the Additional Income-Tax Officer, Salem v. E.Alfred

Judgment

r (I) 8.C.R. THE ADDITIONAL INCOME-TAX OFFICER, SALEM E.ALFRED (S: K. DAS, J. L. KAPUR and M. HmAYATULLAH, JJ.) Income Tax-Tax of deceat<ed pci·•on payable by representative-Legal repreaentatfre tUSease. by .fiction-Failure to pay assessed tax-PenaUy, if could be impowl-lncome-tax Act, 1.922 (11of1922), ss. 22, (2), (23), 248 (2), 29, 30, 46 (1). One E died intestate during his year of account lea\ing behind him his son A the respondent and eight daughter,, After notice under s. 22 (2) of the Income Tax Act was issued, A was assessed under s. 24 B (2) of the Act and notice of demand was issued under s. 29. The respondent a ppe,aled to the Appellate Assistant Commissioner, but during the pendencv of the appeal a penalty was imposed upon him under s. 46 (I) of the Act by the Income-tax Officer as the respondent had defaulted in payment of tax on the due date. After the appeal was disposed of a notice of demand was again issued to th~ respondent to pay the tax.

On respondent's default, a second penalty was imposed upon him. Respondent challen1?ed this order l;>y writ. The High Court quashed the order inter alia holding that s. 46 (I) did not apply to a legal representative as he was assessed as an assessee un.der a fiction ins. 24 B (2) and that fiction came to an end when the assessment '\vas made, for the fiction was created for the limited purpose of assr.:ssment, and sinte that sub .. section was not concerned with collection, the fiction could not be carried, beyond assessment rcsuhing in the determination of tax. The question was whether the fiction came to an r.nd after the assessment, so that the legal representative rernainf"d a mere debtor to the deparlment or could he be ordcrerl 10 pay penalty under s. 46 (1) of the Act. lleld, that the fiction made the respondept an asscssec for the purpose of assessing the total income of E. That fiction did not come ta an end after the assessment.

When a thing is deemed to be something else, it is to b~ treated as if it is that thing, though, in fact it is not E beinit dead hefore ihe notice, either general or special, to him, could not he heated as an assessee, and the process of the Act, was, by fiction, made available against the legal representative who was the aS!CSsee for purposes of assessmt!nt which meant the entire procc,. of computation and levy of the tax and the fiction hlld to be worked· out to its logical conclusion. The definition ol Octobr 20. IWJ T},, A.''iliMa/ l11rn11-la.t 0 JfirtF, Salim E . . ~~{111/ HiJ~ralVllah ]. the word assessee being defined in the Act as a petson by whom income-tax is payal.ile, the legal representative came within the definition and his assessment br.ing made under s. 23 he had also a right of appeal under s. 30 since he did not ceas~ to be an assessce after the determination of the tax at least for the purpose of sub-s. (2) of s. 2l B, and s.

29 applied to tl1e legal representative in his position as the asscssec. Commi .. sioner of /11rmne-ta<r v. TPja Si11gli, [ 1959] Supp. 1 S. C. R. 394 and b.'11111 E11d Dtrt/li11g• Co., Ud. , •• Finsb11ry &>rouylt Council, [1952] A. C:. 10~, referred to. CIVIL APPELLATE JvnrsnrcTro:s: Civil Appeal No. 282 of 1!)60. Appeal from t.he judgment and or<ler dat~d l<'Pbrue.ry 15, lll56, of tho Madras High Court in Writ Petition No. 40t of 195!?. K. N. Rnj11gopaln Sa.~tri and P. D. Menon, for the appc lla.nt. R. Gopalahi&h11an, for the respondent. 1961. October 20. The Judgment of the Court was delivered by HrnAYATUr.LAH, J.-Whether tho legal representative of a. deceased person, who is assessed in respect of the total income of the latter perRon, 1\8 if be were the assessee, can be ordered to pa.y a penalty under s. 46( I) of the India Income-tax Act, is the short question that a.rises in thid appeal.

One EbenC'Zer died intestate on November, 22, l!H5, during his yca.r of account which ended on March :11, 1946. He left behind him the respondent, E. Alfred, his son, and eight daughters. For the assessment year, 1946-47, the rt'spondent waa assesst'<l under s. :!4 B(2) of the Income-ta:oc Act, after a notice waa iRsused t-0 him under s.22( 2), ibid. The assessment was completed on March 26, 1951, and a notice of demand was i88ued under s. 29 of the Act. The respondent appealed against the order of a88e88!Dent to the A ppellato ABl!ista.nt Commissioner, but during the pcndency of the appeal, a penalty of Rs. 250/- was impoaed upon (1) S.C.R. h;m under s. 46(1) of the Act by the Income-tax Officer, as he had defaulted in payment of tax on the due date. After the appeal wits disposed of with very minor modifications, a notice of demand was again i~suPd to him to pay the tax on or before December I5, 1951. On his default, a second penalty of Rs. 10,000/- was imposed upon him on March 8, 1952./ The respondent then filed a petition under Art. 226 of the Constitution in the High Court of Madras challenging the imposition and levy of penalty imposed upon him.

