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Estate of Late H.H. Rajkuerba, Dowager Maharani Saheb of Gondal Vs. Commissioner of Income-tax, Karnataka - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberIncome-tax Referred Cases Nos. 74 to 77 of 1976
Judge
Reported in(1982)29CTR(Kar)346; [1982]135ITR393(KAR); [1982]135ITR393(Karn)
ActsIncome Tax Act, 1961 - Sections 2(24), 3, 4, 5(1), 41, 41(1), 41(2), 145, 159, 160, 160, 161, 162, 163, 164, 165, 166, 167, 168, 168(1), 168(3), 168(4), 259(2) and 280D
AppellantEstate of Late H.H. Rajkuerba, Dowager Maharani Saheb of Gondal
RespondentCommissioner of Income-tax, Karnataka
Appellant AdvocateS.P. Bhat, Adv.
Respondent AdvocateRajashekhara Murthy, Adv.
Excerpt:
- religious endowments act, 1863 [repeal by act ii /1927] section 6 of act ii of 1927 & section 8; [a.s. bopanna, j] application of the repealing act held, section 8 would clearly indicate that the repeal of religious endowments act would apply in so far as hindu religious endowments to which the act applies. but in so far as the jain religious endowments, the repeal by act (ii) of 1927 is not applicable. further, the religious endowments act 1863 has been repealed only in so far as it applies to hindu religious endowments and the repeal is specific to that extent and therefore the applicability of the act to the jain religious endowments act, 1863 is still applicable to the jains of dakshina kannada. section 10; maintainability of application under power of the district judge to.....srinivasa iyengar, j. 1. i agree that the questions no. 2(a), (b) and (c) referred in relation to the first three years and the question no. 2(a) to (d) in relation to the assessment year 1970-71 should be answered in the affirmative and against the assessee. 2. my learned brother has indicated in his judgment the difference of opinion in relation to question no. 1. i wish to elaborate my reasons in that behalf. 3. though the question referred is in general terms, its import should be gathered from the statement of the case and the actual contentions raised and considered. so dealt, it is clear that the only contention raised was that assessments should be made on the basis that the petitioners were trustees and the administration of the estate had been completed and so must be in.....
Judgment:

Srinivasa Iyengar, J.

1. I agree that the questions No. 2(a), (b) and (c) referred in relation to the first three years and the question No. 2(a) to (d) in relation to the assessment year 1970-71 should be answered in the affirmative and against the assessee.

2. My learned brother has indicated in his judgment the difference of opinion in relation to question No. 1. I wish to elaborate my reasons in that behalf.

3. Though the question referred is in general terms, its import should be gathered from the statement of the case and the actual contentions raised and considered. So dealt, it is clear that the only contention raised was that assessments should be made on the basis that the petitioners were trustees and the administration of the estate had been completed and so must be in accordance with s. 160(iv). The question of interpretation of s. 168 or the scope of it was never raised and was never debated before the Tribunal or other authorities. The question referred, therefore, is only whether the assessment should be under section 168(3) and not under s. 160(iv). The nine assessments insisted upon by the assessee was only on the basis of s. 160(iv) and not under s. 168(3). In view of this, I am of opinion that the question of law now sought to be raised is one that was neither raised before the Tribunal nor considered by it and, therefore, is not a question arising out of its order in terms of proposition 4 of the Supreme Court in the case of Scindia Steam Navigation Co. : [1961]42ITR589(SC) . That decision was considered by the Supreme Court in T.D. Kumar & Brothers (P.) Ltd. v. CIT : [1967]63ITR67(SC) and distinguished observing (p. 71) : 'The question framed was as to the liability of a sum of money to be assessed to tax as income received by the assessee in the assessment year. The question was couched in general terms.' I am, therefore, of the opinion that the question sought to be raised should not be permitted to be raised. I am unable to agree that the first question in all the years should be answered as indicated by my learned brother. In my opinion, that question should also be answered in the affirmative and against the assessee. I am unable to agree with the interpretation of s. 168(3) of the I.T. Act, 1961, as indicated by my learned brother.

4. The foremost reasons why I disagree with that interpretation is that, in my opinion, the said provision is not capable of that meaning or interpretation. Rules of syntax do not justify such an interpretation. The historical background and accepted principles of law in regard to the position of an executor as contrasted with that of a trustee of not warrant such an interpretation.

5. Chapter XV of the Act makes provision for liability to tax in special cases. Part E thereof which comprises only two sections makes provision for levying income-tax in respect of the income of a deceased person in the hands of an executor or executors. The Explanation to the section states that executor includes an administrator or other person administering the estate of a deceased person. In the instant case, we are concerned with the executors named in the will of the deceased. Sub-section (1) of section 168 provides that the income of the estate of the deceased shall be chargeable to tax in the hands of the executor. If there be only one executor the status is of an association of persons. The income that is chargeable to tax is the income of the estate of the deceased as a whole and not piecemeal or in parts. Sub-section (2) emphasises that the assessment of the executor under the section is separate from any assessment that may be made on him in respect of his own income. Sub-section (3) speaks of this income which is the income of the estate of the deceased, which is to be separately assessed in the hands of the executor. Sub-section (3) is as follows :

'(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.'

6. The purpose of this sub-section is only to prescribe the limit of time between which such separate assessments-as the entire scheme of the Act contemplates assessment being made for a previous year and that is the limit of the period of assessment-are to be made. A person may pass away n the middle of a accounting year. In such a case, the sub-section provides that the first assessment shall be for the part of the previous year from the date of death (of the testator) to the end of the relevant previous year. Thereafter, for each completed previous year an assessment has to be framed until the 'date of complete distribution to the beneficiaries of the estate according to their several interests'. It may happen that such complete distribution is effected in the middle of a relevant previous year. In such a case the last of the assessments of the income of the estate of the deceased in the hands of the executor would be for a part of a previous year. The use of the plural 'separate assessments' is only to meet the several situations noted above. The portion of the sentence 'from the date of death to the date of complete distribution to the beneficiaries of the estate according to their several interests' is a composite whole and the concluding words 'according to their several interests' cannot be dislodged from that position and relegated to an earlier position of the sentence of the sentence read as making provision for separate assessments according to the several interests of the beneficiaries. The words in the earlier part of the provision speak of assessments of the total income of each completed previous year or part thereof and an interpretation that separate assessments are to be of the income according to the several interests of the beneficiaries would be a violent departure from the express and explicit provision in the section. In my opinion, an interpretation to the latter effect is impermissible and the provision is incapable of such an interpretation. The concluding words 'according to their several interests' qualify only the complete distribution contemplated by the section. The assessment in the hands of the executor comes to an end when such a distribution takes place. The question to be asked is when is the assessment in the hands of the executor to discontinue The answer is 'the date of complete distribution to the beneficiaries of the estate according to their several interests'. This is how this part of the section should be read. The point whether such a distribution has taken place or can be have taken place in a given case has to be determined having regard to the facts and circumstances of each case. The argument that the section could well have stopped at the end of the expression 'complete distribution to the beneficiaries of the estate' may be a plausible one, but merely on that account it cannot be said that the addition of the words 'according to their several interests' changes the entire meaning and object of the section. The use of the plural 'assessments', in my opinion, cannot be said to be wrong grammar. It seems to be that such employment of a plural is sanctioned by usage. Above all such use is warranted in the context of the several situations sought to be covered as noticed earlier.

