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Judgment
Alfred Henry Lionel Leach, C.J.—In The Commissioner of Income Tax, v. Reid I.L.R.(1930) 55 Bom. 312 which was decided on the 3rd
October, 1930, the Bombay High Court held that the Indian Income Tax Act contained no provision under Which the estate of a deceased person
could be taxed. The definition of ""assessee"" u/s 2(2) of the Act only applied to a living person. In ILR 1934 58 579 (Privy Council) which related
to an assessment made in the year 1929-30, the Privy Council held that Section 26(2) applied to a person who succeeded to the business of a
deceased person and therefore the successor could be taxed in respect of the income obtained from the business in the year of succession. On the
11th September, 1933, the Legislature inserted Section 24-B. Stated broadly, the question which arises here is whether Section 24-B overrides
Section 26(2) and requires, in the case of a person dying leaving a business, the assessment to be made on his executor, administrator or other
legal representative, as if he had not died.
This reference arises out of the assessment made on the receivers of the estate of one RM. AR. AR. RM. Arunachalam Chettiar, who died on
the 23rd February, 1938. He was survived by his two wives and the widow of a predeceased son. He left a will and therein appointed executors.
The estate is now being administered by the Court of the Subordinate Judge of Devakottai, who appointed the receivers. In Appeals Nos. 321 of
1940, and 3, 104 and 239 of 1941, this Court had to decide the rights of the widows and the son''s widow. The deceased had large assets which
included a money lending business in British India with branches in Ceylon, the Federated Malay States and in French Cochin China. The decision
of this Court, so far as it affects the present case, was that the deceased''s widows and the son''s widow were entitled, to the movable assets in
British India, but that the son''s widow did not share in the movable assets outside British India. The three ladies can ''be regarded as the
successors to the deceased''s business, although not in equal shares. -
In the present case the year of account is from the 12th April, 1937, to the 12th April, 1938. The Income Tax Officer held that the receivers
were to be assessed to Income Tax and super-tax in respect of the whole of the estate, including the profits of the business. The receivers
contended that the profits of the business should be separately assessed and the tax levied on the widows u/s 26(at). The appellate Assistant
Commissioner upheld the order of the Income Tax Officer but on appeal to the Income Tax Appellate Tribunal, Calcutta Bench, the receivers''
contention was accepted. At. the request of the Commissioner of Income Tax the Tribunal has referred the following question u/s 66 of the Income
Tax Act
Whether in the circumstances of this case the entire assessment has to be made u/s 24-B of the Act or has the assessment to be split up into two
portions, one falling u/s a6(a) and the other falling u/s 24-B of the Act?
The argument advanced on behalf of the Commissioner is that Section 24-B. is self-contained and is wide enough to cover every case where a
person liable to Income Tax dies during the year of account. The section may be self-contained, but this does not mean that it overrides Section
26(2). Sub-section (2) of Section 26 was amended in 1939, but the Court must have regard to its provisions before the amendment. It then read
as follows:
Where, at the time of making an assessment u/s 23, it is found that the person carrying on any business, profession or vocation has been succeeded
in such capacity by another person the assessment shall be made on such person succeeding, as if he had been carrying on the
business,''profession, or vocation throughout the previous year, and as if he had received the whole of the profits for that year.
As we have already pointed out in (1934) L.R. 61 I.A. 312 (Privy Council) the Privy Council held that this provision allowed the tax to be
levied on the person who succeeded to a business on the death of the owner. In our judgment Section 24-B was inserted in order to supplement
Section 26(2), and to avoid the defect pointed out by the Bombay High Court. If the Legislature had intended Section 24-B to override Section
26(2), as interpreted by the Privy Council, surely it would have said so. As Section 24-B left Section 26(2) untouched, we consider that Section
26(2) must be applied in a case of succession to a business by death and the tax levied on the successor as if he had carried on the business
throughout the previous year. This means that we agree with the decision of the Appellate Tribunal and we answer the question referred
accordingly.
The respondents are entitled to their costs, Rs. 250.