1981 (8) TMI 45 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of income from properties in the United Kingdom in the hands of the executors of the estate in India.
2. Validity of assessment without the presence of all executors.
3. Applicability of Section 168 of the Income Tax Act, 1961, when executors assume the character of trustees.

Detailed Analysis:

Issue 1: Taxability of Income from Properties in the United Kingdom
The court addressed the question of whether the income from properties in the United Kingdom could be taxed in the hands of the executors of the estate in India. The executors argued that since the deceased Maharaja executed two separate wills for properties in different countries, appointing distinct sets of executors, the estates should be treated separately. The court rejected this argument, stating that the estate of a deceased person does not split into separate estates based on the appointment of different executors for properties in different countries. The court emphasized that the estate remains a single entity for tax purposes, and the income from the entire estate, whether situated in India or abroad, can be taxed in the hands of the executors as an association of persons under Section 168 of the Income Tax Act, 1961.

Issue 2: Validity of Assessment Without Presence of All Executors
The court examined whether the assessment was valid given that not all executors were served with notice or present before the assessing authority. The court noted that the executors of the estate in India had furnished relevant information about the income from properties abroad and allowed the assessment to proceed without objection. The court held that since the executors did not raise any objection at the appropriate time, they effectively waived their right to contest the inclusion of foreign income in the assessment. The court concluded that the assessment was valid even without the presence of all executors, as the procedural lapse did not affect the inherent jurisdiction of the taxing authority.

Issue 3: Applicability of Section 168 When Executors Assume Character of Trustees
The court considered whether Section 168 applies when executors assume the character of trustees. The court explained that Section 168 deals with the assessment of the income of the estate of a deceased person in the hands of the executor from the date of death until the complete distribution of the estate. The court noted that an executor may become a trustee by the manner of his dealings with the estate, and once the administration is complete, the executor becomes functus officio and assumes the character of a trustee. In such cases, Section 168 would no longer apply. However, since the Tribunal had not considered this aspect and the factual details were not fully examined, the court declined to answer this question and left it to the Tribunal to re-examine the issue in light of the legal principles discussed.

Conclusion:
The court concluded that the income from the entire estate, including properties in the United Kingdom, could be taxed in the hands of the executors in India under Section 168. The assessment was valid despite the absence of all executors, as the procedural lapse did not affect the jurisdiction. The court declined to answer the question regarding the applicability of Section 168 when executors assume the character of trustees, leaving it to the Tribunal to re-examine the issue. Each party was ordered to bear its own costs of the reference.