7. Section 159 is meant to enable an assessment being made on the legal representative in respect of the income which accrued to or was received by the deceased. Sections 160 to 167 occurring in Pt.B of Chap. XV deal with 'representative assesses' defined in s. 160 and a legal representative of a deceased is not such a 'representative assessee'. Section 159 of the Act corresponds to s. 24B of the Indian I.T. Act, 1922, with some modifications. Section 24B was introduced by the Indian I.T. (Amend.) Act, 1933, in the wake of the High Court of Bombay holding that where a person died after the commencement of the assessment year but before his income for the previous year was assessed, his executor was not liable to pay the tax and that if death occurred while assessment proceedings were pending, the proceedings could not be continued and the assessment could not be made after the person's death. This aspect of the matter was explained by the Supreme Court in two cases. In CIT v. Amarchand N. Shroff : [1963]48ITR59(SC) , it was observed at p. 65 :

'By section 24B the legal personality of a deceased assessee is extended for the duration of the entire previous year in the course of which he died and, therefore, the income received by him before his death and that received by his heirs and legal representatives after his death but in that previous year becomes assessable to income-tax in the relevant assessment year. The section was enacted by the legislature to bring to tax, after his death, income received during his lifetime, and fill up the lacuna which was pointed out by the High Court in Ellis C. Reid v. Commissioner of Income-tax [1930] 5 ITC 100 (Bom). Any income received in the year sub-sequent to the previous year or the account year cannot be called income received by the person deceased. The provisions of section 24B do not extend to tax liability of the estate of a deceased person beyond the previous or the account year in which that person dies.'

8. Again, in CIT v. James Anderson : [1964]51ITR345(SC) , it was, inter alia, held (p. 346) :

'The legislature not having made any provision generally for the assessment of income receivable on behalf of the estate of the deceased person the expression 'any tax which would have been payable by him under this Act if he had not died' in section 24B cannot have the effect of supplying the machinery for taxation of income received by a legal representative on behalf of the estate after the expiry of the year in the course of which such person died. The legislature having failed to set up the procedure to assess the income received by a legal representative of the estate of a deceased person as his personal income, the courts cannot supply it.'

9. Section 160 and 161 correspond to ss. 40, 41 and 42 of the Indian I.T. Act, 1922, and executors are not covered by s. 160. In V. M. Raghavalu Naidu & Sons v. CIT : [1950]18ITR787(Mad) where it had been found that two persons who were appointed as executors and trustees under the will and one of them was styled as an executive trustee and the administration of the estate had not been completed. it was held that the executors were to be charged to income-tax as an association of persons on the entire income of the estate and a claim to be assessed under s. 41 was negatived. Viswanatha Sastri J., one of the judges of the bench which decided that case, observed (pp. 803, 804) :

'There is an important distinction between the position and estate of executors and the position and estate of trustees. If trustees are in receipt of income which they have to pay over to beneficiaries, with or without deduction of the trustees' expenses, the income is, at its very inception, the income of the beneficiaries. The income when it comes into the hands of the trustees is the income of the beneficiaries, thought it is the hands of the trustees that received the income and though for purpose of income-tax the trustees are assessed under section 41(1) of the Income-tax Act. The trustees may receive the income of a settled estate and distribute it among the beneficiaries, but income-tax is levied not on the aggregate income of the estate in the had of the trustees and at the rate appropriate to such total income, but on the income of each of the beneficiaries at the appropriate rate of tax. Section 41(2) permits the direct assessment of each of the beneficiaries according to his share of the income of the trust estate. Where, however, the estate is administered by executors, the income received by them pending the conclusion of their administration is not, in law, the income of the legatees or beneficiaries. Where trustees are appointed under a will, whether the trustees be the executors themselves or strangers, the right and interest of the beneficiary in the income of the trust fund differs radically from the interest of the legatee in the income received by the executors during the period of their administration. During such period the income of the estate is the income of the executors and not of the beneficiaries or legatees though the executors are bound to apply the income in a due course of administration. The executors do not, during the period of their administration become trustees of any part of the estate for the legatees, unless they have assented to the legacies and the executors are liable to be assessed to income-tax on the entire income of the estate under their administration, subject to the exemptions granted by the Income-tax Act, without regard to the rights of the legatees who may eventually be entitled to be paid out of the net assets. The incidence of tax is, therefore, much heaving in the case of an assessment on the executors as such than in the case an assessment on the trustees of the estate holding it for the beneficiaries. Hence the controversy often arises as to whether and when the executors of a will have become trustees and the laities have become beneficiaries.'

10. The principle enunciated in this decision is approved by the Supreme Court in the case of Administrator-General of West Bengal for the Estate of Raja P.N. Tagore v. CIT : [1965]56ITR34(SC) . The two questions referred were :

'(1) Whether, on the facts and in circumstances of the case, the assessments on the Administrator-General of West Bengal as an individual and not as representing the shares of the various beneficiaries under the will of the late Raja P.N. Tagore separately was in accordance with law and

(2) If the answer to question No. 1 be in the affirmative, then whether, on the facts and in the circumstances of the case, the assessment of the said Administrator-General at the maximum rate was legal ?'

11. The answers to both the question s were in the affirmative.

12. The High Court had held that (p. 37) 'the Administrator-General when appointed by the court is expressly covered by the section (s. 41) and it cannot be said that because he has the powers of an executor he must be treated differently'. It further held that 'the income from the properties did not so, long as administration was incomplete, become theirs. It cannot, therefore, be said of the sons that they had any determinate share in the profits or gains of the estate or any part thereof in the accounting years. The proviso to s. 41(1) is, therefore, attracted on the facts of this case, making the tax recoverable at the maximum rate. 'The Administrator-General was one of the appellants before the Supreme Court. Sri Viswanatha Sastri, who appeared for him in the appeal, contended that the High Court was wrong in holding that the shares of the five sons were indeterminate. His argument was that their shares were 1/5th each and what was to be seen was whether the shares were determinate and not whether the actual sum which each son would get is variable or not and income may be variable but the shares of the sons were fixed and s. 41 was mandatory and if the proviso to s. 41 did not apply, the ITO was bound to assess the appellant under s. 41. The Attorney-General appearing for the revenue, however, contended that on the facts of the case s. 41 did not at all apply because the appellant did not receive the income on behalf of the five sons but received it like an executor and an executor was not mentioned in s. 41 and was assessable under ss. 3 and 4 of the Act.

13. The Supreme Court went on to observe [p. 38] : 'It is not disputed that before section 41 can be applied, it must be found that the Administrator-General was entitled to receive income on behalf of a parson or persons. It is common ground that the administration of the estate was not completed within the accounting periods in question. So, the question boiled does to this : Did the appellant receive the income on his behalf or on behalf of the five sons during this period ?' It held : 'that during the administration of the estate, the appellant did not receive the income on behalf of the five sons'. The Supreme Court noticed the English cases that had also been referred to in Raghavalu Naidu's case : [1950]18ITR787(Mad) and accepted the propositions laid down in R. v. Commissioners for the Special Purposes of the Income Tax Acts : Ex parte Dr. Burnado's Homes National Incorporated Association [1921] 7 TC 646 (HL) following the decision in Lord Sudeley v. Attorney-General [1897] AC 11; 1 EDC 73 . The following observations of Viscount Finlay and Viscount Cave were quoted with approval (p. 40 of 56 ITR) :

14. Viscount Finlay : 'It appears to me that the present case is really decided by the decision of this House in Lord Sudeley's case. It was pointed out in that case that the legate of a share in a residue has no interest in any of the property of the testator until the residue has been ascertained. His right is to have the estate properly administered and applied for his benefit when the administration is complete.

