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Commissioner of Income-tax, Madras Vs. Administrator to the Estate of L.D. Miller (Deed), Madras - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 15 of 9162 (Ref. 10 of 1962)
Judge
Reported inAIR1965Mad383; [1965]57ITR478(Mad); (1965)1MLJ97
ActsIncome-tax Act - Sections 23-A, 24-B and 34
AppellantCommissioner of Income-tax, Madras
RespondentAdministrator to the Estate of L.D. Miller (Deed), Madras
Cases ReferredReid v. Commissioner of Income
Excerpt:
.....estate of i.d. miller' - income-tax exigible with reference to person's total income of previous year - income received in the year subsequent to the previous or account year cannot be called income received by person deceased - under section 24b legal representative have by fiction of law becomes assessee but fiction cannot be extended beyond object for which it was enacted - amounts which are sought to be taxed and which have been not liable to tax are those which were not received in previous year and not liable to act in several years of assessments - legislation not made any provision for assessment of income receivable by estate of deceased person - any estate of deceased person and any tax payable by him in case not died cannot be deemed to supply machinery for taxing income..........the subsistence of the partnership, then the partner so retiring, or in the case of death, his legal personal representative, shall be entitled to draw a share equivalent tot his immediately previous (or last) percentage share of profits from the firm for a further period of one hundred and eighty-two days after the date of such retirement or death provided, however, that in the case of retirement after due notice as required by these presents, such notice, if given by a partner when on leave, shall be deemed to have been given on the last day on which he was attending in person to the business of the firm at one of its offices. the amount payable under this clause to such retiring partner or to the legal representatives of a deceased partner shall be paid by such instalments as the.....
Judgment:

Srinivasan, J.

(1) The question referred for the decision of this Court is:

'Whether on the facts and in the circumstances of the case, the sums of Rs. 53,553 and Rs. 12,250 were assessable to income-tax in the hands of the assessee 'administrator to the estate of L. D. Miller' in the assessment years 1958-59 and 1959-60, respectively?':

One Mr. Miller was a partner in Messrs. King and Partridge, a firm of solicitors. The deed of partnership provided that it was to enure for a minimum period of three years form 1-4-1956. One of the clauses of the partnership deed made provision in the case of the retirement or death of a partner. This clause read thus:

'If any partner shall retire for reasons of ill health or otherwise in accordance with these presents, or shall die during the subsistence of the partnership, then the partner so retiring, or in the case of death, his legal personal representative, shall be entitled to draw a share equivalent tot his immediately previous (or last) percentage share of profits from the firm for a further period of one hundred and eighty-two days after the date of such retirement or death provided, however, that in the case of retirement after due notice as required by these presents, such notice, if given by a partner when on leave, shall be deemed to have been given on the last day on which he was attending in person to the business of the firm at one of its offices. The amount payable under this clause to such retiring partner or to the legal representatives of a deceased partner shall be paid by such instalments as the continuing surviving partners or partner shall desire, provided, however, that the entire amount so payable shall be ascertained and paid within twenty-four calendar months after the date of the said retirement or death. The profits referred to in this clause shall be ascertained and limited in the following manner'.

Miller died on 16-11-1956. One of the other partners had been appointed Administrator to his estate under a will left by Miller. In accordance with the clause extracted above, the profit during the period of 182 days became payable. During the period 1-4-1957 to 31-3-1958, the total amount of profit to which the deceased partner became entitled was computed as Rs. 53,553 and for the period 1-4-1958 to 31-3-1959, such profit worked out to Rs. 12,250. The relevant assessment years for these two periods are 1958-59 and 1959-60. The Income-tax Officer made assessments in respect of these incomes for the two assessment years and such assessments were made on the assessee described as 'the estate of the late L. D. Miller by administrator..........' Against these assessments, appeals were taken before the Appellate Assistant Commissioner, and it was contended that no assessment could be made on the estate of the deceased in respect of professional income received after the death of the deceased. This contention was examined by the Appellate Assistant Commissioner, who, however, declined to accept it. He stated-

'..................it is seen that what was paid to the Administrator is the percentage share of profits which the deceased was entitled to receive in accordance with clause 16 of the partnership deed. In one sense, it is an item of income which accrued to the deceased before his death, since it related to the work done during his lifetime, although the amount had to be calculated and paid in a certain manner after his lifetime. Nonetheless, what was paid was the share of income which had accrued and become due to the deceased prior to his death. In this view, the sums are assessable in the hands of the administrator of the deceased. Even otherwise, the shares of income are income of the Administrator, just like rent, interest or any other income from the estate of the deceased'.

There were further appeals to the Income-tax Appellate Tribunal, which allowed the appeals, observing-

'No doubt, the amount is calculated with reference to the profits actually drawn in the immediately preceding year. But, it is clearly payable only after death and that too the estate of the deceased by way of perhaps goodwill. The payments in no sense can constitute income and much less income of the deceased from legal profession' the Judicial Member of the Tribunal, while agreeing that the appeals should be allowed, took a slightly different view and expressed himself in this manner: 'The subject-manner of these appeals are sums of money which formed no part of the income of the deceased, because they did not come in to him in his lifetime and the dead have no income'

On the application of the department, the question set out earlier stands referred to us.

