Skip to content


Nimishbhai Upendrabhai Patel Vs. Income-tax Officer and - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Ahmedabad
Decided On
Judge
Reported in(1982)2ITD225(Ahd.)
AppellantNimishbhai Upendrabhai Patel
Respondentincome-tax Officer and
Excerpt:
1. these appeals relate to the assessment years 1973-74 to 1977-78, pertaining to the wealth-tax matters. the it appeals relate to the assessment years 1974-75 to 1977-78. the points in issue are inter-linked. as such, all the appeals were heard together and are being disposed of by this common order, for the sake of convenience.2. one shri maganbhai bhikhabhai patel executed a will on 14-7-1965.the copy of the will is in the paper book. at the time of the execution of the will, family members of the testator were himself, his wife smt.gangaben, aged 62 years, his daughter smt. chandrikaben, aged 39, son shri upendrabhai maganbhai patel, aged 37 years, daughter-in-law smt.miraben upendrabhai patel, aged 31 years, grandson bharatkumar upendrabhai, aged 12 years, granddaughter minal.....
Judgment:
1. These appeals relate to the assessment years 1973-74 to 1977-78, pertaining to the wealth-tax matters. The IT Appeals relate to the assessment years 1974-75 to 1977-78. The points in issue are inter-linked. As such, all the appeals were heard together and are being disposed of by this common order, for the sake of convenience.

2. One Shri Maganbhai Bhikhabhai Patel executed a will on 14-7-1965.

The copy of the will is in the Paper Book. At the time of the execution of the will, family members of the testator were himself, his wife Smt.

Gangaben, aged 62 years, his daughter Smt. Chandrikaben, aged 39, son Shri Upendrabhai Maganbhai Patel, aged 37 years, daughter-in-law Smt.

Miraben Upendrabhai Patel, aged 31 years, grandson Bharatkumar Upendrabhai, aged 12 years, granddaughter Minal Upendrabhai Patel, aged 9 years, and another granddaughter Ranak Upendrabhai Patel, aged 3 years. At the time of the execution of the said will, the testator was having movable and immovable properties worth Rs. 5,83,771. Inter alia clause 6 of the will provides that on his death, all the properties mentioned in the will shall be handed over to Shri Bharatkumar Upendrabhai Patel, grandson of the testator. It was further stated that if another son of Upendrabhai was in existence on his death, or thereafter, then, the said properties shall be distributed equally, between Shri Bharatkumar Upendrabhai Patel, grandson of the testator, and another grandson who may be born. The said clause further provides that on the birth of the second grandson both the grandsons shall share equally. The will further provides that if at the time of the death of the testator both his grandsons were minor, in that case, the testator appointed Shri Upendrabhai Maganbhai Patel (son of the testator) as executor and he will manage the entire estate as guardian of both the grandsons. The will further states that on attaining majority, Shri Upendrabhai Maganbhai Patel shall hand over the properties equally between the two grandsons. The said will further provides that, on his death (testator), some of the properties mentioned in the will shall be handed over to the HUF of his son Shri Upendrabhai Maganbhai Patel, along with other members of the family : his wife, sons and daughters.

Clause 7 of the will provides that the distribution of the properties shall take place immediately on the death of the testator. In para 8, the will further provides that if the estate duty and other Government dues, taxes, etc., were payable on his death (testator), the same shall be paid or borne by the HUF of Shri Upendrabhai Maganbhai Patel, out of the share allocated to the said HUF. Para 11 of the will provides that on his death (testator), Shri Upendrabhai Maganbhai Patel (son of the testator), shall immediately take charge of all his properties and he shall distribute the same between various beneficiaries as provided in clause 6 of the will.