15. The income from which the income-tax was deducted was not the income of the charity. It was the income of the executors. They were, of course, bound to apply it in due course of administration, but they were not trustees of any part of it for the charity. There had been no creation of a trust in favour of the charity in respect of this income, it was never paid over to the charity as income. What was ultimately paid over on the close of the administration was the share of the whole estate consisting of capital and accumulated income, which fell to the charity. The executors, not the charity, were the recipients of this income, and there is no relation back in the case of the bequest of a residue. If no right of deduction at the source had existed it is the executors and the executors only who could have been made liable for the tax.'

16. Viscount Cave :

'When the personal estate of a testator has been fully administered by his executors and the net residue ascertained, the residuary legatee is entitled to have the residue as so ascertained, with any accrued income, transferred and paid to him; but until that time he has no property in any specific investment forming part of the estate or in the income from any such investment, and both corpus and income are the property of the executors and are applicable by them as a mixed fund for the purposed of administration. This was fully explained in Lord Sudeley v. Attorney-General [1897] AC 11; 1 EDC 73 .

17. Finally, dealing with the reasoning adopted by the High Court, the Supreme Court states (p. 41) :

'The High Court in this case had repelled the argument on behalf of the revenue that the Administrator-General did not come within the purview of section 41 of the Act on the ground that 'the Administrator-General when appointed by the court is expressly covered by the section and it cannot be said that because he has the powers of an executor, he must be treated differently. In our opinion, the fact that the Administrator-General is expressly mentioned is s. 41 does not conclude the matter. The section prescribes another condition and that is that the income must be received by him on behalf of a person or persons. This condition must be fulfilled before s. 41 becomes applicable. The position of an Administrator-General appointed debonis non is in no way different from that of an executor vis-a- vis the income he receives from the estate.'

18. The position in law being thus, there is no indication that the entire concept of income received by an executor pending administration was intended to be changed by making a provision as in s. 168(3). By reading s. 159 and s. 168(3) what is provided is that the income of the deceased up to the date of death and not up to the end of the accounting year in which death occurs has to be assessed under s. 159 and the income of the estate for the period from the date of death up to the end of that accounting year should be assessed under s. 168 in the hands of the executor as also the incomes for the subsequent years till the administration of the estate is completed. The deference in the language between s. 160(iv) and s. 168(3) emphasises the difference in the mode of assessment in the case of a trustee and that of an executor. If the same treatment was intended in the case of an executor pending administration of the estate nothing was easier than to employ the same language of s. 160(iv) in relation to the executor. The provision is s. 168(4) also points to the same effect. Thereunder, if any income of the estate of a previous year is distributed to or applied to the benefit of a specified legatee during that previous year, that income is to be excluded in the computation of the total income, but that income so excluded is to be included in the total income of the previous year of such specific legatee. The absence of such a provision in the case of a residuary legatee is significant any such exclusion of any income distributed in the computation of the total income of the previous year is not warranted. The legislative history and the difference in the mode of assessment regarding a trustee and executor maintained in the Act dispel any notion of an assessment being made of the income of the estate on the basis of the several interests of the beneficiaries and to do so would not be assessment in accordance with the provisions of the Act.

Rama Jois, J.

19. The Income-tax Appellate Tribunal, Bangalore Bench, has referred the following question for the opinion of this court in I.T.R. Cs. Nos. 74, 75 and 76 of 1976 :

'(1) Whether, on the facts and in the circumstances of the case, the executors have been rightly assessed under section 168 of the Income-tax Act, 1961

(2) If the answer to the first question is in the affirmative :

(a) Whether, on the facts and in the circumstances of the case, the interest amount credited in the Lloyds Bank, London, on U.K. War Stock Bonds is assessable in the accounting year relevant to the assessment year 1967-68

(b) Whether, on the facts and in the circumstances of the case, the instalments of refund of the principal amount of annuity deposit are taxable in the hands of the executors under the provisions of the Income-tax Act, 1961

(c) If the answered to question No. 2(b) is in the affirmative, whether, on the facts and in the circumstances of the case, the proportionate estate duty payable on the annuity deposit is deductible from the refund of annuity deposits assessable as income ?'

20. In I.T.R.C. No. 77 of 1976 also the first four questions are similar to the questions set out above. There is, however, an additional question No. 2(d), which reads as follows :

(d) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that while computing the capital gains on the sale of some shares and gold, the proportionate estate duty relating to these assets cannot be allowed as a deduction ?'

21. In all these four cases, the assessment relates to the estate of late Her Highness Rajkuverba Dowager Maharani Saheb of Gondal. The Maharani died on 14th October, 1966. Late Maharani had made her last will and testament on 21st March, 1960. Later, she made a codicil on 23rd January, 1963. Under the codicil, cls. 2 and 10 of the will were substituted and cls. 6 and 8 were deleted. Clauses 1,2 4,7 and 10 of the will, as modified by the codicil, read :

'1. My estate consists of immovable properties at Bombay, Bangalore and Gondal as also of movable properties including shares, securities, gold, silver, jewellery, household furniture and utensils, etc. The whole of my estate is my 'Streedhan' property and I am entitled to the same absolutely. Several properties were purchased by me out of the moneys gifted to me by my deceased husband and I am entitled to dispose of the said properties also by this my last will and testament.

2. I hereby appoint (1) His present Highness the Maharaja of Bhavanagar, Sri Krishna Kumarsinhji, (2) Her Highness Vijayabe Maharani of Bhavanagar, (3) My daughter Jayaba Maharani of Wadhwan, and (4) My brother, Rana Laxmansinhji of Vana as the trustees of my will, hereinafter referred to for brevity's sake as 'Executors and Trustees'.........

4. My executors and trustees will manage and administer my estate in accordance with the directions contained in these presents. They will collect all my estate whatever and wherever and wherever the same may be immediately on my death and make a proper inventory thereof and pay all my liabilities and debts..........

7. I DIRECT my executors and trustees to hold a sum of Rs. 7,00,000 (Rupees seven lakhs) for charitable purposes preferably for education and Rajput children and for technical and industrial education of boys staying in Saurashtra preferably in Gondal and also for the purposes of helping charitable institutions at Gondal known as Vidyalaya & Chhatralaya which are now conducted by me out of the funds set apart by my late husband his late Highness Maharaja of Gondal I DIRECT my executors and trustees to make a separate declaration of trust in respect of the said sum of Rs. 7,00,000 (Rupees seven lakhs) and such provisions and conditions as are usually contained in a declaration of trust of a charitable nature should be inserted therein PROVIDED HOWEVER that if during my lifetime I create any such trust or dispose of the said sum of Rs. 7,00,000 (Rupees seven lakhs) for charitable purposes mentioned herein then this legacy shall lapse.....

10. I direct my executors and trustees to divide the rest and residue of my estate in nine equal parts and to deal with the same in the manner hereinafter mentioned :

(i) To hand over one such equal part to my son, His Highness Vikramsinhji absolutely.

(ii) To hand over one such equal part to my daughter, Sitaba absolutely.

(iii) To hand over one such equal part to my daughter, Kamalaba absolutely.

(iv) To hand over one such equal part to my daughter, Indiraba absolutely.

(v) To hand over one such equal part to my daughter, Vijayaba absolutely.

(iv) To hand over one such equal part to my daughter, Jayaba absolutely.

