1979 (4) TMI 19 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of arrears of professional fees received by the executor after the death of the deceased.
2. Applicability of Section 168 of the Income Tax Act, 1961.
3. Applicability of Section 176(4) of the Income Tax Act, 1961.
4. Interpretation of "income of the estate" under Section 168.

Issue-wise Detailed Analysis:

1. Taxability of arrears of professional fees received by the executor after the death of the deceased:
The primary issue was whether the arrears of professional fees received by the executor after the death of the deceased could be taxed in the hands of the executor. The Tribunal held that the arrears of professional fees due to the deceased could not be considered as the income of the estate under Section 168 of the I.T. Act, 1961. Instead, these arrears should be taxed as deemed income in the hands of the recipient, Sri V. Ratnam, under Section 176(4).

2. Applicability of Section 168 of the Income Tax Act, 1961:
Section 168(1) states that the income of the estate of a deceased person shall be chargeable to tax in the hands of the executor. However, the Tribunal and the High Court concluded that the arrears of professional fees could not be treated as income from the estate of the deceased. The legal fees due to the deceased at the time of his death are part of his estate and cannot be treated as income of the estate under Section 168. The court emphasized that the income of the estate of a deceased person alone is chargeable to income-tax in the hands of the executor, not the estate itself.

3. Applicability of Section 176(4) of the Income Tax Act, 1961:
Section 176(4) provides that any sum received after the discontinuance of a profession due to the death of the person carrying on the profession shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt. The Tribunal and the High Court agreed that the arrears of professional fees should be taxed under Section 176(4) in the hands of Sri V. Ratnam as the recipient, not as the executor. This interpretation aligns with the legal fiction created by Section 176(4), deeming the professional income received after death as the income of the recipient.

4. Interpretation of "income of the estate" under Section 168:
The court clarified that the arrears of professional fees due to the deceased, which were realized later, could not be considered as income from the estate. The arrears of fees are part of the estate and their recovery cannot be treated as income of the estate. The court rejected the revenue's argument that the debts outstanding on the date of the deceased's death should be considered income from the estate of the deceased.

Conclusion:
The High Court upheld the Tribunal's view that the arrears of professional fees received by the executor could not be included in the income of the estate of the deceased under Section 168. Instead, these arrears should be taxed as deemed income in the hands of the recipient, Sri V. Ratnam, under Section 176(4). The reference was answered in favor of the assessee, with no order as to costs.