COMMISSIONER OF INCOME TAX Vs. AMARCHAND N SHROFF

JUDGEMENT

(1.) MR . Amarchand Shroff who was an attorney of this Court and a partner in the firm of attorneys Messrs. Amarchand and Mangaldas died on 7 -7 -1949. There were three partners in the firm, Mr. Amarchand, Mr. Mangaldas and Mr. Hiralal. Mr. Ramesh, son of Mr. Amarchand joined the firm as a partner on 1st December 1949 and an arrangement was arrived at between him and the continuing partners after the death of Mr. Amarchand. In respect of work done prior to 7 -7 -1949 the realisation was to be divided between all the three previous partners; in respect of work done between 8 -7 -1949 and 30 -11 -1949, it was to be divided between Mr. Mangaldas and Mr. Hiralal and realisations made in respect of work done after 1 -12 -1949 was to be divided between the two old partners and the new partner Mr. Ramesh. Mr. Amarchand, was being taxed on cash basis. Large sums of moneys were realised during the subsequent five years after Mr. Amarchand's death and the amounts paid to his estate were Rs. 37,847/ -, Rs. 43,162/ -, Rs. 34,899/ -. Rs. 13,402/ - and Rs. 32,523/ -. The Department sought to tax these realisations as income, in respect of the work done by Mr. Amarchand prior to his death. These amounts were assessed in the hands of an entity styled as "the heirs and legal representatives of late Mr. Amarchand N. Shroff" and the status of that entity was described to be that of a H.U.F.

(2.) THE matter was carried to the Tribunal and the two members of the Tribunal took divergent views on certain aspects of the same, but they were agreed that the income in question could not be assessed as income of the assessee i.e. "the heirs and legal representatives of late Mr. Amarchand Shroff". The Judicial Member took the view that it could not by any stretch of imagination be said that the receipts were the income of the heirs assessable as then income and he held that the amounts could not be assessed as income of the assessee heirs and he concluded in favour of the assessees. The Accountant Member stated in his order that what the Department should have done was that they should have assessed the H.U.F. consisting of the two sons of Mr. Amarchand and his widow. He further held that the realisations which wont to the share apportionable to Mr. Amarchand in respect of work done during his life time could not be treated as the income of the H.U.F. His view was that these outstandings would form part of the estate of the deceased as at the time of his death as they were outstandings due to the estate of the deceased. He also expressed the view that the realisations received of capital and not of income. The matter at that time rested with the decision of the Tribunal.

(3.) THE Appellate Assistant Commissioner set aside the assessment which was made by the Income Tax Officer after adopting proceedings under Section 34. He decided the matter on the ground that the notices under Section 34 were invalid. The matter this time also was carried to the Tribunal. Some of the contentions of the assessees were negatived, by the Tribunal, but we are not concerned with them. In deciding the matter in favour of the assessees the Tribunal observed that they were unable to understand how any assessment could be made on a dead person. Reliance was placed before the Tribunal on Section 24B. We shall presently set out the relevant part of that section. For the present purpose it will suffice to observe that Section 24B deals with tax on income of a deceased person payable by his representatives. It has always been taken as firmly established that Section 24B only deals with income which had accrued to or had been received by a person who died, but who had not been assessed and tax bad not been recovered in respect of that income. The Tribunal took the view that Section 24B had no application to the matter. As to the proper and correct entity to be taxed, the Tribunal accepted the contention of the assessees and according to the Tribunal that entity was the H.U.F. consisting of the two brothers and their mother. It was observed by the Tribunal that it was the H.U.F. who had received the outstandings from the partnership firm of Solicitors. The Tribunal also reiterated what had been stated in the earlier appeal that in the hands of the H.U.F. the income could not be brought to tax, being of a capital nature.