E. Alfred vs Additional Income Tax Officer and Another

Rajagopalan, J.—Ebenezer, a Christian, died intestate on 22nd November, 1945. The petitioner and his eight sisters were the children of

Ebenezer and his heirs and legal representatives. The income that had accrued to Ebenezer during the account year ending 31st March, 1945, was

assessed in the assessment year 1946-47 under the provisions of Section 24-B(2) of the Income Tax Act, after the issue of a notice u/s 22(2) of

the Act to the petitioner as the legal representative of the deceased Ebenezer. The assessment was completed on 26th March, 1951, and a notice

of demand was issued to the petitioner u/s 29 of the Act. The petitioner appealed against the order of assessment to the Assistant Commissioner,

who substantially confirmed the order of the Income Tax Officer.

During the pendency of the appeal a penalty of Rs. 250 was first levied on the petitioner u/s 46(1) of the Act. Subsequently to the termination of

the appeal, when the time finally granted for the payment expired on 15th December, 1951, the Income Tax Officer imposed a further penalty of

Rs. 10,000 on 8th March, 1952. It was the validity of these orders imposing the penalties u/s 46(1) of the Act that the petitioner challenged by an

application under Article 226 of the Constitution for the issue of a writ of certiorari.

Proceedings were also taken u/s 46(2) of the Act for the recovery of the arrears of tax. Though that was also challenged in the application filed

by the petitioner, the arguments before us were confined to the validity of the levy -of penalty. The validity of the assessment itself u/s 24-B(2) of

the Act was never in issue, and we were not called upon to consider that.

The only question for our determination is: where the income of a deceased person was assessed to tax u/s 24-B(2) of the Act, can the legal

representative of that deceased person be penalised u/s 46(1) of the Act for failure to pay that tax within the time allowed?

Section 45 of the Act lays down that, if the amount specified as payable in the notice of demand issued u/s 29 remains unpaid, ""the assessee

failing so to pay shall be deemed to be in default"". Section 46(1) provides for the imposition of a penalty when the assessee is in default in making

payment of the tax. The question is, whether the petitioner was ""an assessee in default"" within the meaning of Section 46(1). Unless that question is

answered in the affirmative, the Income Tax Officer would have had no jurisdiction to levy a penalty on the petitioner.

Section 2( ) of the Act, as it now stands, defines the expression ""assessee"":

Assessee means a person by whom Income Tax whether with or without interest is payable and includes a person by whom a penalty or a sum of

money for compounding the offence u/s 53 or any other sum is payable under this Act.

Before its amendment in 1951 the definition ran:

Assessee means a person by whom Income Tax is payable.

It should, however, be noted that this definition itself is subject to the limitation of the opening words of Section 2, that that is the meaning to be

given ""unless there is anything repugnant in the subject or context.

To establish ""default"" in the payment of the assessed tax, within the meaning of Section 45, two conditions at least have to be satisfied :(1)

Failure to pay the amount specified in the notice of demand issued u/s 29, and (2) that failure must be that of an assessee. Section 29 runs:

When any tax (penalty or interest) is due in consequence of any order passed under or in pursuance of this Act, the Income Tax Officer shall serve

upon the assessee or other person liable to pay such tax (penalty or interest) a notice of demand in the prescribed form specifying the sum so

payable.

In the context of Section 29, which itself marks a distinction between an assessee and any other person liable to pay the tax due, the definition of

assessee in Section 2(2) cannot be invoked to include within the scope of the expression ""assessee"" every person liable to pay the assessed tax.

The limitation imposed by Section 29 will necessarily govern the interpretation of the expression ""assessee"", as used in Section 45 of the Act,

because failure to comply with the notice of demand issued u/s 29 of the Act is one of the primary conditions to be satisfied before Section 45 can

apply. Obviously, when Section 46(1) refers to ""an assessee in default"", it is the assessee who is in default within the meaning of Section 45 that is

meant. A penalty can be imposed u/s 46(1) only on such an assessee in default.

The contention of the learned Counsel for the petitioner was, that the petitioner was not himself the assessee within the scope of Section 29, but

that he fell into the other category specified by Section 29, and that he was only ""the other person liable to pay such tax."" As the petitioner was not

himself the assessee, the argument ran, he could not be treated as an assessee in default within the meaning of Section 45 or Section 46(1).

