P. CHANDRA REDDY C.J. - These writ petitions involve the interpretation of section 24B and 26(2) of the Indian Income-tax Act. The question is to be decided by us arises in the following circumstances. One Rahiman Sahib was carrying on business at Singapore, Johore and Kota Tingi in the Federated Malay States. He died on October 5, 1950, leaving behind him a will dated July 10, 1939, with a codicil executed on June 18, 1947. Under the will, he appointed his three sons as the executors and trustees. The codicil provided, inter alia, for the division of the profits of the foreign business amongst the legal heirs in the shape of allowances, remuneration and share of profits. In respect of the profits and gains derived by the said Rahiman Sahib from his business for the years 1950-51 and 1951-52, notices were issued to him under section 22(2) of the Act; but, before they could be complied with, Rahiman Sahib died. Consequently, his legal representative filed returns, disclosing income which were exigible to taxes of Rs. 29,724-15-0 for the year 1950-51 and Rs. 2,314-2-0 for the year 1951-52, i.e., from April 1, 1949 to October 6, 1950. On the basis of these returns, assessments were made on the estate of deceased, represented by his sons. The assessments for 1950-51, and for the subsequent year were completed on March 12, 1951, and February 15, 1956, respectively. Thereafter, the revenue authorities could realise a sum of Rs. 9,387-8-3 from the estate of the deceased. For the balance, the department proceeded against the properties of the petitioners by a resort to section 26(2) of the Act. Since these amounts were not paid by the petitioners, successive certificates were issued under section 46(2) of the Act. When the District Collector, to whom the certificates were issued, sought to recover the amounts under the Revenue Recovery Act, the jurisdiction of this court was invoked under articles 226 of the Constitution.
In these petitions, a contention is raised that, as the assessments were made under section 24B of the Indian Income-tax Act, the legal representative of the deceased Rahiman Sahib could not be made personally liable for the tax due from his estate. It is urged that the department could not have recourse to section 26(2) of the Act, having made the assessments under section 24B, and that the remedy of the department is the one provided in section 24B. On the other hand, it is maintained for the department that section 26 is available to them, since the petitioners had succeeded to the business of Rahiman Sahib.
Before we deal with the merits of these relative contentions, we can profitably read sections 24B and 26(2) of the Act, with the interpretation of which we are concerned here. Section 24B runs this :
'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 may 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 assessee.
(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, by 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 may accounts, documents or other evidence which he might under the provisions of section 22 and 23 have required from the deceased person.'
It may be incidentally mentioned that the instant case falls within the scope of sub-section (3).
Now, we will turn to the terms of section 26(2) which run thus :
'26. (2) Where a person carrying on any business, profession or vocation has been succeeded in such capacity by another person, such person and such other person shall, subject to the provisions of sub-section 4 of section 25, each be assessed in respect of his actual share, if any, of the income, profits and gains of the previous year :
Provided that, when the person succeeded in the business, profession or vocation cannot be found, the assessment of the profits of the year in which the succession took place up to the date of succession, and for the year preceding that year shall be made on the person succeeding him in like manner and to the same amount as it would have been made on the person succeeded or when the tax in respect of the assessment made for either of such years assessed on the person succeeded cannot be recovered from him, it shall be payable by and recoverable from the person succeeding, and such person shall be entitled to recover from the person succeeded the amount of any tax so paid.'
Indubitably, the income that is made exigible to the tax was earned by the person succeeded.
Now the person that falls to be determined is whether the proviso to section 26(2) is attracted to the case so as to make the petitioners personally liable for this tax. It is not disputed that the latter part of the proviso is inapplicable, because the assessment was not made during the lifetime of the deceased person. So, the only problem that has to be solved is whether the first part of the proviso comes into operation in this case. A reference to the terms of this part of the proviso clearly discloses that it is only in cases where a person succeeds to the business of another and the assessment is made in regard to the income of the person succeeded in his capacity as a successor that the proviso comes into play. Could it be postulated in this case that the assessment was made on the petitioners herein as successors to the business of Rahiman Sahib In other words, were the assessments made on these persons as successors of Rahiman Sahib ?
