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TMI Blog1974 (8) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, 1949, to November 9, 1950) and arise out of these facts: Ms. Bhogilal Laherchand is a firm originally constituted under a deed of partnership dated 14th April, 1943. Initially, Bhogilal and his major son, Pratap, were partners in the said firm and two minor sons of Bhogilal by names Arvind and Mahesh were admitted to the benefits of the partnership. Arvind attained majority on 22nd of August, 1950, and elected to become a full-fledged partner. A fresh deed of partnership was entered into on 28th of August, 1950, a copy whereof is annexed as annexure "A" to the statement of case. Unfortunately, within three days of the execution of the partnership deed, Arvind met with a plane crash in Cairo which resulted in his death on 31st August, 1950. However, in accordance with clause 8 of the partnership deed, the partnership business was continued by the surviving partners and on 9th of November, 1950, the books of account of the firm were closed wherein a sum of Rs. 2,64,450 was credited to the account of Arvind as his share of profits for the period 22nd October, 1949, to 31st August, 1950. On 27th of February, 1954, the firm was assessed for the assessment year 1951-52 as a registered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arte assessment was made, but it was dismissed by the Income-tax Officer on 8th of September, 1961. However, in appeal, which was preferred to the Appellate Assistant Commissioner, the assessment made under section 23(4) was cancelled on 15th of March, 1963. Pursuant to the directions given by the Appellate Assistant Commissioner the Income-tax Officer again took up the assessment and completed the same on 22nd of June, 1962 when the amount brought to tax was Rs. 3,20,869. The difference of the total to be found in the order dated 22nd January, 1957, which was cancelled by the Appellate Assistant Commissioner was due to the addition of Rs. 114 and interest of Rs. 17. Before the Income-tax Officer principally two contentions were urged: (a) that the sum of Rs. 2,61,821 was not an income of the deceased, but it was actually a receipt forming part of the share of the deceased, that is to say, the sum represented inheritance and capital and could not be taxed as income, and (b) that section 24B of the Act could not be applied. These contentions were rejected by the Income-tax Officer. Against the order passed by the Income-tax Officer on 22nd of June, 1962, an appeal was preferred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions which have been set out at the commencement of this judgment have been referred to this court for decision. On the first question, Mr. Mehta for the assessee has raised a two-fold contention before us. In the first place, he contended that having regard to the provisions of clauses 6 and 8 of the deed of partnership deed dated 28th August, 1950 (annexure "A" to the statement of case), it could not be said that the sum of Rs. 2,61,821, which was credited to the share of Arvind in the books of account of the partnership, was an income that had accrued to the deceased, Arvind, at any time prior to or on 31st of August, 1950, for, according to him, under clauses 6 and 8 of the deed in question, it could not be predicated of the firm of M/s. Bhogilal Laherchand that it had either made profits or suffered losses until the accounts were made up as at the end of the accounting year, S.Y. 2006, that is to say, on the Divali day of that year. He pointed out that under clause 6 of the deed during the continuance of the partnership, accounts of the partnership were to be made up on the Divali day of each year and it, was on making up of such accounts at the end of the year on the Diva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st August, 1950. In fact, he relied upon certain observations of Chief Justice Chagla in Bhogilal Laherchand's case for pressing his contention that a debt due by the firm to Arvind or his estate could be said to have come into existence as on 31st of August, 1950, though the ascertainment of that debt had been postponed up to the end of the accounting period. He also contended that on a proper construction of section 24B of the Act, having regard to the Supreme Court decision in Amarchand N. Shroff's case it should be held that so far as the previous year or the year of account in question was concerned, not only the income that was received by the deceased during his lifetime but also the income that was received by the heirs after his death up to the end of the accounting year could be brought to tax under section 24B of the Act. In support of this construction he strongly relied upon the Supreme Court decision in Amarchand N. Shroff's case which was followed by the Supreme Court in the case of Commissioner of Income-tax v. James Anderson and by the Madhya Pradesh High Court in Commissioner of Income-tax v. Hukumchand Mohanlal. He also pointed out that this decision of the Madhy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with interest at 4 1/2% as soon after Divali of the year in which such death took place as would have been convenient to the surviving partners. Provision of clause 8 would be a contract to the contrary as contemplated by section 42 of the Partnership Act and it is