The High Court held in his favour, and quashed' thetwo orders imposing penalty but granted a certificate of fitness to appeal to this Court. This appeal was then filed. In reaching the conclusion thats. 46(1) of the Act did not apply to a legal representative, the learned Judges of the High Court held that a legal representative could not be said to be included within the words of that sub-sect.ion "when an assessee is in default in making a payment of Income tax" because oft he scheme of the Act, particularly s. 29, where a distinction is made between "an assessee" and "other person". According to the learned Judges, a legal reprf sentative is assessed as an assessee under a fiction in s. 24B(2), and: that fiction comes to an end when the computation of the tax or, in other words, the assessment is made. The learned Judges drew a distinction between the three subsections of s. 24B, and pointed out that sub-s.

(I) only created a liability on the legal representative for collection of tax but did not refer to him for that purpose as an assessee and sub-s.(3) which did not concern itself with collection, did not refer to the legal representative as an assessee, and held that the fiction in sub-a. (2) was created for the limited purpose of assessment, end since that subsection also did not concern itself with oollection, the fiction could not be carried beyond assessment resulting in the aetermination of the tax. TM Addi'ional l•comt·tax Q jfuer, Salrm Ill·. Al.fr,,/ HidayaJulluh J. 19111 T1u AdJitiornzl Income-tax Ojfiur, SaJ.,. E. Alhd Hido7atu/la~ J. Thereafter, according to the High Court, the legal representative is not an aasessee within t.he mraning of a. 2!1, but can only be brought under tho words "other person", and inasmuch as ss. 45 and 46 refer to "an asaeSBee in default", the legal representative cannot be treated as such and no penalty can either be imposrd upon him or recovered.

We are concerned with the definition of "asaesaee" before its amendment in 1953. That definition read as follows : "asaessee" means a ptiraon by whom incometax is payable" The generality of this definition is sufficient to include even a legal repres<>ntative who is to pay the tax, thongh out of the asaets of the deceased person. Section 24B, which makes •- legal represPntative liable, is 1111 followR : "24B. (I) Where a ptirMn dies, his executor, administrator, or other legal representative shall be liablt> to pay out of the estate of the deceased person to the extent to which the estate is c11.pable of meeting the charge the tax assesaed aF payable by such 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 ser'l"ed 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 aha.II, on the serving of the notice under sub-section (2) of Rection 22 or under section 34, as the case may be comply therewith, and the Income-tax Officer may proceed to assess the total inr.ome of the deceased person as if auoh executor, administrator or other legal representative were the assossee. I I (I) s.c.R. (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 Incometax Officer may make an assessment of the total income of such person and determine the tax payr.ble hy 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 he survived, require from the executor, administrator or other legal representatfre of the deceased person any accounts, documents or other evidence which he might under the provisions of sections 22 and 23 have required from the deceased person'~.

The scheme of the section, which was inserted by the Second Amendment Act of 1933 and modified further by the Amendment Act of 1939 is as follows: Sub-section (1) ofs. 24B makes, inter alia the legal representative liable to pay out of the estate of 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 the Act, if he had not died. By this sub-section, a legal representative is made liable to pay the tax which might have been asses~ed but not paid by the deceased person or which might be assessed after his death. It covers all situations and contingencies and makes the liability absolute, limited, however, to the extent to which the estate of the deceased is capable of meeting the charge.

The sub-section . does not provide for issue of notices, assessment collection or anything connected with the impo~i­ tioµ, levy and collection of the tax, sub-section (2) and (3) ne!!:t provide for different contingencies. Sub-section ( 2) provides that where a person dies The Additional /neoTtUalax 0 fficer, Salem E. Alfred Hidaya,ullah J. T ht AddifiOfl/1/ lncomc·l~ Ojfictr, Salem J:. At:!td llitfayaJullah J. b<'for~ the p11blic<1tion of a general notice or before he is serv<'d with a. Apecial notice under s.22 ors. 34 bis legal reprm;eut1tive shall, on the service of the Rpccial notic·es. comply with these notkes, and the Income-tax Officer may proceed to apsess the total income of the deceased peraon aA if the lPgal r<'prcscntath·e were the assessee.

