U.N. Bhachawat, J.
1. This is a reference under Section 256(1) of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), referring the following question for answer to this court, at the instance of the assessee.
'Whether the Tribunal was correct in law in holding that notwithstanding the status of the assessees being an AOP they were entitled to claim set-off on account of the balance of brought forward capital losses incurred by the deceased prior to his death during the accounting year in question ?'
2. The material facts giving rise to the present reference are these:
3. The relevant assessment year is 1974-75. The accounting year for the assessment year is the year ending on 31st March, 1974. One R. C. Jall, who was an assessee, died on 17th December, 1973, that is, during the accounting year in question. Two separate assessments were made for this accounting year in question: one regarding the income for the period April 1, 1973, to December 17, 1973, that is up to the death of late Shri R. C. Jall in the status of an individual; second, for the period December 15, 1973, to March 31, 1974, which is the period relevant for consideration.
4. The assessees are the executors of the will of the late Shri R. C. Jall; for the accounting period December 18, 1973, to March 31, 1974, they had filed the return in the status of individual which was not accepted in view of the provisions contained in Section 168(1)(b) of the Act and they were assessed in the status of an AOP. In the computation for this period the lTO found that the assessees, the executors, had sold foreign shares for Rs. 3,35,325 which eventually resulted in long-term capital gains to the extent of Rs. 1,04,385. The assessees, however, claimed a set-off, on account of the brought forward capital loss against these gains. This claim for set-off was disallowed by the ITO on the ground that the present assessment was on an AOP whereas the capital loss was suffered by the deceased who was an individual and thus the two were distinct entities, namely, AOP and individual. This order of the ITO was confirmed in appeal before the AAC. In the second appeal before the Tribunal, it was contended on behalf of the assessee that what was being assessed was only the estate of the deceased and not the executors personally. It was only for statistical purposes that the executors of the estate were to be assessed as an AOP, and, therefore, the claim for set-off could not be negatived by treating the assessees as a different entity. This argument found favour with the Tribunal. It held that the claim for set-off could not be rejected on the ground that the executors who were assessed as an AOP were a different entity; it set aside this view of the authorities below, but held that whether in their assessment the assessees were entitled to the set-off would depend on the finding whether the several conditions enumerated in Section 72 of the Act are fulfilled or not. With these observations, the Tribunal partly allowed the appeal.
5. The learned counsel for the department submitted that on the death of the assessee there are two distinct provisions in the Act regarding the assessment of his income, one Section 159 and the other Section 168. He submitted that for the same accounting year in which the deceased died up to the date of death Section 159 applies and for the remaining period of the accounting year Section 168 applies and that the assessment is made in two distinct status is indicative of the intention of the Legislature that the two are to be treated as distinct entities and, therefore, the setting off of the gain of one against the loss of the other cannot be permitted. He relied on the following commentary of the author of the book, Kanga and Palkhivala's The Law and Practice of Income Tax, 7th Edn., Vol. 1 (hereinafter referred to as 'the said book'), at page 944, under the caption 'Income of deceased till date of death and income of estate after that date' :
'In the light of that, Section 159 should be construed as applying in respect of the income of the deceased only up to the date of his death and not up to the end of the accounting year in which the death occurs. Theincome of the estate for the period from the date of death up to the end of the accounting year in which the death occurs should be assessed under Section 168 . Thus, in respect of the year of death two separate and distinct assessments would have to be made, one on the legal representatives under Section 159 in respect of the income of the deceased up to the date of death, and the other on the 'executors' under Section 168 in respect of the income of the estate for the rest of the year. This may result in lowering the rate and incidence of tax for the year. This position would not be affected by the fact that the legal representatives assessable under Section 159 may be the same individuals who are assessable as executors tinder Section 168. Assessments for the years subsequent to the year of death should be made on the executors till the administration of the estate is completed' [Section 168(3)].
6. The argument of the learned counsel for the assessee in counter was that the executors are also the legal representatives of the deceased, Section 159 and Section 168 are merely machinery sections, the ultimate burden of the tax assessed is on the estate of the deceased, when the assessment is made following the mechanism provided under Section 159 of the Act and also when the assessment is made following the mechanism provided in Section 168 of the Act. He argued that both the sections provide the mechanism for assessment on the legal representatives of the deceased. He argued that in such a setting of the legal position the question of there being two distinct entities does not arise and the view taken by the Tribunal was right.
7. It may be stated that the learned counsel for the parties were unable to cite any authority in respect of their rival contentions and were fair enough; at the same time in conceding that despite diligent search they were not able to lay their hands on any reported case, one way or the other bearing on the point in issue. The learned counsel for the department argued that albeit the commentary referred to by him and quoted by us in para. 5 of this order directly did not relate to the question at hand, yet it lent weight to his contention somewhat indirectly.
