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TMI Blog1953 (3) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... ee company was liable to be assessed in respect of the income of Maneklal Chunilal which escaped assessment. The point which has been urged before us by Mr. Palkhiwala is that the assessee company succeeded to Maneklal Chunilal on the 16th of September, 1937, and proceedings under Section 34 have been taken in respect of the assessment for the Samvat Year 1992 and inasmuch as the assessee company had not succeeded to Maneklal Chunilal in the Samvat Year 1992 but succeeded to him subsequently, the Income-tax authorities are not entitled to proceed against the successor in respect of the income of Maneklal Chunilal which escaped assessment. The answer to this question depends upon first whether Section 26 (2) before it was amended applies or the amended section applies. Section 26(2) was amended on the 31st of March, 1939, and it is common ground that if the amended section applies then the assessee company's contention must be upheld and the company is not liable to pay assessment. If, on the other hand, the old section applies, then we have to consider whether on a true construction of that section the assessee company is liable. Turning to the point which was first ur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the whole of the profits for that year but if he has received only a part of the profits for that year, he is liable to be assessed as a successor. If the Commissioner's interpretation were to be given effect to, it will lead to some very startling results. A businessman may not have his assessment completed for many years, and if the assessment is not completed his successor may become liable on this interpretation to pay tax for years together when he had nothing whatever to do with the business and when he had succeeded to the business long after his predecessor became liable to pay the tax ; and as Mr. Palkhiwala rightly points out, no discretion is left under sub-section (2) of Section 23 upon the taxing authorities. The assessment has to be made on the successor. It would be difficult to understand why the Legislature should have intended to penalise a bona fide successor for the delay on the part either of his predecessor assessee or of the taxing authorities in completing the assessment. But unfortunately the interpretation of sub-section (2) is not res integra. A Special Bench of the Madras High Court has taken the view favourable to the Commissioner and contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in force was the old Section 26(2) and not the amended Section 26(2), the assessee's rights and obligations would be governed by the old section and not the amended section. With respect, we find it very difficult to accept this view expressed by the Calcutta High Court. We have looked at the judgment and we find that the Calcutta High Court has only considered the provisions of Section 34 and has not considered Section 26(2) in order to decide which law was applicable, because if at the time of making an assessment under Section 23, Section 26(2) was not in force at all, it is difficult to understand how that section can be applied in order to impose a liability upon the assessee company, because if at the time of making the assessment the amended section was in force, and if that amended section did not cast any liability upon the assessee company, then the taxing authorities would have no power to fix the assessee company with this vicarious liability of his predecessor. But fortunately it is not necessary for us expressly to dissent from the decision of the Calcutta High Court because in this case, as we will presently point out, we have come to the conclusion that at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it may be that one person may be liable at the date when the notice was given under Section 34 and another person may become liable at the date when final order of assessment was made. It would be impossible to expect the taxing authorities to know at the precise moment when the assessment order was made as to who was the successor of the assesses whose income they were assessing. Mr. Palkhiwala has referred us to a decision of the Privy Council in Seth Badridas Daga and Another v. Commissioner of Income-tax [1919] 17 I.T.R. 209. The Privy Council makes it clear at page 211 that the word assessment and the word assessee are used in different places in the Income-tax Act with different meanings, and again in another Privy Council case Chatturam and Others v. Commissioner of Income-tax, Bihar [1917] 15 I.T.R. 303, the Privy Council says at page 307 that the income-tax assessment proceedings commence with the issue of a notice; and to set all doubts at rest Mr. Palkhiwala has with his usual fairness drawn our attention to another Privy Council case which directly concludes the matter as far as this question of construction is concerned. That case is Maharajadhiraj of Darbhanga ..... X X X X Extracts X X X X X X X X Extracts X X X X
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