PANCKRIDGE, J.-The question raised by this Reference is not altogether an easy one.
The reference is made at the instance of Mrs. Usharani Roy Choudhury, the widow and personal representative of one Mr. N. K. Roy Choudhury who died on May 12, 1938.
Mr. Roy Choudhury was, during his life-time, the managing agent of a limited company known as the Bengal River Steam Company Ltd. He was remunerated upon a commission basis calculated on the tonnage carried by the Company. It appears that he was not in the habit of drawing his commission or, at any rate all of it, regularly, for at the date of his death a sum of Rs. 18,748 was due from the company to him on that account. Of this sum, according to the calculations made by the Assistant Commissioner of Income-tax, Rs. 2,668 represented the commission earned in the period from April 1, 1938, to May 12, 1938. The balance, some Rs. 16,000 represented commission earned prior to April 1,1938.
After Mr. Roy Choudhurys death the company paid the sum of Rs. 18,184 to Mrs. Roy Choudhury for her and for her minor sons. The payments were made in three instalments-one of June 30, 1938, another on August 25, 1938, and the final instalment on November 26, 1938.
The Income-tax Department has assessed Mr. N. K. Choudhurys income-tax for the tax year 1939-40 under the provisions of Section 24-B of the Indian Income-tax Act. That section provides that 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 tax assessed as payable by such person, or any tax which would have been payable by him under the Act if he had not died. If Mr. Roy Choudhury had not died he would have been assessed for 1939-40 on the income of the previous year 1938-39.
It is admitted that such payments as Mr. Roy Choudhury drew on account of his commission during his life-time were salary within the meaning of Sections 6 and 7 of the Act. In making the assessment the Income-tax Officer has included in the total income of the deceased for the year 1938-39, the total sum due to Mr. Roy Choudhury for commission at the date of his death, namely Rs. 18,748.
The Assistant Commissioner to whom an appeal was preferred has come to the conclusion that the Income-tax Officers assessment is wrong, and that there should only be included in it the commission which was due to Mr. Roy Choudhury at the date if his death in respect of the period from the beginning of the financial year 1938-39 up to the day he died, that is to say, up to May 12, 1938. On an average basis he has come to the conclusion that commission for this period amounted to Rs. 2,668, and he has accordingly disallowed Rs. 18,184 of the Rs. 18,748 appearing in the assessment made by the Income-tax Officer.
The commissioner has set aside the order of the Appellate Assistant Commissioner and has restored the sum of Rs. 18,184 disallowed by the Assistant Commissioner to the assessment. At the request of the assessee the Commissioner has referred to this Court under Section 66 (2) of the Indian-tax Act the following question :
Was the Commissioner correct in law in ordering the inclusion of the sum of Rs. 18,184 in the petitioners assessment for 1939-40?
The Commissioner has referred to the order made by him when revising the Appellate Commissioners order for the reasons which led him to restore the sum I have specified.
Since the amendment which came into force on April 1, 1939, Section 7 (1) provides that the tax shall be payable by an assessee under the head 'salaries' in respect of any salary or wages, any annuity, pension or gratuity, and fees, commissions, perquisites or profits in lieu of, or in additional to, any salary or wages which are due to him from, whether paid or not, or are paid by or on behalf of any private employer.
The object of the amendment was to make salary which was due but not paid taxable equally with salary actually paid. The Assistant Commissioner has recognised that salary which is due but not paid is liable to be assessed, but he has construed the amended section as limited ot unpaid salary due in respect of the previous or accounting year.
The Commissioner states that he accepts this construction of the word 'due' in section 7 (1), but he goes on to observe that 'under that section a person is chargeable not only in respect of salary due (whether paid or not) but also in respect of salary paid during the year.' He says 'where arrears of salary paid have been assessed on the due basis in the past they would not be liable to tax again, but where they have not been assessed on that basis they are obviously liable to assessment subject to the relief permissible under Section 60 (2) ', and he states that in his opinion the commission due to the deceased for preceding years, which was paid to his administratrix after his death and which was not assessed in the past was salary of the deceased within the meaning of Section 7 (1).
After consideration I am of opinion that the Assistant Commissioner and the Commissioner are not right in limiting the word 'due' to salary due in respect of the accounting year. That construction appears to me to insert into the section words which are not there and which the Legislature if it had seen fit could have inserted, and thereby made its meaning clear. In my opinion the fact that the salary has been since paid to the legal representative is not really a material circumstance, and that even if it were still unpaid it would nevertheless be taxable although earned by services to the employer in years previous to the year of assessment.
It may be that I am wrong in this view and that the argument by which the Commissioner has been led to come to the opinion he has formed are the correct ones. Be that as it may I arrive at the same result as he does, namely, that the sum of Rs. 18,184 was rightly included in the assessment.
The learned Advocate for the assessee attaches some importance to the proviso to Section 7 (1) which states-
'Provided further that where tax is deductible at the source under Section 18, the assessee shall not be called upon to pay the tax himself unless he has received the salary without such deduction'.
If I am right in thinking that the tax was payable by the assessee at the date of his death, obviously Section 18 has no application because under that section the application to deduct only arise at the time of payment and, therefore, before the arrears of salary were paid there was no tax deductible in respect of them. On the other hand, if the Commissioners reasoning is right, the answer is that the proviso does not come into operation because the assessee has in fact received the salary without the deduction contemplated by Section 18.
The case is a somewhat hard one, because during the year 1938-39 a certain property which had formed part of the deceaseds estate resulted in a loss of Rs. 12,932. The Income-tax Officer has only allowed a setoff proportionate to the period of the year prior to the death of the deceased, that is to say, a sum of Rs. 1,509 and the learned Advocate for the assessee points out that it seems somewhat harsh that the estate should be called upon to pay tax in respect of money received in June, August, and November, 1938 while the loss to the estate n respect of the landed property should be limited to the month of April and half the month of May. The answer is, on the construction that I have given to Section 7 (1) of the Act, that this result is inevitable.
In consequence of the conclusion at which I have arrived the answer to the question propounded by the Commissioner is in the affirmative.
No order is made as to costs.
DERBYSHIRE, C. J.-I agree that the question asked by the Commissioner should be answered in the affirmative.
Put very shortly, my view are these. By virtue of Section 7 of the Act, the earnings of the deceased, which remained undrawn down to the time of his death, remained salary at all material times. It was salary at the date of his death. His widow-the assessee-was only entitled to claim it as the legal representative of the deceased and it was paid to her as salary due to the deceased.
By reason of Section 24-B (2), the Income-tax Officer was entitled to assess the total income of the deceased person as if the legal representative were the assessee. The legal representative in this case-the assessee-has received the salary due to her husband without any previous deduction to tax. In my opinion she is, by reason of Section 24 (B), liable to pay the tax which would have been paid by the deceased on that salary if he had not died.
Reference answered accordingly.