LEACH, C.J. - In Commissioner of Income-tax v. Reid, which was decided on the October 3, 1930, the Bombay High Court held that the Indian Income-tax Act contained no provision under which the estate of a deceased person could be taxed. The definition of 'assessee' under Section 2(2) of the Act only applied to a living person. In Maharajadhiraj Of Darbhanga v. Commissioner of Income-tax, Bihar and Orissa which related to an assessment made in the year 1929-30, the Privy Council held that Section 26(2) applied to a person who succeeded to the business of a deceased person and therefore the successor could be taxed in respect of the income obtained from the business in the year of succession. On the September 11, 1933, the Legislature inserted Section 24-B. Stated broadly, the question which arises here is whether Section 24-B overrides Section 26(2) and requires, in the case of a person dying leaving a business, the assessment to be made on his executor, administrator or other legal representative, as if he had not died.
This reference arises out of the assessment made on the Receivers of the estate of one RM. AR. AR. RM. Arunachalam Chettiar, who died on the February 23, 1938. He was survived by his two wives and the widow of a predeceased son. He left a will and therein appointed executors. The estate is now being administered by the Court of the Subordinate Judge of Devakottai, who appointed the Receivers. In Appeals Nos. 321 of 1940, and 3, 104 and 239 of 1941, this Court had to decide the rights of the widows and the sons widow. The deceased had large assets which included a money-lending business in British India with branches in Ceylon, the Federated Malay States and in French Cochin China. The decision of this Court, so far as it affects the present case, was that the deceaseds widows and the sons widow were entitled to the movable assets in British India, but that he sons widow did not share in the movable assets outside British India. The three ladies can be regarded as the successors to the deceaseds business, although not in equal shares.
In the present case the year of account is from the April 12, 1937 to the April 12, 1938. The Income-tax Officer held that the Receivers were to be assessed to income-tax and super-tax in respect of the whole of the estate, including the profits of the business. The receivers contended that the profits of the business should be separately assessed and the tax levied on the widows under Section 26(2). The Appellate Assistant Commission upheld the order of the Income-tax Officer, but on appeal to the Income-tax Appellate Tribunal, Calcutta Bench, the Receivers contention was accepted. At the request of the Commissioner of Income-tax the Tribunal has referred the following question under Section 66 of the Income-tax Act :-
'Whether in the circumstances of this case the entire assessment has to be made under Section 24-B of the Act or has the assessment to be split up into two portions, one falling under Section 26(2) and the other falling under Section 24-B of the Act ?'
The argument advanced on behalf of the Commissioner is that Section 24-B is self contained and is wide enough to cover every case where a person liable to income-tax dies during the year of account. The section may be self-contained, but this does not mean that it overrides Section 26(2). Sub-section (2) of Section 26 was amended in 1939, but the Court must have regard to its provisions before the amendment. It then read as follows :-
'Where, at the time of making an assessment under Section 23, it is found that the person carrying on any business, profession or vocation has been succeeded in such capacity by another person, the assessment shall be made on such person succeeding, as if he had been carrying on the business, profession or vocation throughout the previous year, and as if he had received the whole of the profits for that year.'
As we have already pointed out, in Maharajadhiraj of Darbhanga v. Commissioner of Income-tax, Bihar and Orissa the Privy Council held that this provision allowed the tax to be levied on the person who succeeded to a business on the death of the owner. In our judgment Section 24-B was inserted in order to supplement Section 26(2) and to avoid the defect pointed out by the Bombay High Court. If the Legislature had intended Section 24-B to override Section 26(2), as interpreted by the Privy Council, surely it would have said so. As Section 24-B left Section 26(2) untouched, we consider that Section 26(2) must be applied in a case of succession to a business by death and the tax levied on the successor as if he had carried on the business throughout the previous year. This means that we agree with the decision of the Appellate Tribunal and we answer the question referred accordingly.
The respondents are entitled to their cost, Rs. 250.
Reference answered accordingly.