1967 (2) TMI 1 - SC - Income Tax

High Court held that the IT authorities could not impose tax until the claim of Bihar estate as vesting of Estate was decided as the suit was pending - order of HC is set aside - It is not possible to hold that the estate of Bettiah has escheated to the State of Bihar. It is obvious that in case of such escheat there can be no assessment to income-tax. The position will be clarified after the appeal disposed of

Summary

Issues:
1. Assessment of income from Bettiah Estate on the Manager of Court of Wards.
2. Taxability of the income at maximum rates under section 41(1) of the Income-tax Act.

Detailed Analysis:
Issue 1: The case involved the assessment of income from the Bettiah Estate on the Manager of the Court of Wards. The estate was under the management of the court of wards following the death of the last holder. A dispute arose regarding the succession to the property, with a claim made by Suresh Nandan Sinha alleging to be the nearest heir of the deceased Maharani. The Income-tax Officer assessed the income on the manager of the court of wards for the assessment year 1956-57. The Government of Bihar claimed that the estate had vested in the State Government by escheat. However, the Income-tax authorities held that there was uncertainty regarding the ultimate heir due to pending litigation.

Issue 2: The second issue pertained to the taxability of the income at maximum rates under section 41(1) of the Income-tax Act. The Appellate Tribunal observed that without a notification from the Government confirming the escheat of the estate to the State of Bihar, it was uncertain who the ultimate heir would be. The High Court, considering the constitutional provisions and the pending litigation, held that the Income-tax authorities could not impose tax on the Manager of Court of Wards without determining the claim of escheat by the State of Bihar. Consequently, the first question was answered in favor of the assessee, and the second question was deemed academic.

The Supreme Court set aside the judgment of the Patna High Court, emphasizing that the assessment proceedings should be finalized after the disposal of the pending litigation regarding the heirship of the Bettiah Estate. The Court left open the question of whether the estate had escheated to the State of Bihar, with costs of the appeal to be determined based on the outcome of the escheat issue. The decision highlighted the importance of resolving the pending litigation to clarify the tax implications on the estate.