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TMI Blog1963 (12) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... ses in this appeal in regard to those shares. By agreement dated August 14, 1946, between the executor to the estate, the company and one Morarka, the executor agreed to sell the remaining 2,224 shares of the company to Morarka and pursuant thereto the relevant share certificates with transfer deeds were handed over to Morarka on October 12, 1946, against payment of the price at the rate of Rs. 140 per share. Morarka, for some reason which is not clear, from the record, failed to present the transfer deeds and the share certificates for registration at the office of the company and the name of Gannon remained at all material times on the register of shareholders in respect of those 2,224 shares. In the assessment of the company for the assessment years 1946-47 and 1947-48, the Income-tax Officer, Bombay, made an order on March 26, 1953, under section 23A of the Income-tax Act, 1922 (as it then stood), that certain undistributed parts of the assessable income of the company shall be deemed to have been distributed as dividends amongst the shareholders as at the dates, viz., May 26, 1947, and December 22, 1947, of the general meetings of the company. The net dividends so deemed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidends deemed to have been distributed in the hands of Anderson as administrator of the estate of Gannon. The order made by the Income-tax Officer under section 23A gives rise to a notional income : it merely creates a fiction about distribution and consequential receipt of dividend. The order by its own force however does not charge the income to tax : it has to be followed by an order of assessment to make tax on such income exigible. The sole question in this appeal is whether the Act contains machinery for assessing dividends deemed to have been distributed by virtue of an order under section 23A in respect of the shares held by a shareholder, when before the date on which the fiction of distribution becomes effective--viz., the date of the relevant general meeting of the company--the registered shareholder has died and his representatives have not been substituted in the register of the company. It was held by this court in Commissioner of Income-tax v. Shakuntala, following Howrah Trading Co. Ltd. v. Commissioner of Income-tax, that the expression " shareholder " in section 23A of the Indian Income-tax Act, 1922, means a shareholder registered in the books of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained in the statute the proportionate share of the dividend of each shareholder has to be included in the total income of such shareholder for the purpose of assessing his total income. The statute therefore in terms applies to the shareholder and makes the dividend taxable as his income. The obligation to pay the tax on the dividend so deemed to be distributed is of the shareholder, and may be enforced against him or his legal representative in the manner and to the extent the statute permits. There is no special machinery devised by the Income-tax Act enabling assessment and levy of tax in respect of such deemed income from the estate of the shareholder in the hands of his legal representative when the order of the Income-tax Officer pursuant to which the income was to be deemed to be distributed becomes effective was made after the death of the shareholder, and the general provision in section 24B for enforcement of liability against the legal representative of a deceased person to pay tax, which would have been payable if such person had not died, has a limited application. In Commissioner of Income-tax v. Ellis C. Reid, it was observed by the Bombay High Court in rejecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequent to the previous or account year. In Amarchand Shroff's case " A " who was a partner in a firm of solicitors which maintained accounts " on cash basis " died on July 7, 1949. Out standings of the firm in respect of professional services rendered prior to the death of " A " were realized during five years subsequent to " A's " death and were divided between the partners of the firm and certain sums were paid to the heirs and legal representatives of " A " as his share. The Income-tax department sought to assess the amounts received by the legal representative of " A " as his share to tax under section 34(1)(b) read with section 24B. It was held that section 24B did not authorise the levy of tax on receipts by the legal representative 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 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 account year in which " A " died . In the case before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat was decided by the court, for in Amarchand Shroff's case the court was dealing not with a fiction of distribution by an order under section 23A of dividends which never reached the shareholder or his legal representative, but to a fiction of receipt by a deceased person of income by extending his legal personality. Section 24B does not warrant the application of two different interpretations in the matter of extension of the legal personality of the deceased according as the income is actual or notional. Section 24B in terms refers to the liability of the legal representative to pay tax assessed as payable by such deceased person, or any tax which would have been payable by him under the Act if he had not died, and if the expression " tax which would have been payable under this Act, if he had not died " is intended to impose liability for tax on income received in the year of account in the course of which the taxpayer died, a different interpretation of the same expression in the context of notional income would be impermissible. The Legislature not having made any provision generally for assessment of income receivable by the estate of the deceased person, the expression " a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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