1. In this appeal by the Department, the following grounds have been taken : "(1). On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that provisions of s. 176(4) of the IT Act are not applicable to the facts of the case and thereby erred in deleting the addition made by the AO of Rs. 1,10,856 which was received as per cl. 14(a) of the partnership deed by the legal heirs of the assessee on his retirement and subsequent death.
(2). On the facts and in the circumstances of the case and in law, the learned CIT(A) failed to take cognisance of the decision in the case of CIT vs. Vishwanath Shastri's Estate (1980) 121 ITR 270 (Mad) relied by the AO in the assessment for invoking provisions of s.
176(4) of the IT Act, and treating the executors as recipient thereof within the meaning of s. 176(4) and thereby erred in deleting the addition made by AO under s. 176(4) holding that the amount received by the executors vide cl. 14(a) of the partnership deed, dt. 15th March, 1982, is a capital receipt." 2. Mr. Kaikhushroo Engineer, who passed away on 29th February, 1988, was a chartered accountant. He was a partner in M/s. Sorab S. Engineer & Co., a firm of chartered accountants. He retired from the said firm w.e.f. 1st January, 1985. In respect of fees received from the firm after the said date, as per cl. 14(a) of the deed of partnership, and during his lifetime, he was assessed to income-tax. He died on 29th February, 1988. For the year ended 31st March, 1990 (asst. yr.
1990-91), which is the year in appeal, his legal heirs received a sum of Rs. 1,10,856 from the firm as per cl. 14(a) of the partnership deed.
In the return filed, exemption from income-tax was claimed in respect of the aforesaid receipt on the ground that it was a capital receipt, relying on the judgment of the Bombay High Court in CIT vs. Late F.Summersgill (1977) 112 ITR 617 (Bom). The AO negatived the claim holding that in the asst. yr. 1989-90 (previous year 1st March, 1988 to 31st January, 1989), a similar claim was wrongly accepted under s.
143(1)(a) to rectify which action was being taken under s. 147. He further held that after the death of the assessee, the provisions of s.
168 came into play and if those provisions are applied the executors have to be assessed till the administration of the estate is complete and under those provisions any income accruing to the legal representative must be brought to tax-in his hands since the estate vests in him and that these provisions are mandatory. According to him, as per the decision of the Madras High Court in the case of Estate of Late Viswanatha Sastri (supra), the executor may be taxed as "the recipient" of the income under s. 176(4) and this decision squarely applied to the present case. He sought to distinguish the judgment of the Bombay High Court (supra) cited on behalf of the assessee holding that the facts are different in that case.
3. In this view of the matter he included the sum of Rs. 1,10,856 in the assessment under the head "other sources".
4. An appeal was taken to the CIT(A) against the decision of the AO.The CIT(A) was of the view that the amount received by late Mr.
Engineer under cl. 14(a) of the partnership deed represented a capital receipt in the hands of the legal heirs, that the judgment of the Bombay High Court applied, that the executors were not carrying on any profit-earning activity, that they merely collected the amounts due to the estate of late Mr. Engineer and that the provisions of s. 176(4) were not attracted since they spoke of a "discontinued" profession whereas in the present case the profession was very much in existence.
He, therefore, deleted the amount from the assessment.
5. It is the correctness of the decision of the CIT(A) that is called in question before us at the instance of the Revenue.
6. On behalf of the Department, it was mainly contended that s. 176(4) (sic) the assessment, that the amounts paid by the firm were not part of any (sic) on retirement of late Mr. Engineer, that they were amounts paid over and above the same, that even under cl. 14(a) of the partnership deed, the amounts fell to be assessed as assessee's income and that at any rate, the decision of the Madras High Court (supra) supported the decision of the AO to tax the amount and, therefore, the order of the CIT(A) must be reversed.
7. Mr. Dastur, learned counsel for the assessee, however says that firstly, the matter is concluded in his favour by the judgment of the Bombay High Court in Late Summersgill's case (supra) and, therefore, the receipt is a capital receipt. As regards the applicability of s.
176(4), his argument is that the provision admits of only an one time application and cannot be repeatedly invoked if there is only one discontinuance of one profession, that in this case, the discontinuance was on account of Mr. Engineer's retirement from the firm on 1st January, 1983, that it cannot be said that there was again a discontinuance of the profession when Mr. Engineer passed away on 29th February, 1988, and that after the death of Mr. Engineer, the recipient of the amounts under cl. 14(a) of the partnership deed is different.
