1991 (10) TMI 2 - SC - Income Tax

Whether the Income-tax Appellate Tribunal was right in law in holding that half share of the income in respect of the estate of late Shri Balabhai Damodardas was not taxable in the hands of the assessee when the estate was being administered by Shri Sakarlal Balabhai, having regard to the provisions of section 168 - it is difficult to accept the conclusion of the High Court that the administration must be deemed to have come to an end in the face of the factual findings

Issues Involved:

1. Proper mode of assessment of the income from the properties left by Balabhai Damodardas.
2. Applicability of section 168 of the Income-tax Act, 1961.
3. Status of Sakarlal Balabhai as an executor.
4. Impact of estate duty liabilities on the administration of the estate.
5. Determination of whether the administration of the estate was complete.

Detailed Analysis:

1. Proper Mode of Assessment of the Income from the Properties Left by Balabhai Damodardas:

The core issue was whether the income from the estate of Balabhai Damodardas should be assessed in the hands of his grandsons or the executor, Sakarlal Balabhai. The Tribunal found that the estate was under administration until August 5, 1970, and hence, the income should be assessed in the hands of the executor, not the beneficiaries. The Supreme Court supported this view, noting that the administration of the estate was not complete during the assessment years in question.

2. Applicability of Section 168 of the Income-tax Act, 1961:

Section 168 outlines the taxation procedure for the income of a deceased person's estate. The Supreme Court emphasized that the income of the estate should be chargeable to tax in the hands of the executor until the estate is completely distributed to the beneficiaries. The Court noted that the Tribunal had correctly applied section 168, as the estate was still under administration.

3. Status of Sakarlal Balabhai as an Executor:

The High Court had previously debated whether Sakarlal Balabhai could be treated as an "executor" under section 159 of the Income-tax Act, 1961, given that no executor was named in the will. The Supreme Court agreed with the High Court's finding that Sakarlal Balabhai, who took charge of the estate and administered it voluntarily, was indeed an executor as per the Act.

4. Impact of Estate Duty Liabilities on the Administration of the Estate:

The Supreme Court addressed the argument that the estate duty liability was a personal liability of the residuary legatees and not part of the executor's duties. The Court disagreed, stating that the executor is accountable for the estate duty and that the administration of the estate cannot be considered complete until the estate duty liability is properly settled. This view was supported by references to English law and the Estate Duty Act, which make the executor accountable for the estate duty.

5. Determination of Whether the Administration of the Estate Was Complete:

The High Court had inferred that the administration of the estate was complete and that the residuary estate had been ascertained or was capable of being ascertained. However, the Supreme Court found this conclusion difficult to accept. The Court noted that the executor had several duties to perform, including dividing the movable and immovable properties and dealing with the deceased's share in a firm. The Tribunal had found that the estate was not distributed until August 5, 1970, and the Revenue had not challenged this finding. Therefore, the Supreme Court concluded that the administration was not complete during the relevant assessment years.

Conclusion:

The Supreme Court allowed the appeals and answered the question in the affirmative, stating that the High Court should not have interfered with the Tribunal's finding. The income from the estate of Balabhai Damodardas should be assessed in the hands of the executor, Sakarlal Balabhai, until the estate was fully administered and distributed to the beneficiaries. The assessee was entitled to costs.

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