Commissioner Of Income-Tax, Bombay v. James Anderson

[1964) 590 SUPREME COURT REPORTS 1963 argument, in our opinion, is not well-conceived. The whole object of the Act is to save ignorant people Dr. Yash Pal from being duped to purchase medicines just because Sahi their effect is advertised in eloquent terms. That v · is why the Act provides that lists of medicines describ-Delhi ing the qualities and attributes of different medicines Administration should be sent only to registered medical practitioners --or hospitals. That being so, it would not be a fair Gqjendragadkar argument to urge that even though the appellant J. might have sent the list to a person who was not a registered medical practitioner, the recipient of the list should have been out on his guard and should not have looked into the list. We are, therefore, satisfied that the ·High Court was right in holding that the offence charged against the appellant has been duly proved. In regard to the sentence, the learned Additional Sessions Judge has reduced the sentence of Rs. 1,000 fine imposed on the appellant by the learned trial Magistrate to Rs. 500 and that we think is a fair order to make. In the result, the appeal fails, and is dismissed. Appeal dismissed. COMMISSIONER OF INCOME-TAX, BOMBAY 1963 December 2 JAMES ANDERSON (A.K. SARKAR, M. HJDAYATULLAH AND J.C. SHAH, JJ.) Income tax Act (XI of 1922), s. 24B-Scope of-Death of Share-holder-Liability of legal representative-Extent of. G, a holder of certain shares of a private limited company made a will disposing of his estate and died on May 13, 1945. The respondent obtained Letters of Administration "durante absentia" to the estate, and in pursuance of an agreement between himself, the company and one M to sell the shares to M, handed over the share certificates to M against payment of the price. M failed to present the share certificates for registration and the name 591 .. of G remained on the register of shareholders of the Company. 1963 The Income-tax Officer made an order under s. 23Aofthe Income-tax Act <:is it then stood) that certaL..'.··_ distributed part of the as_ses~- Commissioner of able income of the company sha•r.~' deemed to have been distn-Income-tax buted as dividend amongst the ·,.c-.• , holders as at the dates of the Bo b ' general meetings, vi.:., May :.~. 1947 and December 22, 1947. m ay The Income-tax Officer then .: .. ~ed a notice under s. 34(1) (b) to v. the respondent proposing to re-assess his income and calling upon James Anderson him to file a return for the relevant year. The respondent sub-' milted a return, but did not include the dividend deemed to have been distributed by the order passed under s. 23A The Income-tax Officer included the dividends in the total income of the respondent and levied tax. The respondent's appeals to the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal were un-successful. On reference, the High Court held that the assessment made on the respondent Administrator to the estate of G (deceased) was not valid in law. In appeal by special leave: Held (i) The legal representative does ;;ot. acquire in all · cases, the right of a share-holder in respect of shares of which the deceased was registered as holder. But ifthe estate of a share-holder of a company is by. virtue. of the Articles of the Company liable in respect of calls whether made during the life-time of the holder or after his death,· the legal representative is obliged to satisfy the calls in his representative character. (ii) There is no special machinery devised by the Income-tax 590 80 1963 592 1963 Section: CONCLUSION Act enabling assessment and levy of tax in respect of such deemed income from the estate of the share-holder, 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 share-holder. The provision ins. 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 appli-cation. The expression "tax which would have been payable under this Act, if he had not died," ins. 24B is intended to impose liability for tax on income · actually received or deemed fictionally to be received in the year of account in the course of which the tax-payer died. This expression does not supply machinery for tax-ation of income receive1:1 by a legal representative after the expiry of the year in the course of which such person died. . Commissioner of Income-tax Bombay v. 'Amarchand Shroff, [1963] Supp. I S.C.R. 699 and Commissioner of Income-tax, Bombay .. v: Ellis C. Reid. I.LR. 55 Born. 312, referred to. (iii) To assess tax on such receipts after the expiry of the year in the course of which the original owner died on the footing that it is the personal income of the .. legal representative is to charge tax not in accordance with the provisions of the Act. CIVIL APPELLATE No; · 128 of 1963. JURISDICTION: Civil Appeal 1963 Commissioner of Income-tax Bombay . . Appeal by special Jeifte from the judgment· and order ?ated September 21,"-~961 of the Bombay High Court m Income-Tax Reference No. 32 of.1959. . v. James Anderson . Shah J. . N.D. Karkhanis, R.N. Sachthey and B.R.G.K. · Achar, -for ·the appellant. · -. , R.J. Kolah, J.B. Dadachanji, · 0.C. Mathur and Ravinder Narain, for the respondent. · · __ December 2, 1963. The Judgment of the Court -was delivered by · · SHAH, J.-Henry Gannon who was a registered holder of 2674 shares of Gannon Dunkerley & Com-pany-a private Limited Company with its registered office in Bombay-died on May 13, 1945, having made and published a will disposing of his extensive · estate in the United Kingdom and in British India. The .National Bank of India Ltd. obtained probate of Gannon's will in the United Kingdom and appointed the respondent James Anderson its attorney to ad-minister the estate in British India. · Anderson applied for and obtained in India on August 14, 1946, Letters of Administration "durante absentia" to the estate of Gannon in British India. 450 out of the shares were· specifically·· bequeathed by Gannon to ·certain legatees, and in the course of administration, share certificates with transfer forms duly executed were · delivered to the legatees in respect of those shares and no question arises 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 2224 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 5 S.C.R. SUPREME COURT REPORTS 592 1963 1963 1963 the office of the Company and the name of Gannon remained at all material times on the register of share-holders in respect of those 2224 shares. 