8. Mr. Dastur then proceeded to contend that even if it is held, (disagreeing with his contention that s. 176(4) is of one-time application and had worked itself out in respect of amounts received by the assessee, when he was alive, after retirement from the firm and upto the date of his death and hence cannot be invoked again after his death) that s. 176(4) can be invoked again on Mr. Engineer's death, still the provisions cannot be applied because it does not specify the head under which the receipts are to be taxed. He cited the judgment of the Calcutta High Court in the case of CIT vs. R. M. Dutta (1989) 180 ITR 86 (Cal) and the decision of the Supreme Court in N. A. Mody vs. S.A. L. Narayana Row, CIT (1966) 61 ITR 428 (SC) in support of his contention that in the absence of a specific head of income under which the receipts are to be taxed under s. 176(4), the charge has to fail.
9. Coming to the judgment of the Madras High Court (supra) relied on by the AO and the learned Departmental Representative before us, Mr.
Dastur says that, that was not a case of retirement following death, that it was a case of discontinuance on death which is not the case before us and, therefore, the argument that s. 176(4) is not applicable was not available to the assessee in that case and that at any rate, the judgment of the Calcutta High Court in Mrs. Roma Bose vs. ITO (1974) 95 ITR 279 (Cal) which was relied upon by the Madras High Court having been dissented from by the Bombay High Court in CIT vs. T. P.Sidhwa (1982)133 ITR 840 (Bom) it is not open to the IT authorities to apply the same to support the assessment.
10. In reply, the learned Departmental Representative pointed out that the assessee has accepted the applicability of s. 176(4) by paying taxes upto the asst. yr. 1989-90 and this position cannot be permitted to be upset by taking a contrary stand for the year under appeal, having regard to the judgment of the Supreme Court in the case of Radhasoami Satsang Sabha vs. CIT (1992) 193 ITR 321 (SC). He also drew upon the analogy of s. 41(1)(b) and submitted that the amount was rightly taxed by the AO.11. Taking the preliminary point raised by the learned Departmental Representative first, we find ourselves unable to accept the contention that having courted assessments earlier on the receipts under cl. 14(a) of the partnership deed it is not open to resile from that position and challenge the assessment for a later year. A receipt cannot be taxed merely because the assessee has offered the same for assessment without question or that he has not challenged the assessment in earlier years in appeal. If assessability of a receipt is to depend upon the conduct of parties in filing returns of income, then equally it may be said that if a sum is excluded from the return, the same cannot be taxed.
Taxability does not depend upon what view the parties may take with regard to their rights, but depends on the true position in law CIT vs.
C. Parakh & Co. (1956) 29 ITR 661 (SC). If a sum is in law taxable as income, the fact that the assessee or even the ITO takes a different view would not matter. Conversely, if a sum in law cannot be taxed, it cannot be brought to tax merely because in the earlier years it was taxed without demur. It is open to the assessee in a later year, on becoming aware of his rights and also the true legal position, to question the assessment of the receipt. It has been held in CIT vs.
Bharat General Insurance Co. Ltd. (1971) 81 ITR 303 (Del) that where the assessee included dividend income in the return, but later challenged the validity of taxing the same in the year in question, it must be taken that the assessee had resiled from the position it had erroneously taken while filing the return. In Asit Kumar Ghose vs.
Commr. of Agrl. IT (1952) 22 ITR 177 (Cal) the Calcutta High Court held that if an assessee should file a return or intervene in the assessment proceeding against an executor of an estate under an impression that he is liable to be charged as beneficiary of the estate, he could, if he is in law not liable, appeal in proper time against the order of assessment. The ratio of the judgment of the Supreme Court cited by the learned Departmental Representative is confined to cases where certain fundamental issues or facts, such as the validity of a trust or partnership, have been accepted in prior years without challenge by both the sides, and assessments have been permitted to be made on that basis. It is then not open to the parties in later years to unsettle such settled issues. This decision has no application to a case such as the present one, where the amounts were offered to tax earlier and similar amounts are claimed to be tax-exempt in a later year on the basis of certain legal principles. We, therefore, reject the preliminary point raised by the learned Departmental Representative.
