1. This is an appeal filed by the revenue against the order of the Commissioner (Appeals), dated 15-6-1983, and it relates to the assessment year 1980-81. The question involved is whether the assessment framed against the Advocate Receiver appointed by the Court for the assessment year 1980-81 is proper and legal or not. The facts leading to the filing of the appeal are as follows: 2. One Shri A. Radhakrishnamurthy, a person who did business in a substantially big way, died on 5-9-1976. He left behind his two daughters: J. Saraswathi Devi and K. Umma Rani. Before his death, Shri A. Radhakrishnamurthy happened to undergo a bad turn in his business and so he was heavily indebted to others. According to his legal representatives, the total debts due by late A. Radhakrishnamurthy amounted to Rs. 4.88 lakhs. The assets held by late A.Radhakrishnamurthy at the time of his death were five items given below: (i) Shri Laxmi Satyanarayana Flour, Rice and Oil Mill, Hanuman Temple Road, Khammam Town, bearing Municipal No. 5-7-91 to 99 (8-15-5) in which he held 35 per cent share.
(ii) House bearing Municipal Door No. 5-7-88 to 91 (8-15-4) situated at Hanuman Temple Road, Khammam.
(v) two plots of agricultural lands each measuring 2 acres and 20 guntas situated at Venkatagiri Road, Khammam.
3. After the death of Shri A. Radhakrishnamurthy, his creditors filed suits in Sub-Court as well as in the District Munsiff's Court, Khammam, for realisation of debts due to them and obtained decrees against his legal representatives--daughters. The full list of 22 suits filed against his legal representatives after his death and the execution petitions, which were also filed for realisation of the decretal amounts, was furnished as Schedule I to this order. As can be seen from the Schedule I, the total or the decree debts obtained against the estate of late A. Radhakrishnamurthy in the hands of his legal representatives-daughters amounted to Rs. 3,66,292.06. In O.S. No. 56 of 1976 on the file of the Sub-Judge, Khammam, which is item No. 4 in Schedule I, a petition numbered as IA No. 708 of 1976 was filed seeking to appoint a receiver for the custody and management of the properties of late A. Radhakrishnamurthy and to credit the realisations to the credit of the suit. The prayer in the petition was granted and one Shri M. Narasimha Rao, Advocate, Khammam, was appointed as the Receiver. He was directed to take possession of the above five items of property belonging to late A. Radhakrishnamurthy, collect rents, issues and profits from immovable properties as well as from tenants and occupiers of the properties and to deposit the net receipts in the Court to the credit of the above suit O.S. No. 56 of 1976 on the file of the Sub-Judge, Khammam. Subsequently, a decree was passed in O.S. No. 56 of 1976 on the file of Sub-Judge, Khammam, and the decree was put in execution in E.P. No. 45 of 1978. In the said E.P. three out of five items of properties left behind by late A. Radhakrishnamurthy, viz., (i) residential house, (ii) rice and oil mill, and (iii) land measuring 2 acres and 20 guntas, were sold by the Receiver, M. Narasimha Rao, advocate, in public auction on 7-10-1979 for a sum of Rs. 3,99,500. The sale was confirmed by the Court on 2-11-1979 as the whole of the amount was realised. The Sub-Court, Khammam, felt that income-tax had to be paid on the resultant capital gains earned on the sale of properties in public auction on 7-10-1979, which was confirmed on 2-11-1979.
Therefore, by its order dated 1-4-1981 in IT Appeal No. 192 of 1980 in E.A. No. 21 of 1980, E.P. No. 45 of 1978 in O.S. No. 56 of 1976 on its file, it had appointed Shri K. Krishnamachari, advocate, to be the Receiver for the purpose of preparing income-tax returns for capital gains and filing them before the ITO and also to make rateable distribution among the creditors excluding the amount claimed by the ITO as well as the Commercial Tax Officer, Khammam, without prejudice to the contentions of the decreeholders in E.A. No. 21 and E.A. No. 22 of 1980.
4. Now coming to the filing of the income-tax returns, etc., the facts are as follows. For the assessment year 1980-81, for which the previous year ended on 31-3-1980, the income-tax return was due on 11-6-1980.
