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Challenge to exhibit P-3 order under section 264 of the Income-tax Act, 1961 regarding interest amount received by legal heirs. Interpretation of sections 240, 244(1A), 159, and 168 of the Act. Application of legal precedents regarding taxation of interest received by legal representatives. Analysis: The judgment concerns two original petitions challenging exhibit P-3 order passed by the Commissioner of Income-tax under section 264 of the Income-tax Act, 1961. The petitions involve the treatment of interest amount received by the legal heirs of the deceased assessee, P. V. Swamy, in their income tax return for the assessment year 1995-96. The petitioners contended that the interest amount should be excluded as it is not actual income but a capital receipt. The Commissioner held that the interest amount paid by the Department constitutes income and is taxable for the legal representatives. The matter was referred to the Division Bench for lack of authoritative pronouncement on the subject. The primary issue revolves around whether the interest received by the legal representatives can be considered income of the original assessee. The legal framework under sections 240, 244(1A), 159, and 168 of the Act is crucial in determining the taxability of such interest. Section 159 imposes liability on legal representatives to pay any sum the deceased would have been liable to pay, and deems legal representatives as assesses for the purpose of the Act. Section 168 specifies that the income of a deceased person's estate is chargeable to tax in the hands of the executor. The argument presented is that the interest amount is part of the deceased's estate and should not be treated as income of the legal representatives. The judgment delves into legal precedents to analyze the taxation of interest received by legal representatives. The decision in CIT v. Amarchand N. Shroff clarifies the scope of section 24B, emphasizing that income received by legal representatives after the death of the assessee in the same previous year is assessable. The judgment in CIT v. Hukumchand Mohanlal distinguishes cases where legal representatives are not liable to tax under specific provisions. The ruling in Kapil Mohan v. CIT highlights the tax treatment of amounts received by legal representatives as part of the deceased's estate. These precedents guide the interpretation of the tax liability concerning interest received by legal heirs in the present case. In conclusion, the Court dismissed the original petitions, holding that the interest received by the legal representatives on the refund of the amount deposited by the deceased assessee should be treated as income of the legal heirs. The judgment underscores the application of legal provisions and precedents in determining the taxability of interest amounts received by legal representatives, emphasizing the distinction between capital receipts and taxable income in estate matters.
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