12. So far as Mr. Dastur's first argument that the receipt is capital in the hands of the legal heirs is concerned, it is necessary to briefly notice the facts in the decision which he cited [Late F.Summersgill (supra)]. There, the case arose under the 1922 Act for the asst. yr. 1958-59. The assessees were the executors of the estate of Late Frank Summersgill. Regenold Mathalane and K. V. Parekh were appointed as the executors under the will. The deceased was to act as a life director for a company. As per the agreement, upon termination thereof, Summersgill or his legal heirs or executors were entitled to a proportionate part of his salary upto the date of his termination and to a commission at the prescribed rate in respect of sales effected by the company on all business booked for a period of one year thereafter.
Summersgill died on 20th March, 1956 and a sum of Rs. 41,471 representing the commission as above was received by the executors appointed under his will. The amount was included in the assessment of the executors under the will, for the asst. yr. 1958-59, on the ground that it belonged to the estate of Summersgill. The AAC and the Tribunal held that the amount was essentially a capital receipt. On a reference to the Bombay High Court, it was held that the commission was paid by the company to the executors in recognition or for consideration for services which the deceased had rendered to the company before he died.
It was held further that the amount was not referable to any activity for profit undertaken by the executors. Estate duty had been paid on the commission amount on the basis that it was includible in the principal value of the estate passing on the death of the deceased.
Having regard to these aspects, the Hon'ble High Court held that the amount would have to be regarded as a capital receipt and was not assessable in the hands of the executor as their income for the relevant assessment year. It is to be noted that this decision was rendered under the 1922 Act, where there was no express provision corresponding to s. 168 of the 1961 Act. However, the income of the estate of a deceased person was held liable to income-tax under the general charging provisions of that Act, in the hands of the executors or administrators in whom the estate vested. Under s. 168 of the new Act, the subject-matter of assessment is the "income" of the estate of a deceased person and the same shall be chargeable to tax in the hands of the executor or executors. Both under the old Act as well as under s. 168 of the new Act, a distinction was maintained between the "estate of a deceased person" and the "income" of the estate of a deceased person. Under both the enactments it was only the income arising to the estate that was chargeable to tax in the hands of the executor or executors. It follows, therefore, that if an amount is not in the nature of income but was in the nature of capital and was properly to be considered as part of the estate itself, it is not taxable in the hands of the executors. This position has not undergone any change despite the introduction of a specific provision viz., s. 168 in the new Act. Therefore, in an assessment which is sought to be made upon the estate of a deceased person under the provisions of s. 168 of the present Act, it would still be a proper enquiry as to whether the amount sought to be included in the assessment represents income or is received as part of estate itself. Therefore, notwithstanding the fact that the judgment of the Hon'ble Bombay High Court was rendered under the 1922 Act, in respect of an assessment of the estate of a deceased person, still the ratio of the judgment would be applicable to a case arising under s. 168 of the new Act. It would, therefore, be proper and necessary for us to examine the question whether the arrears of fees due to late K. S. Engineer and received by the executrix, viz., his wife, after his death on 29th February, 1988, is to be treated as income of the estate or as part of the estate itself. It is now necessary to extract cl. 14(a) of the deed of partnership : "14. (a) In consideration of the work already put in by Kalkhushroo in respect of which fees would be received after the end of the accounting year in which he shall retire or die, and in further consideration of the said Kaikhushroo agreeing to render after his retirement such further professional services and assistance as may be required by the firm of Sorab S. Engineer & Co., then there shall be paid to him upon retirement or to his heirs after his demise as hereinafter mentioned and the amount so paid would constitute a charge on the profits of the continuing firm and that charge would have to be satisfied first before arriving at the distributable profits of the continuing firm to be divided between the partners of the continuing firm, viz : On retirement of Kalkhushroo from the firm and after such retirement coming into effect and in the event of his demise thereafter his legal representatives or his heirs, and in the event of demise of Kaikhushroo whilst he is a partner his legal representatives or heirs shall be paid for each of the eight accounting years immediately following the end of the accounting year in which Kalkhushroo has retired or died, such a fraction of the gross fees received by the firm for each of the said eight accounting years as is equivalent to 1/9th (one-ninth) of Kalkhushroo's profit-sharing ratio at the time of his retirement or death." 13. A perusal of the aforesaid clause shows that even after the retirement from the firm, Mr. Engineer was rendering certain professional services and assistance as may be required by the firm in respect of which he was to be paid certain fees. It cannot be disputed that the amount of Rs. 1,10,856 remained to be paid to Mr. Engineer at the time of his death and that the same was paid to the executrix after the death and during the previous year ended 31st March, 1990. Thus, on the date on which at the time when Mr. Engineer passed away, which is 29th February, 1988, the amount was due to him and a debt was created in his favour. Thus, the amount became part of his estate which he was capable of disposing of by will. If that is the position, the receipt of the aforesaid amount by the executrix after the death of Mr.
