SMT. SALMA IRANI v. FIFTH INCOME-TAX OFFICER

Per Shri A.V. Balasubramanyam, Judicial Member - These appeals are by the assessee. The assessment years are 1980-81 and 1981-82.

2. A certain Nariman Irani, who was dealing in the business of film. production, died on 10-12-1977 leaving him surviving a widow (Salma Irani), two minor sons, a minor daughter and mother. Nariman Irani was a Parsi. His wife, Salma Irani, was a Muslim. The succession to the property left behind by Nariman Irani was governed by the provisions in Chapter III of the Indian Succession Act, 1925.

3. Nariman Irani had produced a film in regard to which he had granted distribution rights to several parties. The distribution was subject to minimum guarantee and during the lifetime of Nariman Irani, he had received what was receivable as minimum guarantee. After his death, the film had earned some excess income and as a result thereof, the distributors had to pay a percentage of the income, according jo the contract they had made with the deceased. That is how Salma Irani had received money from various distributors after the death of Nariman Irani. We may here note that there were debts which Nariman Irani had to pay.

4. Nariman Irani died intestate. Salma Irani applied and obtained from the Bombay High Court letters of administration on 22-12-1982 and in regard to property and credits of her deceased husband, Nariman Irani.

5. The ITO had passed assessments against Salma Irani in her capacity as administrator of the estate of late Nariman Irani under section 143(3), read with section 144B of the Income-tax Act, 1961 (‘the Act’). From them there were appeals to the Commissioner (Appeals) wherein the primary contention was that the assessments made against Salma Irani as adiministrator of the estate of Nariman Irani were bad and that the income should have been assessed in the hands of the legal heirs of the deceased in proportion to their, share of interest. More simply, the contention was that the ITO should not have applied the provisions of section 168 of the Act in passing a single assessment against Salma Irani in her representative capacity. There were other contentions too touching merits. The Commissioner (Appeals) rejected all the pleas advanced on behalf of the assessee and dismissed the appeals.

6. Shri Y.P. Trivedi, the learned counsel for the assessee, contended that the assessments made in this case applying section 168 are not valid and that the income should have been directly assessed in the hands of the heirs in proportion to their share of interest and, in this connection, he greatly depended upon the judgment of the Bombay High Court in the case of CWT v. Keshub Mahindra [1983] 139 ITR 22. The rejoinder of Shri Tuli, the learned departmental representative, was that Salma Irani having obtained letters of administration in regard to the estate of her deceased husband cannot now be allowed to say that she is not administering the estate of her deceased husband, particularly so when there were debts repayable out of the assets of the deceased. He placed dependence upon the judgment of the Bombay High Court in the case of Commissioner Of Income-Tax, Bombay City-Ii v. Mrs. Usha D. Shah [1981] 127 ITR 850 and the judgment of the Karnataka High Court in the case of Estate of Late H.H. Rajkuerba, Dowager Maharani Suheb of Gondal v. CIT [1982] 135 ITR 393 to contend that section 168 has application to this case. We must note here that the Commissioner (Appeals) relied upon these two later mentioned case law to reject the contention on behalf of the assessee.

7. Arguments were addressed on the merits of the assessments regarding which reference will be made later.

8. Facts are perfectly clear. Upon the death of Nariman Irani, his. property was inherited by the wife (Salma Irani), three minor children and mother according to the provisions in Chapter 111 of the Indian Succession Act since the deceased had not left a will. As a consequence, the property immediately vested in the heirs according to law of inheritance governing them and there is no postponement of vesting. In other words, there is no hiatus between the death of Nariman Irani and the vesting of the property in the heirs. Section 168 deals with a case of assessment against an executor receiving income from the estate of the deceased person. Executor to which section 168 applies could only be where the deceased had left a will appointing an executor therein. But the Explanation to the provision has extended the meaning of the term ‘executor’ so as to include an administrator or other person administering the estate of the deceased. The question is whether Salma Irani who had obtained letters of administration from the Bombay High Court regarding the estate of her deceased husband could be construed as an ‘administrator’ within the meaning of Explanation to section 168.