Notice under Section 139(2) of the Income-tax Act, 1961 ('the Act') was served on 12-8-1980 against Shri M. Narasimha Rao, the Advocate-Receiver appointed by Sub-Court, Khammam. Unfortunately, Shri Narasimha Rao died and did not file any returns in pursuance of the said notice. Shri K. Krishnamachari, the Advocate-Receiver, appointed as mentioned above in the previous paras, filed two returns dated 25-6-1981 purported to be on behalf of the two daughters who were the legal representatives of late A. Radhakrishnamurthy. On 7-1-1982, notice under Section 142(1) of the Act was issued to the Advocate-Receiver, Shri K. Krishnamachari, posting the case on 15-1-1982. Again the case was posted to 29-1-1982, on which date the authorised representative of the Receiver, viz., Shri V. Krishnamurthy, appeared and requested for an adjournment till 4-2-1982. On 4-2-1982, a return was filed showing nil income. In the covering letter which accompanied that return, it was mentioned that no income was admitted since two returns were filed on behalf of the legal representatives of late A. Radhakrishnamurthy. The ITO completed the assessment under Section 144, read with Section 168, of the Act by means of his assessment order dated 19-2-1982.
5. According to him, the estate of late A. Radhakrishnamurthy was sold for Rs. 3,99,500 and this sale consideration exceeded the cost of acquisition of those assets and, thus, there was a definite liability to pay capital gains tax. As the liability to pay capital gains arose after his death according to the ITO, the provisions of Section 168 are applicable. It is, therefore, submitted in the covering letter that since the death of late A. Radhakrishnamurthy, the assets and liabilities devolved on his two daughters and they had inherited the properties subject to the discharge of his liabilities. However, this argument did not appear to have appealed to the ITO. He states in his assessment order that since the transfer took place only after the death of late A. Radhakrishnamurthy, capital gains also arose after his death and, accordingly, the assessment should be made only on the executor or administrator and not on the legal representatives.
According to him, the administration of the estate by the Advocate-Receiver commenced from the date of his appointment by the Court as Receiver and it continues to be in force till the estate was completely administered. So long as the administration of the estate is in the hands of the administrator or receiver appointed by the Court, it is he who is liable to income-tax for any income that accrued or arose during the period commencing from the date of death of the deceased to the date of complete administration. The ITO felt that the liability, if at all, of the legal representatives arises only after the complete administration of the estate, if there remains any residuary estate. Ultimately, he had determined the capital gains at Rs. 1,65,810 and completed the assessment against Shri Krishnamachari, the Advocate-Receiver, for the estate of late A. Radhakrishnamurthy.
6. As regards the returns filed on behalf of Smt. J. Saraswati Devi and Smt. K. Umarani, the ITO made separate assessments as a protective measure and he kept the tax demand due in abeyance.
7. Aggrieved against the assessment order dated 19-2-1982, the Receiver, Shri K. Krishnamachari, filed an appeal before the Commissioner (Appeals). It is contended that if at all capital gains are to be assessed, they should be assessed only in the hands of the two daughters of late A. Radhakrishnamurthy who are his legal heirs and who inherited his properties as well as liabilities and the Receiver appointed cannot be taxed for capital gains and the assessment framed against the Receiver computing capital gains in his hands is quite illegal. The learned Commissioner (Appeals), while accepting the argument thus advanced on behalf of the Receiver, held as follows: The income from the estate therefore, belonged to the legal heirs and not to the Receiver. The Receiver was appointed by the Court for the specific purpose of satisfying the claims of the judgment creditors. This was merely an application of income under the court orders; otherwise the title to the properties continued to remain with the legal heirs and it was only for a limited purpose that the Receiver was charged with the duty to realise the estate and to disburse the amounts to the creditors.
It was also contended before the learned Commissioner (Appeals) that whatever income that accrued at the time of the former Receiver (M.Narasimha Rao), was not liable to be assessed in the hands of the present Receiver. Reliance was placed upon the two Allahabad High Court judgments reported in Prem Narain Agarwal v. ITO [1966] 61 ITR 57 and Gauri Shanker Sahi v. State of U.P. [1970] 77 ITR 827. This argument or objection was also upheld by the learned Commissioner (Appeals).
Ultimately, he held that inasmuch as the assessment framed against the Receiver was invalid, the impugned assessment was cancelled. Since he was cancelling the assessment, he refrained himself to deal with other grounds on merit. Thus, he allowed the appeal filed on behalf of the assessee-receiver.
8. Now in the second appeal, the revenue seeks to challenge the correctness and the legality of the impugned orders of the learned Commissioner (Appeals) dated 15-6-1983. Firstly, it is contended that the learned Commissioner (Appeals) erred in holding that Section 168 is not applicable to this case, as he did not properly appreciate the significance of the Explanation to Section 168. It is further contended that the learned Commissioner (Appeals) erred in holding that the assessment made on Shri Krishnamachari, Receiver, was invalid because the initial notice under Section 139(2) was issued to the earlier Receiver, Shri M. Narasimha Rao. It is submitted that the personality of the Receiver is immaterial and he is only a holder of office.
Therefore, it is said that the observations of the learned Commissioner (Appeals) in para 3 of the impugned orders are erroneous. Ultimately, it is prayed that the impugned order may be set aside and the order of the ITO be restored.