Engineer cannot be considered to be the income of the estate because what constituted part of the estate can never be considered later as the income thereof. In the case before the Bombay High Court, there was a litigation amongst the heirs of late Summersgill and in that litigation, the Court had ruled that the commission due to him shall belong to the estate of late Summersgill to be administered by the executors under the will left by him. It was, therefore, held by the Bombay High Court that the amount formed part of the estate of late Summersgill which came to the hands of the executors and, therefore, the amount could by no stretch of imagination, be regarded as income received by the executors. In the present case though there is no reference to any separate ruling by any Court to the effect that the amount payable under cl. 14(a) of the partnership deed would form part of the estate of late K. S. Engineer, under general principles it cannot be disputed that whenever a man dies possessed of becomes part of his estate. The fact that in the hands of Summersgill, estate duty had been paid in respect of commission due to him on the footing that it was includble in the principal value of the estate should not make any difference to the position that the amounts due to late K. S.Engineer under cl. 14(a) of the partnership deed, would form part of the estate left behind by him merely because there is no estate duty assessment on the death of Mr. Engineer. The Estate Duty Act was abolished in 1985 and since Mr. Engineer passed away in 1988, there was no question of any estate duty assessment on his death. We are, therefore, of the opinion that Mr. Dastur's first argument that the amount received by the executrix of Mr. Engineer represented capital receipt and not income is well founded and requires to be accepted.
14. On this aspect of the matter, we also notice that the decision of the Madras High Court in the case of The Estate of late A. V.Viswanatha Sastri (supra) on which reliance has been placed by the AO for an entirely different purpose supports the argument of Mr. Dastur.
In this case also, certain fees due to late Shri Viswanatha Sastri, who was a senior advocate practising in the Supreme Court and who died on 4th January, 1966, were received by his son Shri V. Ratnam (who later became Justice Ratnam of the Madras High Court and still later, the Chief Justice of the Himachal Pradesh High Court from where he retired) who was appointed as the executor under a will left by the deceased.
One of the contentions taken by the assessee before the AO and reiterated even before the Tribunal and accepted by it, was that the arrears of professional fees cannot be treated as income from the estate of the deceased. When the matter reached the High Court, at the instance of the Revenue, it was held by the High Court (at p. 277 of the report) as under : "As per this section, the income of the estate of the deceased shall be chargeable to tax in the hands of the executor. However, we are inclined to agree with the Tribunal that the arrears of professional fees cannot be treated as income from the estate of the deceased.
The legal fees due to the deceased as on the date of his death is admittedly one of the assets left by the deceased and, therefore, it will become part of the estate of the deceased. We do not see how a part of the estate can be treated as income of the estate. As per language used in s. 168, income of the estate of a deceased person alone is chargeable to income-tax in the hands of the executor, and not the estate of the deceased. The legal fees due to the deceased on the date of his death will be part of his estate and that will probably be taken into account for the purpose of assessment of estate duty. We are, therefore, of the view that on the language of s. 168, the arrears of fees, which cannot be taken to be the income of the estate, cannot be brought to charge under s. 168." 15. It is noteworthy that the Madras High Court took the aforesaid view through from the report it appears that the judgment of the Hon'ble Bombay High Court in the case of Summersgill (supra) had not been cited before. Thus, we have two judgments on the question including one of the jurisdictional High Court. We are, therefore, of the opinion that the first argument of Mr. Dastur to the effect that the sum of Rs. 1,10,856 is a capital receipt and cannot be treated as income of the estate of late K. S. Engineer is well founded and requires to be accepted. We do so.
