Commissioner Of Income-Tax, Amritsar-I v. Bakshi Sampuran Singh.

B.S Dhillon, J.:— The assessee's father, Shri Shamsher Singh was the managing director of the Amritsar Sugar Mills Ltd., Amritsar. He died on May 18, 1970. Before his death, he used to be assessed as “individual” in respect of his income from salary, dividends and interest on deposits, etc.

2. By a will dated May 15, 1970, Shri Shamsher Singh bequeathed his entire property exclusively to the assessee, his only son. After the death of Shri Shamsher Singh, the ITO made two separate assessments in respect of his income for the assessment year 1971–72, one in respect of his income for the period from January 1, 1970 to May 18, 1970, in the hands of his son, Sampuran Singh, the assessee, as his legal heir under s. 159 of the I.T Act, 1961 (hereinafter referred to as “the Act”) and the other relating to the period from May 18, 1970 to December 31, 1970, also in the hands of Shri Sampuran Singh, as the executor of his estate under s. 168 of the Act. 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 in his individual capacity in respect of his income from salary, dividends and interest on deposit. Consequently, for the assessment year 1971–72, three different assessments were made on January 24, 1972, in three different capacities. On a scrutiny of the records, the Commissioner of Income-tax was of the view that the assessment order dated January 24, 1972, in respect of the personal assessment of the assessee for the assessment year 1971–72, was erroneous and prejudicial to the interests of the revenue, inasmuch as the ITO failed to include in the assessed income of the assessee the income derived by him from May 18, 1970 to March 31, 1971, from the assets inherited by him from his father. A notice under s. 263 of the Act was served on the assessee. The assessee pleaded that the assessment in respect of the income from the estate of his father for the period from May 18, 1970 to December 31, 1970, had been correctly assessed in his hands as an executor under the mandatory provisions of s. 168 of the Act and that the income was not includible in his personal assessment.

3. By his order dated January 9, 1974, the Commissioner rejected the plea of the assessee and observed as follows:

“4. In this written reply dated February 5, 1974, the assessee has attempted to lay emphasis on the point that the two assessments made in accordance with the provisions of sections 159 and 168 in respect of the income of the deceased are in order and that therefore the proceedings initiated under section 263 may be dropped. To support his view, the assessee has placed reliance mainly on the provisions of sections 159 and 168 and the judicial decisions reported in [1950] 18 ITR 787 (Mad) (V.M Raghavalu Naidu and Sons v. CIT), [1952] 22 ITR 177 (Cal) (Asit Kumar Ghose v. Commr. of Agrl. I.T), [1971] 79 ITR 364 (Cal) (Govindlal Bangur v. ITO), [1965] 56 ITR 34 (SC) (Administrator-General of West Bengal for Raja P.N Tagore Estate v. CIT) and [1933] 17 TC 749 (HL) (IRC v. Wahl). I find that none of these judgments, from which assistance is sought by the assessee, comes to the rescue of the assessee, for, the facts of all these cases are materially different from the facts in the instant case. None of these had to consider a case where the executor also happens to be the sole beneficiary of the property and where the formal completion of administration of the estate of the deceased is left to the sweetwill of the beneficiary-executor. As regards the contention that the two assessments made are in accordance with the provisions of sections 159 and 168, it is not disputed that the assessment for the period from 1-1-1970 to 18-5-1970 in terms of section 159 is in order. What is wrong is the assessment of the income pertaining to the period subsequent to 18-5-1970, in the manner provided under section 168(2) of the Act. In this case the assessee is the only son of his deceased father who bequeathed all his property to the assessee by virtue of a will. Immediately on the death of the assessee's father, the income yielding assets of the deceased as also the income therefrom devolved upon the assessee. In terms of the will dated 15-5-1970, all movable and immovable properties of every kind belonging to the assessee's deceased father passed on absolutely and for ever to the assessee to the total exclusion of his two sisters. When that is the position according to the will, there is no question of formal declaration of the administration of the estate being complete. Further, as per note 2 appended below the statement of total income for the period 19-5-1970 to 31-12-1970, attached to the returns of income filed by the assessee for the assessment year 1971–72, under section 161 of the Act, he applied an amount of Rs. 1,75,181 due to the estate of the deceased from Laxmi Ginning and Oil Mills, Khanna, to his own benefit, inasmuch as, the amount in question was not transferred by the assessee to his personal account on 23-5-1970. As indicated elsewhere, the death came about on 18-5-1970, and the transfer of the huge amount in question was effected immediately, i.e, on 23-5-1970. That leaves absolutely no room for the doubt, if any, that the assessee became the absolute owner of the estate in question as also the income therefrom immediately after the death of the deceased. And, then, if, for argument sake, it is conceded for a moment, that the assessee constituted an exector in respect of the estate of his father, then he was the legatee as well. In that event, as the exectuor and the legatee would happen to be the same person, the executor would not formally declare completion of the administration of the estate till such time as would suit him to do so. And this is exactly what Shri Sampuran Singh has done. While he has utilised the usufruct of the estate for his benefit, he has not completed its administration, so that he may reap the benefit, both of low taxation on the basis of two assessments and the use of usufruct, with impunity. In this view of the matter, there is a collusive action between the legatee and the administrator, and the department would be within its right to go behind the apparent state of things to find the real owner of the income.

