Section 168 of the Income Tax Act, 1961 provides that the income of the estate of a deceased person shall be chargeable to tax in the hands of the executor to the estate of the deceased.
Text of Section 168
Executors.
168. (1)
Subject as hereinafter provided, the income of the estate of a deceased person
shall be chargeable to tax in the hands of the executor, -
(a) if there
is only one executor, then, as if the executor were an individual; or
(b) if there are more executors than one, then, as if the executors
were an association of persons;
and
for the purposes of this Act, the executor shall be deemed to be resident or
non-resident according as the deceased person was a resident or non-resident
during the previous year in which his death took place.
(3)
Separate assessments shall be made under this section on the total income of
each completed previous year or part thereof as is included in the period from
the date of the death to the date of complete distribution to the beneficiaries
of the estate according to their several interests.
(4)
In computing the total income of any previous year under this section, any
income of the estate of that previous year distributed to, or applied to the
benefit of, any specific legatee of the estate during that previous year shall
be excluded; but the income so excluded shall be included in the total income
of the previous year of such specific legatee.
Explanation.
- In this section, “executor” includes an administrator or other person
administering the estate of a deceased person.
Separate PAN required for filing the return of the executor
The executor shall be assessed in
respect of the income of the estate separately from his personal income. Thus,
there would be a separate PAN required for filing the
return of the executor.
The
income of a deceased up to the date of death is to be assessed separately as if
the deceased were alive, in the hands of the legal representative. (Section
159). The income of the estate of a deceased shall be assessed in the hands of
the 'executor' under section 168 of the Act.
Status
of the Executor in case of testate death
If
there is only one executor, then he will be treated as an individual. In case
of more than one executor, they shall be regarded as Association of Persons. The
residential status of the executor shall be decided according to the
residential status of the deceased person during the year in which his death
took place. The executor has the right to recover or to retain the amount
utilised for payment of liability of the deceased person.
Assessment of executors - Deceased person will be assessed as an individual through the executor
Normally
when a person dies, his legal heirs or executors distribute the assets left by
the deceased on the date of death. It may happen on many occasions that due to
some reason or the other, complete distribution of the assets left by the
deceased does not take place. In such circumstances, the undistributed assets
will continue to belong to estate of the deceased person till distribution
among the legal heirs is completed. Income arising out of such assets will be
taxed at the prevalent rate in the hands of the executor in his capacity as
executor and such income shall not be included in the income of the executor or
legal heir(s).
For
example, if the deceased on the date of his death had bank balance, loans and
advances to the tune of Rs. 20,00,000 and after one year from the date of his
death the executor had distributed a sum of Rs. 4,00,000 only amongst the legal
heirs, the income arising out of the balance assets of Rs. 16,00,000 belonging
to the deceased will be taxed under the Income Tax file of the deceased for
which Income Tax Return will have to be filed by the executor, and the Income
tax file will continue such time as the complete distribution of the estate of
the deceased takes place and when the amount in respect of the estate of the
deceased is distributed to the beneficiaries of the estate according to the
Will, or as per law.
Thus,
in terms of Section 168 of the Income Tax Act, 1961, separate assessment shall
be made on the total income of each previous year in respect of the estate of
the deceased which has not yet been distributed. Hence, even when a person is
dead there can be separate assessment in the name of the deceased till complete
administration takes place.
Position when an individual leaves
a will appointing executor(s)
Where however the individual dies
leaving a will and appointing an executor or executors, section 168 comes
into play. In such a case, income derived from the business or other assets is
to be assessed in the hands of the executors. But such income cannot be clubbed
with the income arising to the executors in their individual capacities, that
is to say, income from their own business, properties, profession, etc. The
position will be the same in a case where there are no executors but an
administrator or a receiver is appointed by the court for the estate of the
deceased. In such cases, the estate left by the deceased vests in the executors
or administrators or receiver, as the case may be, and continue to be so vested
in them till the distribution of the estate or the administration thereof is
completed. The income arising from the estate will also naturally vest in them.
But the beneficial owners of the estate and the income therefrom are either the
legatees or the legal heirs as the case may be.
Income from estate of deceased
belongs to legal heirs and not to deceased
Section 168 provides for an
entirely different situation, namely, the assessment of the “income of the
estate of a deceased person”. Where an individual, who had earned income in a
given accounting year, dies in the course of the year, intestate, his estate
devolves on his legal heirs, who will take the same as tenants in 'common. The
income arising subsequent to the death of the individual will naturally accrue
and belong to such legal heirs. Hence such income will be chargeable to tax in
their hands. If the deceased had been carrying on a business and his legal
heirs continue the same after his death, the income that may accrue from such
business may be assessed in their hands in the status of an association of
persons, since they have associated for the purpose of carrying on the
business. Even income derived from other assets like property, shares,
deposits, etc., can, in case the legal heirs do not partition the same between
them, be assessed in their hands in the status of body of individuals. Such
assessments can never be assessments on the estate of the deceased. They are
only assessments on the legal heirs of the deceased to whom alone the income
will accrue and belong.
Section 168(1)
As per section 168(1)(a) of the Act had there been only one executor,
the assessment would have been as if the executor were an individual. If,
however, there are more than one executors, the assessment would be in the
status of an association of persons [Section 168(1)(b)]
Section 168(1)(b) – Deceased died in middle of assessment year - He was assessed as individual up to date of his death and his executors were assessed as AOP for remainder of assessment year - Executors claimed set off of carried forward capital loss incurred by deceased against certain capital gains in their assessment - Set off of impugned capital loss could be allowed notwithstanding difference between executors’ status and that of deceased - Treatment of executors as AOP is only for statistical purposes and incidence of tax is really on estate of deceased
During the assessment year 1974-75,
relevant to the accounting year ending 31.03.1974, R died on 17.12.1973.
Following R’s death two assessments were made for the said assessment year, one
up to 17-12-1973, i.e., up to the death of R, in the status of
an individual and the other for the period from 17.12.1973 to 31.03.1974 in the
status of AOP on the executors of R’s will, under section 168(1)(b).
During the accounting period in question, the said executors sold certain
foreign shares from which they derived some long-term capital gains. The
executors in their assessment as AOP claimed the set off of certain capital
loss, suffered by the deceased R, against the aforesaid capital gains. The ITO
rejected the executor’s claim on the ground that R and the executors were two
distinct entities, namely, individual and AOP. On appeal, the AAC confirmed the
ITO’s order. On further appeal, the Tribunal upheld the claim of the executors'
(subject only to the fulfilment of conditions of section 72) on the
ground that what was being assessed was only the estate of the deceased and not
the executors personally. On reference:
Held ; It is clear from a reading of sections 159 and 168 that both of them deal with assessment on legal representatives. Section 159 is meant to enable the revenue to make an assessment on the legal representative in respect of the income which accrued to or was received by the deceased. Section 168 authorises an assessment on the legal representative in respect of the income which accrues to him, after the death of the deceased, on the estate being vested in him. Though the assessment is of the executor or executors, as the case may be, for all practical purposes it is the assessment of the deceased. The words in section 168(1) make it clear that the incidence of tax is on the estate of the deceased. The assessment is either on the deceased or the actual beneficiaries and even in the case of assessment according to the procedure under section 159, the incidence of tax is on the estate. In such a situation, due to the correlation of sections 159 and 168 the two separate assessments for the same year would not make the assessees to be two distinct entities. Further, as per section 168(1)(a), had there been only one executor, the assessment would have been as if the executor were an individual. It is, therefore, only for statistical purposes that the executors of the estate of the deceased are assessed as AOP, otherwise for the purpose of rates, etc., the assessment has to be deemed to be on the assessee or the actual beneficiaries. Accordingly, in the instant case, the executors were entitled to claim the set off of capital loss incurred by the deceased against their income from the estate of the deceased notwithstanding their status as AOP as against the deceased’s status as individual. In the result, we answer the question in the affirmative, that is, in favour of the assessee and against the department. - [CIT v. G.B.J. Seth (1982) 133 ITR 192 : (1981) 6 Taxman 318 (MP)]
Separate Assessment [Section 168(2)]
The assessment of an executor under
this section shall be made separately from his personal assessment (from any
assessment that may be made on him in respect of his own income) even if the
executor is the sole beneficiary and has applied a part of the estate to his
benefit.