16. Before we take up the other points raised by Mr. Dastur, we think it would be proper to note certain aspects of the matter which have struck us on a closer examination thereof. As already noted, there was no express provision in the 1922 Act corresponding to s. 168 of the new Act, which brings to tax the income of the estate of a deceased person in the hands of the executor or executors. The assessee before us is the estate of late K. S. Engineer. The assessment has been made by the AO specifically referring to and invoking the provisions of s. 168, which he has rightly described as mandatory. The AO has also brought into play the provisions of s. 176(4). In order to assess the fees in the hands of the recipient and for this purpose has relied upon the judgment of the Madras High Court in the case of Estate of late Viswanatha Sastri (supra). Sec. 176(4) which found a place in the 1961 Act, reads as under : "176(4) Where any profession is discontinued in any year on account of cessation of the profession by, or the retirement or death of, the person carrying on the profession, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the aforesaid person had it been received before such discontinuance." 17. Sec. 176 appears under Chapter XV under the heading "L - Discontinuance of business, or dissolution". This sub-section brings to charge any sum received after the discontinuance of a profession in the hands of the recipient. A fiction is created in the section deeming the receipt to be the income of the recipient. The receipt is to be charged in the year of receipt. The provision also says that such receipt would be charged to tax in the hands of the recipient if it would have been included in the total income of the person who has retired from the profession or who has died, had it been received before the discontinuance of the profession by the retirement or death. It will be seen that this sub-section postulates two modes of discontinuance or cessation of the profession - (i) by the retirement, (ii) by death. If because of the retirement or death of the person who is practising a profession, the profession gets discontinued or ceases and thereafter any sum is received with respect to the erstwhile profession it would be charged to tax in the hands of the recipient in the year of receipt.
In the case of discontinuance by reason of retirement, normally there would be no difficulty since the person is alive though not carrying on the profession and whenever any sum referable to the erstwhile profession is received by him, the same can be taxed in the year of receipt. In the case of death, the person who was carrying on the profession would no longer be alive to be taxed. His legal representatives or legal heirs or executors would normally be the persons who receive any sums referable to the profession practised by the deceased and such sums would be taxable in their hands in the year of receipt. The condition is that such sums should have been taxable in the hands of the deceased himself, had he been alive. Implicit in this is the further condition that the sums so received after the death of the person must be of income nature. If they are of capital nature, they could not have been taxed even in the hands of the deceased, if he were to be alive. This is because of the general principle that the subject-matter of the IT Act is income and not capital. This general principle does not admit of any exception.
18. Now, there is a striking difference between the provisions of s.
168 and s. 176(4), s. 168 is concerned with the assessment of the income of the estate of a deceased person, whereas s. 176(4) is not so concerned. In s. 168, the subject-matter of tax is the income arising to the estate as such, whereas in s. 176(4) the subject-matter is the sum received by the recipient. Under s. 168, the income of the estate of a deceased person is brought to assessment in the hands of the executor or executors, whereas the recipient of the sum contemplated under s. 176(4) need not necessarily be the executor or executors and may be different. Take the case of a chartered accountant who provides in the will that the fees due to him from a company for audit work shall be paid to his nephew. In this case, when the fees are received by his nephew, they will be taxed in his hands as recipient though the chartered accountant might have appointed his wife as the executrix of his will. If in this case, the chartered accountant had appointed his nephew as the executor of his will, the recipient and the executor will be the same person. The consequences of the recipient and the executor being one and the same person may be noticed a little later.
19. Having thus briefly noted the difference between s. 168 and s.
176(4), we may now proceed to notice the facts of the case before us as can be gathered from the record. Mr. Engineer passed away on 29th February, 1988. It is not clear whether there was a will but this much is clear that his wife has been acting as the executrix of the estate.
The return filed in respect of the estate of late K. S. Engineer on 18th June, 1990, disclosed income of Rs. 4,877 under the head "other sources". The arrears of fees of Rs. 1,10,856 received during the previous year was claimed to be exempt on the ground that it is a capital receipt but the claim was negatived by the AO who relied on the provisions of s. 168 and s. 176(4) of the Act as well as on the judgment of the Madras High Court in the case of Estate of Late Viswanatha Sastri (supra). The amount was brought to tax as income from "other sources" as we see from the assessment order.