(2) At the outset, we may state that we are not examining the question whether the sums represent income of the estate or income of the legal representatives of the deceased Miller. It will be noticed that clause 16 of the partnership deed makes provision for the payment of certain sums to a retiring partner or to a deceased partner. The amounts payable in either case are calculated in the same manner. The clause provides that he partner so retiring or in the case of his death, his legal personal representatives, shall be entitled to draw certain amounts. Whether, in the case of death, the sum so paid would be income in the hands of the estate of the deceased or should be regarded as income in the hands of the legal representatives of the deceased does not arise in the present case, for the only question debated before us is whether in respect of the income, even if it is taken to be income received after the death, it is assessable in the manner in which the department has assessed it.

(3) In James Anderson v. Commissioner of Income-tax, Bombay City, : [1960]39ITR123(SC) , a somewhat similar question arose. The facts were these: The appellant held a power-of-attorney from the executor of a deceased person and in the course of the administration of the estate sold certain shares and securities belonging to the deceased for the purpose of distribution among the legatees. The sale realised more that the cost price and the excess was treated as capital gains. This was objected to as not taxable either on the ground that he Administrator's liability to be taxed subsisted only in a case where the deceased would have been liable and that since the capital assets had not been sold by the deceased, there could, therefore, be no liability on the appellant, or on the ground that he case fell within the third proviso to S. 12-B (1). These contentions were rejected. In Commissioner of Income-tax v. Amarchand Shroff, : [1963]48ITR59(SC) , a case more parallel to the present one was considered by the Supreme Court. There, one of the partners of the firm of solicitors died and his son joined the firm as a partner a few months later. Outstandings on respect of the work done prior tot he death which were realised during the five years subsequent to the death were divided between the partners and certain sums were paid to the heirs and legal representatives of the deceased partner. The amounts were assessed in the hands of the legal representatives, but these assessments were set aside by the Tribunal. Thereafter the department assessed those amounts in the hands of the deceased by his heirs and legal representatives. The validity of such assessments came into question. Their Lordships had to examine the scope of S. 24-B of the Act. They observe-

'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 a merchant died, is liable to be assessed to income-tax under S. 24-B as his income in the hands of his heirs and legal representatives. In the present case, the accounts were kept on case basis. The assessee under the Act has ordinarily to be a living person and cannot be a dead person, because his legal personality ceases on his death. By S. 24-B, the legal personality of a deceased assessee is extended for a 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 representative after his death but in that previous year becomes assessable to income-tax in the relevant assessment year. The section was enacted by he Legislature to being to tax after his death income received during his lifetime and fill up the lacuna which was pointed by the High Court in Ellis C Reid v. Commissioner of Income-tax 5 ITC 100: : AIR1931Bom333 . Any income received in the year subsequent tot he previous or account year cannot be called income received by the person deceased. The provisions of S. 24-B do not extend to tax liability of the estate of a deceased person beyond the previous or the account year in which that person dies.........................'

They finally point out:

'By S. 24-B, the legal representatives have by a fiction of law become assessees as provided in that section, but that fiction cannot be extended beyond the object of which it was enacted...............In the present case, the fiction is limited to the cases provided in the three sub-sections of S. 24-B and cannot be extended further than the liability for the income received in the previous year. In the present case, the amounts which are sought to the taxed and which have been held not to be liable to tax are those which were not received in the previous year and are, therefore, not liable to act in the several years of assessments'.

The principle of S. 24-B was again considered in the Commissioner of Income-tax v. James Anderson, : [1964]51ITR345(SC) . The estate of a deceased person came to be administered by the assessee. In respect of certain shares, the name of the deceased continued to remain in the Register of shareholders of the company. Several years after his death, S. 23-A of the Income-tax Act was applied to the company for the assessment years 1946-47 and 1947-48, and certain amounts were deemed to have been distributed as dividends in respect of those shares on dates which were subsequent to the death of the deceased. The Income-tax Officer started proceedings under S. 34 of the Act, and sought to assess these deemed dividends in the hands of the Administrator. Their Lordships once again reiterated the position that the fictional extension of the legal personality of the deceased could not be carried beyond the end of the accounting year in which the person died and that no tax could be levied on the assessee, the administrator, under S. 24-B on the dividends which were deemed to have been distributed on dates beyond the close of that accounting year. The earlier cases were referred to and their Lordships pointed out that

'the legislature had not made any provision generally for assessment of income receivable by the estate of the deceased person, and that the estate of the deceased person, and that the expression 'any tax which would have been payable by him under this Act if he had not died' cannot be deemed to have supplied the machinery for taxing the income received by a legal representative to the estate after the expiry of the year in the course of which such person died'

(4) As we stated earlier, Miler died on 16-11-1956, that is to say, during the account year ending with 31st March 1957. In the statement of the case, it has been clearly specified that the sum of Rs. 53,553 as the amount of profit to which the estate became entitled for the period 1-4-1957 and 31-3-1958, that is to say, that income was received after the close of the account year during which Miller died. The same is the position which regard to the sum of Rs. 12,250 which represents the profits for the period 1-4-1958 to 31-3-1959. No part of either of these amounts was received by the estate during the year of account in which Miller died, that is to say, between 16-11-1956, the date of his death, and 31-3-1957, the end of the relevant accounting year. On the principle of the two decisions cited above, it should follow that there cannot be an assessment in respect of these amounts on the estate of the deceased represented by the Administrator.

(5) It follows that the question has to be answered in the negative and against the department. The assessee will be entitled to his costs; counsel's fee Rs. 250.

(6) Answer accordingly.


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