1971 (9) TMI 5 - SC - Income Tax

Sales tax was paid by husband - assessee succeeded to this business on the death of her husband - taxability of refund of sales tax -There is no provision in the act making a successor in business or legal representative of an assessee to whom an allowance had already been granted, liable to tax u/s 41(1) - revenue appeal dismissed

Summary

Issues:
1. Interpretation of Section 41(1) of the Income-tax Act, 1961 regarding taxation of remitted amount.
2. Applicability of Section 159 of the Act on the liability of legal representatives.
3. Determination of the liability of the deceased assessee's successor or legal representative under Section 41(1).

Detailed Analysis:
The judgment pertains to an income-tax reference case where the main issue was the taxation of an amount remitted to the assessee, who was the successor to a business. The High Court had ruled in favor of the assessee, and the Supreme Court was now considering the appeal. The case revolved around the interpretation of Section 41(1) of the Income-tax Act, 1961, which deals with the taxation of amounts obtained by an assessee in respect of a previously allowed deduction or liability. The section deems such amounts as profits chargeable to income tax. The Tribunal had initially ruled in favor of the assessee, stating that since the deduction was obtained by a different assessee (the deceased husband), the current assessee (his widow) was not liable to pay tax on the remitted amount.

The Supreme Court analyzed the provisions of Section 41(1) in detail. The section applies when an allowance or deduction has been made in a previous assessment year, and the assessee subsequently obtains any amount in respect of such deduction. However, the Court noted that the section can only apply to the assessee who originally obtained the deduction. In this case, the deceased husband would have been liable to pay tax under Section 41(1) if he had received the remitted amount during his lifetime. Since the widow was now the assessee, she could not be brought within the scope of the section. The definition of "assessee" under Section 2(7) of the Act was considered, and it was concluded that the widow did not fall within the definition to be taxed on the remitted amount.

Further, the judgment discussed the applicability of Section 159 of the Act concerning the liability of legal representatives to pay any sum the deceased would have been liable to pay. It was highlighted that the legal representative's liability is limited to the extent of what the deceased would have been liable for if alive. The Court referenced past decisions to support the interpretation that the income received after the previous or accounting year of the deceased cannot be attributed to the deceased person for tax purposes. The revenue could not rely on Section 159 in this case, as the deceased was not the assessee contemplated by Section 41(1).

In conclusion, the Supreme Court upheld the High Court's decision, agreeing that the remitted amount was not liable to tax in the hands of the current assessee under Section 41(1) of the Act. The appeal was dismissed, affirming the ruling in favor of the assessee.