It should be remembered that the petitioner was not taxed on his income. It was his father''s computed income that was taxed. The father was

dead before the tax could be assessed. The assessment was under the provisions of Section 24-B(2) of the Act. It was by the fiction enacted by

Section 24-B(2) that the petitioner was the assessee for the assessment on the income of his deceased father. The scope and content of that fiction

enacted by Section 24-B(2) have therefore to be ascertained.

Section 24-B(2) provides for three different contingencies. For the limited purpose of discussing the scope of Section 24-B, we shall refer to

the person, whose income can be assessed under any of the provisions of Section 24-B, as the deceased.

Section 24-B(1) provides only for the collection of the tax assessed on the income of the deceased. It contemplates a case where the

assessment itself has been completed during the lifetime of the deceased assessee. It refers to the tax assessed as ""tax which would have been

payable by the deceased under this Act if he had not died."" There was therefore no need to enact a provision for any purpose other than the

collection of the tax assessed. Section 24-B(1) lays the liability to pay that assessed tax on the executor, administrator or other legal representative

of the deceased. It further limits that liability to the extent to which the estate of the deceased is capable of meeting the charge, that is, the assessed

tax.

Section 24-B(3) provides for a different contingency. It comes into play where for the assessment year in question the prescribed notice u/s 22

has been published. The deceased himself would then have had an opportunity to submit a return of his income. If no return was submitted or an

incomplete return was submitted, the machinery, for which Section 24-B(3) provides is attracted. It should be remembered that in this class of

cases, the machinery for assessment of the income of the deceased to Income Tax has already been set in motion by publishing the notice u/s 22 of

the Act. The assessment has to be completed after the death of the deceased. In such a case Section 24-B(3) lays down that the Income Tax

Officer may make an assessment of the total income of such (deceased) person and determine the tax payable by him on the basis of such

assessment. For making such an assessment Section 24-B(3) further enables the Income Tax Officer by the issue of an appropriate notice, which

would have had to be served upon the deceased person had he survived, to require from the executor, administrator or other legal representative

of the deceased person any accounts, documents or other evidence which the officer might, under the provisions of Sections 22 and 23, have

required from the deceased person. In Section 24-B(3), the executor, administrator or other legal representative is not treated as an assessee even

for completing the assessment of the income of the deceased.

Section 24-B(2) has to be invoked where a person liable to be assessed to Income Tax dies before the publication of the notice u/s 22, where

the death takes place before any step is taken for setting the machinery of assessment in motion. The relevant portion of Section 24-B(2) runs:

Where a person dies, before the publication of the notice referred to in Sub-section (1) of Section 22...the executor, administrator or other legal

representative shall, on the serving of notice under Sub-section (a) of Section 22...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.

Thus Section 24-B(1) comes into play after the assessment has been completed, and where only the assessed tax or any portion thereof

remains to be collected. Section 24-B(3) has to be invoked to complete the assessment. Section 24-B(2) has to be resorted to even for the

initiation of proceedings to assess the tax. Sub-sections (2) and (3) of Section 24-B do not specifically refer to any machinery for collection.

Obviously where the assessment is completed u/s 24-B(3), the notice of demand u/s 29 can issue only to the executor, administrator or other legal

representative of the deceased. The executor, administrator or other legal representative of the deceased would not himself be the assessee within

the meaning of Section 29. He would obviously fall within the scope of the other category, ""other person liable to pay such tax"". Similarly Section

24-B(2) also does not provide for the machinery of collection. As we pointed out, the assessment itself has to be begun by the issue of a notice u/s

22(2) of the Act to the executor, administrator or other legal representative of the deceased. In that case too notice of demand can issue u/s 29

only to such executor, administrator or other legal representative of the deceased.

The question is, when Section 24-B(2) directs that the assessment may be on the basis, that such executor, administrator or other legal

representative is the assessee, the position of the executor, administrator or other legal representative is different from that of a person of that class

u/s 24-B(1) or u/s 24-B(3) for the purpose of payment. We have pointed out that Section 24-B(1) limits the liability of the executor, administrator

or other legal representative to the assets of the deceased person in his hands. There is no such express limitation; either in Section 24-B(3) or in

Section 24-B(2). We are unable to hold that either expressly or by necessary intendment the Legislature intended to impose u/s 24-B(2) or