3. In respect of the assessment years 1973-74 to 1977-78, Shri Nimish U. Patel, minor grandson of the testator, filed wealth-tax returns disclosing net wealth of Rs. 5,60,000, Rs. 5,02,122, Rs. 6,54,746, Rs. 8,52,752 and Rs. 1,02,305, respectively. The WTO found that Shri Nimish U. Patel was a beneficiary in three private trusts. The corpus of these trusts is made of investments in shares of limited companies and deposits with companies and others. During the course of assessment proceedings, on behalf of the assessee it was contended that the process of taking possession of the assets of the deceased, i.e., obtaining the probate and also meeting the liabilities of estate duty, had to be completed before the assets in question are divided among the legatees, as per the terms and conditions of the will. The ITO did not accept the said contentions of the assessee. According to him, the executor was bound to act in conformity with the terms and conditions laid down in the will. The WTO was of the view that according to para 3 of the will the distribution of the assets shall take place immediately after the death of the deceased and shall be made according to the terms and conditions contained in the will. So the WTO has taken the value of the shares of the assessee in the property in question at Rs. 2,41,543. Consequently, the WTO completed the assessments.

4. The assessee took up the matter in appeal. On behalf of the appellant, it was submitted that the WTO was not justified in including the legatee's share as the estate is still managed by the executor. It was also contended that the income of the estate of the deceased shall be assessed separately, as per the provisions of Section 168 of the Income-tax Act, 1961 ('the Act') till the income and wealth of the estates are distributed to, or applied to, the benefit of any specific legatee. Thus, he contended that the estate of the deceased for the years under consideration should be assessed under Section 168, as a separate taxable entity, and the assessee's share in that property should not be included in his net wealth during the years under consideration.

5. The learned AAC was not satisfied with the said contentions.

According to him the intention of the deceased, at the time of execution of the will, was to give his property immediately after his death to the legatees. He was also of the view that the will comes into operation immediately after the death of the deceased. According to him the manner in which the property should be divided has also been incorporated in the said will. He placed reliance on the ratio of decisions in the case of Navnitlal Sakarlal v. CWT [1977] 106 ITR 512 (Guj.) and CIT v. Navnitlal Sakarlal [1980] 125 ITR 67 (Guj.). Thus, the learned AAC held that in spite of the provisions of Section 168, which provided for the liability of the executor, the WTO is justified to proceed against the assessee, as regards his share of wealth from the estate of the deceased. Thus, he confirmed the order of the WTO.6. For the assessment year 1975-76, Shri Upendrabhai Maganbhai Patel, son of the testator, filed the wealth-tax return on 30-6-1965, in the status of HUF. During the course of assessment proceedings, on behalf of the assessee it was contended that a person who is actually administering the estate of the deceased person would, for the purpose of Section 19A of the Wealth-tax Act, be an executor in whose hands the estate of the deceased person must be charged to tax. The WTO was not satisfied with the said contention. According to him, in view of the clauses of the will, the properties shall be divided among the beneficiaries as provided in the will. According to the WTO, the assets falling to the assessee's share, as per the will of the testator, shall be included in the net wealth of the assessee. The WTO accordingly completed the assessment. The learned AAC was of the view that the finding of the WTO is correct. Practically on the same reasons which were given by him in the case of Shri Nimish U. Patel, he held that the finding of the WTO does not call for any interference.

7. For the assessment years 1973-74,1974-75 and 1975-76, Shri Upendrabhai Maganbhai Patel, son of the testator, filed the wealth-tax returns, as executor of late Shri Maganbhai Bhikhabhai Patel, in respect of the assets of the deceased. The WTO completed the assessments on protective basis. According to the WTO, in view of the provisions of the will, all assets should have been given to the legatees, in accordance with the shares specified in the will. Since the returns were filed by the executor, the assessments were completed on protective basis. Consequently, the WTO determined the net wealth of the executor at Rs. 3,20,054, Rs. 2,46,691 and Rs. 2,11,987, in respect of the assessment years 1973-74, 1974-75 and 1975-76, respeclively. The learned AAC in appeal, was of the view that the assessee has filed the returns voluntarily. According to him, the appellant was not aggrieved because the WTO only completed the assessment on protective basis.

According to him, by the observations made by the WTO (protective basis), there will be no effect on the final outcome of the net wealth.

Thus, he held that the order of the WTO was correct.

