Commissioner Of Income-Tax v. Mrs. A. Ghosh

G.N Ray, J.:— In this reference under section 256(1), Income-tax Act, 1961, at the instance of the Revenue, the following questions have been referred for the opinion of the court:

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income derived from the estate of the deceased husband of the assessee and credited to her personal bank account was not income distributed to, or applied to the benefit of, a specific legatee and it could not, therefore, be included in the personal assessments of the assessee under section 168(4), Income-tax Act, 1961?

(2) Whether, in the alternative, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the administration of the estate was not completed since the estate duty payable on the estate remained unpaid till the end of the relevant previous years and, therefore, the income from the estate was not includible in the personal assessments of the assessee as the residuary legatee?”

2. The relevant facts may be stated hereunder. The assessee, Mrs. A. Ghosh, is the sole executrix and the sole residuary legatee under the last will and testament dated May 5, 1964, of her husband, Dr. Ghosh, who had died on December 12, 1965. The probate of the will was granted to the assesseee on October 6, 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 Income-tax Officer found that the amounts representing the income from the estate of her deceased husband, of which the assessee was appointed as sole executrix, were deposited in her personal account during the previour years relevant to the assessment years 1967–68, 1968–69 and 1969–70.

3. The Income-tax Officer included the said incomes for the assessment of income-tax of the assessee for the said assessment years on the footing that the assessee as sole executrix had distributed the said income to herself as sole legatee. And on such inclusion of the said income from the estate under section 168(4), Income-tax Act, 1961, the Income-tax Officer completed the assessment for the said three assessment years.

4. The assessee preferred appeals before the Appellate Assistant Commissioner who took a different view. It was held that section 168(4), Income-tax Act, 1961, would not be attracted until the administration of the estate was completed. The Appellate Assistant Commissioner held that in the present case, the administration of the estate was not 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 that the mere fact that the income from the estate was credited by the executrix to her personal bank account would not amount to distribution of income of the estate to herself as a sole legatee. In that view of the matter, the Income-tax Officer was directed by the Appellate Assistant Commissioner to exclude the amounts representing income from the estate from the individual assessments of the assessee for the assessment years under reference.

5. The Revenue thereafter preferred appeals before the Income-tax Appellate Tribunal. The departmental representative contended before the Tribunal that since the assessee is a sole residuary legatee under the will of her husband and had deposited income arising out of the estate of her husband in her personal bank accounts, it must be held that she had distributed such income to herself as the sole residuary legatee and, therefore, the second limb of section 168(4) was clearly attracted and the Income-tax Officer was justified in including those amounts in the personal income of the assessee. The Tribunal noted that the income of an estate distributed to, or applied for the benefit of, a specific legatee had been included as the income of such specific legatee under section 168(4) of the Act because even before the administration of the estate is complete, there may be distribution to specific legatee of the income accruing from specific parts of the estate bequeathed to such legatee, but there cannot be any distribution of income from the estate to a residuary legatee until the administration of the estate is completed and the executrix is transformed into a trustee. The Tribunal, therefore, held that the assessee was not entitled to any distribution of income as a residuary legatee before the administration of the estate.

6. The learned counsel for the Revenue has contended that the assessee as a sole executrix is also the sole residuary legatee in the instant case and since the income from the estate is ultimately to be appropriated by the sole residuary legatee and since the sole executrix has, as a matter of fact, distributed such income from the estate to her personal account, the Income-tax Officer was justified in including the said amounts in computing the total income for the assessment of the income-tax of the assessee. Learned counsel has contended that it will be hyper-technical to contend that the estate not having been fully administered, the distribution made by the executrix to the sole legatee cannot be taken into account. He has contended that, when in fact, the income has been distributed, the assessee must account for such income received by her as sole residuary legatee and she must be held to be liable for income-tax for such amount.

7. Mr. Bhattacharya, learned counsel appearing for the assessee, has, however, contended that the law is well settled that until the estate is fully administered, the income from the estate of the deceased cannot be distri-bn ted to the residuary legatee. He has contended that a specific legatee stands on a different footing and distribution of income from the specified portion of the estate is permissible to such specific legatee even before the estate is otherwise fully administered. Mr. Bhattacharya has drawn the attention of the court to section 142, Indian Succession Act, 1925, and section 168(4), Income-tax Act, 1961, and has referred to the decision of the Court of Appeal of England in the case of Corbett v. Commissioners of Inland Revenue, [1937] 21 TC 449. It has been held in the said decision that prior to the ascertainment of the residue of the testator's estate, no income within the meaning of the Income-tax Act arose to the holder of life interest in the share of a residuary legatee. Mr. Bhattacharya has also submitted that the estate had not been fully administered when the sole executrix, without any justification and authority, had deposited a part of the income of the estate to her personal bank account. He has contended that the lapse on the part of the executrix cannot validate the alleged distribution of the income of the estate to the residuary legatee before administration of the estate fully.

8. After considering the respective submissions, it appears to us that the Tribunal has taken a correct view. It has been found as a fact by the Tribunal 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. In our view, it is immaterial if the executrix herself is the residuary legatee and as such is ultimately entitled to the remaining income of the estate after the same is fully administered.

9. In the result, the reference is answered in the affirmative and in favour of the assessee. There will, however, be no order as to costs.

Dipak Kumar Sen, J.:— I agree.