in view of these two clauses that the question will have to be considered as to whether upon the death of Arvind in the middle of S.Y. 2006, viz., on 31st of August, 1950, any profits or income accrued to him at any time prior to or as on the date of his death or whether any profits or income could accrue to him only at the end of the year in question on the Divali day when accounts were to be made up in accordance with clause 6 of the deed. We may mention here that this aspect was considered by this court in Bhogilal Laherchand's'case wherein the question that actually arose for decision was whether the sum of Rs. 2,49,459 could be legally included in the assessee's (Bhogilal's) total income of S.Y. 2006 liable to be assessed in the assessment year 1951-52. The question arose in the context of the action taken by the department to include proportionate share of Arvind's profits during his minority in the assessment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Divali of any particular year. In other words, unless accounts were made up as per clause 6 of the deed, no profits or income could be said to have accrued or arisen to the firm or to an individual partner or partners constituting the firm. Apart from the above observations which apply with equal force to the deed of partnership in question, even the principle has been generally accepted by the Supreme Court in yet another decision in Commissioner of Income-tax v. Ashokbhai Chimanbhai. In that case A, the manager of a Hindu undivided family, held, on behalf of the family, a share of five annas in a rupee in the profit and loss of a firm. Under the partnership deed the accounts of the firm had to be adjusted every calendar year. On 12th November, 1955, there was a partition in the family in which A was allotted the five-anna share in the firm and he became the full owner thereof. In proceedings for the assessment to income-tax of the income of the family for the accounting period 27th October, 1954, to 14th November, 1955, a question arose whether the whole or any part of the five-anna share of the profits of the firm for the calendar year 1955 accrued to the family and it was h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the above position, which has been clearly stated by this court in Bhogilal Laherchand v. Commissioner of Income-tax and by the Supreme Court in Commissioner of Income-tax v. Ashokbhai Chimanbhai, it is clear beyond any doubt that having regard to clauses 6 and 8, which obtain in the partnership deed in question, it would be difficult to come to the conclusion that any profits or income accrued to Arvind until the last day of the accounting year (S.Y. 2006) was reached and accounts were made up. Mr. Hajarnavis for the revenue has relied upon two aspects touching this question. In the first place, he has pointed out that after the accounts had been made up as at the end of S.Y. 2006 on the Divali day and profits were ascertained, in the books of the firm a sum of Rs. 2,64,450 was credited to the account of Arvind as his share of profits for the period 22nd October, 1949, to 31st August, 1950. Relying on this conduct on the part of the surviving partners, he contended that even the partners had chosen to credit Arvind's account in the partnership books with proportionate share of profits-relevant to the period commencing from the beginning of S.Y. 2006 and ending wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irm to Arvind or his estate on the death of Arvind which took place on 31st of August, 1950, though the debt could be ascertained after making up of accounts later. It is not possible to accept the submission of Mr. Hajarnavis for two reasons. In the first place, the court at that time was not really concerned with the question as to whether any right to receive the income or profits from the firm had accrued to Arvind as on 31st August, 1950, or not and the only question that had arisen for consideration of the court was whether the sum of Rs. 2,49,459, which represented the share of profits of Arvind during his minority, could be said to have accrued to him or not, that is to say, as on 22nd of August, 1950, and that too for the purpose of considering the question as to whether the inclusion of that share of profits of Arvind in his father's assessment, under section 16(3)(a)(iii) of the Act, was justified or not. Secondly, it does appear that the court seems to have assumed that upon the death of Arvind on 31st August, 1950, the partnership came to be dissolved and presumably clause 8 of the deed of partnership, which contained a provision to the contrary, came to be overlooked. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch person, or any tax which would have been payable by him under this Act if he had not died. (2) Where a person dies before the publication of the notice referred to in sub-section (1) of section 22 or before he is served with a notice under sub-section (2) of section 22 or section 34, as the case may be, his executor, administrator or other legal representative shall, on the serving of the notice under sub-section (2) of section 22 or under section 34, as the case may be, comply therewith, and the Income-tax Officer may proceed to assess the total income of the deceased person as if such executor, administrator or other legal representative were the assessee. (3) Where a person dies, without having furnished a return which he has been required to furnish under the provisions of section 22, or having furnished a return which the Income-tax Officer has reason to believe to be incorrect or incomplete, the Income-tax Officer may make an assessment of the total income of such person and determine the tax payable by him on the basis of such assessment, and for this purpose may, by the issue of the appropriate notice which would have had to be served upon the deceased person had h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng year should be regarded as deemed income of the deceased. In view of these rival submissions, which have been put forward before us, the narrow question, which this court is called upon to decide, is whether the fictional extension of the legal personality of the deceased as contemplated by sub-section (1) of section 24B could be regarded as having been enacted for the purpose of merely providing a machinery for dealing with assessment or recovery of payment of tax from the estate of the deceased or whether the same has been enacted with a view to create an additional liability to pay tax on that part of the income said to have been received by the heirs and legal representatives of the deceased after the death of the deceased till the end of the relevant accounting year. In order to decide this question it will be necessary to consider the purpose for which the legal fiction came to be enacted in sub-section (1) of section 24B and on this aspect of the matter two things would be relevant, viz., the position which obtained in law prior to the enactment of section 24B and whether any lacuna was there in the Act-an indication of which has been given by this court in Ellis C. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g in the lacuna that was pointed out by this court in Ellis C. Reid's case, and the lacuna was that there was no machinery in the Act till then which dealt with the assessment of or recovering payment from the assets of the deceased person. The above position also becomes clear if the Statement of Objects and Reasons appended to the Bill that was introduced in the Central Legislature is seen. The provisions of new section 24B were contained in clause 9 of the Bill and the note on clause 9 of the Bill runs as follows : " The new section 24B supplies a lacuna in the Act which at present fails to provide either for assessment or the giving of refunds in respect of the income of persons deceased. " Having regard to these aspects there can be no doubt that the provisions of section 24B must be taken to have been enacted for the purpose of inserting a machinery provision for assessment or giving of refunds in respect of the income of deceased persons and if that be the object or purpose of the enactment, we feel Mr. Mehta would be right in contending that the legal fiction introduced in section 24B(1) should be restricted to the purpose for which it was meant and intended and could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er has to proceed to assess the total income of the deceased person as if the heirs or legal representatives were the assessees. It is in the context of these provisions that one has to consider the question as to whether the legal fiction created in sub-section (1) by using the words "if he had not died" is referable to the actual income of the deceased person which might have been received by his heirs or legal representatives during the previous year or to any deemed income. In our view, the reference to "the total income of the deceased person" as well as to "the tax payable thereon" clearly suggest that the legal fiction created in sub-section (1) or rather the fictional extension of the legal personality of the deceased person must be confined to providing a machinery dealing with assessment of and recovering payment from the estate of the deceased person of the tax which could be recovered on what must be the actual total income of the deceased person. On the other hand, Mr. Hajarnavis for the revenue contended that the legal fiction created by the words "if he had not deed" in the latter part of sub-section (1) of section 24B need not be confined to providing a machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat was so, the principle has been well-settled that such legal fiction must be given full effect, that is, it must be allowed to be worked out without allowing the mind "to boggle" and in this behalf he placed strong reliance on Lord Asquith's famous dictum in East End Dwellings Co Ltd. v. Finsbury Borough Council. At page 132 of the report Lord Asquith observed thus: " If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs ; it does not say that, having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs." Mr. Hajarnavis pointed out that following this dictum the Supreme Court in the case of Additional Income-tax Officer v. E. Alfred allowed the legal fiction created in section 24B(2) to be worked out fully to its logical conclusion without pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means a person by whom income-tax is payable. A legal representative who, by fiction, is deemed to be an assessee, therefore, comes within this definition, because he is a person by whom income-tax is payable, though out of the assets left by a deceased person. The