(vii) To set apart and hold one such equal part for the benefit of brother, Laxmansinhji, his wife, Vrajkuverba and their sons, Ramachandrasinhji and Bharatsinhji, and pay to the said Laxmansinhji the income thereof every month till his life and on his death to divide the said part amongst his wife, Vrajkuverba, and Ramachandrasinhji and Bharatsinhji in equal shares. In the event of the said Laxmansinhji in equal shares. In the event of the said Laxmansinhji not being alive at the time of my death, his part shall be divided amongst his wife Vrajkuverba, his son, Ramachandrasinhji and his son, Bharatsinhji, in equal shares.

(viii) To set apart and utilise the income of the eight such equal share for charitable purposes preferably educational and medical relief.

(ix) To divide the ninth such equal part among my employees and poor relations who are being maintained by me as shown in my pagar patrak for their respective lives and to pay to each of them such amount as I have been giving with liberty to my executors to increase or decrease the amount during their respective lives and on the death of the last survivor of them to hand over the balance of the ninth equal part together with the accumulations to trustees of the charitable trust to be created in respect of the eighth part - hereinabove referred to.'

22. Under clause 7, the executors were directed to hold a sum of Rs. 7,00,000 for charitable purpose preferably for education of Rajput children and under clause 10 the executors were directed to divide the residue of the estate in nine equal parts and to deal with the same in the manner provided therein. The assessment periods concerned in these references are, the first period which forms part of the previous year for the assessment year 1967-68, commencing from 15th October, 1966, to 31st March, 1967, and the other periods are assessment years 1968-69, 1969-70 and 1970-71, and the corresponding previous years being the year ended 31st March, 1968, 31st March, 1969, and 31st March, 1970, respectively.

23. The executors filed nine separate returns of income on behalf of the beneficiaries dividing the income into nine equal parts. For the estate of the deceased as a whole a 'nil' return was filed. The pleas of the executors before the ITO and his decision on the pleas were as follows :

(1) Before the ITO, the executors contended that the beneficiaries under the will must be assessed individually stating that distribution of the estate amongst the beneficiaries had been effected by making the necessary entries in their accounts. The ITO rejected the claim on the ground that the administration of the estate had not been completed and distribution of the estate according to the shares provided in the will had not been effected and, therefore, the executors were liable to be assessed as association of persons under s. 168 of the I.T. Act, 1961 (hereinafter referred to as 'the Act').

24. During the accounting years relevant to the assessment years 1967-68 to 1970-71, the following amounts were credited by the Lloyds Bank, London, to the account of 'Rajkuverba of Gondal personal representatives' account' :

Assessment year Amount1967-68 Pound 5,879- 5-41968-69 Pound 11,758-10-71969-70 Pound 1970-71 Pound

25. The above amounts were not shown in the return of income. The stand taken by the executors for non-inclusion of the said amount was that the above amounts could not be realised by the executors until they secured a probate. There is no dispute that the probate was granted by the Bombay High Court on 9th April, 1970, and the court at the United Kingdom granted probate on 23rd August,1970, and it is only thereafter on 19th December, 1970, that the realisation on the sale of War Stock Bonds and interest was remitted to India. The ITO held that the income was assessable as income accruing or arising outside India under s. 5(1)(c) of the Act.

(3) During the lifetime of Maharani, she had made annuity deposits amounting to Rs. 54,450. Out of the said amount a sum of Rs. 5,445 had been received back by her during her lifetime. The principal amount payable by the Government as on the date of death was Rs. 49,005. The value of the annuity deposits was subjected to estate duty. According to the executors there was a loss as the value of the annuity deposits had been assessed to estate duty and the average rate of estate duty was calculated on the principal value of the estate. The loss claimed and worked out by the executors was on the following notional basis :

Rs.'Principal amount outstanding on the date ofdeath of the late H. H. Rajkuverba Dowager Maharaniof Gondal 49,005Add : Estate duty pertaining to the same 35,677--------84,682Less : Actual principal amount and the interestrepayable by the Govt. subsequent to the deathof H. H. Rajkuverba Dowager Maharani 61,256--------Loss 23,426--------

26. The total interest payable by the Government subsequent to the death of the Rajkuverba was Rs. 12,251.'

27. The ITO assessed the refund of annuity deposits including interest in respect of each year to tax.

28. Against the orders of the ITO the executors preferred appeals before the AAC. The decision of the AAC was as follows :

'(1) The claim of the executors that individual beneficiaries should be assessed and separate assessments should be made was rejected.

(2) As regards interest income on War Stock Bonds credited by the Lloyds Bank to the Maharani's personal representatives' account, though the AAC accepted that the accounts of the assesses were being maintained on cash basis, he held that the interest income was liable to tax as any amount credited to the bank was as good as having been actually received by the assesses.

(3) As regards refund of annuity deposits including interest the AAC held that the refund of the principal amount of Rs. 49,005 was capital in the hands of the executors and, therefore, only the interest portion of the annuity deposits should be assessed.'

29. Aggrieved by the order of the AAC, the assessee preferred appeals before the Income-tax Appellate Tribunal. The department also preferred an appeal and, inter alia, contended that the order of the AAC to the extent he held that the refund of the principal amount of annuity deposits was liable to tax was erroneous. The Tribunal accepted the appeal of the department and rejected the appeals preferred by the assesses.

30. Before the Tribunal, the assesses had also contended that estate duty payable on the amount of annuity deposits refunded was deductible and only on the balance of the amount the income-tax should be computed. The contention was rejected.

31. For the assessment year 1970-71, in addition to the items which were the subject-matter for the earlier three years, there was also a question regarding the liability to capital gains on the amounts realised by the sales of some shares and gold. The contention of the assesses relating to this amount also was that the estate duty leviable on these assets were deductible and tax was leviable only on the balance of the amount. This plea of the assesses was also rejected. Hence an additional question has been referred in I.T.R.C. No. 77 of 1976.

32. We shall take up for consideration question No. 2 first. Sri S.P. Bhat, learned counsel for the assesses, submitted as follows : In view of the finding that the assesses were maintaining accounts on cash basis, the interest amount credited by the Lloyds Bank to the legal representatives' account could not be treated as income until the assesses realised the said amount on 19th December, 1970, in view of s. 5(1)(c) read with s. 145 of the Act, because though according to s. 5(1)(c) any income received actually or constructively amounts to income for purposes of levy of tax under the Act, the said provision is made expressly subject to the provisions of s. 145 of the Act, which provides that the income chargeable to tax under the head 'Profits and gains of business or profession or income from other sources' shall be computed in accordance with the method of accounting regularly employed by the assesses. Though normally any amount credited to the account of a person is as good as the receipt of cash by the said person, it could not be so in the present case in view of the facts and circumstances. According to the banking practice, the account of a person in a bank would be brought to a close immediately after he dies and the bank opens a new account called 'legal representatives' account' and allows the executors or other to operate that account only after the production of probate or letters of administration. Consequently, until the probate was granted by the United Kingdom Court on 23rd October, 1970, which fact is not in disqute, the executors could not operate the account and, therefore, the mere crediting of the amount to the legal representatives' account of the late Maharani was not sufficient to treat the said amount as income for the relevant assessment year.