Assesses was executor as well as sole beneficiary of his father’s estate - ITO assessed him separately for income as executor and his personal income - Commissioner directed ITO to include assessee’s income as executor in his personal income - Tribunal justified in setting aside commissioner’s order
The assessee’s father died on 18.05.1970.
Before his death, he was assessed as individual. By a Will, dated 15.05.1970,
he had bequeathed his entire property exclusively to the assessee. After his
death, the ITO made two separate assessments in respect of deceased's income
for the assessment year 1971-72, one in respect of his income for the period
from 01.01.1970 to 18.05.1970 in the hands of the assessee, as his legal
representative under section 159, and the other relating to the period from
18-5-1970 to 31.12.1970, also in the hands of the assessee as executor of his
estate under section168. Since the assessee was also an income-tax assessee,
with the financial year as his accounting year, a separate assessment for the
assessment year 1971-72 was made on him in his individual capacity in respect
of his income. The Commissioner, acting under section 263, took the view that
the assessment made in respect of assessee in his individual capacity was
erroneous and prejudicial to revenue inasmuch as the ITO failed to include in
the assessed income of the assessee the income derived by him from 18.05.1970
to 31.03.1971 from the assets inherited by him from his father. The assessee
pleaded that assessment in respect of the income from the estate of his father
for the aforementioned period had been correctly assessed in his hands as an
executor under the mandatory provisions of section168 and, therefore, that
income was not includible in his personal assessment. Rejecting the assessee's
plea, the Commissioner observed that the assessee became the absolute owner of
the estate of his father as also the income there from immediately after the
death of the deceased and when that was the position according to the Will,
there was no question of any formal declaration of the administration of the
estate being complete. The assessee was acting in the dual capacity of executor
as well as the legatee of the estate in question and as there was collusive
action between the legatee and the administrator (which were the same person)
to delay the completion of administration of the estate to reap the benefit of
low taxation, the department was within its right to go behind the apparent
state of things to find the real owner of the income from estate. Accordingly,
the Commissioner cancelled the assessee’s personal assessment and directed the
ITO to make fresh assessment after including in the assessee's income the
income which accrued to him from the estate of his deceased father pertaining
to the period from 10.05.1970 to 31.03.1971. On second appeal, the Tribunal, to
counter Commissioner’s argument, referred to Kanga and Palkhiwala’s Law and
Practice of Income Tax where it is said that even if the executor is the sole
beneficiary, it does not necessarily follow that he receives the income in the
latter capacity. Moreover, the Tribunal found that there was no evidence on
record to prove that the assessee was in any way delaying the completion of the
administration of the estate of his father. On the contrary, it was seen from
the records that he was taking all possible steps to expedite the
administration of the estate. In this view of the matter and the clear
provisions of section 168(2), the Tribunal held that the ITO’s order was not
erroneous and, consequently, the Commissioner could not assume jurisdiction
under section 263. The Commissioner’s order was, therefore, set aside. On
reference :
Held : The income received by the executor of an estate during the course of its administration belongs to him and he alone is liable to be assessed as suck even if he is the sole beneficiary. The title of the residuary legatee accrues only when the administration is complete and after the residue is ascertained and not till then. This principle is enshrined in section 168. In the instant case, therefore, the Tribunal’s order, setting aside the order of the Commissioner under section 263 by which assessee’s income as executor of his father’s estate was sought to be included in his personal assessment, was justified. – [CIT v. Bakshi Sampuran Singh (1982) 133 ITR 650 : (1980) 18 CTR 248 : 4 Taxman 539 (P&H)]
Executor will continue to be assessed until the estate is distributed among the beneficiaries equally according to their several interests [Section 168(3)]
Section 168(3) specifies that the
assessment under this section shall be made on the executor for every previous
year (accounting year) from the date of death to the date of complete
distribution to the beneficiaries of the estate according to their several
interests.
Executor will continue to be assessed until the estate is distributed among the beneficiaries equally according to their several interests
BD,
an individual, died on 31.12.1957 and, as per his will, his property was to
devolve on his two grandsons, assessee and his brother. No executor, was named
in will. Thereafter, his son SB described himself as executor, was assessed to
tax up to year 1967-68 in respect of estate of BD. Tribunal found that nothing
was distributed to legatees, by executor SB up to 1970 and this finding was not
challenged by revenue. Nothing indicated that assessment proceedings were in
any way delayed by executor. Further, nothing suggested that payment of estate
duty was delayed deliberately by executor. Executor SB had yet to take certain
steps regarding devolution/administration of estate. Fact of a part of estate
duty liability being outstanding should not be ignored in deciding issue as to
whether administration of estate is complete. On facts, income from share of
assessee under will did not vest in him as administration of estate of BD was
not complete and was not liable to be taxed in his hands but in hands of
executor under section 168. [In favour of assessee] (Related Assessment years :
1963- 64 to 1967-68) – [Navnit Lal Sakarlal v. CIT (1992) 193 ITR 16 : 63
Taxman 518 : (1991) 100 CTR 125 (SC)]
Sub-section (3)
of section 168 does not provide for making separate assessments on
executors on respective shares of beneficiaries of estate in total income of
estate in each completed year or part thereof prior to complete distribution of
that estate among beneficiaries according to their respective shares
On
account of difference of opinion between the Judges of the Division Bench, the
question came up for consideration before the Chief Justice was
whether section 168(3) provides for making of a single assessment on the
total income of each previous year or part of a previous year on the executors,
or the making of separate assessments on the executors on the total income of
each previous year or part of previous year according to the several interests
of the beneficiaries out of the total income of each previous year or part of
previous year.
The
purpose of sub-section (3) of section168, is to provide -
(i) that if a testator dies in the middle of a
previous year, there should be two separate assessments on the executors - one from
the commencement of that previous year up to the date of his death and another
separate assessment for the remaining part of that previous year; and
(ii) that if the complete distribution of the
estate among the beneficiaries is completed in the middle of the previous year,
there should be two separate assessments in respect of that year - one from the
date of commencement of the previous year up to the date of such complete
distribution of the estate and another for the remaining part of that previous
year.
But
for the provisions of sub-section (3) of section 168, there could be only one
assessment under section 159 on his executors for the whole of the previous
year in which the testator died, as if he had not died, and it would have been
doubtful if two assessments could be made on the executors, one in respect of
the portion of the previous year prior to the complete distribution of the
estate among the beneficiaries and another, in respect of the remaining portion
of that previous year.
It
is reasonable to construe the words ‘according to their several interests’
occurring at the end of sub-section (3) of section 168, as qualifying the
immediately preceding words "complete distribution to the beneficiaries of
the estate" in that sub-section and not as qualifying the words which
occur at the commencement of that sub-section. The words “according to their
several interests” seem to indicate that the completion of the distribution of
the estate contemplated in that sub-section, is the one which is in accordance
with the several interests of the beneficiaries.
In
view of aforesaid, it could be concluded that sub-section (3) of section 168
does not provide for making separate assessments on the executors on the
respective shares of the beneficiaries of the estate in the total income of the
estate in each completed year or part thereof prior to the complete
distribution of that estate among the beneficiaries according to their
respective shares. – [Estate of Late H.H. Rajkuerba, Dowager Maharani Saheb
of Gondal v. CIT (1982) 135 ITR 393 : 29 CTR 346 (Karn.)]
Specific
and Residuary Legacies
[Section 168(4)]
Section 168(4) specifies that any income
distributed to the legatees in any year shall not be taxed in the hands of the
executor but should be taxed in the hands of the legatees who have received the
income from the executor.
Assessee
was sole executrix as well as sole residuary legatee under will of her husband
- Though administration of deceased’s estate was not complete, income derived
from estate of deceased husband of assessee was credited to her personal bank
account - Impugned income was not income distributed to, or applied to for the
benefit of specific legatee and, therefore, it could not be included in
personal assessment of assessee under section 168(4) and the fact that
executrix herself was residuary legatee and as such was ultimately entitled to
remaining income of estate after same was fully administered, was of no
relevance
The
assessee was the sole executrix and the sole residuary legatee under the last
will and testament of her late husband. The probate of the will was granted to
the assessee on 6-10-1966 on her giving an undertaking to the Probate
Commissioner that she would render a full account of the administration of the
estate within six months or within the extended time granted by the Probate
Commissioner. The ITO found that amounts representing the income from the
estate of her deceased husband were deposited in her personal account during
the previous years relevant to the assessment years in question. The ITO
assessed the said income in the hands of the assessee under section168(4) on
the ground that the assessee as a sole executrix had distributed the said
income to herself as a sole legatee. On appeal, the AAC held that the administration
of the estate had not been completed before the end of the relevant previous
years since the estate duty which was a first charge on the estate still
remained unpaid and the mere fact that the income from the estate was credited
by the executrix to her personal bank would not amount to distribution of
income of the estate to herself as a sole legatee. He, accordingly, directed
the ITO to exclude the said incomes from the individual assessments of the
assessee. On further appeal, the Tribunal also upheld the AAC's order.
