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Commissioner Of Income Tax, Madhya Pradesh, Nagpur v. Hukamchand Mohanlal .
Factual and Procedural Background
The assessee, widow of Kanhaiyalal, carried on the business of sole selling agent of Mohanlal Hargovindas, Jabalpur, after her husband’s death on 17 February 1960. During the period 26 January 1950 – 31 March 1951, Mohanlal Hargovindas had recovered ₹24,341 as sales tax from the assessee’s late husband. On 31 November 1960, the Assistant Commissioner of Sales Tax remitted that liability, and the firm refunded the amount to the assessee by a bank draft dated 31 October 1961 (received on 9 November 1961, within the accounting year ending 31 March 1962).
The Income-tax Officer assessed the refunded amount as income in the assessee’s hands under Section 41(1) of the Income-tax Act 1961. The Appellate Assistant Commissioner affirmed the assessment. The Income-tax Appellate Tribunal, however, held that Section 41(1) could not apply because the allowance had originally been granted to a different assessee—her deceased husband. At the Commissioner’s behest, the Tribunal referred the following question to the Madhya Pradesh High Court:
“Whether the sum of ₹24,341 was liable to tax under Section 41(1) of the Income-tax Act, 1961?”
The High Court answered the question in favour of the assessee. The Revenue obtained a certificate of fitness and appealed to the Supreme Court, which rendered the present decision.
Legal Issues Presented
- Whether the refunded sum of ₹24,341, received by the widow in the previous year 1961-62, is chargeable to tax under Section 41(1) of the Income-tax Act 1961.
Arguments of the Parties
Revenue’s Arguments
- The remission of the sales-tax liability constitutes a benefit within the meaning of Section 41(1), rendering the amount taxable in the year of receipt.
- The continuation of the business by the widow makes her liable for the tax consequence of the remission.
Assessee’s Arguments
- Section 41(1) applies only where the “assessee” who obtained the original allowance also receives the subsequent benefit; here, the allowance was granted to the deceased husband, not to her.
- No provision in the Act, including Section 159 (legal representatives), extends Section 41(1) liability to a successor or legal representative for benefits accruing after the previous year in which the original assessee died.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Commissioner of Income Tax, Bombay City v. Amarchand N. Shroff, AIR 1963 SC 1448; 1963 Supp (1) SCR 699 | Section 24-B of the 1922 Act extends a deceased assessee’s legal personality only for the previous year in which death occurred; legal representatives are not liable for income received in subsequent years. | Used to show that liability cannot be imposed on a legal representative for income (or benefits) received after the accounting year of the deceased, reinforcing that Section 41(1) cannot apply to the widow. |
| CIT v. James Anderson, AIR 1964 SC 1761; (1964) 5 SCR 590 | Same principle as Amarchand N. Shroff—tax liability of the estate does not extend beyond the accounting year in which the deceased died. | Cited as further authority supporting the view that Section 159 (successor liability) cannot be invoked to tax the widow under Section 41(1). |
Court's Reasoning and Analysis
The Supreme Court emphasised that Section 41(1) deems as income any remission or cessation of a trading liability in the hands of the same assessee who had earlier obtained the allowance or deduction. Because the allowance for sales-tax liability had been granted to the deceased husband, the statutory pre-condition—that the assessee obtaining the benefit be the same person—was absent.
The Court reviewed Section 2(7) (definition of “assessee”) and found no clause that would include the widow in respect of her late husband’s allowance. It also examined Section 159 (successor/legal representative) and, relying on Amarchand N. Shroff and James Anderson, held that a legal representative is liable only for sums the deceased would have been liable to pay up to the end of the accounting year in which he died. Since the remission occurred in a later year (1961-62), the widow could not be taxed under Section 159, and the Revenue expressly disclaimed reliance on that provision.
Consequently, Section 41(1) was deemed inapplicable, as the “assessee” contemplated by that section—Kanhaiyalal—was no longer in existence. The High Court’s conclusion that the ₹24,341 could not be assessed under Section 41(1) was affirmed.
Holding and Implications
Appeal Dismissed; High Court’s answer in favour of the assessee affirmed.
Immediate Effect: The widow is not liable to pay income-tax on the refunded amount of ₹24,341 for the assessment year 1962-63.
Broader Implications: The decision reiterates that Section 41(1) applies strictly to the assessee who originally obtained the deduction, and that legal representatives or successors cannot be taxed under that provision for benefits accruing after the deceased’s accounting year, absent explicit statutory authority.