8. In respect of the assessment years 1974-75, 1975-76, 1976-77 and 1977-78, the FTO had reason to believe that in the case of Shri Nimish Upendrabhai Patel, for the years under consideration, income escaped the assessment in his hands. Accordingly, he initiated the proceedings under Section 147(a)/148 of the Act. Pursuant to the service of notice under Section 148, it was contended on behalf of the appellant that the initiation of proceedings under Section 147(a) was bad in law. It was contended that part of the income from the estate of late Shri Maganbhai Bhikhabhai Patel was not to be included in his hands. As a matter of fact, the estate was under the administration of the executor and the income from such estate was to be added in the hands of the executor under Section 168. The ITO was not satisfied with the said explanation. According to him, in view of para 3 of the will dated 14-7-1965, the will shall come into force immediately after the death of the testator. According to the ITO, in view of such specific directions of the testator, the executor has no option to disregard these directions, i.e., to take charge of the properties. The beneficiaries were entitled to get their shares in the estate of the deceased and as such, the income received as the share of the assessee, out of the said estate, was includible in his hands. The ITO stated that the said income was not disclosed by the assessee in the original returns. So, he was of the view that such income escaped the assessment in the hands of the assessee. Consequently, the ITO determined the income from the said estate, of the share of the assessee at Rs. 13,909 and the same was added in the total income. Originally the income was assessed at Rs. 45,870 in the assessment year 1974-75. In the assessment year 1975-76, the originally assessed income was at Rs. 41,750. In this year the income from the estate of the deceased, coming to the share of the assessee was determined at Rs. 28,265, and the same was added in his hands. Similarly in the assessment year 1976-77, the originally assessed income was at Rs. 46,713. Income from the estate of the deceased coming to the share of the assessee was determined at Rs. 10,779 and the same was added in the hands of the assessee. In the assessment year 1977-78, the assessee filed the original return on 31-7-1977, declaring an income of Rs. 72,930. The ITO was of the view that the assessee has not included in the original return his share of income which was received by him out of the estate of the deceased.

Consequently, the said income was also added in the hands of the assessee. Consequently, the total income was assessed at Rs. 94,093.

The assessee took up the matter in appeal and, inter alia, contended that the ITO had no jurisdiction to start the proceedings under Section 147(a). So-called income did not accrue to the assessee because, in respect of the estate of the deceased, the assessment was to be made in the hands of the executor under Section 168.

9. The learned AAC was not satisfied with the said explanation.

According to him, a similar matter was decided by him in the case of Shri Bharatkumar Upendra Patel, grandson of the deceased. For the same reasons the learned AAC held that the finding of the ITO is quite correct.

10. Being aggrieved with the order of the learned AAC, Shri Nimishbhai U. Patel, minor grandson of the testator, is in appeal before the Tribunal. Similarly Shri Upendrabhai Maganbhai Patel, executor of the estate of late Shri Maganbhai Bhikhabhai Patel, is also in appeal before the Tribunal. Similarly, in wealth-tax matters for the assessment years 1973-74, 1974-75 and 1975-76, the executor Shri Upendrabhai Maganbhai Patel has filed appeals before the Tribunal. On behalf of the appellants, it was mainly contended that after the death of Shri Maganbhai Bhikhabhai Patel, in income-tax matters the assessments will have to be made on the executor under Section 168.

Similarly, in wealth-tax matters the assessments in the years under consideration will have to be made on the executor under Section 19A of the Wealth-tax Act. In para 11 of the will, it was clearly stated that on the death of the testator, Shri Upendrabhai Maganbhai Patel shall immediately take charge of all the ' properties of the deceased and he shall distribute the same, as mentioned in para 6 of the will. Thus, it was contended that the testator himself has appointed the executor during his lifetime. In para 6 of the will it was clearly stated that after his death all the properties contained in the will shall be handed over to Shri Bharatkumar Upendrabhai Patel, his grandson. The will further provides that if before, or after, the death of the testator, another son of Shri Upendrabhai Maganbhai Patel was born, he shall get equal share in his property. It means, according to the will, both the grandsons were to share the properties of the testator after his death. The testator also stated, in the will, that if at the time of his death both the grandsons were minors, in that case, Shri Upendrabhai Maganbhai Patel shall be the executor and he will manage the properties as guardian of both the sons, and on attaining majority Shri Upendrabhai Maganbhai Patel shall hand over the properties, equally between the two grandsons of the testator. Shri Nimishkumar, the second grandson of the testator is still minor and the learned counsel for the asssesee contended that he will attain the majority somewhere in 1983. Under the circumstances, so long as Shri Nimishkumar does not attain the majority, all the assessments in respect of income-tax and wealth-tax will have to be made on the executor. The learned counsel for the assessee further contended that the estate duty assessment on the accountable person, Shri Upendrabhai Maganbhai Patel, regarding the estate of the deceased, was only completed on 17-3-1978.

