Commissioner of Income-tax Vs. Smt. P. Dhanalakshmi and Others - Court Judgment

Thanikkachalam, J.

1. At the instance of the Department under section 256(1) of the Income-tax Act, 1961, the Tribunal referred to following questions for our opinion :

'(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the income of the estate of the deceased person, subsequent to the date of death, ins assessable under the section 168 of the Act in the hands of the executor

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that in view of the application of section 168, there is no scope for application of section 26 and that the estate for the purpose of assessment under section 168 is to be considered as a single estate without any right of co-ownership ?'

2. One K. Periaswamy, who was being assessed in the status of individual up to the assessment year 1975-76, died on August 28, 1975. His wife, P. Balammal, assessee in R.A. No. 1367/ (Mds) of 1980, his mother, Meenakshi, assessee in R.A. No. 1366/ (Mds) of 1980 and four daughters, one of whom, P. Dhanalakshmi, assessee in R.A. No. 1365/ (Mds) of 1980, are the legal representatives of the deceased, K. Periaswamy. The deceased Periaswamy owned a building at Karur along with his brother, Ponnusamy, in equal shares. He was also a partner in the firms Amarjothi Fabrics and Amarjothi Traders, who were carrying on business in textiles. He retired from the partnership and the amounts due to him were held by the firms as deposits. He was getting interest from the firms out of the deposits. In the assessment year 1976-77, his wife, Balammal, filed a return, disclosing an income of Rs. 34,302 made up of Rs. 6,876 being income from property and Rs. 27,426 being income by way of interest for the period after the death of Periaswamy. In the return, Balammal claimed herself to be the administrator of the estate of the deceased. According to the assessee, the estate of the deceased devolved upon his heirs at law, viz., his wife, mother and four daughters, and they have not divided the same by metes and bounds. Therefore, the assessment was required to be made in respect of such income under section 168 of the Income-tax Act, 1961, in the representative capacity. However, the Income-tax Officer did not accept the contention put forward by the assessee. The Income-tax Officer was of the view that on the death of the deceased, his heirs succeeded to the properties under section 8 of the Hindu Succession Act. The Income-tax Officer pointed out that they took the estate as tenants-in-common, as provided under section 19(b) of the Hindu Succession Act. Consequently, each of them was entitled to one-sixth of the income, and since the deceased had died intestate, one-sixth of the income was liable to be assessed in the hands each heir.

3. The daughter of the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). Before the Commissioner (Appeals), the assessee submitted that since Balammal was administering the estate left by the deceased and since the estate had not been partitioned among the heirs of the deceased, the assessment should be made under section 168 of the Income-tax Act. The Commissioners of Income-tax (Appeals) also rejected the contention put forward by the assessee. According to the Commissioner of Income-tax (Appeals), since Balammal had not been granted letters of administration by any competent authority as required by section 218 of the Indian Succession Act, she could not be considered as an 'executor' for the purpose of section 168. Consequently, the commissioner of Income-tax (Appeals) held that no assessment can be made under section 168 in the representative capacity. He, accordingly, confirmed the view taken by the Income-tax Officer that one-sixth of the income accruing from the estate of the deceased should be assessed in each of the heirs of the deceased. Aggrieved, the assessee filed an appeal before the Appellate Tribunal and the Department also preferred appeals before the Tribunal. The Tribunal fond that the estate of the deceased is being factually administered by the wife of the deceased. It is also not disputed that no partition took place among the heirs of the deceased. Therefore, the Tribunal came to the conclusion that in view of the Explanation to section 168 of the Act, the assessee should be assessed under section 168 of the Act. In that view of the matter, the Appellate Tribunal set aside the order passed by the Commissioner of Income-tax (Appeals) and allowed the appeals filed by the assessee, and dismissed the appeals filed by the Department.

4. Before this court, learned standing counsel for the Department submitted that section 168 of the Act would apply only in the case of testamentary succession. According to learned counsel, for intestate succession, section 168 has no application. Learned counsel further submitted that according to the Explanation to section 168, the executor must be a person appointed by the court and a person, who, in fact, is administering the estate, is not entitled to claim to be the executor or administrator under section 168 of the Act. Therefore, it is the contention of learned counsel appearing for the Department that unless the executor or the administrator is appointed by the court, in the matter of testamentary succession, assessment cannot be made under section 168 of the Act, in the representative capacity. In the present case, learned counsel pointed out that the succession is only intestate and as soon as the deceased died, the estate would have devolved upon the legal heirs, since succession cannot be kept in abeyance after the death of the deceased. It was, therefore, submitted that in the present case, it is not possible to make an assessment under section 168 of the Income-tax Act. On the other hand, none was present on behalf of the assessee.