33. In support of the above submission, learned counsel relied on the judgment of the Supreme Court in CIT v. Toshoku Ltd. : [1980]125ITR525(SC) . In the said case, the Supreme Court held that making of the entries in the books of account of a person in India debiting his account and crediting the account of a company in Japan of commission payable to that company and later remitting the amount to the Japanese company, could not be treated as amount received actually or constructively by such non-resident sales agents as the amount credited in their favour were not at their disposal. He relied on the following portions of the judgment (p. 530) :

'It cannot be said that the making of the book entries in the books of the statutory agent amounted to receipt by the assesses who were non residents as the amounts so credited in their favour were not at their disposal or control. It is not possible to hold that the non-resident assesses in this case either received or can be deemed to have received the sums in question when their accounts with the statutory agent were credited, since a credit balance, without more, only represents a debt and a mere book entry in the debtor's own books does not constitute payment which will secure discharge from the debt. They cannot, therefore, be charged to tax on the basis of receipt of income actual or constructive in the taxable territories during the relevant accounting period.'

34. In our view, the ratio of the decision in the above case is not apposite to the facts of this case. Under s. 168 of the Act, it is the income of the estate of the deceased which is liable to be assessed though the assessment is required to be made at the hands of the executors. Therefore, the moment the interest is credited to the account of the estate of the deceased, it constitutes the income of the estate during the relevant accounting year and, consequently, becomes assessable to tax during the corresponding assessment year. The mere fact that according to the banking practice, the bank insists on the production of the probate or letters of administration for withdrawing the amount, so that the bank may get a valid discharge in respect of the amounts paid by them to the hands of the persons claiming the withdrawal as executors or legal representatives of deceased, is no ground to hold that no income had been received. After the Maharani died on October 14, 1966, the interest on War Stock Bonds was credited to the legal representatives' account during the accounting years corresponding to the assessment years 1967-68 to 1970-71 as on the date when the interest accrued. It is the executors who took their own time to secure the probate. They secured the probate from the Bombay High Court on 9th April, 1970, and the United Kingdom Court on 23rd October, 1970. They could possibly have secured a probate much earlier if they had made the necessary effort. The delay on the part of the executors to obtain the probate, whatever be the reason, is no ground to hold that there was no income to the estate of the deceased, notwithstanding the fact that actually the interest had been credited during the relevant accounting years. Therefore, we are unable to agree with the contention urged for the assesses and we answer question No. 2(a) in the affirmative, i.e. against the assesses.

35. Question No. 2(b) relates to the receipt of the refund of the principal amount of annuity deposits. There is no dispute that the annuity deposits made by the Maharani had been received by the executors during the relevant accounting years. It is also not disputed that in view of s. 2(24) of the Act, refund of the amounts of annuity deposit made by a person under any scheme framed by the Central Govt. is liable to be taxed during any accounting year during the relevant assessment year. But the case sought to be made out by the learned counsel for the assesses was that if only the annuity deposits had been refunded to the depositor, it would be liable to tax under the Act, but as in the present case, as the depositor was dead and the refund was being made to the legal representatives of the deceased, it was not liable to tax. In support of this submission, learned counsel relied on the judgment of the Madras High Court in CIT v. M.M. Muthiah : [1977]109ITR463(Mad) . In the said case, the question for consideration was whether the receipt of refund of annuity deposits by the nominee of the depositor was liable to be taxed at his hands. Interpreting s. 2(24) of the Act, which provides that income includes an annuity due under s. 280D of the Act, the Madras High Court held that the refund of annuity deposit amount would be income only when returned to the depositor, but if the same was returned to the nominee of the depositor, it could not be subjected to tax as it would be no income of the nominee within the meaning of that expression under the Act, and it might amount to a gift by the depositor to the nominee. In our view the refund of the annuity deposit amount made to a person other than the depositor, i.e., a nominee of the depositor, stands entirely on a different footing. In this case, we are concerned with the income accrued to the estate of the deceased. There is no difference between the refund of the annuity deposit to the hands of the depositor or to the hands of the executors after the death of the depositor. In both cases, it amounts to the return of the deposit to the depositor. Therefore, we find no substance in the contention urged for the assessee that the refund of annuity deposits was not liable to tax at the hands of the executors under the provisions of the Act. In the result, our answer to question No. 2(b) is also in affirmative, i.e., against the assesses.

36. The common question No. 2(c) in I.T.R.C. Nos. 74, 75 and 76 of 1976 and question No. 2(d) in I.T.R.C. No. 77 of 1976 are covered by the decision of this court in the court in the case of K.Bhoomiamma v. CED : [1978]115ITR703(KAR) . In the said case, the question for consideration was whether refund of annuity deposits to the legal representatives after the death of the depositor was liable to estate duty and further whether the estate duty payable on the estate was deductible for the purpose of determining the principal value of the estate liable to tax. The court held that annuity deposits repaid under s. 280D were property passing on the death of a person, who had made the deposit and cannot be deducted out of the value of the asset for the purpose of computing the estate duty and, further, estate duty payable was not deductible from the value of the assets for arriving at the principal value liable to estate duty. The ratio of the said decision is attracted to these cases and covers the two questions. Accordingly, we answer question No. 2(c) in I.T.R.C. Nos. 74, 75 and 76 of 1976 and question No. 2(d) in I.T.R.C. No. 77 of 1976 in the affirmative, i.e., against the assesses.

37. The arguments advanced by the learned counsel for the assesses on the first question has given rise to the following two important questions of law :

(i) Whether sub-s. (3) of s. 168 of the Act requires the making of separate assessments on the executors having due regard to the several interests of the legatees of beneficiaries as specified in the will

(ii) Whether the contention that s. 168(3) of the Act requires the making of separate assessments on the executors having due regard to the several interests of the beneficiaries though a question of law based on the wording of s. 168(3) of the Act should be permitted to the canvassed in the reference as such a contention was not advanced before the authorities

38. From the statement of facts, it is clear that the executors filed nine separate returns. Each return filed by the executors was in respect of 1/9 of the income of the estate as representing 1/9 the of the total income, i.e., in proportion to or according to the several interests of the beneficiaries under the will. The executors pleaded before the ITO that they have made necessary book entries in favour of the beneficiaries and, therefore, they were in the position of trustees and consequently assessment should be made in a representative capacity as required under s. 160(iv) of the Act. This plea was rejected by the ITO on the ground that the administration of the estate was not completed and the actual distribution of the estate to the beneficiaries had not taken place and the executors had not transformed themselves into the position of trustees after such distribution, having shed their status as executors. The assesses reiterated the same plea before the AAC as also before the Appellate Tribunal. Both these authorities rejected the contention and on facts they found that the actual distribution of the estate had not taken place and consequently, the provisions of s. 160(iv) was not attracted and the assessment was required to be made only under s. 168 of the Act, which specifically provides for the making of assessments on the executors. In our opinion, the view so taken concurrently by the three authorities is correct. Learned counsel for the assesses could not seriously dispute the correctness of the said view. When a similar plea had been raised in the case of V.M. Raghavalu Naidu and Sons v. CIT : [1950]18ITR787(Mad) , before the Madras High Court, it was held that as on the facts and circumstances of that case, the administration of the estate by the executors was not complete during the relevant period and their executorial duty had not been discharged and the residue of the estate had not been ascertained, so as to constitute it a trust fund, the executors were not divested of the estate and consequently it could not be held that the estate vested in them qua trustees and, therefore, the claim made by the executors that the assessment should be made in a representative capacity under s. 41(1) of the Indian I.T. Act, 1922 (which is similar to s. 160(iv) of the Act) was unsustainable. The said view taken by the Madras High Court has been approved by the Supreme Court in the case of Administrator General of West Bengal v. CIT : [1965]56ITR34(SC) .