Section 24-B(3) a heavier burden on the executor, administrator or other legal representative of a deceased person than what Section 24-B(1)

expressly imposes-on a person of that class. The principle of hereditas damnosa of the old Roman Law cannot, in our opinion, govern the recovery

of the Income Tax which his deceased predecessor-in-interest would have had to pay, had he continued to live. It was clearly necessary to

provide only for the machinery of collection u/s 24-B(1) of the Act, because the assessment was completed before the death of the person, liable

to pay the assessed tax. Under Sub-sections (2) and (3), the assessment itself of the income of the deceased person had to be provided for. That

was provided for without any express provision in either of these two sub-sections for collection of the assessed tax. If through all the three sub-

sections the same principle runs, that the extent of the liability of the executor, administrator or other legal representative of the deceased person is

limited by the possession of the assets of the deceased person, there should be little difficulty in placing the executor, administrator or other legal

representative of the deceased person, who comes within the scope of either Section 24-B(2) or Section 24-B(3) of the Act, in the category of

persons referred to in Section 29 of the Act as ""other person liable to pay such tax"", as distinct from the ""assessee"". For the purpose of Section 29,

therefore, it is the deceased that would be the assessee, and the executor, administrator or other legal representative, in whose presence the

income of the deceased is assessed either u/s 24-B(2) or u/s 24-B(3), would be not the assessee but merely a. person liable to pay the assessed

tax.

We have already pointed out that Section 24-B(1) does not refer to the executor, administrator or other legal representative of a deceased as

an assessee even for purposes of collection. Section 24-B(3), which does not concern itself with the collection at all, does not refer to such

executor, administrator or other legal representative of the deceased as the assessee. The fiction of treating the executor, administrator or other

legal representative of the deceased as the assessee was necessary only for proceedings governed by Section 24-B(2) of the Act, because the

assessment proceedings could be initiated in that class of cases only after the death of the deceased. For the limited purpose of assessment, the

fiction was enacted, by which the executor, administrator or other legal representative of the deceased is deemed to be the assessee. Like Section

24-B(3), Section 24-B(2) did not concern itself with the collection of the assessed tax. The liability of a legal representative u/s 24-B(2) cannot

obviously be any heavier than that of a legal representative u/s 24-B(3), though Section 24-B(2) alone refers to such legal representative as the

assessee"". It was only for purposes of assessment that the fiction was enacted in Section 24-B(2).

Legal fictions are nothing unusual. The scope and the limits of an enacted, legal fiction have to be gathered primarily from the express language

or the necessary intendment of the provision of law that enacted that legal fiction. Beyond that point, the enacted legal fiction cannot be extended.

In our opinion, the legal fiction enacted by Section 24-B(2) is only for the purposes of assessment. For the purpose of initiating and completing

the assessment on the income of the deceased, his legal representative is deemed by that legal fiction to be the assessee. With the completion of the

assessment, the necessity for that legal fiction ends. The liability to pay the assessed tax has to be enforced u/s 29 of the Act. For the purpose of

Section 29 of the Act, the legal representative would not himself be an assessee, but he would, nonetheless, be a person liable to pay the tax.

When there is such a specific statutory provisions to enforce the liability of the legal representative in Section 29 of the Act, there is no need to

continue the fiction enacted by Section 24-B(2) further, to provide also-for the collection of the assessed tax.

Section 24-B is not the only provision in the Income Tax Act for the imposition of vicarious liability whether it be for the purpose of

assessment, or for purpose of collection, or for purpose of assessment and collection of the Income Tax.

u/s 4(2) and u/s 16(1c), the legal fiction enacted is that for the purposes of taxation, the income of a given person is deemed to be the income

of another person, on whom the incidence of taxation falls. Since by the fiction the income itself becomes the income of the person taxed for the

purposes of the Income Tax Act, the person taxed would be the assessee for all purposes under the Act, without any need to say so expressly.

Section 18(7) applies where the person liable to deduct the tax due from his employee at source does not deduct it, or after deducting it fails to

pay the tax. In such cases the employer is deemed to be an assessee in default in respect of that tax. Section 18(7) has only to provide for

collection; and though the primary liability itself lay upon the employer, his failure to discharge the liability made him. ""assessee in default"" only

because of the fiction expressly enacted for that limited purpose by Section 18(7) of the Act.

u/s 23-A(1) it is the shareholder, who has not been paid the undisbursed dividends, that is liable to pay the tax, treating such undisbursed

dividends as part of his income. Still, when making a statutory provision for the recovery of the tax imposed on such undisbursed dividends the Act

provided u/s 23-A(3)(ii) that the tax shall be recoverable from the company, if it cannot be recovered from such a member. Section 23-A(3)(iii)

provides that, where the tax is recoverable from the company, such a company shall be deemed to be the assessee in respect of such sum for

purposes of collection. The extent of the fiction, of treating the company as the assessee is clearly defined by the Act: it is only for the purpose of

collection.