On
reference, the revenue contended that the assessee as sole executrix was also
the sole residuary legatee in the instant case and since the income from the
estate was ultimately to be appropriated by the sole residuary legatee and since
the sole executrix had, as a matter of fact, distributed such income from the
estate to her personal account, the said incomes were to be included in the
total income of the assessee.
Held
: In the instant case, it had been found by the Tribunal as a fact that as
admittedly estate duty in respect of the estate remained unpaid and the estate,
therefore, had not been fully administered, the extent of residuary legatee
could not be ascertained and no part of the income from the estate could be
distributed to the residuary legatee. It was immaterial if the executrix
herself was the residuary legatee and as such was ultimately entitled to the
remaining income of the estate after the same was fully administered.
Accordingly, the Tribunal, in the present case, was justified in excluding the
income from the estate of deceased from the individual assessment of the
assessee. [In favour of the assessee] – [CIT v. Mrs. A. Ghosh (1986) 159 ITR
124 : 25 Taxman 81 (Cal.)]
“Executor”
includes [Explanation
to Section 168]
The
Explanation at the end of the section states that the term ‘executor’ includes
an administrator or other person administering the estate of a deceased person.
The
executor continues to be the executor till final disbursement of the residue to
the legatees as per the will of the deceased.
Income arising
from properties left behind by late husband of assessee could not be assessed
in hands of assessee in her individual capacity; it was to be assessed in hands
of assessee as an executor of estate of deceased
Where
the assessee was the wife and sole surviving successor and legal heir of the
deceased : and the question arose as to whether the income arising
from properties left behind by the late husband of the assessee could be
assessed in the hands of the assessee in her individual capacity.
Held that the High Court in the
assessee’s own wealth-tax case came to the conclusion that the assessee as
an individual could be charged to wealth-tax only after the estate had
been fully administered and the residue became available to the individual. The
High Court had held that properties, of which the estate of the deceased was
comprised of could not form part of taxable wealth of the assessee-individual.
In the circumstances, there could be no question of holding
that income from such properties was taxable in the hands of the
assessee-individual. Assessment years 1981-82 and 1982-83 – [CIT
v. Mrunalinidevi Puar of Dhar (2008) 305 ITR 263 (Guj.)]
Assessee
along with his brother ‘J’ was owner of a building having half share each -
Deceased ‘J’ executed a will in favour of one ‘E’ and also appointed ‘H’ and
assessee as executors - Application for probate was rejected on technical
grounds - Even when application for grant of probate was rejected by a
competent court on some technical grounds, Will did not cease and continued to
be in existence and, therefore, assessee would not inherit property in his
individual capacity as a natural heir - Assessee’s case would be governed by
section 211 of the Indian Succession Act and assessment of income derived from
estate of deceased was to be made under section 168 - Since in instant case
there were two executors mentioned in will by deceased, assessment, if any,
could have been made on two executors treating them to be an AOP and not on
individual
Instant
case would be governed by section 211 of the Indian Succession Act which deals
with the character and property of executor or administrator as such. From the
reading of section 211, it is clear that the executor of a deceased person is
his legal representative for all purposes, and all the property of the deceased
person vests in him as such. Thus, for all practical purposes, the executor is
to be treated to be the person in whom the property of the deceased vests as a
legal representative.
From
the reading of section 168, it is clear that the income of an estate of a
deceased person is to be charged to tax in the hands of the executor by
treating it to be an individual, if there is only one executor and if there are
more than one executor, then as an AOP. It further provides that the assessment
of an executor has to be made separately from any assessment that may be made
on him in respect of his own income. Thus, for the purposes of the Act, the
executor is treated to be a separate assessee other than his individual
assessment. In the instant case, it was found that the assessing authority had
not followed the provisions of section168 and instead had assessed the income
of the deceased in the individual hands of the assessee by clubbing the same,
which is not permissible under the law. As there were two executors mentioned
in the will by the deceased, the assessment, if any, could have been made on
the two executors treating them to be an AOP and not on the individual.
Further, where the application for grant of probate is rejected by a competent
Court on some technical grounds, such as, for want of steps, the will executed
by the deceased does not cease. It is still in existence is, therefore, the
assessee would not inherit the property in his individual capacity as a natural
heir, but would be governed by the provisions of section 211 of the Indian
Succession Act and the assessment of income derived from the estate of the
deceased was to be made under section 168. [In favour of the assessee] (Related
Assessment years : 1984-85 to 1986-87) – [CIT v. A.M.L. Price (2007) 295 ITR
45 : 211 CTR 15 : 165 Taxman 54 (All.)]
If
an amount is not in nature of income but is in nature of capital and is
properly to be considered as part of estate itself, it would be non-taxable in
hands of executors - KSE, a partner in chartered accountants firm, retired on 01.01.1985
- He expired on 29.02.1988 - His wife, who was also his executrix, received
certain amount from firm as per clause 14(a) of partnership deed - This was
claimed as capital receipt in return but Assessing Officer, relying on
provisions of sections 168 and 176(4), rejected claim and brought amount to tax
as income from other sources - When KSE expired, said amount was due to him and
a debt was created in his favour and, hence, it became part of his estate and
what constituted part of estate could never be considered later as income
thereof - Therefore, amount received by executrix of KSE represented capital
receipt and not income and section 168 was wrongly invoked by Assessing Officer
to tax same
It
was not possible to accept the contention that having courted assessments earlier
on the receipts under clause 14(a) of the partnership deed, it was not open to
resile from that position and challenge the assessment for a later year. A
receipt cannot be taxed merely because the assessee has offered the same for
assessment without question or that he has not challenged the assessment in
earlier years in appeal. If assessability of a receipt is to depend upon the
conduct of parties in filing returns of income, then equally it may be said
that if a sum is excluded from the return, the same cannot be taxed. Taxability
does not depend upon what view the parties may take with regard to their rights
but depends on the true position in law. If a sum is in law taxable as income,
the fact that the assessee or even the ITO takes a different view would not
matter. Conversely, if a sum in law cannot be taxed, it cannot be brought to
tax merely because in the earlier years it was taxed without demur. It is open
to the assessee in a later year, on becoming aware of his rights and also the
true legal position, to question the assessment of the receipt. The preliminary
point raised by the department was, therefore, to be rejected.
Under
section 168 of the new Act, the subject-matter of assessment is the ‘income’ of
the estate of a deceased person and the same shall be chargeable to tax in the
hands of the executor or executors. Both under the old Act as well as under
section168, a distinction was maintained between the ‘estate of a deceased
person’ and the ‘income’ of the estate of a deceased person. Under both the
enactments it is only the income arising to the estate that is chargeable to
tax in the hands of the executor or executors. It follows, therefore, that if
an amount is not in the nature of income but is in the nature of capital and is
properly to be considered as part of the estate itself, it is not taxable in
the hands of the executors. This position has not undergone any change despite
the introduction of a specific provision, viz., section 168. Therefore, in an
assessment which is sought to be made upon the estate of a deceased person
under the provisions of section 168, it would still be a proper enquiry as to
whether the amount sought to be included in the assessment represents income or
is received as part of estate itself.