39. Learned counsel for the assessee, therefore, did not attempt to challenge either the finding recorded by the authorities that distribution of the estate to the beneficiaries was not complete not their decision that s. 168 was applicable to this case. He, however, contended before us that even accepting that the administration of the estate was not complete and the executorial functions had not come to an end and consequently the provisions of s. 160(iv) of the Act was not attracted and the assessment was required to be made under s. 168 of the Act, still in view of s. 168(3) specifically incorporated into the Act, it was obligatory for the authorities to have made nine separate assessments against the executors. An application has also been made before us to raise the above contention based on the language of sub s. (3) of s. 168 of the Act as no such contention was raised before the Tribunal.

40. Sri S.R.Rajasekhara Murthey, learned counsel appearing for the revenue, submitted that sub-s. (3) of s. 168 also provides for the making of a single assessment on the executors on the total income of the relevant previous year or part of a previous year until the distribution of the estate to the beneficiaries is completed. He further submitted that the contention cannot be permitted to be raised in the reference as no such contention was raised before any of the authorities and it amounts to a new question altogether.

41. In support of the submission that the contention cannot be permitted to be canvassed in a reference made under s. 256(1) of the Act, learned counsel for the revenue relied on the decision of the Supreme Court in the case of CIT v. Scindia Steam Navigation Co. Ltd. : [1961]42ITR589(SC) , in which s. 66(1) of the Indian I.T. Act, 1922, was interpreted which is similar to s. 256(1) of the Act. In particular he relied on the following portions of the judgment at p. 611 :

'The result of the above discussion may thus be summed up :

(1) When a question is raised before the Tribunal and is dealt with by it, it is clearly one arising out of its order.

(2) When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order.

(3) When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order.

(4) When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the findings given by it.

Stating the position compendiously, it is only a question that has been raised before or decided by the Tribunal that could be held to arise out of its order.'

42. Learned counsel for the assesses per contra submitted that the contention sought to be advanced was only another facet of the same question and, therefore, he was entitled to raise the said question. In support of this argument he also relied on the same decision of the Supreme Court and submitted as follows : In substance the plea of the assessee before all the authorities was that there should be nine separate assessments, each representing the 1/9th interest of the beneficiaries as specifically incorporated in the will. In support of their claim that there should be nine assessments, the assesses relied on the provisions of s. 160(iv) of the Act on the ground that distribution of the estate had taken place. That plea having been rejected, the assessee, accepting the said finding of the authorities that factually distribution of the estate was not completed and, therefore, assessment was required to be made only under s. 168 on the executors, could still contend that there should be nine separate assessments according to the several interests of the beneficiaries, as, according to the assesses, sub-s. (3) of s. 168 of the Act provides to that effect. The said contention being a pure question of law based on the material available on record, the assesses are entitled to raise the said question. In support of this submission learned counsel relied on the following observations of the Supreme Court in Scindia Steam Navigation Co. : [1961]42ITR589(SC) :

'But the appellant contends that while before the income-tax authorities the respondents disputed their liability on the ground that the amount in question had been received in the year previous to the year of account, the contention urged by them before the court was that even on the footing that the income had been received in the year of account, the proviso to section 10(2)(vii) had no application, and that it was a new question which they were not entitled to raise. We do not agree with this contention. Section 66(1) specks of a question of law that arises out of the order of the Tribunal. Now a question of law might be a simple one, having its impact at one point, or it may be a complex one, trenching over an area with approaches leading to different points therein. Such a question might involve more than one aspect, requiring to be tackled from different standpoints. All that section 66(1) requires is that the question of law which is referred to the court for decision and which the court is to decide must be the question which was in issue before the Tribunal. Where the question itself was under issue, there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal. It will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of section 66(1) of the Act. That was the view taken by this court in Commissioner of Income-tax v. Ogale Glass Works Ltd. : [1954]25ITR529(SC) and Zoraster & Co. v. Commissioner of Income-tax : [1960]40ITR552(SC) , and we agree with it. As the question on which the parties were at issue, which was referred to the court under section 66(1), and decided by it under section 66(5) is whether the sum of Rs. 9,26,532 is liable to be included in the taxable income of the respondents, the ground on which the respondents contested their liability before the High Court was one which was within the scope of the question, and the High Court rightly entertained it.'

43. He also argued that the contention sought to be raised also falls within the scope of the first question, which reads :

'Whether, on the facts and in the circumstances of the case, the executors have been rightly assessed under section 168 of the Income-tax Act 1961 ?'

44. There is a difference of opinion between us, both on the question as to whether the assessee should be permitted to raise the contention as also on the question as to whether sub-s. (3) of s. 168 of the Act provides for the making of a single assessment or separate assessments.

45. On the question as to whether the assesses should be permitted to raise the contention based on their interpretation of s. 168(3), one of us (Srinivasa Iyengar J.) is of the view that the question sought to be raised by the assesses before us in these reference is entirely a new question which was not raised before any of the authorities and, therefore, in view of the observations of the Supreme Court in Scindia Steam Navigation Co. : [1961]42ITR589(SC) , it cannot be permitted to be raised. However, I am of the view that the contention sought to be raised by the assesses is only another facet of the same question. In my view, the assesses could have raised an alternate plea before the authorities to the effect that separate assessment should be made in representative capacity under s. 160(iv) of the Act or in event of their claim that they had shed their status as executors and have transformed themselves into the position of trustees was not acceptable to the authorities, nine separate assessments should be made on the executors as required by sub-s. (3) of s. 168 of the Act, on the basis of the same material, before the authorities. Therefore, in my view, the contention sought to be raised before us is another facet of the same question, the question being as to whether there should be one assessment or 9 separate assessments which could be decided on the basis of the material on record and not a new question and, therefore, the assesses could and should be permitted to raise the said contention in view of the ratio of the judgment of the Supreme Court in Scindia Steam Navigation Co. : [1961]42ITR589(SC) .

46. As regards the merits of the contention, it depends on the interpretation of sub-s. (3) of s. 168 of the Act. The section reads :

'168. (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. :

47. This is specific provision providing for making an assessment on the executors. Sub-section (1) provides that the income of the estate of the deceased person shall be chargeable to tax at the hands of the executors. Sub-section (2) provides that the personal income of the executor or executors cannot be clubbed with the income which an executor or executors receive in that capacity. Sub-section (3) provides that separate assessments shall be made under the 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. Sub-section (4) provides that in computing the total income of any previous year under the 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.

48. There is no controversy that so long an executor or executors continue to function in that capacity, the assessment must be made on the executors. There is also no controversy that it is settled law that the executors receive the income of the estate of a deceased person in their own right and they do not receive the income as representatives of the beneficiaries.

49. Learned counsel for the assesses stressed on the specific words used in sub-s. (3) and contended that the said sub-section requires that for every completed previous year or part of a previous year included in the period commencing from the date of the death of the testator to the date of complete distribution of the estate to the beneficiaries, separate assessments on the total income should be made according to the several interests of the beneficiaries and, therefore, the making of a single assessment would be contrary to the said sub-section. He argued that it is only in cases where having regard to the contents of a will, it is not possible to identify the several interests of the beneficiaries, single assessment can be made by virtue of sub-s. (1) of s. 168 on the executors as it was so even in the case of a representative assessment to be made in the case of a trust as specifically provided for under s. 164 of the Act in a case in which separate assessment is not possible as provided under s. 160(iv) of the Act.