A.N Grover, J.— This is an appeal by certificate from a judgment of the Madhya Pradesh High Court in an Income Tax Reference. The Reference related to the assessment made on the assessee for the year 1962-63 for which the accounting period was the year ending March 31, 1962. The assessee carried on business as sole selling agent of Mohanlal Hargovindas, Jabalpur. The assessee succeeded to this business on the death of her husband on or about February 17, 1960. It would appear that Mohanlal Hargovindas had recovered a certain amount towards sales tax from the assessee's husband relating to the period January 26, 1950 to March 31, 1951. In an appeal filed by the said firm, however, the Assistant Commissioner of Sales Tax remitted the sum of Rs 24,341 so recovered by the firm by an order dated November 31(sic), 1960. Consequently Mohanlal Hargovindas refunded that amount to the assessee by means of a draft dated October 31, 1961. This draft was received by the assessee on November 9, 1961 which fell in the accounting period. The Income Tax Officer sought to tax this amount under the provisions of Section 41(1) of the Income Tax Act, 1961 hereinafter called the “Act”. He did not accede to the contention of the assessee that the income, if at all, was the income of the assessee's deceased husband and not her income. The Appellate Assistant Commissioner dismissed the appeal filed by the assessee. The Tribunal acceded to the contention of the assessee that since the allowance or deduction in question had been obtained by a different assessee, namely, her husband she was not liable to pay tax on that amount under Section 41 (1) of the Act. The Tribunal was moved by the Commissioner of Income Tax for stating a case and referring the following question to the High Court:
“Whether the sum of Rs 24,341 was liable to tax under Section 41(1) of the Income Tax Act, 1961?”
The High Court answered the question in favour of the assessee. Section 41(1) is in the following terms:
“41. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him or the value of benefit accruing to him, shall be deemed to be profits and gains of business or profession and accordingly chargeable to income tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not.”
As pointed out by the High Court under the general law if a trading liability has been allowed as a business expenditure and if this liability is remitted in any subsequent year the amount remitted cannot be taxed as income of the year of the remission nor can the account for the year in which the liability was allowed be reopened or adjusted. Section 41(1) was enacted to supersede this principle but this section can apply only to the assessee. In the present case if the husband of the assessee had been alive and had received the amount which had been remitted during his lifetime, he would certainly have been liable to pay tax under the provisions of Section 41(1). But Kanhaiyalal having died and his widow being the assessee she cannot possibly be brought within the section. Section 2(7) of the Act defines the word “assessee”. The definition is very general and assessee is stated to mean a person by whom income tax or super-tax or any other sum of money is payable under the Act and includes every person as mentioned in clauses (a), (b) and (c). The assessee, in the present case, does not fall within any of those clauses. There is no specific provision in the Act under which it can be said that the assessee is a person by whom income tax is payable on the amount of Rs 24,341 which came to her by way of remission on account of what had transpired in the lifetime of her husband. The Act does not contain any provision making a successor in business or the legal representative of an assessee to whom an allowance has already been granted liable to tax under Section 41(1) in respect of the amount remitted and received by the successor or the legal representative. The only provision which relates to the liability of the legal representative is Section 159 of the Act. Sub-section (1) thereof provides that where a person dies his legal representative shall be liable to pay any sum which the deceased would have been liable to pay if he had not died in the like manner and to the same extent as the deceased. The corresponding provision in the Income Tax Act, 1922 was Section 24-B. In Commissioner of Income Tax, Bombay City v. Amarchand N. Shroff AIR 1963 SC 1448, 1963 Supp (1) SCR 699 it was laid down by this Court that Section 24-B did not authorise the levy of tax on receipts by the legal representative of a deceased person in the year of assessment succeeding the year of account being the previous year in which such person died. The assessee had ordinarily to be a living person and could not be a dead person. By Section 24-B the legal personality of the deceased assessee was extended for the duration of the entire previous year in the course of which he died. The income received by him before his death and that received by his legal representative after his death but in that previous year became assessable to income tax in the relevant assessment year. Any income received in the year subsequent to the previous year or the accounting year could not be called income received by the deceased person. Thus the provisions of Section 24-B did not extend to tax liability of the estate of a deceased person beyond the previous or the accounting year in which that person died. To the same effect is the decision in CIT v. James Anderson AIR 1964 SC 1761, (1964) 5 SCR 590. Indeed the learned Counsel for the Revenue did not and could not rely on the provisions of Section 159 of the Act in the present case nor was any reliance placed on any other section in the Act apart from Section 41(1). The question referred is also based on that very section. That section, in our opinion, cannot possibly apply to the present case because the assessee who is now sought to be taxed is not the assessee contemplated by that section. The assessee within Section 41(1), namely, Kanhaiyalal having died the Revenue could not take any advantage of its provisions. The High Court rightly observed that the question whether the amount of Rs 24,341 was liable to tax as the personal income of the assessee did not arise in the present case in which the sole point to be decided was whether that amount was assessable in the assessee's hands under Section 41(1) of the Act.
2. We therefore entirely concur in the view of the High Court and agree with the answer returned by it. In the result the appeal fails and it is dismissed with costs.
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