The fiction enacted by Section 40(1) of the Act is that the guardian, trustee or agent is deemed to have been in direct receipts of the income,

profits or gains of the beneficiary. The limit of the fiction as enacted by Section 40(1) is ""all the provisions of this Act shall apply accordingly."" That

would certainly mean all the provisions for assessment, as well as all the provisions for collection of the assessed tax. A similar provision is also

made in Section 40(2). u/s 42(1) the agent of a non-resident assessee is deemed to be the assessee, and the extent of his. ability is indicated by the

expression ""for all the purposes of this Act.

Thus the scheme of the Income Tax Act, which created legal fictions for the imposition of vicarious liability, is quite consistent with the principle

we mentioned above, that the extent of the liability arising under the legal fiction is demarcated either by express words or by necessary

intendment.

Applying that test, can it be said that, when Section 24-B(2) enacted that the legal representative of a deceased person shall be deemed to be

an assessee, the legal representative must be deemed to be the assessee, for not only the purposes of assessment for which Section 24-B(2)

provided, but also for the purpose of collection? There are certainly no express words in Section 24-B(2) to extend the limits of the fiction beyond

the stage of assessment to the stage of collection also. We cannot see anything in the language of Section 24-B(2), either taken independently or in

its setting in Section 24-B, to justify an inference, that by necessary intendment the fiction, enacted by Section 24-B(2) was totally different in its,

scope from what Section 24-B(1) or Section 24-B(3) provided for and that when Section 24-B(2) directed that the legal representative should be

treated as the assessee, it also enacted by necessary intendment that the legal representative should be treated as the assessee for purposes of

collection also, principally for Section 45 and Section 46(1) with which we are now concerned.

The learned Counsel for the department contended that the Legislature could not have intended to provide only for a limited application of the

fiction enacted in Section 24-B(2), since Section 24-B(2) itself did not provide for the machinery for collection of the assessed tax. We are unable

to accept that contention. That would appear to overlook the specific provision, Section 29 of the Act. The legal representative would be a person

liable to pay the tax even though he is not the assessee. Further, Section 46(2) refers only to ""arrears"" and ""an assessee"", and pot to ""an assessee in

default"". It is not necessary for us to discuss at this stage the precise scope of Section 46(2) and we express no final opinion on that.

What the department seeks in this case is not only to impose a vicarious liability to have the tax assessed, which Section 24-B(2) lays upon the

legal representative of a deceased person, but also to impose a vicarious liability of penalty for non-payment of the assessed tax within the time

allowed. The position of an assessee is obviously quite different from that of an executor, administrator or other legal representative of that

assessee. The liability of the assessee himself is not limited by the possession of any assets of the own. The liability of the executor, administrator or

other legal representative of a deceased person is obviously limited by the extent of the assets of the deceased person in the hands of such legal

representative. The default by a legal representative to pay the tax, which but for the death of his predecessor-in-interest that person would have

had to pay, could not be treated on a par with the default of the assessee himself, and, in our opinion, it was not so treated either by Section 45 or

Section 46(1).

In our opinion, the legal representative assessed under the provisions of Section 24-B(2) on the income of his deceased predecessor-in-

interest is not an ""assessee"" within the meaning of Section 29, nor an ""assessee in default"" within the meaning of Section 45 or Section 46(1). It is

only an assessee in default that can be penalised u/s 46(1). The petitioner, not having been an assessee himself within the meaning of Section 29,

should not have been penalised u/s 46(1), even though the tax demanded in the notice issued u/s 29 was not paid within the time allowed. The

imposition of the penalties on the petitioner was wholly without jurisdiction.

The petition is allowed. The rule is made absolute to the extent indicated above. The orders of the Income Tax Officer imposing the penalties

of Rs. 250 and Rs. 10,000 will stand cancelled.

In the view we have taken of the invalidity of the orders of the Income Tax Officer, we refrain from considering whether the Commissioner of

Income Tax exercised his revisional powers, which the petitioner invoked, consistently with the directions given by an order of this Court dated

21st January, 1954. We are not commenting on the propriety of the orders ultimately passed by the Commissioner.

The petitioner is entitled to his costs. Counsel''s fee Rs. 250.