9. We have heard Shri C. Satyanarayana, the learned senior departmental representative, and Shri M. Anandam, the learned Counsel for the assessee. On behalf of the assessee, a paper book was filed. We will be adverting to it as and when the occasion arises in this order. After hearing both sides, we are of the firm opinion that the revenue's appeal is ill-conceived and is liable to be dismissed for the following reasons.
10. The deceased, A. Radhakrishnamurthy, died leaving behind two daughters, some properties as well as debts. Admittedly, he died intestate. Immediately after his death, his daughters being his Class I heirs inherited his properties with the obligation to discharge the debts due from him. Unlike in the case of the sons, the daughters have no pious obligation to pay the debts of their father. The necessary corollary of this position is that the daughters would be liable to discharge the debts of the father only to the extent of the value of the assets inherited by them through their father. There is no question of any executor administering the estate of the deceased. The question of an executor administering the estate of deceased person would arise only if such an executor was appointed by the terms of a will left behind by the deceased by which the testator ordained the executor to take over his properties, administer them and to discharge the debts due from him. In this it is pertinent to note the wordings of Section 168, which is as follows: (1) Subject as hereinafter provided, the income of the estate of a deceased person shall be chargeable to tax in the hands of the executor,-- (a) if there 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.
Explanation: In this section, 'executor' includes an administrator or other person administering the estate of a deceased person.
As can be seen from Sub-section (3) of Section 168, the property of the deceased should be assessed only for the period which commenced from the date of the death to the date of complete distribution to the beneficiaries of the estate according to their several interests. This position presupposes the necessity of an executor to distribute the assets of the deceased according to the proportion in which they were asked to be distributed among the beneficiaries by the deceased in his will. Once there is no will, there is no question of an executor appointed to the estate of the deceased. It is no doubt true that in the Explanation to Section 168, the word 'executor' includes the administrator or other person administering the estate of the deceased person. Now the question is whether the Receiver, while taking possession of the estate of late A. Radhakrishnamurthy or while conducting auction of some of the items constituting the estate of late A. Radhakrishnamurthy, acted as a person administering the estate of the deceased person. In our considered opinion, once A.Radhakrishnamurthy died, his properties were inherited by his two daughters. No suits were filed during the lifetime of late A.Radhakrishnamurthy and all of them were filed only against his legal representatives. It is not disputed that the decrees in the suits mentioned in Schedule I hereto attached were obtained against the legal representatives of late A. Radhakrishnamurthy but were not obtained during the lifetime of late A. Radhakrishnamurthy. Therefore, the liability of the legal representatives would extend only up to the assets of the deceased held by her [see Section 52 of the Code of Civil Procedure, 1908]. Simply because some suits were filed against legal representatives, that by itself does not prevent the succession of the assets by the legal representatives of late A. Radhakrishnamurthy.
There cannot be any vacuum in the case of devolution. In our case the devolution cannot be kept in abeyance from the date of death of late A.Radhakrishnamurthy till the date of obtaining decrees by his several creditors. Further, all the creditors are only simple money-creditors but did not acquire any right or interest whatsoever in the properties held by A. Radhakrishnamurthy prior to his death. Therefore, as all the creditors filed the suits making the two daughters of A.Radhakrishnamurthy as defendants and as all the decrees were obtained only against the estate of A. Radhakrishnamurthy in the hands of the two daughters and as Shri M. Narasimha Rao, Receiver, was appointed only to take possession of the properties, realise the benefits and to deposit the net profits, thus, derived by him into Court in O.S. No. 56 of 1976, Sub-Court, Khammam, it cannot be said that the said Receiver, Shri M. Narasimha Rao, was in any way administering the estate of the deceased person. It was neither the scope of the suit nor the warrant of the appointment of the Receiver admit of any such interpretation.
Copy of the petition in LA. No. 708 of 1976 in O.S. No. 56 of 1976 on the file of Sub-Court, Khammam, in which Shri M. Narasimha Rao, advocate, was appointed as Receiver, was furnished in the paper compilation filed before us. The warrant of appointment of the Receiver was also filed. After going through the petition as well as warrant of appointment, we feel that we are fully justified in our above conclusion. From all the above, we hold that there is no justification at all to treat either Shri M. Narasimha Rao, Advocate-Receiver or Shri K. Krishnamachari, Advocate-Receiver, as persons administering the estate of the deceased within the meaning of Section 168. Once Section 168 is misapplied to the facts of the case, the conclusion that the assessment framed against one of such receivers is ill-conceived and illegal is unavoidable. In view of our above conclusion, we deliberately refrain ourselves to give our verdict on the question whether an assessment can be made against a succeeding receiver when notice under Section 139(2) was issued against his predecessor in office.