9. Letters of administration could be granted to a person who has died intestate, vide section 212 of the Indian Succession Act. Section 168 of the 1961 Act deals with assessment against an executor receiving income of the estate of the deceased person and the corresponding provision in the Wealth-tax Act, 1957 (‘the 1957 Act’) for assessment against an executor regarding wealth of the estate of the deceased person is section 19A of the 1957 Act. Although there is no analogy between the provisions of the 1961 Act and assessments under the 1957 Act, owing to basic and fundamental difference between the chargeable events, as pointed out by their Lordships of the Madras High Court in the case of A. & F. Harvey Ltd. v. CWT [1977] 107 ITR 326 at p. 339, it can be seen that both section 168 of the 1961 Act and section 19A of the 1957 Act provide for a special case of assessment against executors and the language in the two provisions are practically identical. The main provisions of sections 168 and 19A in the two enactments mentioned above deal about an assessment against an executor. The Explanation at the foot of these two provisions is identical in language. Their Lordships of the Bombay High Court have, in the case of Keshub Mahindra ( supra), explained the width of the extended meaning given to ‘executor’ in the Explanation saying that the term ‘executor’ or ‘administrator’ should be construed as including within the term only such persons who are administering the estate in accordance with the directions in the will of the deceased. There may be a case where an executor appointed in the will may not accept the office and a Court may have to appoint an administrator. There may also be a case where an alien (executor de son tort) might have taken up the administration of the estate before an executor or administrator is appointed to manage the estate as per the directions of the will made by the deceased. It is abundantly clear from the principle explained in Keshub Mahindra’s case (supra) that section 19A applies only to the property administered by a person according to the directions in a will. To put it in other way, section 19A is explained to be inapplicable to a case of intestate succession. On the same analogy, section 168 also can be said to apply only to a case where the deceased had left a will and administration will have to be made in accordance with the directions of the will.

10. It is true that some observations of their Lordships in Mrs. Usha D. Shah’s case (supra) to some extent, indicate that the Explanation to section 168 is intended to include a person who is in de facto management of the deceased person. But as the facts show, the person who was managing the property of the deceased had apparently no title and the deceased had left a will and the entitlement of the legatees to receive property according to the will had been questioned by the person who was managing the property of the estate. Mr. Chandurkar, CJ. who delivered the judgment in Mrs. Usha D. Shah,s case (supra) has explained this while disposing of the case in Keshub Mahindra ( supra).

11. The Karnataka High Court in Estate of Late H.H. Rajkuerba, Dowager Maharani Saheb of Gondal’s case (supra ) is distinguishable on facts for that was a case where the deceased had left a will and, as such section 168 undoubtedly applicable.

12. The Calcutta High Court has in the case of Mahamaya Dassi v. Commissioner Of Income-Tax, West Bengal-Iii. [1980] 126 ITR 748 held that an administrator appointed pendente lite by a Court in a civil proceeding will not be an administrator within the contemplation of section 168. A Bombay Bench of the Tribunal has, in the case of Veera D. Thakersey [IT Appeal Nos. 5942, 5943, 6201 and 6202 (Bom.) of 1983, dated 25-3-1985], taken a view that section 168 has no application to a case where heirs succeed to the property of the deceased by operation of law and that the said provision has application only to a case where the deceased had left a will.

13. There is another reason to hold that section 168 has application to only estate passing on by testamentary succession. Under sub-section (4) of section 168, any income of the estate 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 could only be in the case of disposition by a will and there cannot be a case of legatee in the case of intestate succession.

14. The case of Salma Irani, in our opinion, has to be held as one not coming within the compass of section 168. The property was inherited by wife, minor children and mother. The wife had been in charge of the persona and property of her minor children. There is no question of administering the estate and all that she had to do was to discharge certain debts. The Bombay High Court has in Keshub Mahindra’s case (supra) said that once the property absolutely vests in the heir according to 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. On the same principle, Salma Irani cannot be said to be administering the estate of her deceased husband owing to the fact that Nariman Irani owed certain debts which she felt bound to discharge. Considering the facts of the present appeals in the light of the judgments of tht Bombay High Court in Keshub Alahindra’s case (supra) and of the Calcutta High Court in Mahamaya Dassi’s case (supra), we are clearly of the view that section 168 has no application as Nariman Irani had not left a will. The property had vested in the heirs immediately upon death of Nariman Irani and the heirs can only be assessed as owners according to their share of interest.

The impugned assessments made against Salma Irani in her capacity as administrator deserve to be struck off as bad in law.

15. It was mentioned by Shri Y.P. Trivedi that the heirs of Nariman Irani had filed separate returns showing their respective income and that assessments have been passed on protective basis. In view of the same, we do not think it proper to consider the merits. of certain claims for deduction made by the assessee before us.

16. In the result, the appeals are allowed. The impugned assessments are set aside.