It
would, therefore, be proper and necessary to examine the question whether the
arrear of fees due to the deceased and received by the executrix, viz., his
wife, after his death on 29.02.1988, was to be treated as income of the estate
or as part of the estate itself. A perusal of the clause 14(a) of the deed of
partnership showed that even after the retirement from the firm, KSE was
rendering certain professional services and assistance as may be required by
the firm in respect of which he was to be paid certain fees. It could not be
disputed that the amount of Rs. 1,10,856 remained to be paid to KSE at the time
of his death and that the same was paid to the executrix after the death and
during the previous year ended 31.03.1990. Thus, on the date on which at the
time when ‘KSE’ passed away, which was 29.02.1988, the amount was due to him
and a debt was created in his favour. Thus, the amount became part of his
estate which he was capable of disposing of by Will. If that was the position,
the receipt of the aforesaid amount by the executrix after the death of KSE
could not be considered to be the income of the estate because what constituted
part of the estate could never be considered later as the income thereof. In
the instant case though there was no reference to any separate ruling by any
Court to the effect that the amount payable under clause 14(a) of the
partnership deed would form part of the estate of late KSE, under general
principles, it could not be disputed that whenever a man dies possessed of income,
that becomes part of his estate. The amounts due to late KSE under clause 14(a)
would form part of the estate left behind by him and it would make no
difference that there was no estate duty assessment on the death of KSE. The
Estate Duty Act, 1953 was abolished in 1985 and since KSE passed away in 1988,
there was no question of any estate duty assessment on his death. The argument
of the assessee that the amount received by the executrix of ‘KSE’ represented
capital receipt and not income was well-founded and required to be accepted.
The
legal fees due to the deceased on the date of his death will be part of his
estate and that will probably be taken into account for the purpose of
assessment of estate duty; hence, the arrears of fees, which could not be taken
to be the income of the estate, could not be brought to charge under section 168.
The
assessee in the instant case was the executrix of the estate of late KSE. The
assessment had been made by the Assessing Officer specially referring to and
invoking the provisions of section168 which he had rightly described as
mandatory. The Assessing Officer had also brought into play the provisions of
section 176(4).
There
is a striking difference between the provisions of section168 and section
176(4), section 168 is concerned with the assessment of the income of the
estate of a deceased person, whereas section 176(4) is not so concerned. In
section 168, the subject-matter of tax is the income arising to the estate as
such, whereas in section 176(4) the subject-matter is the sum received by the
recipient. Under section168, the income of the estate of a deceased person is
brought to assessment in the hands of the executor or executors, whereas the
recipient of the sum contemplated under section 176(4) need not necessarily be
the executor or executors and may be different.
The
Assessing Officer had misunderstood and misapplied the provisions of section
176(4) to include the aforesaid amount in the present assessment. The
assessment before was that of the estate of the KSE which had been rightly
assessed under section 168. There appeared to be only one executrix and that
was his wife. The status was described as individual. The Assessing Officer was
not justified in including the aforesaid amount in the assessment of the
estate. According to section 176(4), the amount ought to have been included in
the hands of the recipient, whoever he or she was, and could not be included as
income of the estate. It may be that the recipient happened to be the wife of
late KSE, who was also the executrix of the estate. That did not, however,
authorise the Assessing Officer to include the amount in the assessment of the
estate which was an entirely different assessee. Under section 176(4), the
arrears of fees can be brought to tax only in the hands of the recipient and
the same could not be included in the present assessment which was made upon
the estate of late KSE under section 168.
As
a result of the aforesaid discussion, the assessment of the sum of Rs. 1,10,856
in the assessment of the estate of late KSE under section 168 was contrary to
law and could not be upheld. In the result, the order of the CIT(A) is upheld,
though for entirely different reasons and the appeal is dismissed. [In favour
of assessee] (Related Assessment year : 1990-91) – [ITO v. Estate of late
K.S. Engineer (2001) 117 Taxman 77 (ITAT Mumbai)]
According
to will left by deceased, his minor children were admitted by executor to
benefits of partnership firm by contributing capital from accounts of deceased
- ITO included share income of minors from sums along with other income of
estate on ground that capital of minors had come from estate - Once it was
found that admission of minors to benefits of partnership was made de hors
capital contribution and there being no direct nexus between capital
contribution and benefits arising from partnership, it was not open to ITO to
invoke section 168 to club share income of minors with income of estate
Deceased
died leaving behind him a registered will in which his cousin brother was
appointed as an executor to supervise the estate, the legatees under the will
being his wife and minor children, who were entitled to the control of estate
on becoming major. The executor continued the partnership business in which the
deceased was the partner. The minor children were admitted to the benefits of
the partnership and capital contribution for such admission was made by making
withdraw also from the account of the deceased in the firm.
The
ITO included the share income arising to the minors from the sums along with
the other income of the estate on the ground that the capital contribution for
the minors to become partner had flown from the estate.
On
appeal, the AAC held that since the capital was withdrawn from the estate
account and as the investment of the capital was a condition of the deed of
partnership and the capital of the minors flew from the funds of the estate,
the share which became due to the minors had to be included along with the
other income.
The
Tribunal, on second appeal, held that although the capital was contributed as
required by the terms of the partnership deed, there was nothing in the deed to
show that it was a condition precedent for admitting the minors to the benefits
of partnership, the connection between the income and the contribution was so
remote which would not justify their inclusion. On reference :
The
entire case had to be decided on the basis of the express finding recorded by
the Tribunal, viz., “thus the admission of the minors for the benefits of
partnership is independent of capital contribution.” In view of the above
specific finding, unless it was established that the contribution of capital
was condition for the admission of the minors to the benefits of the
partnership, the share income of the minors could not be regarded as having
arisen from the capital contribution. The minors were admitted to the benefits
of the partnership and it was found that the deceased built up the business of
the firm and the other partners agreed to take the minors to the benefits of
the partnership in consideration of the services rendered by the deceased to
the firm and to fulfil the wishes of the deceased. Therefore, the view of the
ITO that because of the capital contribution the minors were admitted to the
benefits of the partnership could not be sustained. Under the will of the
deceased, the executor was required to hand over the estate to the legatees
when the minors attained majority but the fact remained that the distribution
of funds towards capital contribution of the minors was made in accordance with
the wishes of the testator contained in the will. It was found that the funds
left for the minors and their mother were laid partly in the capital accounts
of the deceased and partly in the current accounts and by making necessary
entries in the books of the accounts, the executor had given effect to the
wishes of the testator.
Thus,
there was no nexus between the capital contribution and the profits earned by
the firm. The share income to the minors arose not only by admission of the
minors to the benefits of the partnership but also by contribution of capital
and physical labour of other partners and, therefore, it could not be stated
that from the mere fact that the fund for the capital contribution flew from
the estate, the entire share income arose to the minors directly by virtue of
admission to the benefits of the partnership. Further, by transferring a
portion of the funds belonging to the deceased making it a part of the capital
of the minors, the executor divested of his title in the funds in favour of the
minors and after such divestiture of the funds, the minors became the owners of
the funds lying in the capital accounts as capital contribution. Therefore, the
provisions of section 168 on which reliance was placed by the revenue had no
application as those provisions deals with the income of the estate. The
Tribunal, no doubt, relied upon the provisions of section 168(4) on the ground
that an income had been distributed or applied for the benefits of any specific
legatee of the estate, that income should be excluded from the income of the
estate, in the view of position stated above, it was not the income of the
estate and it was not necessary to consider the question whether the income had
been applied for the benefit of a specific legatee of the estate. There was no
direct nexus between the capital contribution and the benefits that arose from
the partnership and in that situation, there was hardly any way to invoke the
provisions of section 168.
In
view of the specific directions and wishes of the testator in the will, the
executor joined as a partner and utilised the capital balance of the deceased
as part of his share capital and distributed a portion of the amount to the
minors’ share capital. Once it was found that the admission of minors to the
benefits of partnership was made de hors the capital contribution, it was not
open to the ITO to invoke section 168 to club the share income of the minors
with the income of the estate. The same principle would equally apply for the
inclusion of the amount standing in the current account in the wealth-tax
proceedings of the estate.
Therefore,
the Tribunal was right in holding that the inclusion of share income from the
firm in the estate was not justified. Further, once one reached the conclusion
that the capital contribution made on behalf of the minors was independent of
the admission of the minors to the benefits of the partnership, it could not
also be stated that the executor received the income from the estate in his
character or capacity only of an executor of the estate. The executor by making
necessary transfers in favour of the minor children had transferred the money
in favour of the minor children and the money ceased to be a part of the estate
and the money could not be said to have been received by him in his capacity as
executor. The executor received the money as a trustee as he was not
administering the properties of the estate and received the share income from
the firm in his character as an executor.
The
finding of the Tribunal was that the minors were admitted because of the
efforts of the deceased made by him during the period when he was a partner and
in fulfilment of the wishes of the deceased, they became admitted, and,
therefore, the question whether the executor had the power to transfer the
money during the period of minority did not assume much importance in view of
the finding that there was no connection between the capital contribution and
the share income accrued on admission of the minor children to the benefits of
the partnership firm. The ITO was, therefore, not justified in clubbing, the
minor’s share income from the firm with the income of the estate. [In favour of
assessee] (Related Assessment years : 1978-79 and 1979-80) – [CIT v. A.