50. Learned counsel appearing for the revenue, on the contrary, submitted that the words 'separate assessments' indicating the making of plurality of assessments refers to the number of assessments required to be made from the date of death of the deceased till the complete distribution of the estate and he also submitted that the words 'according to their several interests' used at the end of the sub-section was only to indicate the last date up to which the assessment should be continued to be made on the executors and was not meant to indicate the making of separate assessments according to several interests of the beneficiaries.

51. The view which commends acceptance of Srinivasa Iyengar J. is as follows : The law regarding position of the executors is well settled. The executors receive income in respect of an estate of a deceased for which they are executors only in their own right. In the eye of law they are not representatives of beneficiaries. Therefore, as s. 168 provides the making of an assessment on the executors there could be only one assessment on the total income of a previous year or a part thereof. Subsection (3) was only intended to specify the date of commencement and date of culmination during which period assessments are required to be made on the executors. Therefore, the use of the plural in the words 'separate assessments' only in that context. The words 'according to several interests' is used only in the context of indicating the last date up to which the assessment could be made at the hands of the executors, namely, the date of complete distribution of the estate according to the several interest and nothing more. Therefore, there is no substance in the construction suggested for the assessee on sub-s. (3) of s. 168 of the Act.

52. I am, however, with great respect to his Lordship, unable to agree with that view. It is true that the law relating to the status and position of the executors is well settled. The executors are not representatives of the beneficiaries. Therefore, a specific provision has been made under s. 168(1) of the Act providing for the making of assessments on the executors. If the intention of the Legislature was that a single assessment should be made on the executors as was the settled position under the 1922 Act there was no necessity for introducing sub-s. (3) at all, as it would be redundant. But sub-s. (3) has been specifically introduced which provides for the making of separate assessments for each previous year or for each part of a previous year. If the intention of the Legislature in introducing sub-s. (3), as contended for the revenue, was only to indicate the date of commencement and culmination during which period the assessment should be made on the executors, no such provision was necessary as such position is implicit in sub-s. (1) of s. 168 as, even according to the said provision, the assessment could be made on the executors only in respect of the income of the estate of the deceased which they begin to receive only from the date of death of the testator and continue to receive only till the last date up to which they continue as executors and not beyond that. Even on the basis that the Legislature intended to make a specific provision under sub-s. (3) for that purpose, the use of the word 'separate' and the use of the plural 'assessments' were unnecessary, unless the subsection was intended to provide for the making of more than one assessment on the executors for each previous year and further the words 'according to the several interests' would not have also been used in the sub-section unless the making of separate assessments according to the several interests of the beneficiaries was intended and the provision would have been made as follows :

'Assessment 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 of the beneficiaries of the estate.'

53. The words 'according to the several interests' in the provision cannot also be construed as having been used only to indicate the last date up to which the assessment could be continued to be made on the executors, as these words would be redundant. Therefore, I find it difficult to give a meaning to Sub-s. (3) of s. 168, which would be the same even without the use of the word 'separate' and the plural in the word 'assessments' and the words 'according to the several interests'. It is a cardinal rule of construction that no words should be considered redundant or surplus in interpreting the provisions of a statute. (See Dinesh Chandra v. State of Assam, : (1978)ILLJ17SC . It is equally well settled that if the language of a provision is clear and unambiguous, a meaning warranted by the language itself should be given. (See CIT v. Rajendra Prasad . In my view, the language of sub-s. (3) of s. 168 being clear and what it is, full effect should be given to the said language. The legislative intention which is indicated by the wording of s. 168(3) is to provide the making of separate assessments on the executors on the total income of the state in any previous year according to the several interests of the beneficiaries when such interests are capable of being separately ascertained as in the present case, obviously with the object of removing hardship that would be caused to the beneficiaries by the levy of tax treating the total income as one unit for computing the income-tax though the interests of beneficiaries are separate and distinct and als o the greater hardship that might be caused in cases where the administration of the estate might take a long period. It was suggested for the revenue that this view cannot be correct as it would obliterate the difference between the representative assessment and assessment on executors. In my opinion, no such result follows. Even on the basis that separate assessments are required to be made under sub-s. (3) of s. 168, the assessment would be only on executors and they alone would be liable to pay the tax to the department and the beneficiaries will not come into the picture either for the purpose of levy or collection. All that happens is instead of the tax being computed treating the entire income of the year as one lump, the tax would be levied splitting the income into such separate parts as there are interests resulting in imposition of tax proportionate to the income and avoiding of hardship to and discrimination against the beneficiaries in all cases where there would be undue delay in the administration of the estate. Further, in cases where having regard to the wording of the will, the interest of the beneficiaries is incapable of ascertainment until the other directions are complied with, a single assessment has to be made on the executors applying s. 168(1) of the Act. In my view, this interpretation is a reasonable one and is in conformity with the wording of sub-s. (3) of s. 168. Further, this interpretation being one which avoids hardship and favorable to the assessee, it has got to be preferred as held by the Supreme Court in CIT v. Naga Hills Tea Co. Ltd. and Alladi Venkateshwarlu v. Government of Andhra Pradesh : [1978]3SCR190 .

54. In the result, there is a divergence of opinion between us on the following questions of law :

(1) Whether the assesses should or should not be permitted to contend that in view of sub-section (3) of section 168 there should be nine separate assessments on the executors on the total income of each previous year or part of previous year according to the several interests of the beneficiaries out of the total income of each previous year or part of previous year

(2) Whether sub-section (3) of section 168 provides for -

(i) the making of a single assessment on the total income for each previous year or part of a previous year on the executors or

(ii) the making of separate assessments on the executors on the total income of each previous year or part of previous year according to the several interests of the beneficiaries out of the total income of each previous year or part of previous year

55. In view of the difference of opinion as indicated above, the papers have to be placed before the Chief Justice for obtaining orders for posting of these cases before one or more other judges as required under sub-s. (2) of. s. 259 of the I.T. Act for considering the above two questions.

Chandrashekar, C.J.

56. On the difference of opinion between Srinivasa Iyengar and Rama Jois JJ. who heard the above references, they (the references) have come before me under sub-s. (2) of s. 259 of the I.T. Act, 1961 (hereinafter referred to as 'the Act').

57. Srinivasa Iyengar and Rama Jois JJ. have formulated the points of law, on which they have differed, as follows :

'(1) Whether the assesses should or should not be permitted to contend that in view of sub-section (3) of section 168, there should be nine separate assessments on the executors on the total income of each previous year or part of previous year according to the several interests of the beneficiaries out of the total income of each previous year or part of previous year

(2) Whether sub-section (3) of section 168 provides for -

(i) the making of a single assessment on the total income of each previous year or part of a previous year on the executors or

(ii) the making of separate assessments on the executors on the total income of each previous year or part of previous year according to the several interests of the beneficiaries out of the total income of each previous year or part of previous year ?'

58. I have heard Shri S. P. Bhat, learned counsel for the assessee, and the learned standing counsel for the income-tax department.

59. The facts of these cases have been fully set out in the separate opinions of Srinivasa Iyengar and Rama Jois JJ. and it is unnecessary to repeat those facts here.

60. Question No. 1 :

61. The learned standing counsel contended that before the Income-tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') the second of the above questions had not been raised and that hence that question cannot be said to arise out of the order of the Tribunal. On the other hand, Shri Bhat contended that the said question was merely an aspect of the wider question which had been referred to this court by the Tribunal, the wider question so referred being. 'Whether, on the facts and circumstances of the case, the executors have been rightly assessed under section 168 of the Income-tax Act ?'