Neither on the valuation dates, nor the years of account, such duty was ascertained. In the relevant accounting period, the administration of the estate was not completed. Under the circumstances, the assessments will have to be made on the executor. He further contended that the decisions relied upon by the learned AAC, are not applicable on the facts of the present cases. In the case of Navnitlal Sakarlal (supra) the point was decided on the basis of wealth-tax provisions which were prevailing at that time. Section 19A of the Wealth-tax Act, was not applicable in the years of account and as such the Hon'ble High Court was not called upon to decide the scope of Section 19A of the Wealth-tax Act, 1957. In the income-tax matter in the case of Navnitlal Sakarlal (supra), the Hon'ble High Court also made it clear that the decision given in the case of Navnitlal Sakarlal (supra) is not relevant because that decision did not consider the scope of Section 19A of the Wealth-tax Act. In the income-tax matters, the Hon'ble High Court on the basis of the facts found by the Tribunal, that the estate was completely administered, came to the conclusion that the provisions of Section 168(1) are not attracted. According to the learned counsel for the assessee, in the present cases the facts are quite different.

So it was submitted that the decision in the case of Navnitlal Sakarlal (supra) may also not be applied in the present cases.

11. The learned departmental representative supported the order of the learned AAC. He only relied on the two decisions referred to above.

12. We have considered the rival submissions and perused the entire material on record. Before discussing the submissions of the parties, we would like to consider the scope of Section 168, and also the scope of Section 19A of the Wealth-tax Act. Under Sub-section (1) of Section 168, subject as provided in the section thereafter, 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.

Under Sub-section (2) of Section 168, the assessment of an executor under the section shall be made separately from any assessment that may be made on him in respect of his own income. Under Sub-section (3) of Section 168, 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. Under Sub-section (4), 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. The Explanation to Section 168 is material for the purpose of this judgment, and the Explanation reads : In this section, 'executor' includes an administrator or other person administering the estate of a deceased person.

It is worthwhile noting that this definition is an inclusive section and hence, by well-settled canons of construction of statutes, the word 'executor' in Section 168 means an executor as known under the Indian Succession Act, as well as an administrator known under the Indian Succession Act and, what is more, any other person administering the estate of a deceased person is also included in this special definition of the word 'executor' though, under the Indian Succession Act, such other person administering the estate of the deceased would never be referred to either as an 'executor' or as an 'administrator'. Under the scheme of the Indian Succession Act, an executor is the person who is named in the will, by the testator himself, for administering his estate whereas, an administrator is a person appointed by a competent court to administer the estate of a deceased person. By the extended definition set out in the Explanation to Section 168, an executor and an administrator appointed by the court and any other person administering the estate of a deceased person are all included in the extended meaning of the word 'executor', for the purposes of Section 13. At this stage, it would be proper to discuss the scope of Section 19A of the Wealth-tax Act also. This section came into force with effect from 1-4-1965. The scope of Section 19A is more or less the same, as is in respect of Section 168. Since there was lacuna in the Wealth-tax Act, Section 19A was brought on the statute book. Under Section 19A, besides Section 21 of the Wealth-tax Act, an executor acts as such, only as long as the administration is incomplete. After the administration is over, he would hold residue as a trustee for the various beneficiaries till distribution. So the scope of Section 19A of the Wealth-tax Act is more or less the same, which is of Section 168.

