The supreme court has ruled that dead person’s property, in the form of his or her estate, can not be taxed without the necessary machinery provisions in a tax statute

Case Details:
Case No. : Civil Appeal No. 5802/2015
Parties: S habina Abraham & Ors. (Appellant) vs Collector of Central Excise & Customs (respondent)
Date of Judgment: 29-07-2015
Coram: Justice R. F. Nariman and Justice A. K. Sikri

Question:
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

Case Law Referred:
Commissioner of Income Tax, Bombay v. Ellis C. Reid, A.I.R. 1931 Bombay 333
Commissioner of Income Tax, Bombay City I v. Amarchand N. Shroff, [1963] 48 I.T.R. 59
Commissioner of Income Tax, Bombay v. James Anderson, [1964] 51 I.T.R. 345
Commissioner of Income Tax, Bombay v. Darabsha Nasarwanji Mehta, A.I.R. 1935 Bombay 167
M/s. Murarilal Mahabir Prasad and others v. Shri B.R. Vad and others, (1975) 2 SCC 736

Facts of the Case:
Shri George Varghese was the sole proprietor of Kerala Tyre and Rubber Company Limited which by October, 1995 had ceased to manufacture and production of tread rubber. However, Central Excise  Authorities served a show cause notice dated 12.6.1987, alleging that for the period January 1983 to December 1985, the assessee had manufactured and cleared tread rubber from the factory premises by suppressing the fact of such production and removal with an intent to evade payment of excise duty. The provisions of Section 11A, as they then stood, of the Central Excises and Salt Act were invoked and duty amounting to Rs.74,35,242/- was sought to be recovered from the assessee together with imposition of penalty for clandestine removal.

On 14.3.1989, the said Shri George Varghese died. A second show cause notice was issued on 18.10.1989 to his wife and four daughters. The said legal heirs of the deceased stated that none of them had any personal association with the deceased in his proprietary business and were not in a position to locate any business records. They submitted that the proceedings initiated against the deceased abated on his death in the absence of any provision in the Central Excises and Salt Act to continue assessment proceedings against a dead person in the hands of the legal representatives. The said show cause notice was, therefore, challenged as being without jurisdiction.

The matter reached to Kerala High Court where a single judge decided the writ petition in favour of the appellants holding that the Central Excises and Salt Act did not contain any provisions for continuing assessment proceedings against a dead person Against this, revenue went in appeal and a Division Bench of the Kerala High Court reversed the single Judge’s judgment.

Arguments of the Appellants:
It was contended that a reading of Sections 2(f), (3), Section 4(3)(a), Section 11 and 11A 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 said Act means “the person” who is liable to pay the duty of excise under this Act and further stressed the fact that 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 invited our attention to the Central Excise Rules and Rules 2(3) and 7 in particular to buttress his submission that there is no machinery provision contained either in the Act or in the Rules to proceed against a dead person’s legal heirs.

Excerpts of the Supreme Court Judgment:
On a reading of the aforesaid provisions, it is clear that Shri Rajshekhar Rao, learned counsel  appearing on behalf of the appellants is correct – there is in fact no separate machinery provided by the Central Excises and Salt Act to proceed against a dead person when it comes to assessing him to tax under the Act.

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 introduction of the aforesaid Section, the Bombay High Court had occasion to deal with a similar question in Commissioner of Income Tax, Bombay v. Ellis C. Reid, A.I.R. 1931 Bombay 333. A Division Bench of the Bombay High Court noticed the definition of “assessee” contained in Section 2(2) of the 1922 Act which definition stated that “‘assessee’ means a person by whom income tax is payable”. The Division Bench went on to say that the words “or by whose estate” are conspicuous by their absence in the said definition. The Division Bench then went on to say that there appears to be nothing in the charging Section to suggest that a man who has once become liable to tax can avoid payment of tax by dying before such tax has been assessed or paid. However, the Act has to contain appropriate provisions for continuing an assessment and collecting tax from the estate of a deceased person which was found to be absent in the 1922 Act before it was amended by insertion of Section 24B.

Given the aforesaid decision of the Bombay High Court, the legislature was quick to amend the Income Tax Act, 1922 by inserting Section 24B

This judgment of the Bombay High Court has been affirmed in two judgments of this Court

Pursuant to the 12th Law Commission Report, a new Income Tax Act was passed in 1961 which contained elaborate provisions for assessment of deceased persons after they die. The anomalies left by Section 24B of the 1922 Act, as pointed out in the two Supreme Court judgments referred to above, were sought to be rectified in the new provisions contained in the 1961 Act. Sections 159 and 168 of the Act are apposite in this regard

It will be noticed that under Section 159(2), for the purpose of making any assessment, any proceeding taken against the deceased before his death is by deeming fiction deemed to have been taken against his legal representative and may be continued against the legal representative from the stage at which it stood on the date of the death of the deceased. Further, the legal representative under sub-section

(3) of 159 is again by deeming fiction deemed to be an assessee himself. However, the liability of such representative is limited only to the extent to which the estate left by the deceased is capable of meeting the tax liability subject to the contingencies mentioned in sub-sections (4) and (5) of Section 159.

Similarly, under Section 168, where the assessee has left a Will, the income of the estate of the deceased person becomes chargeable in the hands of the executor of such will. This is made clear by Section 168

Under the Central Excises and Salt Act, an assessee means “the person who is liable to pay the duty of excise under this Act”. The present tense being used, it is clear that the person referred to can only be a living person as was held in Ellis C. Reid (supra). Further, the only extension of the definition of “assessee” under the Central Excises and Salt Act is that it would also include an assessee’s agent, which has nothing to do with the facts of the present case. It is well settled that a “means and includes”

definition is exhaustive in nature and that there is no scope to read anything further into the said definition.

Learned counsel for the revenue, however, contended that the principles applied in the case of the Income Tax Act should not be applied to the Central Excises and Salt Act as the latter Act is a tax on manufacture of goods and not on persons. We are afraid this argument cannot be countenanced in view of this Court’s judgment in State of Punjab v. M/s Jullunder Vegetables Syndicate

The argument that Section 11A of the Central Excises and Salt Act is a machinery provision which must be construed to make it workable can be met by stating that there is no charge to excise duty under the main charging provision of a dead person, which has been referred to while discussing Section 11A read with the definition of “assessee” earlier in this judgment.

Learned counsel for the revenue also relied upon the definition of a “person” under the General Clauses Act, 1897. Section 3(42) of the said Act defines “person as under:-

“(42) “Person” shall include any company or association or body of individuals whether incorporated or not.”

It will be noticed that this definition does not take us any further as it does not include legal representatives of persons who are since deceased

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