The assessee's contention that the assessment of the income in question in his hands as his own income would adversely affect the claim for relief under section 50B of the Estate Duty Act is without any substance. Section SOB contemplates relief to the accountable person and not to the estate of the deceased only.”

4. Accordingly, the Commissioner cancelled the personal assessment of the assessee and directed the ITO to make a fresh assessment after including the income, which accrued to him from the estate of his deceased father, pertaining to the period from May 18, 1970, to March 31, 1971.

5. On appeal, the Tribunal did not agree with the Commissioner and cancelled his order. While doing so, the Tribunal observed as follows:

“8. The first question for consideration is whether the impugned order dated 24-1-1972 of the Income-tax Officer was erroneous so as to enable the Commissioner of Income-tax to assume jurisdiction under section 263 of the Income-tax Act, 1961. In this connection, we may refer to sections 159 and 168 of the said Act. Section 159 enables the revenue to make an assessment on the legal representative of a person in respect of the income which accrued or was received by the deceased before his death. On the other hand, section 168 authorises an assessment on the legal representative in respect of the income which accrues to him after the death, the estate being vested in him. So, there would be two separate assessments in respect of the accounting year of death, one for the period commencing from the first date of the accounting year and ending with the death, and, the other commencing from the date of death and ending with the last date of the accounting year. The first assessment will be made in the hands of the legal representative, while the second will be made in the hands of the executor or administrator. Whereas, against the legal representative, there would be assessment only for one year, namely, the assessment year corresponding to the accounting year of death, against the executor or administrator, there would be yearly assessments commencing from the assessment year corresponding to the accounting year of death and lasting up to the year till the administration of the estate is completed. The assessment of a person as legal representative or as executor is different from his personal assessment. Under section 168(2), the personal or private income of an executor has to be assessed separately and cannot be included in his representative assessment.

9. The income received by an executor during the course of the administration belongs to him and he alone is liable to be assessed as such. The title of the residuary legatee accrues only when the administration is complete and after the residue is ascertained and not till then. The pro position of law derives support from [1950] 18 ITR 787 (Mad) (V.M Raghavalu Naidu and Sons v. CIT). According to this authority, an executor is the legal representative of the deceased and so long as he continues as an executor, he holds the estate as a representative of the deceased and not on behalf of the beneficiary. Similarly, it has been held in [1952] 22 ITR 177 (Cal) (Asit Kumar Ghose v. Commr. of Agrl. I.T) that an executor does not, while the administration is still incomplete, hold the estate or receive its income on behalf of any one else but does so on behalf of him self, as the person in whom the estate lies vested at the time. Until the administration is completed, the residue is not ascertained and cannot be said to exist. Until then, he holds the estate as an executor and not as a trustee. To the same effect is [1971] 79 ITR 364 (Cal) (Gobindlal v. ITO). According to this authority, until and unless all debts and liabilities testamantary and other expenses as well as the legacies and the gifts to the beneficiary are made and the estate is fully administered, the executor continues to be in charge of the estate as an executor. In [1965] 56 ITR 34 (SC) (Administrator-General of West Bengal for the Estate of Raja P.N Tagore v. CIT) the Supreme Court held that when the administration of the estates was not complete, the Administrator-General received the income of the estate on his behalf and not on behalf of the sons, who were residuary beneficiaries.

10. Now, in the present case, the assessee was, admittedly, the exe cutor in respect of the estate of his father and since the administration was not completed during the relevant accounting period, the income therefrom was assessable in his hands as an executor under section 168 and not in his personal capacity. That being so, the Income-tax Officer was justified in not including the income derived by the assessee from the estate of his father for the period from 18-5-1970 to 31-12-1970 in his personal assessment. His order dated 24-1-1972 was, therefore, not erroneous and so the Commissioner of Income-tax could not assume jurisdiction under section 263.

11. The Commissioner of Income-tax is of the view that the said authorities do not apply to the present case, inasmuch as, the assessee was the sole beneficiary of the property. We are unable to agree with him. It would appear from the commentary at p. 838 of the Law and Practice of Income Tax by Kanga & Palkhivala that even if the executor is the sole beneficiary it does not necessarily follow that he receives the income in the latter capacity. In other words, the executor retains his dual capacity and he must be assessed as an executor in respect of the income received by him from the estate of the deceased irrespective of the fact that he himself happens to be the sole beneficiary.