Savudappan (2000) 244 ITR 620 : (2001) 165 CTR 506 : (1999) 104 Taxman 682
(Mad.)]
Executor
late C bequeathed certain properties to his brother’s minor son, by executing a
will - Father of minor, R, was made ‘executor’ of will - Property was to be
handed over to said brother’s son on his attaining majority - Income accrued in
relevant assessment year in respect of estate left by C and bequeathed to
minor, was assessable in hands of ‘executor’ under section 168(2) and not in
hands of minor
Late
C bequeathed certain properties to his brother’s minor son, by executing a
will. The father of the minor, R, was made ‘the executor’ of the will. Certain
income accrued in the relevant assessment year in respect of the estate
bequeathed by C to the minor under the will. This income had been assessed in
the hands of R as executor of the will under section 168(2). However, the ITO
also added the aforesaid income in the minor’s hand. On appeal, the
Commissioner (Appeals) held that under section 168(2) it was mandatory for the
ITO to assess the estate of the deceased in the hands of the executor so long
as the assets of the estate were not fully distributed to the various
claimants. He, therefore, deleted the aforesaid addition so made to minor’s
income.
On
appeal, the revenue contended that since the assessee was the sole beneficial
owner of the estate, the entire income therefrom accrued to him notwithstanding
his minority and there was nothing left to be administered, so that R was only
a trustee of his minor child and could not be assessed as an executor.
Held
: Under section 211 of the Indian Succession Act, 1925, the executor of a
deceased person is his legal representative for all purposes and all the
property of the deceased person vests in him as such. In the instant case, in
the will, it was specifically provided that till the minor attained majority,
the assets and liabilities would vest in R as ‘executor’ of the will. The
executor was authorised by the deceased to manage the assets and liabilities at
his absolute discretion and hand them over to his son after he attained
majority. Thus, the intention of the deceased that the ascertained estate
existing when the assessee attained majority should vest in the assessee was
made absolutely clear in the will. Having, regard to the specific directions
contained in the will and the provision of section 211 of the Indian Succession
Act, it could not be held that immediately on the death of late C his estate
automatically vested in the assessee. The estate vested and would continue to
remain vested in R as executor and representative of the deceased till the
assessee attained majority. In these circumstances, executorial functions could
not be treated as completely performed and R could not be treated as trustee or
representative of the assessee.
In
the circumstances, the said income had been rightly assessed in the hands of
the executor and the assessment in the hands of the minor was uncalled for. The
order of the Commissioner (Appeals) deleting the addition was, therefore,
upheld. [In favour of assessee] – [Second ITO v. C.P. Venkatesh (Minor) [1988]
30 TTJ 673 : 27 ITD 298 (Mad.)]
Section 168 has no
application to a case where heirs succeed to property of deceased not by
testamentary succession but by operation of law - Once property absolutely
vests in heir according to law of succession, then ownership is not in any way
affected by fact that heir is required to discharge debts of deceased
On the death of one ‘N’,
who died intestate, his property was inherited by his wife, i.e., the assessee,
three minor children and mother of the deceased in accordance with the
provisions of the Indian Succession Act, 1925. Thereafter, the assessee
obtained letters of administration from the High Court in regard to the
property and credits of her deceased husband. For the relevant assessment
years, the ITO assessed the assessee in her capacity as administrator of the
estate of ‘N’. On appeal before the Commissioner (Appeals), the assessee
claimed that the provisions of section168 were not applicable to the present
case and, therefore, the assessment should have been made in the hands of the
legal heirs of the deceased in proportion to their shares of interest and not a
single assessment against the assessee in her representative capacity. The
Commissioner (Appeals), however, rejected the assessee’s claim.
On second appeal, the
revenue contended that the assessee having obtained letters of administration
in regard to the estate of her deceased husband, could not be allowed to say
that she was not administering the estate of the deceased, particularly so when
there were debts repayable out of the assets of the deceased.
Held : Both section 168
of the 1961 Act and section 19A of the Wealth-tax Act, 1957, provide for a
special case of assessment against executors and the language in the two
provisions are practically similar. While dealing with section 19A it was held
in the case of CWT v. Keshub Mahendra (1983) 139 ITR 22 (Bom.) that
section 19A applies only to the property administered by a person according to
the directions in a will. In other words, section 19A is inapplicable to a case
of intestate succession. On the same analogy, section168 also can be said to
apply only to a case where the deceased has left a will and administration has
to be made in accordance with the directions of the will.
There is another reason
also to hold that section168 has application only to an estate passing on by
testamentary succession. Under sub-section (4) of section168, where any income
of the estate is distributed to, or applied to the benefit of any legatee, so
much of the distributed or applied part shall be excluded from assessment in
the hands of the executor or administrator. If sub-section (4) has to be given
effect to an estate managed by an administrator or other person administering
the estate of the deceased, it can only be in the case where the estate has
passed by testamentary succession, for a legatee can only be in case of
disposition by a will and there cannot be a case of legatee in the case of
intestate succession. The present case, therefore, did not come within the
compass of section168. The property was inherited by N’s wife, the assessee,
minor children and mother. The assessee had been in charge of the property of
her minor children.
There was, therefore, no
question of administering the estate and all that she had to do was to
discharge certain debts. In Keshub Mahendra’s case (supra) it was observed that
once the property absolutely vests in the heir according to the law of
succession, then the ownership is not in any way affected by the fact that the
heir is required to discharge debts of the deceased or he was to recover debts
due to the deceased. Therefore, the assessee, in the instant case, could not be
said to be administering the estate of her deceased husband owing to the fact
that the deceased owed certain debts which the assessee felt bound to
discharge.
Accordingly, section 168
had no application as the deceased had not left a will and therefore, the
impugned assessments made against the assessee in her representative capacity
as administrator of the estate of the deceased had to be struck off. – [Smt.
Salma Irani v. ITO (1986) 24 TTJ 147 : (1985) 14 ITD 233 (Bom.)]
Deceased left a Will
according to which shares of legal heirs including that of assessee were
definite, determinate and separate - ITO framed assessment on protective basis
in capacity of AOP as against individual status claimed by assessee - AAC
directed ITO to make regular assessment in status of individual, by treating
assessee as executor under section 168 - In absence of assessee having been
appointed or designated by said Will as executor, assessee could not be
assessed under section 168 - ITO rightly framed assessment in status of AOP
The assessee’s father
expired, leaving a Will according to which, the deceased bequeathed his
undisputed estate to his wife, two daughters and one son (the assessee). For
the relevant assessment year, the assessee filed the return in the status of an
individual with respect to the entire estate including the shares of the deceased’s
daughters and widow. The ITO observed that the shares of the legal heirs being
determinate by the Will, the income arising out of the respective shares of the
estate was assessable in their respective hands. Thus, the ITO framed the
assessment on protective basis in the status of an AOP, as against individual
status claimed by the assessee. On appeal, the AAC held that the assessment
should be made in the status of an individual treating the assessee as an
executor under section 168 and directed the ITO to make a regular assessment
accordingly. On revenue’s appeal :
Held : All the four
legal heirs of the deceased got the property in the manner mentioned in the
Will and their shares were definite, determinate and separate. The assessee, as
the deceased’s son, was to get whatever was mentioned in the Will and also the
residue of the estate. The Will was silent about mentioning or appointing him
as an executor. Section 168 is applicable only when the executor is designated
or appointed as such. Therefore, section 168 was not applicable to the present
case. Hence, the ITO had rightly framed the assessment in the status of an AOP
and also on protective basis. – [ITO v. R.K. Mittal (1986) 24 Taxman 290
(ITAT Delhi)]
NOTE
As regards the
deceased’s life insurance policy it was held that the deceased’s widow, as a
nominee of the deceased’s life insurance policy, received the LIC policy estate
on the basis of policy and not through the will and, hence, the said asset was
not includible in the above assessment.
