TMI Blog1981 (4) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... nterpretation of s. 168 or the scope of it was never raised and was never debated before the Tribunal or other authorities. The question referred, therefore, is only whether the assessment should be under section 168(3) and not under s. 160(iv). The nine assessments insisted upon by the assessee was only on the basis of s. 160(iv) and not under s. 168(3). In view of this, am of opinion that the question of law now sought to be raised is one that was neither raised before the Tribunal nor considered by it and, therefore, is not a question arising out of its order in terms of proposition 4 of the Supreme Court in the case of Scindia Steam Navigation Co. [1961] 42 ITR 589. That decision was considered by the Supreme Court in T. D. Kumar Brothers (P.) Ltd. v. CIT [1967] 63 ITR 67 and distinguished observing (p. 71): " The question framed was as to the liability of a sum of money to be assessed to tax as income received by the assessee in the assessment year. The question was couched in general terms ". I am, therefore, of the opinion that the question sought to be raised should not be permitted to be raised. I am unable to agree that the first question in all the years should be answ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at is the limit of the period of assessment are to be made. A person may pass away in the middle of an accounting year. In such a case, the sub-section provides that the first assessment shall be for the part of the previous year from the date of death (of the testator) to the end of the relevant previous year. Thereafter, for each completed previous year an assessment has to be framed until the. " date of complete distribution to the beneficiaries of the estate according to their several interests ". It may happen that such complete distribution is effected in the middle of a relevant previous year. In such a case the last of the assessments of the income of the estate of the deceased in the hands of the executor would be for a part, of a previous year. The use of the plural "separate assessments" is only to meet the several situations noted above. The portion of the sentence " from the date of death to the date of complete distribution to, the beneficiaries of the estate according to their several interests " is a composite whole and the concluding words " according to their several interests " cannot be dislodged from that position and relegated to an earlier position of the sen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndian I.T. (Amend.) Act, 1933, in the wake of the High Court of Bombay holding that where person died after the commencement of the assessment year but before his income for the previous year was assessed, his executor was not liable to pay the tax and that if death occurred while assessment proceedings were pending, the proceedings could not be continued and the assessment could not be made after the person's death. This aspect of the matter was explained by the Supreme Court in two cases. In CIT v. Amarchand N. Shroff [1963] 48 ITR 59 (SC), it was observed at p. 65: " By section 24B the legal personality of a deceased assessee is extended for the duration of the entire previous year in the course of which he died and, therefore, the income received by him before his death and that received by his heirs and legal representatives after his death but in that previous year becomes assessable to income-tax in the relevant assessment year. The section was enacted by the legislature to bring to tax, after his death, income received during his lifetime, and fill up the lacuna which was pointed out by the High Court in Ellis C. Reid v. Commissioner of Income-tax [1930] 5 ITC 100 (Bom). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bute it among the beneficiaries, but income-tax is levied not on the aggregate income of the estate in the hands of the trustees and at the rate appropriate to such total income, but on the income of each of the beneficiaries at the appropriate rate of tax. Section 41(2) permits the direct assessment of each of the beneficiaries according to his share of the income of the trust estate. Where, however, the estate is administered by executors, the income, received by them pending the conclusion of their administration is not, in law, the income of the legatees or beneficiaries. Where trustees are appointed under a will, whether the trustees be the executors themselves or strangers, the right and interest of the beneficiary in the income of the trust fund differs radically from the interest of the legatee in the income received by the executors during the period of their administration. During such period the income of the estate is the income of the executors and not of the beneficiaries or legatees though the executors are bound to apply the income in a due course of administration. The executors do not, during the period of their administration, become trustees of any part of the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at their shares were 1/5th each and what was to be seen was whether the shares were determinate and not whether the actual sum which each son would get is variable or not and income may be variable but the shares of the sons were fixed and s. 41 was mandatory and if the proviso to s. 41 did not apply, the ITO was bound to assess the appellant under s. 41. The Attorney-Genera I appearing for the revenue, however, contended that on the facts of the case s. 41 did not at all apply because the appellant did not receive the income on behalf of the five sons but received it like an executor and an executor was not mentioned in s. 41 and was assessable under ss. 3 and 4 of the Act. The Supreme Court went on to observe [p. 38]: " It is not disputed that before section 41 can be applied, it must be found that the Administrator-General was entitled to receive income on behalf of a person or persons. It is common ground that the administration of the estate was not completed within the