assessment of the legal representative is then made under section 23 of the Act, and he has the right to appeal under section 30, which he would not have, if he ceased to be an assessee after the determination of the tax." Relying upon Lord Asquith's dictum and the aforesaid decision of the Supreme Court, Mr. Hajarnavis contended that the fictional extension of the legal personality of the deceased person under sub-section (1) of section 24B must be worked out fully and, according to him, the latter part of sub-section (1) of section 24B, viz., the words "any tax which would have been payable by him under this Act if he had not died", must be given full effect to, that is to say, a state of things must be taken to be existing, viz., that the deceased person was alive throughout the previous year or accounting year, namely, S.Y. 2006, and even if the sum of Rs. 2,61,821 is said to have accrued to the deceased on the Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article 286(1)(a) of the Constitution which provided that for the purpose of sub-clause (a) a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to the sale of goods the property in the goods has, by reason of such sale or purchase, passed in another State and the question was how far and to what extent the legal fiction created by the Explanation was to be given effect to. Acting Chief Justice Das, in paragraph 31 of the judgment, has observed as follows : " Whichever view is taken of the Explanation it should be limited to the purpose the Constitution makers had in view when they incorporated it in clause (1). It is quite obvious that it created a legal fiction. Legal fictions are created only for some definite purpose. Here the avowed purpose of the Explanation is to explain what an outside sale referred to in sub-clause (a) is. The judicial decisions referred to in the dissenting judgment in State of Travancore-Cochin v. Shanmugha Vilas Cashewnut Factory, the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Reid's case, to remove which section 24B was introduced by Amending Act 18 of 1933, it will be clear that the legal fiction in section 24B(1) was created only with a view to provide the machinery for making assessments or giving of refunds in respect of income of deceased persons and it would not be proper to travel beyond the scope of that purpose and read into the provisions any other purpose, howsoever attractive it may be. In other words, the purpose of creating the legal fiction being what is just indicated, it would not be proper to extend the legal fiction beyond its legitimate field and to say that it was also intended to serve the purpose of creating an additional liability, that is to say, for rendering what in fact is not an income of a deceased person to be his deemed income. Moreover, as we have indicated above on the question of proper construction of the words, "any tax which would have been payable by him under this Act if he had not died" occurring at the end of section 24B(1), there are clear indications furnished by the marginal note, the first part of sub-section (1) of section 24B as also the reference to the total income in sub-sections (2) and (3) of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 24B of the Act. The court held that section 24B did not authorise the levy of tax on receipts by the legal representatives of a deceased person in the years of assessment succeeding the year of account in which such person died and accordingly the income received by him before his death and that received by his heirs and legal representatives, after his death but in that previous year became assessable to income-tax in the relevant assessment year but not receipts by the legal representatives after the expiry of the accounting year in which A died. Mr. Hajarnavis in particular placed reliance upon the following observations which appear at pages 64-65 of the report : " Income-tax is exigible in reference to a person's total income of the previous year. The question before us is whether the income which was received subsequent to the previous year in which Amarchand died is liable to be assessed to income-tax under section 24B as his income in the hands of his heirs and legal representatives. In the present case the accounts were kept on cash basis. The assessee under the Act has ordinarily to be a living person and cannot be a dead person because his legal personality ceases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income-tax v. Hukumchand Mohanlal and this decision of the Madhya Pradesh High Court has been affirmed by the Supreme Court in Commissioner of Income-tax v. Hukumchand Mohanlal when the matter was carried in further appeal. There is no doubt that the observations in Amarchand N. Shroff's case on which reliance has been placed by Mr. Hajarnavis apparently lead support to the contention urged by Mr. Hajarnavis before us in this case and, therefore, his contention as well as several decisions relied upon by him require careful examination. After going through all the four decisions on which Mr. Hajarnavis has relied one thing becomes extremely clear and it is this that the courts in these cases were principally concerned with the income that had been received in years subsequent to the relevant accounting year or previous year in which the deceased had died and no question