We have to answer this question in the negative, having regard to the terms of the assessment orders. It appears from those orders that it was the estate of Rahiman Sahib as represented by these persons that was treated as the assessee. This is made clear in paragraph 3 of the counter-affidavit of the respondents. The relevant recital therein is as follows :
'The assessments for the above years were made on O. R. Abdul Hameed, one of the sons of the deceased, as the legal representative of late O. Rahiman Sahib on the basis of returns filed by him on behalf of other legal representatives representing the estate of the deceased.'
In such a situation, we cannot accede to the submission on behalf of the department that it was in their personal capacity that the heirs of Rahiman Sahib were assessed in respect of the income derived by the deceased Rahiman Sahib.
It is, no doubt, true that section 26 of the Act enables the department to make the successor in business of a deceased person an assessee in his individual capacity, and, if this is done, personal liability attaches to the assessee. If this enabling provision is resorted to, it is open to such a successor to proceed against the estate of the deceased for realising the amount that is personally recoverable from him. But such a situation has not arisen in this case. As we have already stated, it is not in their individual capacity that the heirs of Rahiman Sahib were assessed on the income derived by the deceased Rahiman Sahib. From the terms of the assessments, we could gather that the assessments were made under section 24B of the Act, which has already been extracted. If, as mentioned above, the heirs were not made assessees in their individual capacity, but in their representative capacity, that is, as the legal representatives of Rahiman Sahib, undoubtedly, it is section 24B that would govern the case.
It is true that, ordinarily, it is only a living person that would be an assessee under the Indian Income-tax Act and a deceased person or his estate cannot be treated as an assessee. But section 24B has enacted a legal fiction, extending the legal personality of the deceased for the duration of the entire previous year in which he died, with the consequence that the income earned by him before his death and that received by his legal representatives in that year could be subjected to tax in the relevant assessment year.
As remarked earlier, the department had recourse to this section for the purpose of bringing to tax the profits and gains received by the assessee, and realised a portion thereof. It is only when they failed to collect the balance of the amount that the department sought to put into effect section 26(2) of the Act (as could be seen from the relevant orders issued by the department). In our considered judgment, once the assessment was completed under section 24B, it is not competent for the department to resort section 26(2) for the purpose of collecting it from the heirs of the decreased Rahiman Sahib. Having initiated proceedings under section 24B and completed the assessment thereunder, they are precluded from invoking section 26(2). If the assessment were made under section 24B, the liability of the legal representatives is confined to the estate of the deceased in their hands. In other words, they could be required to pay tax out of the estate of the deceased, without incurring any personal liability.
This position becomes clear not only from the language of the two sections, but also from the authoritative pronouncements of the Supreme Court in Addl. Income-tax Officer v. E. Alfred, First Addl. Income-tax Officer, Karaikudi v. T. M. K. Abdul Kassim and Commissioner of Income-tax v. Amarchand N. Shroff. In these cases, the scheme of section 24B of the Act is dealt with, and the proposition is laid down that, in the three eventualities contemplated by that section, the liability of the legal representatives though, by a legal fiction, the legal representatives are deemed to be assessees, is limited to the estate in their hands, although the income was not derived by them, but by person whose estate they represent. The instant case is governed by the doctrine of the above decisions.
On this discussion, it follows the petitioners cannot be proceeded against personally for the realisation of the tax due, the only remedy available to the department being to collect the tax from the estate of the deceased.
It is fairly conceded by the counsel for the appellants that it is open to the department to proceed not only against the properties standing in the name of the deceased but also against the properties acquired with the assets of the deceased. We are not here concerned with the question as to what are the properties thus purchased, since no attempt was made by the department to attach any of the properties belonging to the petitioners as having been purchased with the assets of the deceased.
For the reasons given above, we allow these writ petitions and grant relief as indicated above. The petitioners will get costs from the department in W. P. No. 738 of 1963. Counsels fee Rs. 250.