2000 (2) TMI 864 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Section 176(4) of the Income Tax Act.
2. Nature of the receipt under Clause 14(a) of the partnership deed.
3. Assessment under Section 168 of the Income Tax Act.
4. Precedent and applicability of judicial decisions.

Issue-wise Detailed Analysis:

1. Applicability of Section 176(4) of the Income Tax Act:
The Department contended that the provisions of Section 176(4) were applicable since the profession of the deceased was discontinued due to his death, and therefore, any sum received after the discontinuance should be taxed as income of the recipient. The Assessing Officer (AO) included the sum of Rs. 1,10,856 under "other sources" based on this provision. However, the CIT(A) opined that Section 176(4) was not applicable as the profession was still in existence and the executors were merely collecting amounts due to the estate. The Tribunal upheld the CIT(A)'s view, stating that the receipt should be taxed in the hands of the recipient, not the estate, under Section 176(4).

2. Nature of the Receipt under Clause 14(a) of the Partnership Deed:
The legal heirs received Rs. 1,10,856 as per Clause 14(a) of the partnership deed, which was claimed as a capital receipt. The CIT(A) held that the amount was a capital receipt, relying on the Bombay High Court's judgment in CIT v. Late F. Summersgill. The Tribunal agreed, noting that the amount was part of the estate of the deceased and not income. The Tribunal emphasized that the amount due to the deceased at the time of his death became part of his estate and could not be considered income of the estate.

3. Assessment under Section 168 of the Income Tax Act:
The AO invoked Section 168, which deals with the assessment of the income of the estate of a deceased person in the hands of the executor. The Tribunal observed that Section 168 concerns the income arising to the estate, while Section 176(4) deals with sums received after the discontinuance of a profession. The Tribunal clarified that the arrears of fees should be taxed in the hands of the recipient under Section 176(4) and not included in the assessment of the estate under Section 168.

4. Precedent and Applicability of Judicial Decisions:
The Department relied on the Madras High Court's decision in CIT v. Vishwanath Shastri's Estate, which supported taxing the executor as the recipient under Section 176(4). However, the Tribunal found that this decision was not applicable as it pertained to discontinuance on death, not retirement followed by death. The Tribunal also noted that the Bombay High Court's decision in CIT v. Late F. Summersgill, which treated similar receipts as capital, was applicable. The Tribunal further distinguished the case from the Calcutta High Court's decision in CIT v. R.M. Dutta and the Supreme Court's decision in N.A. Mody v. S.A.L. Narayana Row, CIT, emphasizing the need to determine the nature of the receipt under the specific facts of the case.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 1,10,856, concluding that the amount was a capital receipt and not taxable as income of the estate under Section 168. The Tribunal also clarified that Section 176(4) could not be invoked to include the amount in the estate's assessment and emphasized the need to assess such receipts in the hands of the recipient under the appropriate provision. The appeal by the Department was dismissed.