8. We shall first refer to the definition of 'legal representative '. In this Act, the definition under Section 2(29) says : 'The expression legal representative has the meaning assigned to it as in the Code of Civil Procedure.' Section 2(11) of the Code runs as follows :
' 'Legal representative' means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased and. where a party sues or is sued in a representative character the person on whom the estate devolves on the death of the party so suing or sued. '
9. This enlarged definition of ' legal representative ' clasps persons such as executors or administrators who represent the estate of the deceased.
10. Section 159(1) of the Act says 'where a person dies, his legal representative shall be liable to pay any sum which the deceased would have been liable to pay if he had not died, in the like manner and to the same extent as the deceased ' ; and then Section 159(6) of the Act says : ' the liability of a legal representative under this section shall, subject to the provisions of Sub-section (4) and Sub-section (5), be limited to the extent to which the estate is capable of meeting the liability. '
11. It would be pertinent here to point out that the word 'estate' in Section 159(6) of the Act includes income accruing after death from the corpus left by the deceased. This is the view taken by the Allahabad High Court in Ram Lakhan v. ITO : [1963]47ITR311(All) . It may be mentioned that Section 24B of the Indian I.T. Act, 1922, corresponded to Section 159 of the present Act. Further, by virtue of Section 159(5) of the Act, the provisions of Sections 161(2), 162 and 167 of the Act have been made applicable so far as may be and to the extent to which they are not inconsistent with the provisions of Section 159 in relation to a legal representative.
12. We now turn to Section 168 of the Act. In the very opening, Section 168(1) of the Act provides that the income of the estate of a deceased person shall be chargeable to tax in the hands of the executor. Further, Section 168(2) of the Act provides that 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.
13. Then, by virtue of Section 169 of the Act, the provisions of Section 162 have been made applicable in the case of an executor in respect of tax paid or payable by him as they apply in the case of a representative assessee.
14. This Section 162 of the Act extends to every representative assessee the right to retain out of moneys in his possession, in his representative capacity, an amount equal to any sum paid or payable by him under the Act or to recover the amount paid from the person beneficially entitled to the income. 'A similar right, as already discussed hereinabove, is conferred on a legal representative by virtue of Section 159(5) of the Act and on executors, administrators and other persons administering the estate of a deceased person by virtue of Section 169 of the Act.
15. It is also of significant relevance to point out that as provided in Section 168(1) of the Act for the purposes of the 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.
16. Here, we would recall Section 169 of the Act by virtue of which the executor is equated to a representative assessee to attract the applicability of Section 162 of the Act which gives the right to a representative assessee to recover the tax paid as already discussed in para. 12 of this order. Thus, Section 161(1) of the Act, which contains general provisions relating to a representative assessee has also a material bearing on the question to be answered. This Section 161 of the Act says that although the representative assessee shall be subject to the same duties, responsibilities and liabilities, as if the income were his income received by or accruing to or in favour of him beneficially and shall be liable to assessment in his own name in respect of that income, yet any such assessment shall be deemed to have been made in his representative capacity only, and the tax shall be, subject to the other provisions contained in Chap. XIV in which this section as well as Section 159 and Section 168 appear, levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him. It is true that in the case of representative assessees they take their status from the beneficiaries they represent and it is wholly immaterial whether there is one representative assessee or there are two or more of them representing the same beneficial interest or interests whereas in the case of an executor under Section 168 of the Act if there is only one executor, he will be assessed as if the executor were an individual or if there are more executors than one, then, as if the executors were an association of persons. But this difference is of no consequence as, all the same, the assessee or assessees are assessed as representing the estate of the deceased.
17. The upshot of the foregoing discussion is that both Sections 159 and 168 of the Act deal with assessment on legal representatives. Section 159 of the Act is meant to enable the revenue to make an assessment on the legal representative in respect of the income which accrued to or was received by the deceased. Section 168 of the Act '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. Though the assessment is of the executor or executors, as the case may be, for all practical purposes, it is the assessment of the deceased. It is pertinent to recall the expression in Section 168(1) that ' the income of the estate of a deceased person shall be chargeable to tax in the hands of the executor'. An executor or executors, as the case may be, who is accountable for the assessment to the I.T. authorities for payment of income-tax, does not pay such tax out of his personal property. The incidence of tax is on the estate of the deceased. The assessment is either on the deceased or the actual beneficiaries and even in the case of assessment according to the procedure under Section 159 of the Act the incidence of tax is on the estate. In such a situation due to the corelation of Section 159 and Section 168 of the Act, the two separate assessments for the same year would not make the assessees to be two distinct entities. The argument of the learned counsel for the department that the assessment till the date of death was in individual status and, thereafter, in the status of an AOP, makes the two assessees distinct entities cannot be accepted, for the reasons already discussed above and on the facts and circumstances. It would also be relevant to point out that as per Section 168(1)(a) of the Act had there been only one executor, the assessment would have been 'as if the executor were an individual'. It is, therefore, only for statistical purposes that the executors of the estate of the deceased are assessed as AOP; otherwise, as already stated, for the purpose of rates, etc., the assessment has to be deemed to be on the assessee or the actual beneficiaries.
18. In the result, we answer the question in the affirmative, that is, in favour of the assessee and against the department. We make no order as to costs.