accounting periods in question. So, the question boils down to this: Did the appellant receive the income on his behalf or on behalf of the five sons during this period ? " It held: " that during the administ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his was fully explained in Lord Sudeley v. Attorney General [1897] AC 11 ; 1 EDC 73 (HL). Finally, dealing with the reasoning adopted by the High Court, the Supreme Court states (p. 41): " The High Court in this case had repelled the argument on behalf of the revenue that the Administrator-General did not come within the purview of section 41 of the Act on the ground that 'the Administrator-General when appointed by the court is expressly covered by the section and it cannot be said that because he has the powers of an executor, he must be treated differently'. In our opinion, the fact that the Administrator-General is expressly mentioned in s. 41 does not conclude the matter. The section prescribes another condition and that is that the income must be received by him on behalf of a person or persons. This condition must be fulfilled before s. 41 becomes applicable. The position of an Administrator-General appointed de bonis non is in no way different from that of an executor vis-a-vis the income he receives from the estate. " The position in law being thus, there is no indication that the entire concept of income received by an executor pending administration was intended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the Lloyds Bank, London, on U.K. War Stock Bonds is assessable in the accounting year relevant to the assessment year 1967-68 ? (b) Whether, on the facts and in the circumstances of the case, the instalments of refund of the principal amount of annuity deposit are taxable in the hands of the executors under the provisions of the Incometax Act, 1961 ? (c) If the answer to question No. 2(b) is in the affirmative, whether, on the facts and in the circumstances of the case, the proportionate estate duty payable on the annuity deposit is deductible from the refund of annuity deposits assessable as income ? " In I.T.R C. No. 77 of 1976 also the first four questions are similar to the questions set out above. There is, however, an additional question No. 2(d), which reads as follows: (d) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that while computing the capital gains on the sale of some shares and gold, the proportionate estate duty relating to these assets cannot be allowed as a deduction ? In all these four cases, the assessment relates to the estate of late Her Highness Rajkuverba Dowager Maharani Saheb of Gond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in then this legacy shall lapse ......... 10. I direct my executors and trustees to divide the rest and residue of my estate in nine equal parts and to deal with the same in the manner hereinafter mentioned : (i) To hand over one such equal part to my son, His Highness Vikramsinhji absolutely. (ii) To hand over one such equal part to my daughter, Sitaba absolutely. (iii) To hand over one such equal part to my daughter, Kamalaba absolutely. (iv) To hand over one such equal part to my daughter, Indiraba absolutely. (v) To hand over one such equal part to my daughter, Vijayaba absolutely. (iv) To hand over one such equal part to my daughter, Jayaba absolutely. (vii) To set apart and hold one such equal part for the benefit of brother, Laxmansinhji, his wife, Vrajkuverba and their sons, Ramachandrasinhji and Bharatsinhji, and pay to the said Laxmansinhji the income thereof every month till his life and on his death to divide the said part amongst his wife, Vrajkuverba, and Ramachandrasinhji and Bharatsinhji in equal shares. In the event of the said Laxmansinhji not being alive at the time of my death, his part shall be divided amongst his wife Vrajkuverba, his s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years relevant to the assessment years 1967-68 to 1970-71, the following amounts were credited by the Lloyds Bank, London, to the account of " Rajkuverba of Gondal personal representatives' account": Assessment year Amount 1967-68 pound 5,879-5-4 1968-69 pound 11,758-10-7 1969-70 pound ,, 1970-71 pound ,, The above amounts were not shown in the return of income. The stand taken by the executors for non-inclusion of the said amount was that the above amounts could not be realised by the executors until they secured a probate. There is no dispute that the probate was granted by the Bombay High Court on 9th April, 1970, and the court at the United Kingdom granted probate on 23rd August, 1970, and it is only thereafter on 19th December, 1970, that the realisation on the sale of War Stock Bonds and interest was remitted to India. The ITO held that the income was assessable as income accruing or arising outside India under s. 5(1)(c) of the Act. (3) During the lifetime of Maharani, she had made annuity deposits amounting to Rs. 54,450. Out of the said amount a sum of Rs. 5,445 had been received back by her during her lifetime. The principal amount payable by the Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontended that estate duty payable on the amount of annuity deposits refunded was deductible and only on the balance of the amount the income-tax should be computed. The contention was rejected. For the assessment year 1970-71. in addition to the items which were the subject-matter for the earlier three years, there was also a question regarding the liability to capital gains on the amounts realised by the sales of some shares and gold. The contention of the assessees relating to this amount also was that the estate duty leviable on these assets were deductible and tax was leviable only on the balance of the amount. This plea of the assessees was also rejected. Hence an additional question has been referred in I.T.R.C. No. 77 of 1976. We shall take up for consideration question No. 2 first. Sri S. P. Bhat, learned counsel for the assessees, submitted as follows: In view of the finding that the assessees were maintaining