1965 (11) TMI 37 - SC - Income Tax

Whether by enacting section 18 of the Act, Parliament has not rendered the estate of a person liable to expenditure-tax, if such person had died before the date on which the Act was brought into force? Held that - A person who has rendered himself liable to pay tax on the expenditure incurred by him in the previous year may, not being aware of the proposal to enact a statute like the Expenditure-tax Act, part with his estate. But on that account he cannot set up a defence against the levy of the tax that he has parted with the estate. Nor can the legal representative of a deceased person set up a plea that because the estate is distributed, he should not be rendered liable to pay the expenditure-tax which has been imposed by the statute. Thus unable therefore to agree with the High Court that, by enacting section 18 of the Act, Parliament has not rendered the estate of a person liable to expenditure-tax, if such person had died before the date on which the Act was brought into force. Appeal allowed.

Issues Involved
1. Applicability of the Expenditure-tax Act, 1957, to individuals who died before the Act came into force.
2. Liability of the legal representatives of a deceased person under the Expenditure-tax Act.
3. Interpretation of Section 18 of the Expenditure-tax Act in relation to Section 24B of the Indian Income-tax Act, 1922.

Issue-wise Detailed Analysis

1. Applicability of the Expenditure-tax Act, 1957, to Individuals Who Died Before the Act Came into Force
The Expenditure-tax Act, 1957, was enacted to levy a tax on expenditure incurred by individuals or Hindu undivided families. The Act came into force on April 1, 1958. The primary issue was whether the Act applied to individuals who had died before it came into force. The respondents argued that since Mahendrasinghji died before the Act's commencement, the Act did not apply to him, and therefore, his executors were not liable to submit any return.

The Supreme Court held that the Act's applicability was not limited to individuals who were alive when the Act came into force. The Court stated that Section 18(1) of the Act imposes liability on the legal representatives of a deceased person to pay the expenditure-tax assessed as payable by such person, or any sum which would have been payable if he had not died. The Court found no indication that the Act was intended to exclude individuals who died before its commencement.

2. Liability of the Legal Representatives of a Deceased Person Under the Expenditure-tax Act
Section 18 of the Expenditure-tax Act was scrutinized to determine the liability of legal representatives. Subsection (1) of Section 18 imposes liability on the legal representatives to pay the expenditure-tax out of the estate of the deceased. Subsection (2) provides the machinery for assessing tax where the deceased had not submitted a return, or had submitted an incomplete return. Subsection (3) makes Sections 13, 14, and 15 applicable to the legal representatives as they apply to any person.

The Court held that the legal representatives are under the same obligations as the deceased to make a return under Section 13(1). The Expenditure-tax Officer has the power to call for a return from the legal representatives and to assess the tax payable, which could have been exercised against the deceased if he had not died. The Court concluded that the legal representatives could be required to make a return, and a best judgment assessment could be made if they failed to do so.

3. Interpretation of Section 18 of the Expenditure-tax Act in Relation to Section 24B of the Indian Income-tax Act, 1922
The respondents argued that Section 18 of the Expenditure-tax Act should be interpreted similarly to Section 24B of the Indian Income-tax Act, 1922, which was judicially interpreted to apply only to persons dying after the Act was brought into force. They relied on the case of Commissioner of Income-tax v. D. N. Mehta, where the Bombay High Court held that Section 24B did not apply to individuals who died before the amendment was enacted.

The Supreme Court rejected this contention, stating that the expression "where a person dies" in Section 18 does not restrict its application to deaths occurring after the Act came into force. The Court emphasized that the context of subsections (2) and (3) of Section 18 indicated that Parliament intended to render the estate of a person dying before the Act liable to tax. The Court found that the legislative intent was clear in making the estate of a deceased person liable to expenditure-tax, regardless of whether the death occurred before or after the Act's commencement.

Conclusion
The Supreme Court allowed the appeal, setting aside the High Court's order. The Court held that the Expenditure-tax Act, 1957, applies to individuals who died before the Act came into force, and their legal representatives are liable to pay the tax from the deceased's estate. The petition filed by the respondents was dismissed with costs in both the Supreme Court and the High Court. Appeal allowed.

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