20. We are of the view that the AO has misunderstood and misapplied the provisions of s. 176(4) to include the aforesaid amount in the present assessment. We have already seen and it is worth repeating that the assessment before is that of the estate of late K. S. Engineer, which has been rightly assessed under s. 168 of the Act. There appears to be only one executrix and that is his wife. The status is described as individual. The AO was not justified in including the aforesaid amount in the assessment of the estate. According to s. 176(4), the amount ought to have been included in the hands of the recipient, whoever he or she is, and cannot be included as income of the estate. It may be that the recipient happens to be the wife of late Mr. K. S. Engineer, who is also the executrix of the estate. That does not, however, authorise the AO to include the amount in the assessment of the estate which is an entirely different assessee. The reliance placed by the AO, as well as the learned Departmental Representative before us on the judgment of the Madras High Court in the case of The Estate of Late Viswanatha Sastri (supra) is wholly misconceived. In order to support this conclusion of ours, it is necessary for us to closely examine the judgment. As already noted, Mr. Viswanatha Sastri who was a Judge of the Madras High Court and who later practised before the Supreme Court with unrivalled distinction, if we may say so with respect, died on 4th January, 1966. He had executed a will two days prior thereto appointing his son Mr. V. Ratnam as the executor of the will. Certain arrears of fees payable to the deceased and received by the executor during the previous years relevant to the asst. yrs. 1967-68 to 1970-71 were claimed to be exempt from tax in the returns filed by Mr. Ratnam in his capacity as executor of the estate of late Viswanatha Sastri. Various contentions were taken before the AO, but they were all negatived and the amount of fees were brought to tax. The AAC held that s. 176(4) brought about a change in the position obtaining prior to 1961, when the IT Act was introduced and under the said section, any sum received after the discontinuance of the profession due to the death of the person to earn the income could be brought to tax. He also held that under s. 168, the income of the estate of the deceased person should be charged to tax in the hands of the executor and that the executor having collected all fees due to the deceased, the ITO was justified in clubbing the arrears of professional fees with the other income earned by the executor from the estate of the deceased. It may be noted here that such other income was represented by income from properties, dividends and interest due to the estate. The matter was carried to the Tribunal and it was urged, inter alia, that though the arrears of professional fees received by the executor were taxable as deemed income under s. 176(4), it could be taxed only in the hands of the recipient and not in the hands of the executor, that though the executor as well as the recipient in this case happened to be the same person (Mr. Ratnam), it does not make the receipt of the professional fees as one received by the executor and, therefore, the assessment made on the executor on the arrears of fees received by him were in violation of s. 176(4) and that under s. 168 of the Act, only the income of the estate of the deceased in the hands of the executor can be taxed. The Tribunal took the view that the arrears of professional fees in respect of the profession which the deceased carried on till his death constitute part of his estate and, therefore, it can by no stretch of language be called the income of his estate as contemplated in s. 168 and, therefore, such arrears cannot be taxed. As regards the applicability of s. 176(4), the receipt had to be treated as the income of the recipient in the year of receipt as per the fiction created by the said provision and, therefore, Mr. Ratnam, who was the recipient of the arrears of fees due to his father, was liable to income-tax as recipient and not as executor. In this view, the Tribunal held that the inclusion of the arrears of professional fees received in the income of the estate under s. 168 was not justified and that the arrears are, however, to be taxed as deemed income in the hands of Mr. Ratnam as recipient under s. 176(4) and not as executor. The Revenue sought reference and the following question was referred to the Madras High Court for opinion : "Whether on the facts and in the circumstances of the case, it has been rightly held by the Tribunal that the arrears of professional fees received by Shri V. Ratnam in the capacity of executor cannot be included in the income of the estate of late Shri A. V. Viswanatha Sastri under s. 168 of the Act ?" 21. It will thus be noticed that the question posed before the Madras High Court and the question that arises for decision before us in the present case are the same.