actually arose for decision as to whether section 24B could be attracted or invoked with regard to the income that was to be received or had been received during the accounting year or previous year in which the deceased had died and it is in the context of this principal fact that the observations on whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequent to the accounting year in which the deceased had died and the court took the view that the amounts that were received by their heirs and legal representatives could not be brought to tax under section 24B of the Act. In each of these decisions the observations in Amarchand N Shroff's case (quoted above) were relied upon and its ratio was applied. Question as to what would happen in a case like the present one where the partnership accounts were maintained on mercantile basis and Arvind having died in the middle of the accounting year, viz., S.Y. 2006, no profits accrued to Arvind till he died and actually profits or income accrued to his estate at the end of the accounting year on the Divali day and whether in such a case the legal fiction created by section 24B could be invoked for bringing to tax such income did not arise for consideration in these cases. Turning to the facts which obtained in Amarchand N. Shroff's case it will have to be stated that the question that arose for consideration in that case related to five sums of Rs. 37,847, Rs. 48,162, Rs. 34,899, Rs. 13,402 and Rs. 32,523 which pertained to the assessment years 1950-51, 1951-52, 1952-53, 1953-54 and 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as legal representatives of the appellant. Therefore, it was incorrect to treat the income from the firm up to July 7, 1949, on the same basis as the income after July 7, 1949. The first was undoubtedly the income of the appellant and the latter the income of the Hindu undivided family. Therefore, in my opinion, the Income-tax Officer was wrong in assessing the income of the whole year under section 24B. He should have assessed the income up to July 7, 1949, under section 24B as indeed had been done by him in the original assessment. As this was the only effect of reassessment, this assessment is also annulled." The accounts in that case were admittedly maintained on cash basis. From the aforesaid order the position becomes very clear that, according to the Appellate Assistant Commissioner, the income pertaining to the period subsequent to July 7, 1949, up to the end of the relevant accounting year was required to be treated differently from the income that was received by the heirs and legal representatives from the firm up to July 7, 1949, being the date of Amarchand's death and that the latter could be assessed under section 24B and the Income-tax Officer's order makes it cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the expression "if he had not died" in sub-section (1) of section 24B shall have been extended during the entire period of the accounting year in which the deceased has died, for the purpose of providing a machinery for assessment of the income of the deceased person notwithstanding the death of such person during such previous year. In other words, the legal fiction will have to be given full effect by extending the fictional personality of the deceased person up to the end of the accounting year but what will be assessable in the hands of the heirs and legal representatives must only be the "income" of the deceased received by them during the entire accounting year. An attempt was made by Mr. Hajarnavis to show that the Supreme Court, while considering the matter before it, really addressed itself to the question as to whether the income which was received subsequent to the previous year in which Amarchand had died, was liable to be assessed to income-tax under section 24B as his income in the hands of his legal representatives or not and it was pointed out that at not less than three places in the whole judgment the Supreme Court has expressed itself clearly to the effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt. It may be stated that in the connected Income-tax Reference No. 83 of 1965, which we have heard along with this reference, an agreed statement of case has been sent by the Tribunal to this court in which there is a reference to the rejection of the aforesaid review application by the Supreme Court in Amarchand N. Shroff's case'. The relevant portion of the statement of case in Income-tax Reference No. 83 of 1965 is as follows: " ... It was also pointed out that there was an application for review preferred by the department to the Supreme Court to clarify the position that the amounts for the first of the years under consideration there, were actually received in the previous year and therefore the decision would not apply in any event to the first year. But how, we are told, that application has been dismissed... " Having regard to the above discussion we are clearly of the view that the ratio of the Supreme Court decision in Amarchand N. Shroff's case has to be understood in the manner in which we have understood it and that would be in consonance with the proper construction of the relevant provisions of section 24B of the Act. In other words, when it is stated by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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