2003 (3) TMI 12 - HC - Income Tax

Whether, Tribunal is right in law in holding that the capital gains arising on the sale of the property is not assessable in the hands of the assessee but only in the hands of her four daughters? - assessee s position, as held by the Tribunal, would be that of a trustee of the income and the sale proceeds for her daughters. As a trustee appointed under a testamentary instrument, she would become a representative assessee under section 160(1)(iv) and, as such, is deemed to be an assessee for the purposes of section 160(2) - question referred is, therefore, answered by holding that the assessment is to be made on the assessee as a representative assessee for each one of her four daughters for whose education and marriage expenses the proceeds of the sale were required to be applied in terms of the will executed by the assessee s father.

Issues:
1. Assessment of capital gains on the sale of Quilon property.
2. Interpretation of the will regarding property ownership.
3. Applicability of section 160(1)(iv) of the Income-tax Act.

Assessment of Capital Gains:
In the case, the assessee sold the Quilon property and deposited the proceeds in the names of her four daughters in the business bequeathed to her. The Assessing Officer determined capital gains and held the assessee liable for tax. However, the Commissioner and the Tribunal both ruled in favor of the assessee, stating that she was not the legal owner of the property as per the will. The Tribunal further held that the assessee was a trustee for her daughters, and the capital gains should be assessed in their hands. The court agreed with this interpretation, emphasizing that the will clearly indicated the property was bequeathed to the daughter for the benefit of her children's education and marriage expenses.

Interpretation of the Will:
The key point of contention was the interpretation of the will left by the deceased father of the assessee. The will specified that the Quilon property was bequeathed to the daughter, with instructions to utilize the income or sale proceeds for the education and marriage of the grandchildren. Any remaining balance could be taken by the daughter. The court analyzed the terms of the will and concluded that the daughter (the assessee) was intended to act as a trustee for her daughters, ensuring the funds were used for the specified purposes. This interpretation led to the decision that the assessee was not the legal owner but a representative assessee for her daughters.

Applicability of Section 160(1)(iv) of the Income-tax Act:
The Revenue argued that the assessee should be taxed on the capital gains as the legal owner based on the terms of the will. However, the court held that even if the assessee was considered a trustee for her daughters, she would still be liable for taxation as a representative assessee under section 160(1)(iv) of the Income-tax Act. The court emphasized that the terms of the will clearly outlined the assessee's role as a trustee for her daughters, making her responsible for the tax assessment on their behalf. Therefore, the court answered the question by directing that the assessment should be made on the assessee as a representative assessee for each of her four daughters, in accordance with the will executed by her father.

This detailed analysis of the judgment highlights the complex legal interpretation of the will, the assessment of capital gains, and the application of relevant sections of the Income-tax Act in determining the tax liability of the assessee in the case.

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