22. Let us now proceed to examine as to what the Madras High Court held and how the question was answered. The High Court noticed the judgments of the Supreme Court in CIT vs. Amerchand N. Shroff (1963) 48 ITR 59 (SC) and CIT vs. James Anderson (1964) 51 ITR 345 (SC) and Nalinikant Ambalal Mody vs. S. A. L. Narayan Row (supra) and observed that these three decisions were rendered with reference to s. 24B of the 1922 Act, and that under the 1961 Act, some of the lacunae pointed out by the Supreme Court in these decisions have been modified. The High Court proceeded to observe that s. 24B of the old Act corresponds to s. 159 of the new Act which deals with legal representatives other than executors. As regards the assessment of executors, the High Court noticed that a separate provision has been made in s. 168 of the new Act. After noticing the provision, the High Court proceeded to examine the Tribunal's conclusion that the arrears of fees cannot be regarded as the income of the estate and it should be properly regarded as part of the estate itself. The High Court agreed with the Tribunal's view and this part of the decision we have already quoted in the earlier part of this order. Thereafter, at p. 278 of the report, the High Court proceeded to examine the scope of s. 176(4). We quote the following observations : "...... On the scope of s. 176(4), we are of the view that even if s. 176(4) treats the recipient as a taxable entity irrespective of the question whether there is a will or whether the recipient is an executor or not, the amount of arrears of fees due to the deceased has to be treated as the income of the recipient and cannot be taken to be an income of the estate of the deceased, and that, therefore, it has been rightly held by the Tribunal that s. 168 may not apply to a situation as in this case ............ It is, therefore, clear that the arrears of professional fees are liable to income-tax under s. 176(4) in the hands of the recipient, viz., Sri V. Ratnam, as his income and chargeable to tax as his income as income from other sources in the year of receipt. The arrears of fees realised by Sri V. Ratnam will have to be taxed in his hands as a recipient in the year of receipt and cannot be tackled on and clubbed with the income of the estate of the deceased and brought to tax in the hands of the executor along with the income of the estate. In this view of the matter, the question referred to us is answered in favour of the assessee ......." 23. The aforesaid observations make it very clear and beyond any doubt, that the arrears of fees due to the deceased and received by the executor after the death of the deceased cannot be taken to be the income of the estate of the deceased and s. 168 cannot apply and further that such arrears are liable to income-tax only under s. 176(4) and that too in the hands of the recipient in the year of receipt and the same cannot be clubbed with the income of the estate of the deceased which is brought to tax in the hands of the executor. The question referred to the High Court was thus answered in favour of the assessee.
24. We are wholly unable to comprehend as to how this decision can be relied upon by the AO to support the present assessment. As already noticed, the assessment before us is that of the estate of late K. S.Engineer. The assessment has been made under s. 168 of the Act in the hands of the executrix. The Madras High Court in the decision cited supra has held that the arrears of fees due to the deceased and received after the death cannot be tackled and clubbed with the income of the estate which is brought to tax under s. 168 of the Act. If that is so, we fail to see how the AO can rely on the aforesaid judgment to support the inclusion of the sum of Rs. 1,10,856 which is assessed in the hands of the estate of late K. S. Engineer. The AO has rightly noted that the arrears of fees can be taxed in the hands of the recipient under s. 176(4) as held by the Madras High Court; but he has failed to see that the Madras High Court has further held that the assessment under s. 176(4) must be separate and independent from the assessment made upon the estate of the deceased under s. 168 of the Act. The view taken by the AO and his understanding of the decision of the Madras High Court is wholly contrary to what has been expressly decided and laid down in the decision.
25. As a result of the aforesaid discussion, we are of the view that the assessment of the sum of Rs. 1,10,856 in the assessment of the estate of late K. S. Engineer under s. 168 of the Act is contrary to law and cannot be upheld.26. The CIT(A) has disposed of the appeal mainly on two grounds. The first is that the amount received by the executrix was capital in nature as held by the Bombay High Court in the case of Summersgill (supra). The second is that s. 176(4) is not applicable because it talks about discontinuance of a business and in the present case, there is no discontinuance of the business. We are unable to subscribe to the second ground taken by the CIT(A) in deciding the issue in favour of the assessee. There is a discontinuance of the profession so far as late Mr. Engineer is concerned by reason of his death. The fact that the firm of M/s. Sorab S. Engineer & Co., Chartered Accountants, continued the profession notwithstanding the death of Mr. Engineer is no reason to hold that the provisions of s. 176(4) are not applicable.
This, however, is academic, because in our view even under s. 176(4), the arrears of fees can be brought to tax only in the hands of the recipient and the same cannot be included in the present assessment which is made upon the estate of late K. S. Engineer under s. 168.
27. In the view we have taken, it is not necessary for us to examine the other contentions taken by Mr. Dastur before us regarding the applicability of s. 176(4). Those arguments were advanced presumably on the basis that the present assessment has been made under that provision. But we have already demonstrated that the present assessment is one made under s. 168 of the Act and, therefore, any amount which is properly chargeable to tax in the hands of the recipient under s.