12. Another argument of the Commissioner of Income-tax is that since the assessee had applied some assets of the estate to his own benefit soon after the death of his father, he had become the absolute owner of the estate in question as also the income therefrom immediately after the death of the deceased. This argument is also not acceptable. After all, the assessee, as an executor, had to administer the estate and, if in the process, he applied a part of the estate to his benefit as a beneficiary, it does not mean that he became the owner of the ‘remaining assets’ before the administration was completed. For completion of the administration, much had yet to be done. As stated by the representative of the assessee, Shri Shamsher Singh deceased left behind considerable agricultural land and shares in various companies. He had also to recover certain loans from various parties. There were some dividends which were issued by the companies in the name of the deceased, but were received by the assessee after his father's death. The income from the agricultural land and the shares could not be considered to be the personal income of the assessee until he got the property and the shares mutated in his name. Again, he could not recover the loans from various parties and obtain the dividends which had already been issued in the name of his father until he got a succession certificate. Thus, the administration of the estate by the assessee, as an executor, involved the transfer of the aforesaid properties in his name and the payment of income-tax, wealth-tax and the estate duty, etc. Till the assessee had done all these things and till he had paid all the debts due from the estate of his father, the income from the same could not be considered to be his personal income. Thus, the mere fact that the assessee recovered a sum of Rs. 1,75,181 from M/s. Laxmi Ginning and Oil Mills and applied the same to his benefit, did not bring about the end of the adminstration of the estate by him as an executor. Of course, the income from the property that has been applied to the benefit of the assessee will be assessable in his hands in his personal capacity and not as an executor.

13. The Commissioner of Income-tax has also observed that since the executor and the legatee happen to be the same person, the assessee, as an executor, had prolonged the administration with the object of enjoying the double benefit of low tax on the basis of two assessments and the use of usufruct with impunity. In our opinion, this observation is based upon mere surmises. There is no evidence on record to prove that the assessee is, in any way, unduly delaying the administration of the estate of his father. On the other hand, it appears from the record that he is taking all possible steps to expedite the administration. He recovered the sum of Rs. 1,75,181 from M/s. Laxmi Ginning and Oil Mills within 5 days of the death of his father. Again, he sold the shares worth Rs. 4,33,865 in December, 1960, for payment of the estate duty. Besides this, he paid a sum of Rs. 2,00,000 or so as income-tax and wealth-tax of the deceased. As would appear from the figures furnished by the assessee, the net wealth of Shri Shamsher Singh, as returned by the assessee as an executor for the period from 19-5-1970 to 31-12-1970, amounted to Rs. 8,05,000, whereas, the same has dwindled to Rs. 13,600 and Rs. 13,400 in the assessment years 1972–73 and 1973–74. Similarly, the income of Shri Shamsher Singh for the period from 19-5-1970 to 31-12-1970, as declared by the assessee as an executor, was Rs. 1,88,730 including capital gains of Rs. 1,45,182 whereas, the same has been shown at Rs. 22,030 and Rs. 2,090 for the assessment years 1972–73 and 1973–74. That being so, it cannot be said that the assessee is intentionally delaying the administration of the estate of his father because he himself happens to be the sole beneficiary under the will.

14. In view of the above discussion, we are of the opinion, that the order dated 24-1-1972 of the Income-tax Officer in respect of the personal assessment of the assessee, in which he did not include the income received by him as an executor from the estate of his father for the period from 19-5-1970 to 31-3-1971, was not erroneous and that the Commissioner of Income-tax erred in cancelling this assessment under section 263 of the Income-tax Act on the grounds referred to by him in his order. We are, tnerefore, unable to confirm the impugned order. The same is, accordingly, quashed.”

6. At the instance of the revenue, the following question of law has been referred by the Tribunal for the opinion of this court:

“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal has rightly set aside the order dated January 9, 1974, passed by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961?”

7. After hearing the learned counsel for the parties and going through the record of the case, we are of the opinion that the question of law referred to us has to be answered in the affirmative, i.e, in favour of the asses-see and against the revenue. Mr. Awasthy, learned counsel for the revenue, could not cite any authority in support of his case. It is well settled that the income received by the executor during the course of administration belongs to him and he alone is liable to be assessed as such. 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 the provisions of section 168 of the Act. This view also finds support from a number of decided cases, such as, V.M Raghavalu Naidu and Sons v. CIT, [1950] 18 ITR 787 (Mad), Asit Kumar Ghose v. Commr. of Agrl. I.T, [1952] 22 ITR 177 (Cal), Gobindlal v. ITO, [1971] 79 ITR 364 (Cal) and Administrator-General of West Bengal for the Estate of Raja P.N Tagore v. CIT, [1965] 56 ITR 34 (SC). Mr. Awasthy learned counsel for the revenue, could not cite any authority taking a contrary view. This also follows from a plain reading of the provisions of s. 168 of the Act.

8. The only other contention raised by Mr. Awasthy, learned counsel for the revenue, is that the income which had accrued to the deceased during his lifetime, even though received after his death, should have been included in the income, which was received by the assessee during his lifetime. This submission has been based on view of the decision of the Madras High Court in CIT v. Estate of Late A.V Viswanatha Sastri, [1980] 121 ITR 270. This contention is also without any merit. The question of law has already been reproduced. Nothing could be brought to our notice from the statement of the case to show that any income which had accrued to the deceased, which was received subsequently, was counted in the assessment order, which pertained to the income in the hands of the executor. This dispute was never raised before the Tribunal and is consequently not the subject-matter of the question of law referred to us. That being so, there is no merit in this contention. No other argument has been raised.

9. For the reasons recorded above, this reference is answered in the affirmative, i.e, in favour of the assessee and against the revenue, with costs.