Supreme Court Upholds Revenue in Expenditure Tax Assessment Against Deceased Individual's Legal Representatives. Section 18 of Expenditure Tax Act, 1957 Applies to Deaths Before Act Commencement, Rendering Estate Liable for Tax on Pre-Death Expenditure.

Civil appeal before the Supreme Court against a Bombay High Court judgment allowing a writ petition and quashing proceedings initiated by the Expenditure-tax Officer under the Expenditure Tax Act, 1957.

The respondents (executors) sought quashing of the notice and assessment proceedings; the appellant (Revenue) sought setting aside of the High Court's order and upholding the validity of the notice and assessment against the legal representatives.

The Expenditure-tax Officer issued a notice under Section 13(2) requiring the executors to furnish a return of expenditure incurred by the deceased ruler between April 1, 1957 and August 17, 1957; the executors objected that the Act did not apply because the deceased died before the Act came into force.

The Bombay High Court held that the charge under the Act was on the individual or Hindu undivided family incurring the expenditure, not on the estate, and that unless the unit of assessment was in existence on April 1, 1958, no tax could be levied; it quashed the proceedings. The Revenue appealed to the Supreme Court with a certificate granted by the High Court.

Whether legal representatives of a person who died before the Expenditure Tax Act, 1957 came into force are liable to be assessed and pay expenditure tax on expenditure incurred by the deceased in the previous year. Whether Section 18 of the Expenditure Tax Act provides sufficient machinery for assessing and collecting tax from the estate of such a deceased person.

Appellant (Revenue) argued that Section 18(1) clearly imposes liability on legal representatives for tax payable by the deceased, and the phrase 'where a person dies' is not restricted to deaths after the Act's commencement; sub-sections (2) and (3) provide complete machinery for assessment against legal representatives. Respondents (executors) argued that the Act did not apply to the deceased because he died before the Act came into force, the charge was on the individual or Hindu undivided family incurring the expenditure, and the unit of assessment must be in existence on the date the Act was imposed; hence no tax could be levied on the estate.

Section 18(1) of the Expenditure Tax Act, 1957 imposes liability on the executor, administrator or legal representative of a deceased person to pay expenditure tax out of the estate; the expression 'where a person dies' is not limited to deaths occurring after the Act came into force. The Act provides a complete machinery under sub-sections (2) and (3) of Section 18 for assessment against legal representatives, making Sections 13, 14 and 15 applicable to them as they apply to any person. The operative terms of Section 18(1) are identical to Section 24B(1) of the Indian Income-tax Act, 1922, which was enacted to remedy a lacuna and applies to deaths before assessment; therefore, the estate of a deceased person is liable to tax on expenditure incurred in the previous year even if death occurred before the Act's commencement.

In terms sub-s. (1) of s. 18 imposes liability upon the legal representatives of a person who dies, to pay out of his estate, expenditure-tax assessed as payable by such person, or any sum which would have been payable by him if he had not died. There is nothing in the expression 'Where a person dies' or in the context in which it occurs which suggests that it was intended thereby to restrict the operation of the sub-section to cases of persons dying after the Act was brought into force. The operative terms of sub-s. (1) of s. 18 are identical with the terms of s. 24B (1) of the Indian Income-tax Act, 1922.

The Expenditure Tax Act, 1957 received assent of the President on September 17, 1957, and was brought into force on April 1, 1958. Mahendrasinghji, Ruler of Morvi, died on August 17, 1957, having made a will appointing the respondents as executors. The Expenditure-tax Officer issued a notice under Section 13(2) requiring the respondents to furnish a return of expenditure incurred by the deceased between April 1, 1957 and August 17, 1957. The respondents objected that the Act did not apply; the Officer rejected the contention by letter dated November 19, 1959. The respondents then filed a writ petition in the Bombay High Court under Article 226 of the Constitution seeking to quash the proceedings. The High Court allowed the petition, holding that no tax could be levied because the unit of assessment was not in existence on the date the Act came into force. With certificate granted by the High Court, the Revenue appealed to the Supreme Court.

• Expenditure Tax Act, 1957 (29 of 1957): Section 2(c), Section 3, Section 13, Section 14, Section 15, Section 18
• Indian Income-tax Act, 1922: Section 24B(1)
• Constitution of India: Article 226