5. We have heard learned standing counsel appearing for the Department and perused the records carefully.

6. The facts remain that one K. Periaswamy died on August 28, 1975, leaving behind him, his wife, P. Balammal, his mother, Meenakshi, and his four daughters. All of them are assessees in their individual capacity. Accordingly, Balammal filed a return stating that the assessment should be made under section 168 of the Act, since no partition took place among the heirs of the deceased. Further, according to the said Balammal, the estate was, in fact, administered by her as contemplated under Explanation to section 168 of the Act. Therefore, the assessment should be made in the representative capacity under section 168 of the Act. On the other hand, it is the contention of the Department that section 168 of the Act would apply only in the case of a testamentary succession. In the case of intestate succession, section 168 of the Act has no application.

7. The Tribunal, considering the fact that the said Balammal was the de facto administrator of the estate, held that the assessment can be made in accordance with Explanation to section 168 of the Act. It remains to be seen that the Explanation under section 168 of the Act states that it would be applicable only in the case of the specific legatee. Legatees are entitled to succeed to the estate in accordance with the terms of the will. In the present case, the deceased has not executed any will in favour of the legatees. In the absence of the fact that the succession is a testamentary succession, section 168 of the Act cannot be made applicable. The Explanation to section 168 states that in this section 'executor' includes an administrator or other person administering the estate of a deceased person. This does not mean that the administrator includes the de factor administrator. While considering a question of a similar nature in Mahamaya Dassi v. CIT : [1980]126ITR748(Cal) , the Calcutta High Court held that section 247 only contemplates the preservation of the property until the question as to the existence or the validity of the will is determined. An administrator pendente lite gets any right or authority not on the death of the testator but from the date of appointment and by virtue of appointment by the appropriate court. In view of the nature and duties required to be performed by the administrator pendente lite appointed under section 247 of the Succession Act and in view of the circumstances under which administration pendente lite can be made, an administrator pendent lite is not an administrator as contemplated by section 168 of the Income-tax Act and section 168 will not apply to him.

8. A similar question came up for consideration before this court in A, and F. Harvey Ltd. v. CWT : [1977]107ITR326(Mad) , wherein, while considering the provisions of section 19A of the Wealth-tax Act, 1957, which is corresponding to section 168 of the Income-tax Act, this court held 'that if he had died intestate, the estate would have gone to his heirs, and, therefore, it is in the hands of the heirs that the assessment will have to be made and not in the hands of anybody else. Consequently, section 19A is confined only to a case where an assessee dies after executing a will and appointing an executor or executors. In such a case, section 19A provides for the assessment of the estate of the deceased in the hands of the executor or executors till the administration is completed. However, the Bombay High Court in CIT v. Usha D. Shah : [1981]127ITR850(Bom) held that the term 'executor' is not to be understood in the restricted sense as the Explanation to the section gives an extended meaning to the word 'executor', so as to include an administrator or other person, administering the estate of the deceased person, that is, one who is in de facto management of the property of the deceased person. This judgment of the Bombay High Court was later on explained by the same High Court in a subsequent decision in CWT v. Keshub Mahindra : [1983]139ITR22(Bom) in the following manner (at page 46) : 'We have already pointed out that section 19A is a special provision, and unless a person falls within the provisions of section 19A, it will not be possible to give him the benefit of section 19A, the operation of which, we have found, is attracted only in a case where the deceased has left a will'. No argument can, therefore, be advanced in favour of the contention raised by the assessee on the basis of a decision in Mrs. Usha D. Shah's case : [1981]127ITR850(Bom) .

9. Therefore, it remains to be seen that section 168 of the Act applies to a case where succession is a testamentary succession. But, in the case of intestate succession, section 168 will have no application.

10. It is the case of the Department that in the present case, after the death of the deceased, his legal heirs succeeded to his estate. Each of them will be entitled to one-sixth share in the estate, and each one of them is an assessee on the file of the Income-tax Officer. The income derived from the property is assessable under section 26 of the Act, in the hands of each individual in accordance with the share of income derived by them from the property. If section 168 is not applicable in the case of intestate succession, then the property income has got to be assessed under section 26 of the Act, in the hands of each of the individuals in accordance with the share of income derived by them from the estate of the deceased.

11. In the present case, the deceased has not left a will bequeathing the property to any of the legatees. In such circumstances, since the succession in the present case happens to be an intestate succession, section 168 of the Act cannot be made applicable to make an assessment in a representative capacity. In that view of the matter, we answer the questions referred to us in the negative and in favour of the Department.