1974 (8) TMI 15 - HC - Income Tax

Income Tax Act, Legal Representative, Minor Admitted To Benefits Of Partnership, Share Income

Summary

Issues Involved:
1. Accrual of income to Arvind before his death.
2. Applicability of Section 24B of the Indian Income-tax Act, 1922.
3. Nature of the sum of Rs. 2,61,821 as capital receipt.

Issue-wise Detailed Analysis:

1. Accrual of Income to Arvind Before His Death:
The court examined whether the sum of Rs. 2,61,821 derived from the firm of M/s. Bhogilal Laherchand accrued to Arvind before or on 31st August 1950. The partnership deed dated 28th August 1950 stipulated that accounts were to be made up on the Divali day of each year, and profits or losses were to be ascertained only then. The court noted that under clauses 6 and 8 of the deed, it was impossible to predict profits or losses before the Divali day. The court referenced the decision in Bhogilal Laherchand v. Commissioner of Income-tax, which stated that profits could not be said to have accrued until the accounts were made up at the end of the accounting year. Additionally, the Supreme Court in Commissioner of Income-tax v. Ashokbhai Chimanbhai held that profits do not accrue from day to day and must be determined at the end of the accounting period. Therefore, the court concluded that no income accrued to Arvind before his death on 31st August 1950, and the sum of Rs. 2,61,821 could not be considered as having accrued to him.

2. Applicability of Section 24B of the Indian Income-tax Act, 1922:
The court analyzed whether Section 24B could be applied to tax the sum of Rs. 2,61,821. Section 24B provides that the legal representative of a deceased person shall be liable to pay the tax that would have been payable by the deceased if he had not died. The court emphasized that Section 24B was intended to provide machinery for assessing the income of a deceased person and not to create additional liability. The court referred to the Supreme Court's decision in Commissioner of Income-tax v. Amarchand N. Shroff, which held that Section 24B extends the legal personality of a deceased person for the entire previous year in which he died but only for the purpose of assessing income received during that year. The court concluded that Section 24B could not be used to tax the sum of Rs. 2,61,821 as it was not Arvind's income before his death.

3. Nature of the Sum of Rs. 2,61,821 as Capital Receipt:
Since the court concluded that the sum of Rs. 2,61,821 did not accrue to Arvind before his death and Section 24B could not be applied, it did not find it necessary to address the issue of whether the sum was a capital receipt. The court's decision on the first two issues rendered the third issue moot.

Conclusion:
The court answered the first question in favor of the assessee, concluding that the sum of Rs. 2,61,821 did not accrue to Arvind before his death and Section 24B was not applicable. Consequently, the second question was deemed unnecessary to decide. The revenue was directed to pay the costs of the reference.