High Court rules joint receivers not liable for past income tax assessments

Prem Narain Agarwal And Another, Advocates And Receivers Of John Mills Versus Income-Tax Officer,

Prem Narain Agarwal And Another, Advocates And Receivers Of John Mills Versus Income-Tax Officer, - [1966] 61 ITR 57 Issues:
1. Whether joint receivers appointed by the court can be assessed for income chargeable for an assessment year prior to their appointment.

Analysis:
The judgment of the High Court of Allahabad addressed the issue of whether joint receivers appointed by the court could be assessed for income chargeable for an assessment year prior to their appointment. The case involved receivers appointed for spinning mills and a flour mill previously owned by the John family. The receivers were appointed to manage and preserve the mills following a legal dispute initiated by Seth Loon Karan Sethiya in 1949. The petitioners, who were appointed as joint receivers after the decease of the previous receiver, were served with notices by the Income-tax Officer for three assessment years. The petitioners challenged the validity of the notices, arguing that they were not liable to file returns for the period before their appointment as receivers.

The court analyzed the provisions of the Income-tax Act, 1961, specifically Chapter XV, which deals with liability in special cases. The Act defines "representative assessee" in section 160(1)(iii) as including any receiver appointed by a court who receives or is entitled to receive income on behalf of any person. The respondent argued that the petitioners, as receivers, were entitled to receive the income and thus fell within this definition. However, the court disagreed, stating that the definition of "representative assessee" pertains to income earned during the time the receiver holds that status. The court clarified that income can only accrue or be received once by the same assessee, and if the income accrued to the earlier receiver, it became taxable at that time, regardless of when it was actually received by the subsequent receiver. Therefore, the petitioners were not considered "representative assessees" for the relevant assessment years.

Furthermore, the respondent contended that the petitioners were legal representatives of the deceased receiver and thus liable for assessment under section 159 of the Act. However, the court rejected this argument, emphasizing that the petitioners did not represent the estate of the deceased receiver as required by the definition of "legal representative." The court noted that the property under the receiver's management did not vest in the receivers, and their appointment did not involve the devolution of any estate from the deceased receiver. Consequently, the court held that the proceedings initiated against the petitioners under section 148 of the Act were without jurisdiction.

In conclusion, the court allowed the petition, issuing a writ of certiorari to quash the notices under section 148 of the Income-tax Act for the relevant assessment years. The court ruled in favor of the petitioners, stating that the impugned proceedings were not within the jurisdiction of the respondent. The court did not delve into the submissions regarding the petitioners' liability as an association of persons or the extent of their liability, as the primary issue of jurisdiction had been resolved in favor of the petitioners.