no return or defective return having been made by the deceased after notice and the assessment being proceeded against the heir. This subsection is therefore not relevant, because the father has sent in returns which apparently were proper.
It follows that the question should be treated as having referred to Section 24B(1). The learned Advocate for the Department has argued that Section 2(2) of the Income-tax Act defines 'assessee' to be a person by whom the tax is payable; that it is wide enough to cover the heir, who has the deceased assessee's assets in hands, because such a person is liable to pay the tax under Section 24(B)(1) : that Section 46(1) having used the word 'assessee' would authorise the Department to impose the penalty, the definition of the assessee being wide enough to include the heir who notwithstanding assets had failed to pay. The learned Advocate has not been able to cite authority in support of his argument, but relies on passages in text books expressing the view that the decision in : 29ITR708(Mad) is incorrect.
In that case Rajagopalan, J., took note of the definition, but correctly pointed out that the meaning is subject to the context and the word in Section 46(1) because of the context would not cover the legal representative. Therefore the point to be investigated is how far the reasonings, on which the word in Section 46(1) is found to convey restricted meaning, are correct. It cannot be disputed that two conditions must bo satisfied before the default within the meaning of Section 45 of the Income-tax Act can be treated as having been established. The first is the notice and the next the failure to pay the tax. Section 45 further refers to notice under S, 29 and the latter draws a distinction between the assessee and any other person liable to pay the tax. It follows that Section 29 having so distinguished between the two, the failure of the assessee would not be of the legal representative and the failure of the heir would be of the other person liable to pay.
It further follows that this distinction would extend to Section 45 and beyond the section to Section 46, as the word assessee's default in the latter section would mean the delault under Section 45. The result is that because the sections are so interlocked the context does not justify the word assessee in Section 46 being interpreted as meaning the heirs of the deceased as well. We would now give what the learned Judge has stated to be the ground, on which the word 'assessee' in Section 46 should be given the circumscribed meaning:
'To establish 'default' in the payment of the assessed tax, within the meaning of Section 45, two conditions at least to be satisfied, (1) failure to pay the amount specified in the notice of demand issued under Section 29 and (2} that failure must be that of an assessee'.
Section 29 tuns:
'When any tax (penalty or interest) is due in consequence of any order passed under or in pursuance of this Act, the Income-tax Officer shall serve upon the assessee or other person liable to pay such tax (penalty or interest) a notice of demand in the prescribed form specifying the sum payable'.
'In the context of Section 29, which itself marks a distinction between an assessee and any other person liable to pay the tax due, the definition of assessee in Section 2(2) cannot be invoked to include within the scope of the expression 'assessee' every person liable to pay the assessed tax. The limitation imposed by Section 20 will necessarily govern the interpretation of the expression 'assessee' as used in Section 45 of the Act, because failure to comply with the notice of demand issued under Section 29 of the Act is one of the primary conditions to be satisfied before Section 45 can apply. Obviously, when Section 46(1) refers to 'an assessee in default', it is the assessee who is in default within the meaning of Section 45 that is meant. A penalty can be imposed under Section 46(1) only on such an assessee in default'.
4. Nothing has been urged against the aforesaid reasoning being incorrect and therefore we would with respect adopt them. The conclusion is further supported by another line of reasoning. It is clear that the Income-tax Act, whenever it fixes persons with vicarious liability to pay tbe tax, expressly either directs the income to be deemed to be of the assessee, or directs the other person to be assessee, or extends to such a person the other provisions of the Act. Such are sections 16(1)(c), 18(7), 40(1) and 42; and the difference between the liability created under the sections from the one under Section 24B (1) is patent. Under the last mentioned subsection the heir is only liable to pay tax from the assets of the deceased in hands.
It follows that there are two liabilities; one is of the assessee to pay tbe tax, and the other is of the heir to administer the estate. Because of the difference the phrase assessee in default would mean the failure to perform the liability by the assessee, and would not include the failure by legal representative. Therefore the penal provisions for an assessee in default would not extend to the otherdefault. The position under Section 24B(2) is not different, for under it the fiction of treating the executor, administrator or other representative of the deceased as assessee is only for the limited purpose of assessment, and all the provisions of the Income-tax Act for enforcing the liability are not extended. In other words the duty of the executor or administrator still remains and legal representative does not become an assessee. The result is that the legislature having imposed on such person also only a limited liability, they cannot be treated as though they were assessees for purposes of levying penally. This view has been again taken, and we respectfully think rightly, in Abdul Kassim v. Income-tax Officer : 33ITR466(Mad) wherein the legal representative assessed under Section 24B(2) was held not to be an assessee within the meaning of Section 46(2).
The only ground on which the aforesaid decision can be argued to be incorrect is that when law creates a fiction there is no justification for not pushing the fiction to its fullest extent. That was the ground, on which the levy of penalty against the legal representative for furnishing incorrect returns, has been upheld in Sukumar Mukherjee v. Commissioner of Income-tax : 33ITR231(Cal) . But we do not think the fiction under Section 24B(2) makes the heirs' liability as extensive as that of the deceased assessee and varies the duty under Section 24B(1). That apart, considerable number of decisions distinguish between assessment and penalty, and hold levy of penalty not to be necessary concomitant of assessment proceedings. In this connection we would refer to Commissioner of Income-tax v. Rayalaseema Oil Mills : 37ITR208(AP) where it has been held that Section 44 of the Income-tax Act, before the amendment in 1958, did not empower levy of penalty under Section 28 on a firm that had been dissolved. It follows that the fiction of treating the legal representative as the assessee only for the purposes of assessment would not extend to proceedings for levying penalty.
5. We would now summarise the grounds because of which we think the penalty cannot be levied against the heir of the deceased assessee. The Income-tax Act has not made the liability o the heirs as wide as that of the deceased, nor it has extended all its provisions to such persons, and therefore penal provisions for enforcing the assessee's obligation cannot reasonably be construed as extending to such person. Section 29 distinguishes assessee from other persons who are liable to pay, and that difference extends to Sections 45 and 46, because the three sections are interlocked, with the result that in the context the word 'assessee' in Section 46 does not cover the other person who is liable to pay.
There are decisions that under the Income-tax Act proceedings to levy penalty are different from assessing the tax, and with no express provision in the Act that casts the liability on the heir, the legal representative cannot be proceeded against under Section 46(1). The fiction under Section 24B (2) is limited because under Section 24B(1) the vicarious liability is limited. We think therefore the decision of the Tribunal to be correct, and would answer the question referred to us by saying that penalty proceeding against the legal representative is not valid.Let this answer be sent, and the heir will be entitled to costs of this court with Counsel's fee whichwe will fix at Rs. 100/-.