The individual assessee has ordinarily to be a living person and there can be no assessment on a dead person
“Nothing is certain except death and taxes,” Benjamin Franklin stated in his letter of November 13, 1789, to Jean-Baptiste Leroy. These words still hold true.
In a 25-year-old case, Shabina Abraham vs Commissioner of Central Excise, the taxman had initiated assessment proceeding against the legal representatives/estate of a sole proprietor/manufacturer after his death.
However, the Supreme Court in this interesting tax matter said that “to tax the dead is a contradiction in terms” and “tax laws are made by the living to tax the living.” Setting aside the Kerala High Court judgment that upheld the demand of the revenue authorities for excise duty from the successors of a failed single proprietary firm, the apex court said: “Tax laws are made by the living to tax the living. What survives the dead person is what is left behind in the form of such person’s property.”
The issue before the court was whether the dead person’s property, in the form of his or her estate, can be taxed without the necessary provisions in a tax statute and whether an assessment proceeding under the Central Excises and Salt Act, 1944, can continue against the legal representatives/estate of a sole proprietor/manufacturer after he is dead.
In this appeal, one George Varghese, the sole proprietor of defunct Kerala Tyre and Rubber Company Ltd, was given a show-cause notice in June 1987 by the department seeking recovery of excise duty to the tune of over R75 lakh for assessment years 1983-1985. After his death in 1989, the revenue authorities then issued show-cause notices to the owner’s wife and four daughters. In their reply, the women stated that none of them had any personal association with the deceased in his proprietary business. They also submitted that the proceedings initiated against the deceased abated on his death in the absence of any provision in the Act to continue assessment proceedings against a dead person in the hands of the legal representatives.
Failing to get the assessment proceedings dropped, the legal heirs approached the Kerala High Court in January 1990. Even the High Court upheld the assessment proceeding initiated against them. Therefore, the legal heirs moved the Supreme Court, which quashed the High Court judgment.
\Counsel Rajshekhar Rao, appearing for the legal heirs, submitted that a reading of few provisions as they stood at the relevant time would show that unlike the provisions of the Income Tax Act, there is no machinery provision in the Central Excises and Salt Act for continuing assessment proceedings against a dead individual. He stressed the fact that an assessee under the Act means “the person” who is liable to pay the duty of excise under this Act and in cases of short levy, such duty can only be recovered from a person who is chargeable with the duty that has been short levied. He further said that there is no machinery provision contained either in the Act or in the Rules to proceed against a dead person’s legal heirs.
Opposing the stand of legal heirs, senior advocate AK Panda, appearing for the department, contended that sums are recoverable from an assessee by an attachment and sale of excisable goods belonging to such assessee, and further that if the amount so recoverable falls short, it can be recovered from the person himself as arrears of land revenue.
Inasmuch as a dead man’s property can be attached and sold and proceeded against, it is clear that the necessary machinery is contained in the 1944 Act, the department stated. Moreover, the position under the Income Tax Act would be entirely different as income tax is a tax leviable on a person whereas a duty of excise is leviable on manufacture of goods, it said.
The position under the Income Tax Act 1922 was also the same until Section 24B was introduced by the Income Tax (Second Amendment) Act of 1933. Prior to the amendment, the Bombay High Court had dealt with a similar question in the case, Commissioner of Income Tax, Bombay vs Ellis C Reid, where it said: “…throughout the Act there is no reference to the decease of a person on whom the tax has been originally charged, and it is very difficult to suppose the omission to have been unintentional. It must have been present to the mind of the legislature that whatever privileges the payment of Income-tax may confer, the privilege of immortality is not amongst them. Every person liable to pay tax must necessarily die and in practically every case, before the last instalment has been collected … if the legislature intends to assess the estate of a deceased person to tax charged on the deceased in his lifetime, the legislature must provide proper machinery and not leave it to the court to endeavour to extract the appropriate machinery out of the very unsuitable language of the statute. We are not concerned with the case which may arise of the death of a person after assessment but before payment.”
Given the decision of the Bombay High Court, the legislature was quick to amend the Income Tax Act 1922 by inserting Section 24B which says the tax of deceased person is payable by its representative. This Bombay High Court judgment was also affirmed by the Supreme Court in the case, Commissioner of Income Tax vs Amarchand N Shroff, where it said that the individual assessee has ordinarily to be a living person and there can be no assessment on a dead person, and the assessment is a charge in respect of the income of the previous year and not a charge in respect of the income of the year of assessment as measured by the income of the previous year.
Similarly, in the Commissioner of Income Tax, Bombay vs James Anderson case, the Supreme Court said that even after Section 24B was enacted, tax cannot be assessed on receipts on the footing that it is the personal income of the legal representative.
The anomalies left by Section 24B of the 1922 Act, as pointed out in the two Supreme Court judgments, were then rectified in the new provisions contained in the 1961 Act which say that when a person dies, his legal representative shall be liable to pay any sum that 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.