Assessee ‘V’, A lady,
married one ‘D’ on 11.01.1949 under provisions of Special Marriage Act, 1872 -
Other assessee, ‘A’, was daughter of ‘D’ and ‘V’ - ‘D’ died on 06.10.1973 and
after his death his mother challenged validity of marriage of ‘D’ and ‘V’ - Thereupon,
on application of ‘V’ court upheld validity of said marriage and granted
letters of administration on 30.11.1977 as claimed by ‘V’ - In view of fact
that ‘D’ had not executed any will and he had died intestate and that
properties of ‘D’ vested in his legal heirs, i.e., ‘V’ and ‘A’, immediately on
his death, income from said properties for relevant assessment years should
have been taxed in hands of ‘V’ and ‘A’ equally instead of taxing entire income
in hands of ‘V’ only treating her as administrator of D’s estate
The assessee, ‘V’, a
Christian lady, married one ‘D’ on 11.01.1949 under the provisions of the
Special Marriage Act, 1872. The other assessee ‘A’ was the daughter of ‘D’ and
‘V’. ‘D’ died on 06.10.1973 and after his death his mother ‘M’ challenged the
validity of the marriage of ‘D’ and ‘V’. There- upon ‘V’ applied for letters of
administration and the First Civil Judge, while upholding the validity of the
said marriage on 30.11.1977 granted the letters of administration to ‘V’. ‘D’
owned considerable property which came in possession of ‘V’ and ‘A’ on the
death of ‘D’ as his legal heirs. For the relevant assessment years, ‘V’ and ‘A’
filed separate returns of their income and each of them included her half share
in the income from the said properties. In the assessment of ‘V’, the ITO
observed that the whole income from the estate of ‘D’ should be assessed in the
hands of ‘V’ in her capacity as administrator of the estate under section 168.
However, ‘V’ had filed the return in her individual capacity and not in the
capacity of an administrator. Even then the ITO included the entire income of
the estate in the said individual assessment. As regards the assessment of ‘A’,
the ITO assessed her on protective basis, on the ground that the said half
income had already been included in the assessment of ‘V’.
On appeals, the AAC held
that the provisions of section 168 were not applicable and that ‘V’ was liable
to be assessed in respect of half income derived from the estate, while ‘A’ was
liable to be assessed for the other half income on regular assessment and not
on protective basis. The AAC, therefore, set aside the ITO’s order. On appeal
by the revenue, it was contended that since ‘V’ had been granted letters of
administration on 30.11.1977 by the First Civil Judge, the entire income was
liable to be assessed in the hands of ‘V’ as an administrator.
Held : In the instant
case, it was an admitted position that the deceased had not executed any will.
Consequently, there was no question of any ‘executor’ administering the estate
of the deceased. Since the deceased had died intestate, the property vested in
the legal heirs, i.e., ‘V’ and ‘A’ immediately on his death. The term
‘administrator’ in the Explanation to section168 refers to the administrator
appointed by the Court when the executor dies or when no executor is named in
the will. The reason for non-application of the said section in cases where the
death is intestate is that the properly vests in the legal heirs from the time
of the death of the deceased and that the said vesting does not remain in abeyance.
Subsequent grant of letters of administration in cases of intestate death would
not divest the legal heirs of the property vested in them, particularly when
the heirs are already in possession as heirs at the time of grant of letters of
administration. It was to be noted, in the instant case, that the purpose for
which an order for grant of letters of administration was obtained by ‘V’ was
to protect the property from going into the hands of her mother-in-law. ‘V’ and
‘A’ were already in possession of the properties as legal heirs. Their title
was being disputed by ‘M’. As a measure of protection against the said assault
on the title, the proceeding for obtaining letters of administration were
initiated. Consequently, the order of the Court dated 30.11.1977 granting
letters of administration would not make any difference as far as the legal
position regarding the title was concerned.
Therefore, the AAC, in
the instant case, was right in holding that half the income was liable to be
assessed in the hands of ‘V’, while the other half was liable to be assessed in
the hands of ‘A’. [In favour of assessee] – [Third ITO v. Mrs. Veera D.
Thackersey (1985) 14 ITD 141
(ITAT Bombay)]
R, who died intestate,
left behind substantial debts and some properties - After his death, in suit
filed against legal representatives, creditors obtained decrees against estate
in hands of legal representatives and got a receiver appointed to take custody
of properties which were later sold and realisations credited to suit - Despite
there being no will, receiver could not be treated as person administering
estate of deceased and made liable to tax on capital gains arising from sale of
properties
The deceased, R, who
died intestate, left behind substantial debts and some properties. The
creditors filed suits against his legal representatives, who were his two
daughters, and obtained decrees. On the creditors filing execution petitions,
and also asking for the appointment of a Receiver, the Court appointed ‘N’ as
Receiver for the custody and management of the properties of the deceased and
to credit the realisation therefrom to the suit. The properties were sold on 07.10.1979.
Being of the opinion that the capital gains from the sale of properties may be
taxable, the Court appointed on 01.04.1981, one K as Receiver for the purpose
of filing income-tax returns and making rateable distributions among the
creditors after excluding the income-tax liability. On 12.08.1980, the ITO had
served a notice on N under section 139(2), but no return was filed in
response to the notice as N had died. Subsequently, K filed two returns
purported to be on behalf of the two daughters, the legal representatives.
Notices were issued to K by the ITO under section 142(1), but K
replied that no income was admitted by him, because the two returns had been
filed on behalf of the legal representatives and not as receiver. The ITO,
however, completed the assessment under section 144, read
with section168, holding K liable for tax as administrator of the estate.
K appealed to the Commissioner (Appeals), contending that the assessment should
have been made on the legal heirs and not on the receiver, and his contention
was accepted by the Commissioner (Appeals), and the assessment was cancelled. On
appeal by the revenue :
Held : Immediately after
R’s death, his daughters being his class I heirs inherited his properties with
the obligation to discharge the debts due from him. Unlike in the case of
the sons, the daughters have no pious obligation to pay the debts of their
father. The necessary corollary of this position was that the daughters would
be liable to discharge the debts of the father only to the extent of the value
of the assets inherited by them through their father. There is no question of
any executor administering the estate of the deceased. The question of an
executor administering the estate of deceased person would arise only if such
an executor was appointed by the terms of a will left behind by the deceased by
which the testator ordained the executor to take over his properties,
administer them and to discharge the debts due from him. As can be seen
from section 168(3), the property of the deceased should be assessed
only for the period which commenced from the date of the death to the date of
complete distribution to the beneficiaries of the estate according to their
several interests. This position presupposes the necessity of an executor to
distribute the assets of the deceased according to the proportion in which they
were asked to be distributed among the beneficiaries by the deceased in his
will. Once there is no will, there is no question of an executor appointed to
the estate of the deceased. It is no doubt true that in the Explanation to section
168, the word ‘executor’ includes the administrator or other person
administering the estate of the deceased person. Now the question is whether
the receiver, while taking possession of the estate of R or while conducting
auction of some of the items constituting the estate of late R acted as a
person administering the estate of the deceased person. Once R died, his
properties were inherited by his two daughters. No suits were filed during the
lifetime of late R and all of them were filed only against his legal
representatives. It was not disputed that the decrees in the suits were
obtained against the legal representatives of R but were not obtained during
the lifetime of R. Therefore, the liability of the legal representatives would
extend only up to the assets of the deceased held by them (see section 52
of the Code of Civil Procedure, 1908). Simply because some suits were filed
against legal representatives, that by itself did not prevent the succession of
the assets by the legal representatives of R. There cannot be any vacuum in
the case of devolution. Thus, the devolution could not be kept in
abeyance from the date of death of R till the date of obtaining decrees by his
several creditors. Further, all the creditors were only simple money-creditors
but did not acquire any right or interest whatsoever in the properties held by
R prior to his death. Therefore, as all the creditors filed the suits making
the two daughters of R as defendants and as all the decrees were obtained only
against the estate of R in the hands of the two daughters and as N or K, receivers,
were appointed only to take possession of the properties, realise the benefits
and to deposit the net profits thus derived by them into Court, it could not be
said that the said Receiver, N or K, were in any way administering the estate
of the deceased person. It was neither the scope of the suit nor the warrant of
the appointment of the Receiver to admit of any such interpretation.
