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SUPREME COURT OF INDIA
2nd December, 1963
A.K. SARKAR, M. HIDAYATULLAH AND J.C. SHAH, JJ.
The Commissioner of Income-tax, Bombay, Appellant
Versus
James Anderson, Respondent.
Civil Appeal No. 128 of 1963. 1762
Advocates appeared
M/s. N. D. Karkhanis, R. N. Sachthey and B. R. G. K. Achar, for Appellant; Mr. R. J. Kolah Advocate and M/s. J. B. Dadachanji, O. C. Mathur and Ravinder Narain, Advocates of M/s J. B. Dadachanji and Co., for Respondent.
INCOME TAX - Assessment - Dividends deemed to be distributed under S. 23A of the Income-tax Act, 1922 - Whether assessable in the hands of the administrator of the estate of the deceased shareholder - Held, no.
Fact of the Case:
The assessee, James Anderson, was the administrator of the estate of Henry Gannon, who died in 1945. In 1946, Anderson obtained Letters of Administration "durante absentia" to the estate of Gannon in British India. In the assessment of the Company for the assessment years 1946-47 and 1947-48, the Income-tax Officer made an order under S. 23A of the Income-tax Act, 1922, that certain undistributed parts of the assessable income of the Company shall be deemed to have been distributed as dividends amongst the shareholders as at the dates of the General Meetings of the Company. The Income-tax Officer then issued 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 assessable for the year ending March 31, 1949. 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.
Finding of the Court:
The High Court answered the first question in the negative and declined to answer the second question.
Issues: Whether the assessment made on Mr. James Anderson, Administrator to the estate in India of Mr. Henry Gannon (deceased) is valid in law ?
Ratio Decidendi: The Court held that the expression "shareholder" in Section 23A of the Indian Income-tax Act, 1922, means a shareholder registered in the books of the company, and such shareholder alone is liable to be taxed in respect of the dividend deemed to be distributed. The Court further held that 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. The Court also held that the legal representative 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. The Court further held that the obligation to pay the tax on the dividend so deemed to be distributed is of the shareholder, and may be enforced against him or his legal representative in the manner and to the extent the statute permits. The Court also held that there is no special machinery devised by the Income-tax Act enabling assessment and levy of tax in respect of such deemed income from the estate of the shareholder 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 the death of the shareholder, and the general provision in S. 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 application.
Final Decision: Appeal dismissed.
Judgment
SHAH, J. : Henry Gannon who was a registered holder of 2674 shares of Gannon Dunkerley and Company-a private Limited Company with its registered office in Bombay-died on May 13, 1945, having made and published a will disposing of 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 administer 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.
2. 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 the office of the Company and the name of Gannon remained at all material times on the register of shareholders in respect of those 2224 shares.
3. In the assessment of the Company for the assessment years 1946-47 and 1947-48 the Income-tax Officer, Bombay, made an order on march 26, 1953, under S. 23A of the Income-tax Act, 1922 (as it then stood) that certain undistributed parts of the assessable 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 in 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 assessable for the year ending March 31, 1949. In compliance 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. Anderson 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.
4. 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) 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 ? If the above question is answered in the affirmative
(2) Whether in the facts and in the circumstances of the case the dividends of Rs. 61,051/- and Rs. 3,73,099/- deemed to have been distributed on 26-5-47 and 22-12-1947 respectively under S. 23A of the Income-tax Act were assessable in the hands of the applicant ?"
5. The High Court answered the first question in the nega
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