1980 (7) TMI 29 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the assessment order dated January 24, 1972, under s. 263 of the I.T. Act, 1961.
2. Inclusion of income from the estate of the deceased in the personal assessment of the assessee.
3. Jurisdiction of the Commissioner of Income-tax under s. 263 of the I.T. Act, 1961.

Summary:

1. Validity of the assessment order dated January 24, 1972, under s. 263 of the I.T. Act, 1961:
The Income-tax Officer (ITO) made three separate assessments for the assessment year 1971-72: one for the period from January 1, 1970, to May 18, 1970, in the hands of the assessee as the legal heir u/s 159 of the Act, another for the period from May 18, 1970, to December 31, 1970, in the hands of the assessee as the executor u/s 168 of the Act, and a third in the individual capacity of the assessee. The Commissioner of Income-tax found the personal assessment order erroneous and prejudicial to the interests of the revenue, as it did not include the income derived from the inherited assets from May 18, 1970, to March 31, 1971. The Tribunal, however, disagreed with the Commissioner, stating that the ITO's order was not erroneous and that the Commissioner could not assume jurisdiction u/s 263.

2. Inclusion of income from the estate of the deceased in the personal assessment of the assessee:
The Commissioner argued that the income from the estate should be included in the personal assessment of the assessee. The Tribunal held that the income received by an executor during the administration of the estate belongs to the executor and is assessable in his hands as an executor u/s 168, not in his personal capacity. The Tribunal cited several judicial decisions supporting this view, including V. M. Raghavalu Naidu and Sons v. CIT [1950] 18 ITR 787 (Mad) and Administrator-General of West Bengal for the Estate of Raja P. N. Tagore v. CIT [1965] 56 ITR 34 (SC).

3. Jurisdiction of the Commissioner of Income-tax under s. 263 of the I.T. Act, 1961:
The Tribunal found that the Commissioner's assumption of jurisdiction u/s 263 was not justified. The Tribunal observed that the executor retains his dual capacity and must be assessed as an executor in respect of the income received from the estate of the deceased, irrespective of being the sole beneficiary. The Tribunal also noted that the Commissioner's observations about the assessee delaying the administration of the estate were based on mere surmises without evidence.

Conclusion:
The High Court affirmed the Tribunal's decision, answering the referred question of law in the affirmative, i.e., in favor of the assessee and against the revenue. The Court held that the income received by the executor during the administration belongs to him and is assessable as such, and the Commissioner erred in cancelling the assessment u/s 263. The Court also dismissed the revenue's contention regarding the inclusion of income accrued to the deceased during his lifetime, as it was not part of the referred question of law. The reference was answered with costs in favor of the assessee.