1963 Commissioner of Income-tax Bombay In the assessment of the Company for the assess-Bombay ment years 1946-47 and 1947-48 the Income-tax v. Officer, Bombay, made an order on March 26, 1953, James Anderson under s. 23A of the Income-tax Act, 1922 (as it then stood) that certain undistributed parts of the assess-Shah J, able 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 to be distributed m respect of the shares were Rs. 61,051 and Rs. 3,73,099. The Income-tax Officer then issued on March 28, 1953, a notice under s. 34(1)(b) of the Income-tax Act addressed to "James Anderson, Administrator to the Estate of late Mr. Henry Gannon" reciting that he had reason to believe that Anderson's "income assessable to income-tax for the year ending 31st of March 1949" had escaped assessment and that he proposed to re-assess the escaped income and for that purpose called upon Anderson to make a return of his total income and the total world income assess-able for the year ending March 31, 1949. In compli-ance with the requisition Anderson submitted a return, but did not include therein the dividend deemed to have been distributed under the order dated March 26, 1953. The Income-tax Officer in his order of assessment included dividends deemed to be distributed and after processing the amount under s. 18(5) included it in the total income of Anderson and levied tax thereon at the appropriate rate. Ander-son's appeals against the order of the Income-tax Officer to the Appellate Assistant Commissioner and to the Income-tax Appellate Tribunal, Bombay, were unsuccessful. At the instance of Anderson the following questions were referred by the Tribunal to the High Court of Bombay . under s. 66(1) of the Income-tax Act:- 1/SCI/64-38 594 SUPREME COURT REPORTS "(l)Whether in the facts and in the circumstances of the case the assessment made on Mr. James Anderson, Administrator to the estate in India of Mr. Henry Gannon (deceased) is valid in law? 1963 Commissioner of Income-tax Bombay v. James Anderson Sarkar J. If the above question is answered in the affir- mative (2) whether in the facts and in the circum-stances of the case the dividends of Rs. 61,051 and "Rs. 3,73,099 deemed to have been distributed on 26th Mav 1947 and 22nd December 1947 res-pectively under s. 23A of the Income-tax Act were assessable in the hands of the applicant?" The High Court answered the first question in the negative and declined to answer the second question. With special leave, the Commissioner of Income- tax, Bombay, has appealed to this Court. The estate of Gannon to which the Letters of Administration relate, vested by virtue of s. 211 of the Indian Succession Act, in Anderson, but he did not take steps to get his name entered in the register of shareholders maintained by the Company,· and the Income-tax Officer sought to tax the dividends 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 s. 23A gives rise to a notional income: it merely creates a fiction about distribution and consequential receipt of divi-dend. 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 1963 596 Act contains machinery for assessing dividends deemed to have been distributed by virtue of an order under s. 23A in respect of the shares held by a shareholdef, 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 represen-tatives have not been substituted in the register of the Company. 5 S.C.R. It was held by this Court in Commissioner of 1963 Income-tax, Bombay City II v. Shakzmtala and others([1]l following Howrah Trading Company Ltd. v. Commissioner Commissioner of Income-tax, Central Calcutta(2) of Income-tax that the expression "shareholder" in s. 23A of the Bombay Indian Income-tax Act, 1922, means a shareholder v. registered in the books of the company, and such James Anderson shareholder alone is liable to be taxed in respect of the dividend deemed to be distributed. Counsel for Shah J. the Commissioner submits that the principle of those cases applies only when the registered share-holder is alive and the beneficial ownership in the shares is vested as a result of some transaction inter vivos in a person in whose name the shares do not stand in the Company's register, but not where by the grant of representation to the estate of a registered shareholder who has died, the representative is in-vested, without his name being entered in the register, with the rights of the shareholder. Whether on the death of a shareholder his executor or administrator may enforce the rights of the share-holder or incur liability in respect of the shares to the Company, depends upon the nature of the right and the obligation, and terms of the statute and the articles of the Company which create those rights and obligations. The legal representative of a deceased person cannot vote on behalf of the shareholder and may not become a director of the Company on the strength of the representation alone. Again by the express provision contained in s. 35 of the Indian Companies Act, 1913, a transfer of the share or other interest of a deceased member by his legal represen-tative although he is himself not a member is as valid as if he were a member at the time of the execution of the transfer. This implies that the legal repre-sentative does not acquire in all cases the rights of a shareholder of a company in respect of shares of which the name of the deceased was registered as holder. But if the estate of a shareholder of a com- (2) 36 I.T.R. 215. (I} 43 I.T.R. 352. 1963 pany is by virtue of the Articles of the Company liable in respect of calls upon shares whether made Commissioner during the life-time of the holder or after his death,, of Income-tax the legal representative is obliged to satisfy the calls Bombay in his representative character. This obligation arises v. not because the legal representative becomes, by James Anderson virtue of probate or Letters of Administration, a shareholder in place of the person whose estate is ShahJ. vested in him, but because as a representative it is his duty to ·discharge the obligations enforceable against the estate. 1963 [ 1964 ] 598