1963 (12) TMI 42 - HC - Income Tax

Summary

Issues:
Assessment of income-tax on the Manager of Court of Wards for the Bettiah Estate for the assessment year 1956-57, based on the claim of escheat by the State of Bihar under article 296 of the Constitution.

Analysis:
The case involved the assessment of income-tax for the financial year 1955-56 on the Manager of the Court of Wards for the Bettiah Estate following the death of Maharani Janki Kuer. The Government claimed that the estate vested in the State Government by escheat under article 296 of the Constitution. However, the income-tax authorities proceeded with the assessment on the basis of a pending suit filed by Suresh Nandan Sinha claiming to be the nearest heir of Maharani Saheba. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal confirmed the assessment, emphasizing the indeterminate nature of the heirship and the lack of conclusive evidence regarding escheat to the State.

The Appellate Tribunal referred two questions of law to the High Court regarding the assessment: firstly, whether the assessment on the Manager of Court of Wards was valid, and secondly, if the income was chargeable to tax at maximum rates under section 41(1) of the Income-tax Act. The Manager contended that the assessment was illegal as the claim of escheat by the State of Bihar under article 296 of the Constitution rendered the income exempt from taxation under article 289 of the Constitution.

The High Court held that the income-tax authorities cannot impose tax without deciding the claim of escheat made by the State of Bihar under article 296 of the Constitution. It was deemed illegal to assess the Manager without establishing the validity of the escheat claim, especially in light of the pending title suit regarding heirship. The High Court ruled in favor of the assessee, declaring the assessment to be illegal based on the lack of conclusive determination regarding escheat.

The High Court deemed the second question referred by the Appellate Tribunal as academic and unnecessary to answer. It was suggested that the income-tax authorities should either independently decide on the escheat claim or await the outcome of the pending title suit before proceeding with any assessment. No costs were awarded in relation to the reference made to the High Court, leaving the decision on further actions regarding the assessment to the income-tax authorities.