14. Now, we would like to discuss the relevant clauses of the will. It is common ground that Shri Upendrabhai Maganbhai Patel was the son of the testator. At the time of execution of the will Shri Bharatkumar Upendrabhai Patel, grandson of the testator was aged about 12 years. At that time Shri Nimishbhai Upendrabhai Patel was not born. He was born subsequently. The learned counsel for the assessees contended that Shri Nimishkumar Upendrabhai Patel will attain majority somewhere in 1983.

This statement of fact was not disputed by the learned departmental representative. The testator had died on 15-2-1973. At that time Nimishkumar Upendrabhai was minor and he is still a minor. In the wealth-tax matters the valuation dates were 31-3-1973, 31-3-1974, 31-3-1975, 31-3-1976 and 31-3-1977, in respect of the assessment years 1973-74 to 1977-78, respectively. The accounting period in respect of the assessment years 1974-75,1975-76,1976-77 and 1977-78 ended on 31-3-1974, 31-3-1975, 31-3-1976 and 31-3-1977, respectively. The estate duty assessment order was passed on 17-3-1978. It means that neither on the valuation dates in question, nor for the year under consideration, the estate duty assessment order was passed.

15. Para 6 of the will makes it clear that on the death of the testator all the properties shall be handed over to his grandson Bharatkumar Upendrabhai Patel. The said clause also provides that if, on the death of the testator, Shri Bharatkumar and another son of Shri Upendrabhai may be minor, in that case the testator has appointed Shri Upendrabhai Maganbhai Patel as executor, and he will manage the properties as guardian of both the sons. It was also provided that on attaining majority Shri Upendrabhai shall hand over the properties equally to the grandsons of the testator. Para 11 of the will categorically says that on the death of the testator, Shri Upendrabhai Maganbhai Patel shall immediately take the charge of all the properties and he shall distribute the same as provided in para 6 of the will. It means that the testator has named the executor or administrator in the will. At the time of death of the testator Shri Nimishkumar was minor and as such, in view of the will and also in accordance with the general law, the interest of the minor will have to be watched or managed by somebody else. In the will Shri Upendrabhai was nominated as executor or administrator and so long as Shri Nimishkumar does not become major, Shri Upendrabhai is under obligation to work as administrator or executor on behalf of Shri Nimishkumar. In the Paper Book at pages 37, 38 and 39 there is a copy of the agreement dated 12-7-1974. This agreement was executed by Shri Upendrabhai Maganbhai Patel as executor appointed under the will of late Shri Maganbhai Bhikhabhai Patel. It means that Shri Upendrabhai Maganbhai Patel has authority to discharge his duties as executor or administrator. At this stage, we may point out that, in the two decisions in the case of Navnitlal Sakarlal (supra) referred to above, in the will no executor or administrator was nominated by the testator. In those cases the legatees were not minors.

In that case, there was clear provision in the will that the legatees themselves should take possession of the properties of the testator on his death. In the present cases there is no such direction given by the testator in the will. On the other hand, the directions given by the testator in the present cases were that on his death his son shall take charge of all the properties as executor or administrator. In the present cases, one of the legatees, viz., Shri Bharatkumar Upendrabhai Patel was minor, aged 12 years at the time when the will was executed.

The other grandson of the testator who was to born later on, was not in existence at the time when the will was executed. Under the circumstances, in the present cases, the present legatees could not take charge of the properties immediately after the death of the testator.

16. The main contention of the learned counsel for the assessees has been, before the authorities below and also before the Tribunal, that unless and until, all the debts and liabilities, testamentary or otherwise, as well as legatees under the will are made, the estate is not fully administered and the executor continues to be in charge of the estate as executor and does not become trustee of the trust created under the will and the assessment of the income of the estate must be made on the executor under Section 168 and Section 19A of the Wealth-tax Act.