Sub section (3) provides that. where a pPrson dies aftn he has been required to furnish a return but. without haviug furnished HU<:h return, or whrrc he ha..~ furnished the return hut the Income-tax Officer has reas.111 to believe it to 1,.. incorrect, the Income.tax Officer may make the assessment of the total income of such deceaEed person, and dewrmine, the iax after serving suc-h notices, as may be required under s.22 or 23, upon the legal r"prescntative of the d1•ceased person to produce the account!!, documents or other evidence. In the present case, the matter fell to be governed by the second sub-section, her.a.use Ebenezer dii·d before the end of his year of account. The service of the notice upon the ~espondcnt and his assessment, as if he wne the asse~sec, wew made under the Recond sub-s<'ct.ion.

Rv reaRon of this as~essment, t.he respondent became.liable under the first sub-sfction to pay out of the eRtate of EbeneZ<'r the tax assessed, to f.he extent to which Ebenezer's estate was capable of meeting the charge but he himself wa.s deemed to be the assesaee. No doubt, the fiction made the ri·spondcnt an assessee for the purpose of assesFing the total income of Ebenezer. But thr~ question is whether the fiction ca.me to an en i after the assessment, so that he rl'mained a mere debtor thcreaftn to the Department. The anywer tll this , question would determine the further application of the other sections of the Act. "When a thing is deemed to be something elso, it is to be treated as if it is that thing, though, in fact, it is not.

The original ass1·ssee being dea.d before the notice, either general or 14!! special, to him, he could not be treated as an assessee, and the process of the Act is, by the fiction made available against a different person like a legal representative, who is fictionally deemed to be an assessee for purposes of assessment. The word "assessment" bears different meanings, and in one sense, it comprehends the entire process of computa. tion and levy of the tax. It is in this sense that the kgal representative becomes an assessee by the fiction, and it is this fiction which has to be fully worked out, without allowing the mind "to boggle" as was said in Com.missioner of Income-Tax v. Teja Singh(') applying the dictum of Lord Asquith in East End Dwellings Co., Ltd. v. Finsbury Borough Council('). If we turn to the definition of "assessee", it says that an assessee 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 !I. 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 s. 23 of-the Act, and he has the right to appeal under s. 30, which he would not have, if he ceased to be an assessee after the determination of the tax. We are not concerned in this case with the position of the legal representative under the third sub-section of s.24 B, and are not required to consider what his position would be, if he made a default in . the payment of the tax. The fiction is enacted. at least for the purpose of sub·s. (2), and it is to that sub· section that we are confined in this case. Nor can the fiction in that sub-section be limited by provisions of law for a totally deft'erent situ&· ti on.

Under s.45, if a notice of demand is issued under s.29 on an assessee and has.not been complied .with the assessee is deemed to be in default, and under s. 46 (1), if the assessee is in default, a penalty, can be imposed. All these stages the respondent (I) (1959) Supp. 1 S.C.R. 39~. (2) [1952] A.C. 109, 132. 19&/ The Addi;iJJrial Inco~·ta~ Officer, Salem E. Alfred Hidayaiullah J. T~ Additional lnc~-tox 0 lfic1r, Saltrn E. A(f"d Bidayotul/a/i J. went through in this case. He was himself an assessce qua the assets an<l liability to tax, of Ebt>nczer ; he was, therefore, an assessee in <lefault and liable to the imposition of penalty for this default. The question is whether s.29, which makes a distinction hetwe<'n an asse88ee and "other person''. makes any difference. The High Court as well as the learned counsel for the.respondent (who pressed upon us the reasons of the High Court) referred to the words of s.

29 where in addition to an "asseseee" liable to pay the tax occur the words "other person" liable to pay such ta.x, and observed that the respondent would fall to be govcmed by the words "other person" liable to pay such tax and not by the words "the assessee" liable to pay such tax. The High Court reasoned, therefore, that the words "an aBSessee" in 88. 45 and 46 in their application are limited to an assessee, who ia assessed on his own behalf and not "other person", who is not an asseBSee. This distinction, it observed, must be borne in mind in int.erpreting the word "asseasee" used in 88. 45 and 46, and so construing, Ii mi ted the word "asse88ee" in those two sections to an asseBSee proper. 'fhe words "other person" cannot apply to a legal representative, if he is an a.BSessee bl fiction, and the fiction has to be worked out to ita logical conclusion.

If he falls within the word "aesessee', e.s has been shown a.hove, he does not fall within the words "other person" and it is not necessary to find in this case what persons are there meant to be included. In our opinion, the penalty could be imposed on respondent a~ an e.ssessee. The appeal thus succoods, and is allowed with costs here and in the High Court. Appeal allowed.