BRIJLAL GUPTA J. - This is a reference under section 66(1) of the Income-tax Act. The question which has been referred to this court for opinion is :
'Whether the expenditure of Rs. 2,17,738 or any portion thereof was a permissible deduction within the meaning of section 10(2)(xv) or section 12(2) of the Indian Income-tax Act ?'
The facts giving rise to the reference lie within a narrow compass. One Rai Bahadur Gangasagar Jatia, who had income from business, dividends and property, etc., died issueless leaving the assessee, his widow, as his sole heir. Prior to his death he had executed a will in her favour. After his death during the accounting period relevant to the assessment year in question, namely, 1946-47, she took out letters of administration and incurred an expenditure of Rs. 2,17,738 including Rs. 2,13,000 spent on stamp duty. The amount of expenditure was not disputed by the department. In her assessment for the year in question the assessee claimed deduction of the amount under section 10(2)(xv) or alternatively under section 12(2). The claim was based on the argument that the assessee was the universal legatee of her deceased husband under his will. As such under the will she had acquired an absolute title to the properties of her husband. The properties vested in her from the moment of the death of her husband. It was not necessary for her to obtain letters of administration for perfecting or for getting a better title to the properties than what she had already acquired under the will. The letters of administration had been taken out by her for facilitating the administration of the estate or to collect the income of the estate. The claim was overruled by all the authorities below. The Income-tax Appellate Tribunal came to the conclusion that the expenditure was of a capital nature and not of a revenue nature. It took the view that even though the assessee might have acquired a title to the estate under the will, the letters of administration conferred on her a title to administer the estate and it was immaterial whether the expenditure has been incurred for acquisition of title to property or for acquisition of title to administer the estate. The expenditure was in either event in the nature of a preliminary lay-out of expenses for acquiring an asset of an enduring benefit. The Tribunal further held that the expenditure incurred had nothing to do with the production of income. In other words the two-fold ground on which the Tribunal rejected the claim was : (1) that it was an expense incurred initially and once and for all to acquire the right of administration of the estate and (2) that the expenditure had nothing to do with the running of business or the earning of income :
It will be noticed that both under section 10(2)(xv) and under section 12(2) an allowable expenditure is only that which is incurred for the carrying on of the business or for making or earning profits. Whether a particular expenditure was or was not incurred of that purpose is a question of fact. The finding of the Tribunal is that the expenditure incurred in this case had nothing to do with the production of income. This must imply that the expenditure was not incurred for the purpose of carrying on the business. On this finding alone the claim is liable to be disallowed.
Apart from this it has not been possible for the learned counsel to show how the expenditure was in any way connected with, or related to, the carrying on of the business and other trading activities left by the deceased husband of the assessee. The obtaining of the letters of administration could only have the effect of dispensing with proof of the assessees title to the estate under the will. If the letters of administration had not been obtained she would be required to prove the will over and over again. This might be of a advantage to the assessee in administering the estate or in collecting its income. The administration of the estate and the collection of the income will be in the capacity of the assessee as the owner of the estate and not in the capacity of the assessee as a trader or as a businessman. If the assessee as a trader acquired any advantage by obtaining letters administration it was for her to have produced evidence and to have proved what was that advantage, but she led no evidence on that point. It, therefore, remained unproved that the expenditure was incurred for purposes of business.
In order to test the validity of the argument one may consider the case of an executor under a will who has to incur expense in obtaining probate. The obtaining of probate is necessary for purposes of administration of the estate and for its realisation. The estate under a will is naturally an item of capital asset. An expense incurred for administration of the estate or for realisation of it must necessarily partake of the nature of the asset itself. The nature of the asset being capital, any expenditure incurred in obtaining probate by an executor will, therefore, also be an expenditure of a capital nature. It is not possible to see how the nature of that expenditure would be any different if the expenditure is incurred by a legatee under a will in obtaining letters of administration; the difference, if any, is only this : that whereas in the case of an executor the expense may be a necessary item of expenditure, in the case of legatee, particularly when he happens to be a universals legatee, it would be totally a superfluous expenditure. In either case it in not as business expenditure. We find that the amount was rightly disallowed and the question referred to this court for opinion must be answered in the negative : see V. Ramaswamy Ayyangar v. Commissioner of Income-tax.
The reference shall be returned to the Income-tax Appellate Tribunal, Allahabad, with the above answer and the department should be entitled to its usual costs of the reference assessed at Rs. 200.
Question answered in the negative.