There was, therefore, no
justification to treat either N. or K. as persons administering the estate
within the meaning of section 168, and the assessments framed against K
were illegal The Commissioner (Appeal), was therefore, justified in the view he
took. – [ITO v. K. Krishnamachari (1985) 11 ITD 194
(ITAT Hyderabad)]
Assessee’s husband, who had taken life insurance policies for which assessee was nominee, bequeathed, under will, policy amounts to assessee and named assessee as administrator of his estate - after his death, assessee’s claim for insurance amounts was under dispute with lic, resulting ultimately in compromise, and assessee received policy amounts with interest - Interest so received was assessable only as income of estate under section 168, and not as income of assessee
The assessee’s husband
had taken out life insurance policies on his life and had nominated her under
section 39 of the Insurance Act. Under a will, he bequeathed the insurance
amounts to her and also named her as the administrator of his estate after his
death. After his death the assessee’s claim for the insurance amounts from the
LIC was under dispute, resulting ultimately in a compromise under which the
assessee received the policy amounts with interest. The ITO treated the
interest so received as the assessee’s income since she was the sole legatee
for that amount. The Commissioner (Appeals), however, held that the interest
accrued only to the estate and could not be taxed in the hands of the
assessee-legatee until its distribution and that the receipt by the assessee
was only a receipt on distribution of the estate and could not be treated as
income includible in her total income. On second appeal :
Held : Under section 39
of the Insurance Act, where a nomination has been made for the purpose of
receiving the amount assured, the suit for recovery of that amount should be
filed only by such nominee. But, that does not mean that the amount is
receivable by the nominee in his own account but it is received only on behalf
of the estate of the deceased as the nominee is accountable to the heirs of the
deceased since the nomination does not by itself amount to a will. In this
case, therefore, the assessee had filed a suit for recovery of the amount only
in the capacity of a nominee and was bound to account for the receipt of the
amounts to the estate of the deceased of which she was the administrator under
the will.
Under section 211 of the
Indian Succession Act, all the property of the deceased person vests only in
the administrator. Though under sections 332 and 349 of that Act, it may follow
that when the administrator gives his assent to a specific legacy, the title of
the legatee relates back to the date of death and the income arising from after
the death and before the assent belongs to the legatee, but section168 of the
Income-tax Act makes it clear that the income of the estate of the deceased
person is chargeable to tax only in the hands of the executor until the date of
the complete distribution to the beneficiaries of the estate. Therefore, until
the income is actually distributed, it shall not be assessed in the hands of
the legatee, but shall be assessed only in the hands of the executor which is
defined to include an administrator. The mere fact that the executor is also
the sole beneficiary is not sufficient to presume that there was an assent by
the executor for the legacy.
In the present case,
except for the fact that the assessee had to file a suit to recover the money
and received it from the LIC, there was no other evidence to show that the
assessee as an executor had assented to the legacy of the life insurance
policies in her own favour by appropriating it unconditionally for her own use.
On the other hand, the terms of the will suggested that even though she could
recover the money as a nominee under the Insurance Act, she was bound as an
administrator to see that all the debts were paid for which were charged on the
Life Insurance amount also before she could appropriate the residue to herself
as a specific legatee. The Commissioner (Appeals) was, therefore, justified and
the impugned interest could not be included in the total income of the
assessee. [In favour of assessee] – [ITO v. Smt. N.P. Saraswathi Ammal (1984) 8
ITD 210 (ITAT Madras)]
Income which related to
period after death of assessee and was under administrator appointed by High
Court, assessments could only be made on administrator and said income could
not be included in assessee’s total income
The Tribunal held that
in respect of the income which related to the period after the death of the
assessee and was under the administrator appointed by the High Court, the
assessments could only be made on the administrator and this income could not
be included in the assessee’s total income. On reference:
In view of the
provisions of section 168 wherein it is clear that an administrator appointed
by the high Court would admittedly come within the purview of section 168, the
Tribunal came to the correct conclusion. – [CIT v. Rani Jagadamba Kumari
Devi (1983) 143 ITR 539 (Cal.)]
Deceased left two wills
covering different properties situated in India and England and appointed
different and distinct sets of executors for each will - ITO made single
assessment under section 168 in status of AOP for aggregate income
from Indian and foreign estate in the hands of executor of one of the wills
without serving notices on all other executors - Executors present voluntarily
furnished all requisite details and did not object to inclusion of income from
foreign property covered by other will - Properties comprised in each will
constituted one single composite estate after death of deceased - Impugned
single assessment under section 168 in status of AOP valid
under law
MM
owned extensive property both in India and in England. He had executed two
distinct wills, one covering Indian property and the other covering England
property and appointed different sets of executors for the two wills.
Consequent on his death, the appellant became the sole surviving executrix for
Indian property and she was not one of the executors for the England property.
For the assessment years 1965-66 to 1967-68, the ITO assessed, in the hands of
the executrix as an AOP, the aggregate of the "Indian income" and
"foreign income" qua the properties situated in both the countries.
In her appeal before the AAC, the assessee claimed (i) that the income from UK
properties was wrongfully assessed to tax, since it was of a separate set of
executors appointed under a different will; and (ii) that the properties
situated in each country should be regarded as constituting a separate estate
within the meaning of section168 and the income therefrom was to be taxed
separately. The AAC upheld the assessments, observing (i) that since a person
could have only one estate, the entire estate of MM, wherever situated,
constituted a single estate ; (ii) that the executors of England property
(though not members of the AOP) should be deemed as members of such an AOP
since income derived from that property was included in the assessments ; and
(iii) that for taxing the entire income under section 168, it was immaterial
and irrelevant whether or not the executrix in India had received the whole or
any portion of the income from the other set of executors of UK property. On
second appeal before the Tribunal, the assessee pleaded further (i) that, under
the Indian Succession Act, 1925, the legal ownership, vested in the executors,
was limited to only such of the properties for which they had been appointed as
executors ; and (ii) that reading this provision together with section168, only
income from Indian property was liable to be taxed in her hands. The Tribunal
dismissed the appeals, holding, inter alia, (i) that the assessee’s additional
plea had no bearing on the construction of section 168 under which the
assessable entity (i.e., the estate of the deceased) always remained one and
single and it could not vary according to the number of executors appointed for
different properties left by the deceased ; and (ii) that the impugned
assessment orders did not indicate that the executors objected to the inclusion
of “foreign income” in their assessments.
On
reference, the assessee also contended that the assessments could be validly
made only if all the executors were served with notices and were present before
the ITO and were collectively assessed as AOP.
Held
: In jurisprudence, the estate of a deceased person by itself has no legal
personality. The rights and liabilities of a dead man devolve upon his heirs,
executors and administrators and not upon any fictitious entity known as his
estate. The permission granted under law to make more than one will
to cover different sets of properties and to appoint different and distinct
executors is for the convenient administration of the estate only. The word “estate”
itself signifies only the totality or entirety of the property of a deceased.
Even if more than one will is executed, the estate, which was one and single
during the lifetime of the testator, still continues as such even after his
death and the theory that under such circumstances there are more than one
separate estate has no basis in general law. The contention that there
were two separate estates was thus not well-founded in law. A single
assessment in the status of “AOP” in respect of the aggregate income from the
two estates was, therefore, validly made under section168.
The
executrix, who was taxed in the status of AOP, appeared to have furnished to
the ITO the relevant information relating to income derived from the England
property and did not object to its inclusion even when she was afforded full
opportunity of being heard. They could not, therefore, plead, at a later stage
as a last resort or an afterthought, that the assessment of the said income was
not permissible unless all the executors were served and collectively taxed as “AOP”. Section
168 merely prescribes the method for making an assessment in a
special case and does not bear upon the ITO’s initial jurisdiction
but deals with the matter incidental to it. Any procedural omission or commission
by the ITO in the exercise of his jurisdiction would nullify the assessment
only if such omission, error or breach is so fundamental as could not be waived
because it effects inherent jurisdiction. In the instant case, since the
few executors, who were present before the ITO, had voluntarily furnished the
requisite information and had not objected to the inclusion of foreign income,
they must be taken to have exercised the option of abandoning the plea that
such income was not taxable in their hands, and, having not raised an objection
at the appropriate time, must be taken to have waived the same. - [Maharani
Vijaykunverba Saheb v. CIT (1982) 136 ITR 18 : 8 Taxman 60 : (1981) 25 CTR 300
(Guj.)]