176(4) of the Act cannot be included in the present assessment and it is on this ground that we have directed the exclusion of the sum of Rs. 1,10,856 from the assessment. These arguments of Mr. Dastur viz., that there can be only one discontinuance and that s. 176(4) cannot be applied and that the charge under the provision should fall because no specific head of income has been prescribed thereunder may all be arguments, which properly fall for consideration if and when an assessment is made in the hands of the recipient under s. 176(4) of the Act. For our purpose, it would be sufficient to hold that in an assessment made on the estate of late K. S. Engineer under s. 168 of the Act, the arrears of fees received under cl. 14(a) of the partnership deed cannot be included. We, therefore, do not propose to adjudicate upon the other arguments advanced by Mr. Dastur.
28. However, we have to deal with one argument advanced by Mr. Dastur.
It may be recalled that he submitted that the judgment of the Madras High Court in the case of the Estate of Late A. V. Viswanatha Sastri (supra) was erroneously applied by the IT authorities because that judgment had relied upon the judgment of the Calcutta High Court in the case of Mrs. Roma Bose (supra), which decision has been dissented from by the Bombay High Court in T. P. Sidhwa's case (supra). In the case of Mrs. Roma Bose, the Calcutta High Court had expressed the view that if an income cannot be charged to income-tax under any of the first five heads enumerated in s. 14 of the IT Act, it shall be charged to tax under the head 'income from other sources' which is the residuary head.
This decision has been noted by the Madras High Court in the judgment cited supra at p. 278 of the Report. Thereafter, it has been held at p.
279 that the arrears of fees realised by the son of late Viswanatha Sastri are liable to tax under s. 176(4) in his hands as income from other sources. It is no doubt true that the view that if an income, for some reason or the other, cannot be brought to tax under any of the first five heads enumerated in s. 14, though it is of such nature and character falling properly under any of these heads, then the same cannot be brought to tax under the head 'other sources' was taken by the Bombay High Court in Sidwa's case (supra) following the judgment of the Supreme Court in the case of Nalinikanth Ambalal Mody (supra) and to that extent the view taken by the Calcutta High Court in the case of Mrs. Roma Bose (supra) and the view taken by the Madras High Court in the case of the Estate of Late Viswanatha Sastri, following the Calcutta view cannot be applied to the present case since we are respectfully bound by the judgment of the jurisdictional High Court.
However, the question whether the arrears of fees received by the executrix of late K. S. Engineer can be properly taxed as income from other sources, though they were in the nature and character of professional fees properly chargeable as income from profession, cannot arise in the present appeal where we are concerned not with an assessment made in the hands of the executrix under s. 176(4) of the Act but with an assessment made on the estate of late K. S. Engineer by invoking the provisions of s. 168 of the Act. Even though the Madras High Court had held that the arrears of professional fees are assessable as income from other sources, that was only held with regard to an assessment made under s. 176(4) in the hands of the recipient and that view was not expressed in the context of an assessment made under s. 168 of the Act. That view of the Madras High Court is quite independent of its decision that an assessment of the arrears of professional fees received by the executor cannot be made in the hands of the executor as representing the estate of the deceased person, under s. 168 of the Act. It is the other part of the judgment of the Madras High Court that we have found to wholly support the case of the assessee before us and it is in that context that we have also held that the IT authorities have misunderstood and wrongly applied that decision to the present case. That view has not been dissented from by the Bombay High Court in Sidwa's case (supra). It is that part of the decision which we have applied to the case before us. Therefore, the argument of Mr. Dastur that the judgment of the Madras High Court has been impliedly dissented from by the Bombay High Court in Sidhwa's case, has to be understood only as applying to those observations of the Madras High Court made in relation to an assessment of the arrears of fees due to the deceased and received by the recipient under s.
176(4) of the Act. It is only with regard to such an assessment that the Madras High Court held that the receipt may be taxed as income from other sources. As already noticed by us, this part of the judgment of the Madras High Court is not relevant to the controversy that has arisen before us and, therefore, it is that we say that it is not necessary for us to pronounce upon the correctness of Mr. Dastur's submission. Such an argument, if advanced, can fall to be considered only in an assessment made in the hands of the executrix as recipient of the fees under s. 176(4) of the Act.
29. In the result, the order of the CIT(A) is upheld, though for entirely different reasons and the appeal is dismissed.