62. In support of their respective contentions, both Shri Bhat and the learned standing counsel relied on the same passage in the decision of the Supreme Court in CIT v. Scindia Steam Navigation Co. Ltd. : [1961]42ITR589(SC) . That passage, at p. 612 of the report, reads :

'Now a question of law might be a simple one, having its impact at one point, or it may be a complex one, trenching over an area with approaches leading to different points therein. Such a question might involve more than one aspect, requiring to be tackled from different standpoints. All that section 66(1) requires is that the question of law which is referred to the court for decision and which the court is to decide must be the question which was in issue before the Tribunal. Where the question itself was under issue, there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal. It will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of section 66(1) of the Act.'

63. As s. 256 of the Act is in pari materia with s. 66 of the Indian I.T. Act, 1922, the above ruling of the Supreme Court is applicable to s. 256 of the Act also.

64. In my opinion, the question that is now sought to be raised in these references, namely, whether in view of s. 168 there should have been separate assessments on the executors on the total income of each previous year or part thereof according to the several interests of the beneficiaries out of the total income of the estate in each previous year or part thereof, is not a distinct question, but is merely an aspect of the first question referred to this court by the Tribunal. Hence, in view of the aforesaid ruling of the Supreme Court, that question (the second of the two questions formulated by Srinivasa Iyengar and Rama Jois JJ.) should be permitted to be raised in these references, though it had not been argued before the Tribunal.

65. Question No. 2 :

66. The answer to this question depends upon the interpretation of sub-s. (3) of s. 168. That sub-section reads :

'(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.'

67. The two rival interpretations of the above sub-section, have been very ably set out by Srinivasa Iyengar J. and Rama Jois J., if I may say so with respect.

68. The view of Srinivasa Iyengar J. is briefly thus : The purpose of this sub-section is merely to prescribe the limit of time between separate assessments on executors. A testator may die in the middle of an accounting year; in such a case the sub-section provides that the first assessment on his executors shall be for the part of the previous year from the date of such death to the end of the relevant previous year; thereafter, for each completed previous year, an assessment has to be made on the executors until the date of complete distribution to the beneficiaries of the estate according to their several interests. It may happen that such complete distribution is effected in the middle of the relevant previous year. The words 'according to their several interests' occurring at the end of that sub-section, qualify the immediately preceding words 'complete distribution to the beneficiaries of the estate' and not the words 'separate assessments shall be made' which occur at the commencement of that sub-section.

69. Srinivasa Iyengar J. has relied on the statement of law by Viswanatha Sastri J. in Raghavalu Naidu and Sons v. CIT : [1950]18ITR787(Mad) that where an estate is administered by executors, the income received by them pending conclusion of their administration, is not in law the income of the legatees or beneficiaries, but is the income of the executors though they are bound to apply the income in the due course of administration and that the incidence of tax is much heavier in the case of an assessment on the trustees of the estate holding it for the beneficiaries.

70. Srinivasa Iyengar J. has pointed out that the aforesaid enunciation by Viswanatha Sastri J. was approved by the Supreme Court in Administrator-General of West Bengal for the Estate of Raja P. N. Tagore v. CIT : [1965]56ITR34(SC) . Srinivasa Iyengar J. has also highlighted the difference in the language of clause (iv) of s. 160 and that of sub-s, (3) of s. 168 and said that if it was intended that the executors, pending administration of the estate, should be treated in the same manner as trustees, the language of s. 160(iv) would have been employed in relation to the executors also.

71. The view taken by Rama Jois J. is briefly thus : If the intention of the legislature in enacting sub-s.(3) of s. 168 was that a single assessment should be made on the executors as was the settled position under the Indian I.T. Act, 1922, there was no need for that sub-section at all and it would be wholly redundant. That sub-section was enacted to provide specifically for making more than one assessment on the executors for each previous year according to the several interests of the beneficiaries in the total income of the estate. The words 'according to their several interests' occurring at the end of that sub-section, cannot be construed as having been used only to indicate the last date up to which the assessment can be continued to be made on the executors. Even without those words, the position would be the same. Hence, those words would be redundant. It is a cardinal rule of construction of statutes that no words in a statute should be considered as redundant or surplus. Rama Jois J. concluded that the legislative intent in enacting sub-s. (3) in s. 168 was to provide for making separate assessments on the executors on the total income of the estate in any previous year according to the several interests of the beneficiaries when such interests are capable of being separately ascertained, with the object of removing hardship the total income of the estate as one unit for computing the income, though the interests of the beneficiaries are distinct and separate. Longer the period required for completing the distribution of the estate among the beneficiaries, greater will be such hardship to the beneficiaries.

72. There is some force in the reasoning of Rama Jois J., that if sub-s. (3) of s. 168 provides for the assessment of executors in the same way as under the Indian I.T. Act, 1922, that sub-section would be redundant and such redundancy cannot be attributed to the legislature. But, there is even greater force in the reasoning of Srinivasa Iyengar J., that if the legislature intended that even prior to the complete distribution of the estate among its beneficiaries there should be separate assessments of their shares in the total income of the estate, then the executors would be in the same position as the trustees appointed under a will and there was no need for a separate provisions in regard to executors as they could have been included in clause (iv) of s. 160.

73. The purpose of sub-s. (3) of s. 168, appears to me, is to provide -

(i) that if a testator dies in the middle of a previous year, there should be two separate assessment is the executors - one from the commencement of that previous year up to the date of his death and another separate assessment for the remaining part of that previous year; and

(ii) that if the complete distribution of the estate among the beneficiaries, is completed in the middle of the previous year, there should be two separate assessments in respect of that year - one from the date of commencement of the previous year up to the date of such complete distribution of the estate and another for remaining part of that previous year.

74. But for the provisions of sub-s. (3) of s. 168, there could be only one assessment under s. 159 on his executors for the whole of the previous year in which the testator dies, as if he had not died, and it would have been doubtful if two assessments could be made on the executors, one in respect of the portion of the previous year prior to the complete distribution of the estate among the beneficiaries and another, in respect of the remaining portion of that previous year.

75. It is reasonable to construe the words 'according to their several interests' occurring at the end of sub-s. (3) of s. 168, as qualifying the immediately preceding words 'complete distribution to the beneficiaries of the estate' in that sub-section and not as qualifying the words which occur at the commencement of that sub-section. The words 'according to their several interests' seem to indicate that the completion of the distribution of the estate contemplated in that sub-section, is the one which is in accordance with the several interests of the beneficiaries.

76. After carefully considering the divergent views expressed by Srinivasa Iyengar J. and Rama Jois J., I am inclined to agree with the former.

77. However, Shri Bhat submitted that if sub-s. (3) of s. 168 is reasonably capable of two interpretations, then the one favorable to the assessee should be preferred. This rule of construction has no application to the present case since, in my opinion, the only reasonable construction of that sub-section, is the one elucidated by Srinivasa Iyengar J.

78. In the light of the foregoing discussion, my answers to the questions formulated by the Division Bench, are as follows :

(1) The assessee should be permitted to contend that in view of sub-s. (3) of s. 168 of the I.T. Act, 1961, there should be 9 separate assessments on the executors on the total income of each previous year or part thereof according to the several interests of the beneficiaries out of the total income of each previous year or part thereof; and

(2) Sub-section (3) of s. 168 does not provide for making separate assessments on the executors on the respective shares of the beneficiaries of the estate in the total income of the estate in each completed year or part thereof prior to the complete distribution of that estate among the beneficiaries according to their respective shares.

Srinivasa Iyengar, J.

79. In the light of the majority opinion, the first question referred by the Tribunal is answered in the affirmative.


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