In case of undistributed estate of a
coparcener in HUF, widow can not be taxed on proportionate share of HUF when
her right in estate was not recognised and estate was administered by some
other person
The assessee, a widow of a coparcener in a HUF,
filed returns for the assessment years 1961-62 to 1963-64 showing incomes of
Rs. 3,589, Rs. 5,423 and Rs. 6,070 respectively. On 16.08.1963, a compromise
was made and the assessee received Rs. 10,70,000 in full satisfaction of her
claim as widow. On the basis of details available from the returns filed by the
assessee's mother-in-law who was administering the estate, the ITO added in the
assessee's hands one-sixth share of HUF’s income derived from the property,
business and other sources in the said assessments. In an appeal before the
AAC, the assessee contended that she had not received any part of the share of
the deceased's income and was, therefore, not taxable in respect thereof. The
AAC found that, during the relevant periods, the estate was undistributed and
was administered by the assessee's mother-in-law. The assessee could not be
taxed even on accrual basis since her right to receive such income was never
recognised during the relevant period. The AAC, therefore, held that till the
estate was distributed, the assessee did not attract tax liability on the share
income from the estate. He, accordingly, deleted the additions made by the ITO.
The Department's appeal before the Tribunal was unsuccessful. The Tribunal took
the view that the assessee did not receive any income either in her personal
capacity or as an administrator and was, therefore, not liable to tax thereon.
The income of undistributed estate would be taxable in the hands of the
administrator. On reference :
Held : It was found as a fact that
the estate was not being in assessee's possession but was administered by her
mother-in-law. In terms of section 168 and, particularly of the Explanation to that section, the
income-tax authorities had no discretion except to tax the income in the hands
of the executor who is in de facto management of the property. The income arising
from the undistributed personal estate of the deceased or the undistributed
share of his interest cannot, therefore, be taxed in the hands of the assessee
who was not the administrator of the estate at that time. [In favour of the assessee] – [CIT v. Mrs.
Usha D. Shah (1981) 127 ITR 850 : (1979) 2 Taxman 154 (Bom.)]
In view of nature of duties required to be performed by administrator pendente lite appointed under section 247 of 1925 Act and in view of circumstances under which administrator pendente lite can be made, administrator pendente lite is not an administrator as contemplated in explanation to section 168, and as such section 168 does not apply – Where testator bequathed all his properties equally to his wife and six sons, pendency of adjudication on question of validity of will would not make shares of legatees indefinite or inascertainable and, therefore, assessment could not be made under section 164
The
deceased left a will bequeathing all his movable and immovable properties
equally to his wife ‘M’ and to his six sons. His wife was to have life interest
and after her death, her share would be taken equally by his sons or their male
heirs. While no executor was appointed under the will, the legatees applied for
the grant of letters of administration in respect of the willed properties
during the pendency of the probate proceedings one of the daughters of the
testator filed a caveat challenging the will. Pending the suit, the High Court
appointed ‘M’ as administratix pendente lite for the properties in question.
For the relevant assessment years ‘M’ furnished returns as administratix
pendente lite showing the status as individual, and claimed that the shares of
the legatees being definite, the property income should be allocated amongst
the seven beneficiaries under the will, by making assessment under section 161
but not under section 168.
The
ITO, however, held that since the dispute about the will was pending, the
number of legatees and the share of each legatee remained indeterminate and so
the question of allocation of income amongst the seven beneficiaries did not
arise at all and the income from the estate should be assessed in the hands of
the administratix under section168. He was also of the view that the allocation
of property income claimed by the assessee’s representative under section 26
did not arise at all and section168 did not contemplate any such allocation.
He, therefore, included the whole income of the estate in the assessments of
the administratix. On appeal, the AAC held that the shares were definite and so
the consolidated assessment in the hands of ‘M’ was wrong.
On
Revenue’s appeal, the Tribunal held that so long as the dispute between the
heirs inter se was pending, it was not possible to hold that the shares were
definite and ascertainable and the assessments should be made as “association
of persons”.
On
reference: In the instant case, there was no question of executor, but
according to Explanation to section 168, the executor mentioned in that section
included an administrator or other person administering the estate of the
deceased person. An administrator can be appointed only if there is a suit
pending touching the validity of the will or obtaining or revoking any probate
or any grant of letters of administration. Secondly, such an administrator or
administratix shall be subject to the immediate control of the Court which
appoints him/her and shall act under the direction of that court. Thirdly, he
or she shall have all the powers of a general administrator but he/she shall
not have the power to distribute the estate. This was the effect of section 247
of the 1925 Act. In order to hold the estate of the testator, the executor or
the administrator must be one where the will has been proved. Where the will
has been proved, in those circumstances only either the executor or the
administrator can be said to be holding the estate of the deceased and the said
estate of the deceased can be said to have been vested either in the executor
or the administrator, but where the question as to whether an executor or
administrator to whom a copy of the will can be granted has not been decided
and is pending and there is an administrator for the preservation of the
property, there it cannot be said that on the appointment of such an
administrator the estate of the deceased became vested in him. If there is no
valid will the property would vest in the heirs at law on intestacy. In such a
case such an administrator as an administrator pendente lite under section 247
of 1925 Act cannot have the estate of the deceased vested in him.
In
view of the nature of the duties required to be performed by the administrator
pendente lite appointed under section 247 of the 1925 Act, and in view of the
circumstances under which administrator pendente lite can be made, the
administrator pendente lite is not an administrator as contemplated in the
Explanation to section168, and as such, section168 did not apply. Moreover, the
bequests made in the instant case could not be described to be bequest of
residuary estate. Hence, there was no question of the heirs not getting any
estate until the residuary was determined, in the facts and circumstances of
the case. Where a share of right to get a share of a person is dependent upon a
contingency then it can be said that the share is either not definite or is not
ascertainable but the litigation or adjudication made in the suit would not
grant the share to the parties. It would only decide what was the share of the
parties. That would be the true effect of the adjudication in the probate
proceedings. The parties or heirs at law will not get their shares as a result
of the adjudication as to the validity of the will. The probate proceedings
will only adjudicate the validity of the will. But the shares of the parties
will be either known from the will or if the will is not proved, on intestacy.
The pendency of adjudication on the question of the validity of the will does
not make the share of the parties contingent or uncertain. This is one of the
processes open in law to adjudicate the title of the parties or the shares of
the parties. The powers of the ITO are also, so far as revenue purposes are
concerned, plenary in the sense he has to decide who is the owner and to whom
does a particular income belong. He must, of course, decide the question in
accordance with the other provisions of law. But it is for the revenue
authority to decide in accordance with law the rights of the parties and to
decide to whom the income in respect of the properties in question does belong.
In that light, in such a case, the presence of the dispute as to the will, does
make the share indefinite or unascertainable.
In
the instant case, it could not be said that the share of the parties were not
definite or ascertainable, but shares required to be ascertained and the
authorities were competent to ascertain the shares. The revenue was also
competent not make protective assessment. In order to protect the interest of
the revenue protective assessments were recognised under the Act. The mere
pendency of a dispute did not make, in the facts and circumstances of the case,
the shares of the parties in the properties either indefinite or incapable of
ascertainment. Therefore, the assessments should not be made as AOP under
section 164 & 26. [In favour of assessee] (Related Assessment years : 1963-64
& 1964-65) – [Mahamaya Dassi v. CIT (1980) 126 ITR 748 (Cal.)]
Joinder of names of
legal heirs of the deceased along with executors was not permissible
Under a will executed by
Late Lala Karam Chand Thapar, two executors were appointed. Probate of the will
was not taken and the administration of the estate was not complete. The
assessment for the year 1964-65 was completed under section 143(3) read with
section168 in the name of estate of late Lala Karam Chand Thapar represented by
the executors and legal representatives of the deceased and others. The
contention that the assessment was invalid since it was made not only on the
executors but also on the legal heirs, was rejected by the AAC. The Tribunal
also rejected the contention holding that the addition of the names of the
legal representatives together with those of the executors was made out of
abundant caution and that no illegality was committed thereby. On reference :
The assessment was not
valid in law on the following grounds:
1. Since the
administration of the estate was not complete, the executors appointed under
the will were only the legal representatives and since the persons other than
the executors did not intermeddle with the estate, they could not be the legal
representatives. It is immaterial for the purpose of assessment, whether the
probate of the will was taken or not.
2. The specific
provisions of section 168 leave no scope for inclusion of names other than the
executors as a measure of abundant caution.
3. The error of adding
of additional names was not a mere irregularity, but affects the substance of
the matter.
For the reasons given
above, the contentions of the assessee will succeed. - [I.M. Thapar,
Executor to the Estate of Late Lala Karam Chand Thapar v. CIT (1979) 116 ITR
797 : 1 Taxman 128 (Cal.)]
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