P.C. Mullick, In Re

The Judgment of the Court was delivered by

Derbyshire, C.J:— One Ramanath Ghosh died in 1904 and left; a will by which he appointed certain relatives of his as executors and trustees and directed that after his death certain expenses should be met from the income of the estate. He also directed that certain other expenses should be met, but he did not specify whether they should be met from the corpus of the estate or from the income. His eldest son, Siddheswar Ghosh, took out administration of the estate and was administrator until he died intestate in 1930. Thereafter his brother Akshoy Kumar Ghosh, who was the youngest and sole surviving son of Ramanath Ghosh, took out probate of his father's will and remained executor of the estate until his death in October 1931.

2. Akshoy Kumar Ghosh left a will dated August 1931 in which he appointed three persons including the two present petitioners as executors and trustees under the will. In his (Akshoy Kumar Ghosh's) will he directed that certain payments should be made out of the income of the property. Then he bequeathed his residuary estate to his male heirs or to a son to be adopted by his wife after his death. Akshoy Kumar Ghosh left no male heir and after his death his widow adopted one Ajit Kumar Ghosh as her son on 31st May 1933. The widow herself died on 31st October 1933. Akshoy Kumar Ghosh by his will directed his executors to spend a certain sum of money on his Adya Sradh out of the income of his property. He also directed that his executors and trustees should pay the costs of taking out probate of his will out of the income of his property. He further directed that certain payments of money should be made to certain beneficiaries named, gradually out of the income of his property. He also directed that his executors and trustees should pay annuities to certain persons out of the income of his property.

3. In the assessment of income-tax for the year 1933 made upon two of the persons named in Akshoy Kumar Ghosh's will as executors, P.C Mullick and D.C Aich, the present petitioners, who are in fact the executors and trustees of the will, the Income-tax Officer refused to allow a deduction to be made of a sum of rupees ten thousand directed by Akshoy Kumar Ghosh to be spent on his Adya Sradh, and also refused to allow the cost of probate which was directed to be paid out of the income of the property, from the total before ascertaining the income for assessment to tax. He, however, did allow as a deduction a certain sum of Rs. 39,492, payable out of the income by the executors to the beneficiaries under Akshoy's will. There was an appeal to the Assistant Commissioner of Income-tax who dismissed the appeal and confirmed the decision of the Income-tax Officer. Later, on 15th January 1935, the Commissioner of Income-tax drew up a statement of the case for the opinion of this Court on the appellants' application. That statement of case raised a question whether the sum of Rs. 10,000 expended on the Sradh and the costs of taking out probate were properly deductible before arriving at the income assessable to tax. This Court gave its opinion that the Commissioner of Income-tax was right. An appeal was taken to His Majesty in Council who affirmed the decision of this Court. In the meantime in January 1935, apparently the income-tax authorities came to the conclusion that the deduction of Rs. 39,492 had been improperly allowed by them and they issued a notice under Section 34 of the Act. The result of that was that they assessed that sum of Rs. 39,492 to tax on the ground stated in S. 34, namely, that it had escaped assessment in the year in question. The applicants for this rule challenged that procedure, but the matter stood over until the determination of the other matters just mentioned, by the Privy Council. The applicants have raised it in this form:

Had the Income-tax officer any legal power to take action under Section 34 of the Income-tax Act, in respect of an item which had been considered by him at the time of assessment and allowed?

4. That is the first part of the rule. It has been argued before us that the Rs. 39,492 had not escaped assessment and had in fact been assessed as part of the whole income of the year in question. We have been asked to order the income-tax authorities to state a case on this matter. The facts are fully before us on the letter which the Commissioner of Income-tax has written in answer to the rule nisi. In my opinion, the facts are quite clear and the law is quite clear. The statute says that if for any reason income has escaped assessment in any year, the Income-tax Officer may, within one year at the end of that year do certain things with a view to assessing or re-assessing that income. Clearly, the sum of Rs. 39,492 was not assessed. It was not assessed because the Income-tax Officer made a mistake in 1933 which he attempted to put right in January 1935. In my view, it is impossible to say, having regard to the plain words of the statute, that income of Rs. 39,492 did not escape assessment in the year in question. A somewhat similar position arose in the case reported in (1939) 7 ITR 362,1 where Beaumont, C.J, stated at p. 367:

The reason why the assessee was assessed as a member of a Hindu joint family, although he was the sole surviving coparcener, was because this Court had held that in such a case he was entitled to be so assessed, but subsequently, the Privy Council took a different view. Bo that the mistake, which resulted in the original assessment, was a mistake of law, for which the learned Commissioner of Income-tax had some justification. The words of S. 34 are very wide and say that ‘if for any reason the assessment is too low;’ I think those words are wide enough to cover such a mistake as existed in the present case, and I see no reason therefore why a fresh assessment should not be made under S. 34.

5. I respectfully agree with the words of Beaumont, C.J, in that case which seems to me to apply with equal force in the present case. The second part of the rule which has been obtained is as follows:

Was not the income of the estate assessable in the hands of the Bald applicants as trustees of Ajit Kumar Ghosh under Section 40 of the Income-tax Act, and should it not have been held that the compulsory payments had been diverted from the beneficiary by the will and not received in the hands of the said applicants at all or in the alternative are such payments not a charge on the estate?

6. The payments in question were payments which the executors and trustees the present applicants—were directed by the will of Akshoy Kumar Ghosh to make to certain persons named. The payments were, as I have said, either payments of moneys gradually or by annuities, and they were inf each case by the will itself directed to be made “out of the income of my property.” That clearly indicates that they were payments which could only be made out of the income which the executors and trustees received. They seem to me to come within the clear words used by Lord Macmillan in 60 IA 196.2 In that case a decree made a maintenance allowance a charge upon the ancestral estate in the possession of a Hindu and it was held that the assessee, that is to say, the owner of the estate, was entitled in respect of the maintenance payments to exclude only that proportion of the payments which his taxed income bore to the whole. At p. 200 of the report Lord Macmillan said:

When the Act by S. 3 subjects to charge ‘all income’ of an individual, it is what reaches the individual as income which it is intended to charge.

7. What has been charged to tax here has been the income which reached the assessees, namely the executors and trustees. It is not the other case which was mentioned by Lord Macmillan the case of diversion of income from the assessee to some one else. For those reasons, in my opinion, this rule in both its parts should be discharged. We allow to the learned advocate appearing a fee of seven gold mohurs in gross in lieu of taxed costs. The other four rules are discharged for similar reasons with no order as to costs.

8. Nasim Ali, J.:— I agree, but I would like to add a few words. Much reliance was placed by the assessees on the following passage in the judgment of their Lordships of the Judicial Committee in 61 IA 10.3

This involves reading the expression ‘has escaped assessment’ (in Section 34 of the Income-tax Act, 1922) as equivalent to ‘has not been assessed.’ Their Lordships cannot assent to this reading. It gives too narrow a meaning to the word ‘assessment’ and too wide a meaning to the word ‘escaped.’ The fact that Sec. 34 requires a notice to be served calling for a return of income which has escaped assessment strongly suggests that income which has already been duly returned for assessment can not be said to have ‘escaped’ assessment within the statutory meaning.

9. The contention of the assessee appellants in the appeal in which their Lordships made the above observation was that the Income-tax Officer was incompetent to make any assessment to tax after the expiry of the year for which the tax is charged except in cases provided for in Section 34 of the Income-tax Act, 1922. In that case the assessees were taxed under Section 23(1) of the Act for the year 1927-1928 after 31st March 1928, and the contention of the appellants was that this assessment was bad as it was not made under S. 34. It was contended on behalf of the appellants in that case that the word “assessment” in S. 34 means only the definite act of assessing and if the income is not taxed within the year, it must be taken to have escaped assessment within the meaning of S. 34. The appellants' argument in that case proceeded on the assumption that the word “assessment” in S. 34 meant only the definite act of assessment. Their Lordships repelled this contention thus: (1) that the word “assessment” (escaped-sic) is not equivalent to “has not been assessed” and is not confined to the definite act of making an order of assessment, (2) that it includes the process of assessment as well, as Section 66 of the Act refers to “the course of any assessment,” and (3) that when an income of a particular year has been included in the return and the proceedings for assessment are going on and have not terminated in final assessment within the year, the income cannot be said to have escaped assessment within the meaning of S. 34 as the word “assessment” in that Section is not confined to the act of assessment alone, but includes also the process of assessment. This view is clearly supported by the passage which immediately follows:

Their Lordships find themselves in agreement with the view expressed in 5 ITC 114,4 by the learned Chief Justice (Rankin): ‘Income has not escaped assessment if there are pending at the time proceedings for the assessment of the assessees’ income which have not yet terminated in a final assessment thereof.

10. There was no dispute in that case that the word “assessment” in S. 34 includes the “final act of assessment.” The only point for consideration of their Lordships was whether the word has this narrow meaning and has to be taken as equivalent to “has not been assessed” or whether it has a wider meaning and includes the process of assessment also. I do not find anything in the judgment of their Lordships to justify the view that the word “assessment” in S. 34 does not mean the final assessment also. The words “not confined” and the expression “too narrow a meaning to the word assessment” clearly indicate that the word “assessment” (escaped-sic) means also “has not been assessed.” The assessees' contention was that S. 34 contemplates only cases where the income has escaped assessment by reason of its being not included in the return. But the words in the Section are “for any reason.” These words are very wide. The non-inclusion of the income in the return may be one of these reasons; mistake of law may be another reason. I do not find anything in the Section to restrict the operation of the Section only to cases of non-inclusion of the income in the return. It was also argued on behalf of the assessees that if the Section be interpreted to empower the Income-tax Officer to revise the assessment for any reason, there would be no finality in the assessment. But the powers of the Income-tax officer can be exercised only within one year from the end of the year and after the expiry of the year it would become final. The contention of the assessees that the computation of the assessable income should be on the basis of the income of the beneficiary Ajit Kumar Ghose alone is not sound. The assessees are executors to the estate of late Akshoy Kumar Ghose and the administration is not yet complete. They have been taxed as executors and not as trustees of Ajit Kumar Ghose. So long as the entire income which they received from the estate as executors is in their hands, the income which they receive is received by them as executors and is liable to be taxed as such. I also cannot accept the contention of the assessees that a sum of Rs. 39,492 payable by them under the terms of the will of Akshoy Kumar Ghose is not assessable income. This sum is payable out of the income received by them from the estate and I do not find any distinction between this sum and any other sum which is payable by them under that will. It was argued that this sum cannot be treated, as part of the income of the executors as by the will it has been diverted from the estate to some other persons owing to their being payable by way of annuities.

11. If this view is correct, then all the expenses paid by the executors out of the income, in accordance with the terms of the will, would be exempt from taxation. In that case the money which is payable by the executors to themselves as trustees of Ajit Kumar Ghose out of the income Would also be exempt from taxation. This however is not the assessees' case as they themselves say that the assessable income should be on the basis of their income as trustees of Ajit Kumar Ghose. This contention of the assessees, if sound, would lead to this result that only the net income is assessable under the Income-tax Act or that the income of the executors cannot be assessed at all.

D.S/R.K

12. Rules discharged.