accounts on cash basis, the interest amount credited by the Lloyds Bank to the legal representatives' account could not be treated as income until the assessees realised the said amount on 19th December, 1970, in view of s. 5(1)(c) read with s. 145 of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the statutory agent were credited, since a credit balance, without more, only represents a debt and a mere book entry in the debtor's own books does not constitute payment which will secure discharge from the debt. They cannot, therefore, be charged to tax on the basis of receipt of income actual or constructive in the taxable territories during the relevant accounting period. " In our view, the ratio of the decision in the above case is not apposite to the facts of this case. Under s. 168 of the Act, it is the income of the estate of the deceased which is liable to be assessed though the assessment is required to be made at the hands of the executors. Therefore, the moment the interest is credited to the account of the estate of the deceased, it constitutes the income of the estate during the relevant accounting year and, consequently, becomes assessable to tax during the corresponding assessment year. The mere fact that according to the banking practice, the bank insists on the production of the probate or letters of administration for withdrawing the amount, so that the bank may get a valid discharge in respect of the amounts paid by them to the hands of the persons clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund of annuity deposit amount would be income only when returned to the depositor, but if the same was returned to the nominee of the depositor, it could not be subjected to tax as it would be no income of the nominee within the meaning of that expression under the Act, and it might amount to a gift by the depositor to the nominee. In our view the refund of the annuity deposit amount made to a person other than the depositor, i. e., a nominee of the depositor, stands entirely on a different footing. In this case, we are concerned with the income accrued to the estate of the deceased. There is no difference between the refund of the annuity deposit to the hands of the depositor or to the hands of the executors after the death of the depositor. In both cases, it amounts to the return of the deposit to the depositor. Therefore, we find no substance in the contention urged for the assessee that the refund of annuity deposits was not liable to tax at the hands of the executors under the provisions of the Act. In the result, our answer to question No. 2(b) is also in the affirmative, i. e., against the assessees. The common question No. 2(c) in I.T.R.C. Nos. 74, 75 and 76 of 1976 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required under s. 160(iv) of the Act. This plea was rejected by the ITO on the ground that the administration of the estate was not completed and the actual distribution of the estate to the beneficiaries had not taken place and the executors had not transformed themselves into the position of trustees after such distribution, having shed their status as executors. The assessees reiterated the same plea before the AAC as also before the Appellate Tribunal. Both these authorities rejected the contention and on facts they found that the actual distribution of the estate had not taken place and consequently, the provisions of s. 160(iv) was not attracted and the assessment was required to be made only under s. 168 of the Act, which specifically provides for the making of assessments on the executors. In our opinion, the view so taken concurrently by the three authorities is correct. Learned counsel for the assessees could not seriously dispute the correctness of the said view. When a similar plea had been raised in the case of V. M. Raghavalu Naidu and Sons v. CIT [1950] 18 ITR 787, before the Madras High Court, it was held that as on the facts and circumstances of that case, the admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589, in which s. 66(1) of the Indian I.T. Act, 1922, was interpreted which is similar to s. 256(1) of the Act. In particular he relied on the following portions of the judgment at p. 611 : " The result of the above discussion may thus be summed up: (1) When a question is raised before the Tribunal and is dealt with by it, it is clearly one arising out of its order. (2) When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order. (3) When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order. (4) When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the findings given by it. Stating the position compendiously, it is only a question that has been raised before or decided by the Tribunal that could be held to arise out of its order. " Learned counsel for the assessees per contra submitted that the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt for decision and which the court is to decide must be the question which was in issue before the Tribunal. Where the question itself was under issue, there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal. It will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of section 66(1) of the Act. That was the view taken by this court in Commissioner of Income-tax v. Ogale Glass Works Ltd. [1954] 25 ITR 529 and Zoraster Co. v. Commissioner of Income-tax [1960] 40 ITR 552, and we agree with it. As the question on which the parties were at issue, which was referred to the court under section 66(1), and decided by it under section 66(5) is whether the sum of Rs. 9,26,532 is liable to be included in the taxable income of the respondents, the ground on which the respondents contested their liability before the High Court was one which was within the scope of the question, and the High Court rightly entertained it. " He also argued that the contention sought to be raised also falls within the scope of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (2) The assessment of an executor under this section shall be made separately from any assessment that may be made on him in respect of his own income. (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." ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided for under s. 164 of the Act in a case in which separate assessment is not possible as provided under s. 160(iv) of the Act. Learned counsel appearing for the revenue, on the contrary, submitted that the words " separate assessments " indicating the making of plurality of assessments refers to the number of assessments required to be made from the date of death of the deceased till the complete distribution of the estate and he also submitted that the words " according to their several interests " used at the end of the sub-section was only to indicate the last date up to which the assessment should be continued to be made on the executor and was not meant to indicate the making of separate assessments according to several interests of the beneficiaries. The view which commends acceptance of Srinivasa Iyengar J. is as follows: The law regarding position of the executors is well settled. The executors receive income in respect of an estate of a deceased for which they are executors only in their own right. In the eye of law they are not representatives of beneficiaries. Therefore, as s. 168 provides the making of an assessment on the executors there could be only one as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n one assessment on the executors for each previous year and further the words " according to the several interests " would not have also been used in the sub-section unless the making of separate assessments according to the several interests of the beneficiaries was intended and the provision would have been made as follows: " Assessment 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." The words " according to the several interests in the provision cannot also be construed as having been used only to indicate the last date up to which the assessment could be continued to be made on the executors, as these words would be redundant. Therefore, I find it difficult to give meaning to sub-s. (3) of s. 168, which would be the same even without the use of the word " separate " and the plural in the word " assessments and the words " according to the several interests ". It is a cardinal rule of construction that no words should be considered redundant or surplus in interpreting the provisions of a statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) of s. 168. Further, this interpretation being one which avoids hardship and favourable to the assessee, it has got to be preferred as held by the Supreme Court in CIT v. Naga Hills Tea Co. Ltd. [1973] 89 ITR 236 and Alladi Venkateshwarlu v. Government of Andhra Pradesh [1978] 41 STC 394; AIR 1978 SC 945. In the result, there is a divergence of opinion between us on the following questions of law: (1) Whether the assessees should or should not be permitted to contend that in view of sub-section (3) of section 168 there should be nine 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 ? (2) Whether sub-section (3) of section 168 provides for (i) the making of a single assessment on the total income for each previous year or part of a previous year on the executors ? or (ii) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act ? " In support of their respective contentions, both Shri Bhat and the learned standing counsel relied on the same passage in the decision of the Supreme Court in CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589. That passage, at p. 612 of the report, reads: " Now a question of law might be a simple one, having its impact at one point, or it may be a complex one, trenching over an area with approaches leading to different points therein. Such a question might involve more than one aspect, requiring to be tackled from different stand points. All that section 66(1) requires is that the question of law which is referred to the court for decision and which the court is to decide must be the question which was in issue before the Tribunal. Where the question itself was under issue, there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal. It will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of section 66(1) of the Act." As s. 256 of the Act is in pari materia with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sments shall be made " which occur at the commencement of that sub-section. Srinivasa Iyengar J. has relied on the statement of, law by Viswanatha Sastri J. in Raghavalu Naidu and Sons v. CIT [1950] 18 ITR 787 (Mad) that where an estate is administered by executors, the income received by them pending conclusion of their administration, is not in law the income of the legatees or beneficiaries, but is the income of the executors though they are bound to apply the income in the due course of administration and that the incidence of tax is much heavier in the case of an assessment on the trustees of the estate holding it for the beneficiaries. Srinivasa Iyengar J. has pointed out that the aforesaid enunciation by Viswanatha Sastri J. was approved by the Supreme Court in Administrator-General of West Bengal for the Estate of Raja P. N. Tagore v. CIT [1965] 56 ITR 34. Srinivasa Iyengar J. has also highlighted the difference in the language of cl. (iv) of s. 160 and that of sub-s. (3) of s. 168 and said that if it was intended that the executors, pending administration of the estate, should be treated in the same manner as trustees, the language of s. 160(iv) would have been employe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no need for a separate provision in regard to executors, as they could have been included in cl. (iv) of s. 160. The purpose of sub-s. (3) of s. 168, appears to me, 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-s. (3) of s. 168, there could be only one assessment under s. 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 distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X
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