1958 (10) TMI 55 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of realisations from work done by a deceased partner.
2. Applicability of Section 24B of the Income-tax Act.
3. Status and assessment of the entity receiving the realisations.
4. Nature of the realisations (capital or income).

Comprehensive, Issue-Wise Detailed Analysis:

1. Taxability of Realisations from Work Done by a Deceased Partner:
The primary issue was whether the sums of Rs. 37,847, Rs. 43,162, Rs. 34,899, Rs. 13,402, and Rs. 32,523, realised after the death of Mr. Amarchand Shroff, were assessable to income-tax in the hands of "Amarchand N. Shroff by his legal heirs and representatives" over five respective years. The court noted that these sums were in respect of work done by Mr. Amarchand prior to his death. The Tribunal concluded that these amounts could not be assessed as income of the assessee-heirs, as they were not the income of the heirs but rather realisations of the estate of the deceased, thus capital receipts.

2. Applicability of Section 24B of the Income-tax Act:
The court focused on Section 24B, which deals with tax on the income of a deceased person payable by his representatives. The court highlighted that Section 24B only applies to income that had accrued to or had been received by a deceased person but had not been assessed or taxed before their death. The court found that the realisations in question were not income accrued to Mr. Amarchand before his death, and thus Section 24B could not be invoked. The court emphasized that the tax must be on the income of the deceased person, and since the realisations were capital receipts, they were outside the purview of Section 24B.

3. Status and Assessment of the Entity Receiving the Realisations:
The Department initially assessed the amounts in the hands of an entity styled as "the heirs and legal representatives of late Mr. Amarchand N. Shroff" with the status of a Hindu undivided family (HUF). The Tribunal, however, held that the proper entity to be taxed was indeed the HUF consisting of Mr. Amarchand's two sons and widow. The Tribunal reiterated that the realisations received by the HUF were capital in nature and could not be brought to tax as income.

4. Nature of the Realisations (Capital or Income):
The court agreed with the Tribunal's view that the realisations were capital receipts. The court noted that if the realisations were not the income of the deceased, they could not be considered the income of the heirs. The nature of these realisations in the hands of the assessee would evidently be part of the estate of the deceased, thus capital receipts. The court cited various authorities and cases to support this view, emphasizing that the receipts did not change character post-death and remained capital in nature.

Conclusion:
The court concluded that the sums realised after the death of Mr. Amarchand Shroff were not assessable to income-tax in the hands of "Amarchand N. Shroff by his legal heirs and representatives." The court's answer to the question posed was in the negative, affirming that the realisations were capital receipts and not income subject to tax under Section 24B or any other provision of the Income-tax Act.