17. On behalf of the revenue, no material was brought on record to establish that all the debts and liabilities, testamentary or otherwise, as well as legatees under the will had been made and the estate is fully administered. From the aforesaid discussion, it is clear that the estate duty on the estate of the deceased was determined only in 1978. It means that such ascertainment was not made in the accounting years relevant to the assessment years 1974-75, 1975-76, 1976-77 and 1977-78. The learned counsel for the assessees, consistently advanced the argument that the liability of the estate has not yet been determined and therefore assessment is to be made on the executor. The learned counsel for the assessees also pointed out that the estate of late Shri Maganbhai Bhikhabhai Patel is under administration of an executor and it has not been administered by the legatees. The said contention of the learned counsel for the assessee was not controverted by the learned departmental representative. In any view of the matter, on behalf of the revenue, no material was brought to our notice that the estate was fully administered. In our opinion, in the present cases, till this date, the administration could not be complete because one of the legatees is still a minor. Until and unless he becomes major, he will not be able to manage the properties himself.

In the will, Shri Upendrabhai was appointed as executor and he has taken charge of all the properties on behalf of the legatees, including that of Shri Nimishkumar, who is still a minor.

18. We may point out that the residuary legatee might be interested in the estate, subject to the payment of debts and legacies, but he did not become the proprietor or owner of the residue except when a residue had been ascertained which, on completion of administration, is made over to him by the executor. The question in each case is, has the administration reached a point at which you can infer that the administration has been completed, the residuary estate has been ascertained, the request of the residue has been assented to and residuary estate therefore became vested in trustees, be they the executors themselves, or strangers In other words, can it be said that the residuary estate had taken concrete shape and could, and should, have been handed over by the executors to the persons beneficially entitled, but for the fact that the estate is settled in trust and vested in the executors as trustees 19. In view of the aforesaid position, we are of the view that the aforesaid test, as laid down, has not been fulfilled so far. So the assessments in all the years under consideration in wealth-tax and income-tax matters will have to be made on the executor in his individual capacity.

20. In view of the aforesaid finding, WT Appeals Nos. 251, 252 and 253 shall be disposed of as under : The assessments in these years were completed by the WTO on protective basis. The learned AAC also agreed with the said finding.

In our opinion the learned AAC was not correct in sustaining the finding of the WTO. The assessments should not have been made on protective basis. In view of the aforesaid discussion the three assessments shall be final and not on protective basis. So, for statistical purposes, these appeals shall be taken as allowed.

WT Appeal Nos. 255, 256, 257, 258 and 259 shall be disposed of as under : In these years, the WTO completed the assessments in the hands of legatees according to their share in the will. The learned AAC agreed with the said finding. For the reasons discussed above, the assessment in these years and in respect of these properties shall be made in the hands of the executor under Section 19A of the Wealth-tax Act, 1957. So the assessments order passed by the WTO and confirmed by the AAC will have to be set aside. So these appeals shall stand allowed.

The WTO completed the assessment in the status of HUF of which Shri Upendra is karta. The learned AAC agreed with the said finding. For the reasons discussed above, the assessments will have to be made in the hands of the executor under Section 19A in his individual capacity. So this assessment order also will have to be set aside.

Accordingly it is set aside.

The assessments for assessment years 1974-75, 1975-76 and 1976-77 were completed under Section 143(3). They were reopened under Section 147(a) read with Section 148. The assessment for assessment year 1977-78 was completed for the first time under Section 147. According to the ITO, Shri Nimishkumar U. Patel, one of the legatees, failed to disclose certain income in the original return. Accordingly, the ITO was of the view that the income escaped assessment. So he initiated the proceedings under Section 147(a) read with Section 148, in respect of assessment years 1974-75, 1975-76 and 1976-77. In respect of assessment year 1977-78, the ITO was of the view that income which accrued to the assessee under the will was to be included and accordingly he included the same in the assessment. The learned AAC agreed with the said finding.

For the reasons discussed above, the initiation of proceedings under Section 147(a) was bad in law because in the present cases the assessments were to be made in the hands of the executor, under Section 168. So in law there was no escapement of income and as such initiation of proceedings under Section 147(o)/148 were bad in law, and as such all the assessment orders are illegal and deserve to be set aside.

Accordingly, they are set aside. In the assessment year 1977-78 also, the assessment was to be made under Section 168 on the executor. So this assessment is also set aside.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //