Excerpt:irrespective of whether the discontinuance of the profession is temporary or permanent, income was liable to be included under the head ” Income from other Sources”.
Calcutta High Court
JUDGMENT S.C. Ghose, J.
1. This application has been made, inter alia, for the issue of a writ in the nature of certiorari for quashing and/or setting aside two several notices, one dated 25th May, 1968, and the other dated nil issued under Section 148 of the Income-tax Act, 1961, hereinafter referred to as the new Act, for the assessment year 1965-66 and all proceedings taken under the said notices, for the issue of a writ in the nature of mandamus, to cancel, withdraw and rescind the said notices and the proceedings taken under them, writ in the nature of prohibition directing the respondents to forbear from giving any effect to or taking any step in pursuance of the said notices and also for the issue of a writ in the nature. of mandamus commanding the respondents to refund to the petitioner the amount of Rs. 26,230.59 realised by the respondent No. 1 in excess of the amount that was legally due by Subodh Kumar Bose, since deceased, on account of income-tax.
2. The petitioner is the widow and a heir and legal representative of one Subodh Kumar Bose (hereinafter referred to as ” the deceased “). The deceased died on May 19, 1963, having published his last will and testament whereby the deceased appointed the petitioner as his sole executrix. Application for grant of probate of the said will has been made by the petitioner in the Court of the District Judge, 24-Parganas, at Alipore; the said application is still pending.
3. The deceased was a barrister practising mainly at the High Court at Calcutta. At the time of his death a considerable amount was due and owing by different solicitors and clients to the deceased on account of professional services rendered by him. At the time of his death assessment of income-tax of the deceased for the assessment years 1962-63, 1963-64 and 1964-65 up to the date of his death were completed by the Income-tax Officer, ” C ” Ward, District III(I), and an aggregate sum of Rs. 1,54,598.29 was assessed to be the income-tax payable by the deceased for the said years. The tax for the year 1964-65 was, however, subsequently revised and reduced to Rs. 80,899 and total income-tax liability for the aforesaid years, therefore, became reduced to Rs. 1,54,492.04. In respect of the said years the deceased had deposited by way of advance tax a sum of Rs. 66,390-32 and the petitioner paid a sum of Rs. 4,813.71.
4. The respondent No. 1 by virtue of notices issued under Section 226(3) of the Income-tax Act 1961, attached the outstanding bills of the deceased and realised from his law and professional clients a total sum of Rs. 1,09,625. Out of the said sum of Rs. 1,09,625 a sum of Rs. 83,394.76 was appropriated by respondent No. 1 towards the balance of the income-tax dues of the deceased for the aforesaid years leaving a sum of Rs. 26,230.59 refundable to the petitioner.
5. Thereafter, two separate notices, one dated May 25, 1968, and the other . dated nil, were issued under Section 148 of the said new Act by respondent No. 1 calling upon the petitioner to submit a return in respect of the income of the deceased for the assessment year 1965-66. Copies of the said notices have been annexed to the petition and have been marked as exhibits ” B ” and ” C ” respectively. The said notices have been issued on the ground that respondent No. 1 had reason to believe that the income of the deceased in respect of which the petitioner was assessable to tax for the assessment year 1965-66, had escaped assessment within the meaning of Section 147 of the said new Act.
6. The said notices called upon the petitioner to file return in the prescribed form of the income of the deceased in respect of which the petitioner was assessable for the said assessment year. Together with a letter dated July 29, 1968, respondent No. 1 forwarded to the petitioner a form of return for submission of the income of the deceased by August 8, 1968. By letter dated August 7, 1968, the petitioner informed respondent No. 1 that the deceased had no income during the assessment year 1965-66 and as such the petitioner was unable to file any return.
7. The petitioner thereafter received from respondent No. 1 a notice dated August 22, 1968, under Section 142(1) of the said new Act calling upon the petitioner to produce books of account, bank pass book, ledger and balance-sheet of the deceased for the assessment year 1965-66. By letter dated September 3, 1968, the petitioner requested respondent No. 1 to grant her time until the advocate of the petitioner who was out of Calcutta returned to Calcutta. Respondent No. 1 was not willing to grant any time to the petitioner.
8. According to the petitioner there was no material whatsoever to enable the Income-tax Officer, the respondent No. 1, to believe that the income of the deceased for the assessment year 1965-66 had escaped assessment. At no point of time during the said year the deceased was alive. Therefore, there could not be any escapement of income of the deceased from tax for the assessment year 1965-66. Hence, the instant application to strike down the impugned notices and for the reliefs mentioned above has been made by the petitioner.
9. The reason for starting proceedings under Section 147 of the Income-tax Act of 1961, was not disclosed by the Income-tax Officer in the affidavit affirmed by him on April 10, 1970, the first affidavit filed in opposition to the petition.
10. The revenue realised an aggregate sum of Rs. 1,09,625 from the law and professional clients of the deceased on diverse dates between 3rd March, 1965, and 14th May, 1966. The particulars of such realisation including dates thereof have been set out in paragraph 6 of the petition. On the basis of the petition it appears that a sum of Rs. 62,193 was realised by the revenue from M/s. Khaitan & Co. as money payable to the deceased on 3rd March, 1965.
11. Although no reason for issuing the said impugned notices was disclosed in the said first affidavit of Sudhangsu Mohan Bhattacharya affirmed on 10th April, 1970, and used in opposition to the said petition it appears from the records as well as from the affidavit filed by the said officer affirmed on February 25, 1971, that the revenue in March, 1965, realised from several debtors, of the deceased an aggregate sum of Rs. 85,998. This sum according to the revenue was liable to tax under Section 176(4) of the Income-tax Act, 1961, for the assessment year 1965-66. Since no return was filed in respect of the said sum by the petitioner the said sum escaped assessment on account of such omission or failure on the part of the assessee.
12. Dr. Debi Pal on behalf of the petitioner submitted that a receipt of money in order to be income within the meaning of the new Act must fall under one or the other head mentioned in Section 14 of the new Act which is equivalent to Section 6 of the Indian Income-tax Act oi 1922 (hereinafter referred to as “the old Act”). Section 14 of the new Act is set out hereunder :
“14. Heads of income.–Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, he classified under the following heads of income :–
A.–Salaries, B.–Interest on securities.
C.–Income from house property.
D.–Profits and gains of business or profession.
F.–Income from other sources.”
13. Section 6 of the old Act, according to Dr. Pal, was substantially in similar terms and the income to be chargeable under the provisions of the new Act has to fall, therefore, under any of the aforesaid heads mentioned in Section 14. Section 28 of the new Act lays down as to what income would be chargeable to income-tax under the head ” Profits and gains of business or profession “. Sub-section (i) to Section 28 lay’s down that the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year would be chargeable to income-tax under the head ” Profits and gains of business or profession “. The other sub-sections to Section 28 are not relevant for the purpose of the instant application.
14. According to Dr. Debi Pal, the deceased who died on May 19, 1963, was not alive even during the year previous to the assessment year 1965-66, Thus, the deceased did not receive any money nor earned any income by carrying on his profession during the previous year. The deceased maintained his account on cash basis. The money received by the revenue under Section 226 of the new Act in March, 1965, were arrears of fees payable to the deceased on account of professional work rendered by the deceased. Therefore, according to Dr. Pal, the ratio decidendi in Nalinikant Ambalal Mody v. S.A.L. Narayan Rao, Commissioner of Income-tax,  61 I.T.R. 428;  Supp. S.C.R. applies on all fours to the instant case and the said sum of Rs. 85,998 was not liable to be assessed to income-tax. A taxing statute must be construed strictly. If the legal personality of the deceased does not extend to the year previous to the assessment year 1965-66, his legal representative was not liable to file any return. Dr. Pal relied on Commissioner of Income-tax v. Amarchand N. Shroff, . Dr. Pal supported his contentions by placing Sections 2(15), 2(29), 2(45), 5, 6, 10, 14, 28, 56, 159 and 176(4) of the new Act and all the corresponding Sections of the old Act, namely.
sections 2(15), 4, 6, 10 and 65. Dr. Pal also relied on Section 41 of the new Act and Sewlal Daga v. Commissioner of Income-tax,  55 I.T.R. 406 (Cal.).
16. Mr. Dipankar Gupta, appearing on behalf of the revenue, contended that under the new Act (see Sections 14 and 26) unlike under the old Act (see Sections 6 and 12), income and not heads of income are chargeable to tax. If any income cannot be classified under any specific head then it shall be chargeable to tax under the residuary head of ” income from other sources “. Under Section 176(4) of the new Act, the income received by a person shall be-treated as the recipient’s income and has to be treated as income from other sources. Nalinikant Ambalal Mody’s case was decided on Sections of the old Act. The ratio of the-said case cannot apply to the facts of the instant case. Aware-hand N. Shroff’s case was also a decision on the basis of Section 2413 of the old Act. In the instant case the revenue is not relying on Section 24B of the old Act or the corresponding Section 159 of the new Act. Section 176(4) of the new Act is a special provision and deals with special circumstances mentioned therein.
17. Section 6 of the old Act reads as follows :
“Save as otherwise provided by this Act, the following heads of income, profits and gains, shall be chargeable to income-tax in the manner hereinafter appearing, namely :–
(ii) Interest on securities.
(iii) Income from property.
(iv) Profits and gains of business, profession or vocation.
(v) Income from other sources.
(vi) Capital gains.”
18. Under Section 6 of the old Act, six sources or heads of income (and not the income) enumerated in the said section were chargeable to tax. In order to be chargeable an income had to fall within one or the other of the said six heads. The fourth head of income in Section 6 is “profits and gains of business, profession or vocation “, The fifth head is the residuary head which embraced all sources of income not coming within the heads mentioned in the said section.
19. The Supreme Court held in the case of Nalinikant Ambalal Mody v. S.A.L. Narayan Rao, Commissioner of Income-tax that profits and gains of profession received later than the year in which the profession was discontinued was not chargeable to tax. The said income came within the head specified in Section 6(iv) of the old Act but was not chargeable under the computing section, viz., Section 10 of the old Act. It was held by the Supreme Court that the various heads of income mentioned in Section 6 of the old Act were mutually exclusive and thus the said income could not be brought under the residuary head, i.e., Section 6(v). The Supreme Court in the said case observed that the said receipt although would be income and included in the total income under Section 4 of the old Act, the Act did not provide for taxation on whatever was included in the total income under Section 4. Section 4 did not deal with chargeability of tax and was not the charging section. Section 3 was the charging section under the old Act, but income had to be brought under one of the heads specified in Section 6 and would be charged to tax only if it was chargeable under the computing section in respect of that head. Such income which was under consideration of the Supreme Court in the said case was held could not be brought to taxation under the corresponding computing section, i.e., Section 10 under the head specified in Section 6(iv). Section 10 of the old Act applied to and attracted only the profits and gains of any business, profession or vocation which was carried on by the assessee during the year previous to the assessment year. The said section did not apply to profits and gains of any profession which was not carried on by the assessee at any time during the previous year (see Commissioner of Income-tax v. Express Newspapers Ltd., . and Commissioner of Income-tax v. Ajax Products Ltd., ).
20. From a comparison of Section 6 of the old Act with Section 14 of the new Act, it appears that under Section 14 of the new Act income and not heads of income as under Section 6 of the old Act, has been made chargeable to income-tax.
21. Clause (i) to Section 28 of the new Act has defined the particulars of income which shall be taxed under the head ” Profits and gains of business or profession “. Thus, Section 28 of the new Act makes the income under the said head chargeable to tax while Section 10 of the old Act made not the income but the head of income mentioned therein, viz., ” Profits and gains of business or profession “, chargeable to tax.
22. For the purpose of the instant application it appears that Section 12 of the old Act and Section 56 of the new Act are material. The relevant portions of the said Sections are set out hereunder :
23. Section 12 of the Indian Income-tax Act, 1922 :
“12. (1) The tax shall be payable by an assessee under the head ‘ Income from other sources’ in respect of income, profits and gains of every kind which may be included in his total income (if not included under any of the preceding heads).”
24. Section 56 of the Income-tax Act, 1961 :
“56. Income from other sources.–(1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head ‘Income from other sources’, if it is not chargeable to income-tax under any of the heads specified in Section 14, items A to E.”
25. Under Section 12 of the old Act income which would not be included under any of the heads mentioned in Sections 6(i) to 6(iv) and 6(vi) of the old Act would be included under the head “Income from other sources”, Section 6(v) of the said Act. If an income falls into any of the category or class of income enumerated in Sections 6(i) to Section 6(iv) and Section 6(vi) such income could not be included under the residuary head mentioned in Section 6(v) of the old Act.
26. If an income cannot be charged to income-tax under any of the heads mentioned in clauses A to E of Section 14 of the new Act the same shall be chargeable to income-tax under the head ” Income from other sources “, mentioned in Clause F of the said Section 14, under the express provision of Section 56(1) of the new Act.
27. Thus under the new Act money received by a person on account of profits or gains of a profession which had been discontinued by him even prior to the year previous to that when he received the same would be chargeable to tax under the provisions of the new Act mentioned above. If Subodh Kumar Bose were alive, he would have been liable for income-tax chargeable on the sum of Rs. 85,998 realised by the revenue by means of proceedings under Section 224 of the new Act. Will the death of Subodh Kumar Bose make any difference ?
28. In the instant case this money realised by the revenue, by way of garnishee proceedings from the debtors of the deceased cannot be assessed as profits or gains from profession or vocation carried on by the assessee during the “previous year”. In view of Section 28(1) of the new Act, this income cannot be brought under any of the heads enumerated in clauses A to E of Section 14 of the new Act. But in view of specific provisions of Section 56 of the new Act, this income would be chargeable to tax under the head “income from other sources” Sub-section (2) of Section 56 of the new Act, though it enumerates incomes that may be taxed under the head ” Income from other sources “, the said enumerations are not exhaustive and do not affect and are subject to the provisions of Subsection (1) to the said section. Thus, death of the assessee would not make any difference.
29. The Supreme Court in the case of Amarchand X. Shroff, relied on by Dr. Pal, held that the income of a deceased solicitor received by his heirs later than the year of his death, i.e., subsequent to the ” previous year ” (1)  in which he died was not liable to be assessed under Section 24B as his income in the hands of his heirs. It should be noted, however, that there was no specific provision apart from the said Section 24B in the old Act for such assessment.
30. It seems to me that the Supreme Court in the said case of Nalinikant Ambalal Mody v. S.A.L. Narayan Row, Commissioner of Income-tax, considered only the provisions of the old Act. The Supreme Court did not consider the difference between Sections 6, 10 and 12 of the old Act and the corresponding Sections 14, 28 and 56 of the new Act. In view of the aforesaid, the ratio in the said case of Nalinikant Ambalal Mody v. S.A.L. Narayan Row, Commissioner of Income-tax, in my opinion, is not applicable to the facts and circumstances of the instant case.
31. Moreover, in the aforesaid case, Section 176(4) of the new Act did not come up for consideration. Section 176(4) of the new Act provides as follows:
” 176. (4) Where any profession is discontinued in any year on account of the cessation of the profession by, or the retirement or death of, the person carrying on the profession, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the aforesaid person had it been received before such discontinuance.”
32. In the instant case during the relevant assessment year a sum of Rs. 85,998, it appears, was realised by the revenue and appropriated towards the income-tax debt due by the deceased. To that extent it seems that the tax debt of the deceased was discharged, and the payment made by the garnishee to the revenue discharged the debt of the garnishee as well as the deceased to the extent of such payment. Thus, in my opinion, the deceased must be deemed to have received the said sum and was the recipient of the same within the meaning of Section 176(4) of the new Act. The said provision extends the legal existence of the deceased beyond the date of death to the date or dates of realisation of money from his garnishee towards the payment of his income-tax debt. This money must be deemed to be the income of the deceased from other sources during the relevant year and was chargeable to tax.
33. Therefore, it seems that preconditions for issuing the impugned notices as contemplated in Section 147 of the Act were there.
34. By reason of the premises, this application must fail. The application is dismissed. Rule nisi is discharged. All interim orders are vacated. Each party, however, shall pay and bear the costs of and incidental to this application.