1961 (10) TMI 2 - SC - Income Tax

Whether the legal representative of a deceased person, who is assessed in respect of the total income of the latter person, as if he were the assessee, can be ordered to pay a penalty under section 46(1) of the Indian Income-tax Act? Held that - The High Court reasoned, therefore, that the words an assessee in sections 45 and 46 in their application are limited to an assessee, who is assessed on his own behalf and not other person , who is not an assessee. This distinction, it observed, must be borne in mind in interpreting the word assessee used in sections 45 and 46, and so construing limited the word assessee in those two sections to an assessee proper. The words other person cannot apply to a legal representative, if he is an assessee by fiction, and the fiction has to be worked out to its logical conclusion. If he falls within the word assessee , as has been shown above, he does not fall within the words other person , and it is not necessary to find in this case what persons are there meant to be included. In our opinion, the penalty could be imposed on the respondent as an assessee. Appeal allowed.

Summary

Issues:
Whether the legal representative of a deceased person, assessed as the assessee under the Indian Income-tax Act, can be ordered to pay a penalty under section 46(1).

Analysis:
The case involved the question of whether a legal representative, assessed as the assessee under the Income-tax Act, could be penalized under section 46(1) for default in tax payment. The deceased person's son, as the legal representative, was assessed for the year following his father's death. A penalty was imposed on him for tax default during the appeal process. The High Court held that a legal representative is not an assessee under section 29 and, therefore, cannot be penalized under sections 45 and 46. The Supreme Court analyzed the definition of "assessee" and the provisions of section 24B, which make the legal representative liable to pay the deceased person's tax out of the estate. The Court emphasized that the legal representative, assessed under section 24B(2), remains an assessee for the purpose of tax assessment, appeal rights, and penalty provisions.

The Court discussed the legal fiction created by section 24B(2), where the legal representative is treated as the assessee for assessment purposes. The judgment highlighted that the legal representative falls within the definition of "assessee" as a person liable to pay income tax. The Court clarified that the legal representative's assessment is conducted under section 23, and he retains appeal rights under section 30. The judgment emphasized that the legal representative's status as an assessee continues even after tax determination, ensuring the full application of the Act's provisions.

Regarding penalty imposition under sections 45 and 46, the Court addressed the distinction between an "assessee" and "other person" in section 29. The High Court and respondent argued that the legal representative should be considered an "other person" and not an "assessee" for penalty purposes. However, the Supreme Court disagreed, stating that the legal representative, assessed under section 24B(2), qualifies as an assessee and can be penalized under section 46(1). The Court held that the penalty could be imposed on the legal representative as an assessee, ultimately allowing the appeal and awarding costs to the appellant.

In conclusion, the Supreme Court's judgment clarified that a legal representative, assessed as the assessee under the Income-tax Act, can be subjected to penalties under section 46(1) for default in tax payment. The Court emphasized the continuity of the legal representative's assessee status post-assessment, ensuring the application of penalty provisions.