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TMI Blog1961 (9) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... a copy of the will annexed to the estate of the deceased in British India. The letters of administration were granted on 14th August, 1946. The deceased, Mr. Gannon, possessed 2,674 shares of a private limited Indian company known as Gannon Dunkerley Co. Ltd. (hereinafter referred to as the company ). By clause 5 of the will the deceased had bequeathed 450 out of the 2,674 shares to six legatees mentioned in the will. In the course of administration the assessee handed over the share certificates as well as the transfer deeds in respect of the 450 shares to the six legatees. As regards the remaining 2,224 shares a tripartite agreement was reached between the National Bank of India Ltd., as the executors of the will of the deceased, the company and one Mr. Morarka. There were certain other parties to this agreement but we are not concerned with them here. Under this agreement, the executors agreed to sell the said 2,224 shares to Mr. Morarka and the company consented to it. Clause 5 of the agreement provided that the completion of the purchase and sale of the shares to be purchased and sold under the agreement shall be completed within three months from the date of the agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act to the assessee calling upon him to deliver a return of his total income and total world income assessable for the assessment year ending 31st March, 1949, as in his view the assessee's income assessable to income-tax for the year ending 31st March, 1949, had escaped assessment and he, therefore, proposed to reassess the said income that has escaped assessment. A notice was addressed to Mr. James Anderson, administrator to the estate of the late Mr. Henry Gannon, C/o. The National Bank of India Ltd., Mahatma Gandhi Road, Bombay . The assessee, after obtaining some adjournments, filed a return on October 13, 1953, whereunder he returned an income of ₹ 2,56,602. It is to be noticed that, in the return filed, the assessee had not included the aforesaid deemed dividend income amounting to ₹ 61,051 and ₹ 3,73,099 ; total ₹ 4,34,150. Before the Income-tax Officer the assessee objected to the addition of the said amount of ₹ 4,34,150 to his income on various grounds. The Income-tax Officer, however, overruling the objections raised by the assessee, added the said amount of ₹ 4,34,150 to the assessee's income. After grossing up the div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of the assets available, the assessment cannot be made as the estate is not capable of bearing the charge ; (6)that in any event the company being a party to the agreement dated August 14, 1946, was bound to complete the sale and the appellant cannot be made to suffer because of the fraud played on him by the company ; it cannot also be said that the rectification remedy was open to the appellant as in fact no notice of any meeting or the declaration of any dividend was issued to the appellant ; and (7)that capital gains tax having been levied and collected clearly established the completed sale and thereafter the appellant cannot be made liable to tax in respect of the same source of income. The Tribunal took the view that, as the provisions of section 24B were applicable to the facts of the present case, any error in addressing the assessee in the notices is not a matter of any substance and that the assessment was properly made. As regards the contention of the appellant that the tax on capital gains having been levied on the assessee, it was not open to the department to assess him in respect of the deemed dividend income, the Tribunal observed : We se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Joshi, on the other hand, contends that the shares stood in the name of the late Mr. Gannon and the estate of Mr. Gannon vested in the assessee on August 14, 1946. Had Mr. Gannon not died the deemed dividend income would have been included in the income of Mr. Gannon. Section 24B of the Act makes the administrator liable to pay tax in respect of this income. In the assessment year 1948-49 the assessee had been assessed only in respect of the income of the estate received by him. The deemed dividend income was the income of that year. That income, therefore, can be added or clubbed to the income of the assessee of that year. The notice issued on the assessee was in his representative capacity as representing the estate of the deceased and was, therefore, proper. He referred us to the decisions in Maharaja of Patiala v. Commissioner of Income-tax [1943] 11 ITR 202 and Commissioner of Income-tax v. James Anderson [1954] 26 ITR 699. According to Mr. Joshi the decision of the Supreme Court to which our attention was drawn by Mr. Kolah has no application to the facts of the present case. In that case the registered shareholder was alive at the time the order under section 23A was made. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 24B is the substantive provision as regards the tax on the income of a deceased person payable by his representative. It reads : Where a person dies, his executor, administrator or other legal representative shall be liable to pay out of the estate of the deceased person to the extent to which the estate is capable of meeting the charge the tax assessed as payable by such person, or any tax which would have been payable by him under this Act if he had not died . It will be noticed that the liability of the executor, administrator or other legal representatives of the deceased created by this sub-section relates to the tax that was payable by the deceased : the tax which, in fact, had been ascertained in his lifetime in an assessment or the tax which would have been payable by the deceased, in respect of his income, if he had been alive. The liability to pay the said amount of tax is limited only to the extent of the estate of the deceased person. In other words, in an assessment in respect of the income of the deceased, the administrator is not personally liable. Sub-sections (2) and (3) relate to the procedure to be followed in an assessment relating to the income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndemnified in respect of the tax paid ; while their liability to pay tax on the profits earned during the testator's lifetime arises under section 24B and, being that of legal representatives of the testator, is limited 'to the extent to which the testator's estate is capable of meeting the charge' . It is true that the case with which their Lordships of the Supreme Court were dealing was a case in which the executors were carrying on the business as directed under the will of the deceased, but that fact would make no difference. The principle stated in the case would be equally applicable to the facts of the present case. At page 189 of the report it is observed by Patanjali Sastri J.: The Income-tax Act directs its attention primarily to the person who receives the income, profits or gains rather than to the ownership or enjoyment thereof . Further the following observations of Lord Cave have been cited with approval: The fact is that, if the Income-tax Acts are examined, it will be found that the person charged with tax is neither the trustee nor the beneficiary as such, but the person in actual receipt and control of the income, which it is sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 61] 43 ITR 352 ). The facts were that 1,842 shares in a company called the Cotton Export and Import Limited belonged to a Hindu undivided family and the family was the beneficiary of those shares. The shares, however, stood in the individual names of certain coparceners in the family ; 815 shares stood in the name of Nanalal Haridas, who was the karta of the family ; 877 shares stood in the name of Tribhuvandas Haridas, another member of the family, and 150 shares in the joint names of Nanalal Haridas and Tribhuvandas Haridas. The company was a private limited company in which the public had no interest. An order under section 23A was made against the company. The proportionate amount of dividend of 1,842 shares, after being grossed up, came to ₹ 54,307. This amount, the Income-tax Officer added to the income of the joint family. The joint family challenged the adding up of this amount to its income. It claimed that the dividend deemed to have been distributed under section 23A should be assessed in the hands of the shareholders, that is, the members of the family in whose names the shares stood registered in the books of the company and not in the hands of the Hindu undivide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o have been distributed among the shareholders would be deemed to be the income and deemed to have been received by those persons in whose names in the books of the company the shares are registered. The aforesaid observations of their Lordships are, in our opinion, a complete answer to the contentions raised by Mr. Joshi. It is, therefore, not possible to hold that the deemed dividend income is deemed to have been received by the assessee as on May 26, 1947, and December 22, 1947. If at all it could be deemed to have been received by anybody on those dates, it could only be by the late Mr. Gannon and none else. We would like to make it clear that we do not hold that the said deemed dividend income was, in law, deemed to have been received by Mr. Gannon on those dates. We would only examine the case on such an assumption. Assuming then that the deemed dividend income was the income of the late Mr. Gannon and assuming that Mr. Gannon's estate was liable to pay any tax in respect thereof, the procedure that should have been followed by the income-tax department was not the procedure followed by them but should have been altogether a different procedure. As already stated, deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion, therefore, the notice issued under section 34(1)(b ) of the Act to the assessee and the consequent reassessment is bad in law. The decision in Maharaja of Patiala v. Commissioner of Income-tax [1943] 11 ITR 202 to which our attention was drawn by Mr. Joshi has, in our opinion, no application to the facts of the present case. The facts of the case were: the late Maharaja, who had income from property and business in British India, died on March 23, 1938. On November 23, 1938, the Income-tax Officer, Bombay, sent printed notices under sections 22(2) and 38 of the Income-tax Act addressed to the Maharaja of Patiala, requiring him to make a return of his income from all sources for the assessment years 1937-38 and 1938-39. The return was made under the authority of the then Maharaja, but it was made in respect of the income of the late Maharaja. A contention was raised that the notice was bad inasmuch as the notices were issued in the name of the then living Maharaja and without disclosing that the notices were issued in the capacity as representing the estate of the late Maharaja. In view of the fact that the return made was of the income of the late Maharaja, it was held t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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