1982 (3) TMI 78 - AT - Income Tax

Issues Involved:

1. Interpretation of the will and its implications on the distribution of the testator's estate.
2. Assessment of wealth-tax and income-tax in the hands of the executor versus the legatees.
3. Validity of reopening assessments under section 147(a)/148 of the Income-tax Act.

Issue-Wise Detailed Analysis:

1. Interpretation of the Will and Its Implications:

The testator executed a will on 14-7-1965, which included several clauses regarding the distribution of his movable and immovable properties worth Rs. 5,83,771. Clause 6 specified that all properties should be handed over to his grandson, Bharatkumar Upendrabhai Patel, or equally shared with another grandson if born. If both grandsons were minors at the testator's death, his son, Upendrabhai Maganbhai Patel, was appointed as executor to manage the estate until they reached majority. Clause 7 mandated immediate distribution upon the testator's death, while Clause 8 assigned the responsibility for estate duty and taxes to the HUF of Upendrabhai Maganbhai Patel. Clause 11 reiterated that Upendrabhai should take charge of the properties immediately after the testator's death and distribute them per Clause 6.

2. Assessment of Wealth-Tax and Income-Tax:

For the assessment years 1973-74 to 1977-78, the minor grandson, Nimish U. Patel, filed wealth-tax returns disclosing various amounts. The WTO included the legatee's share in the net wealth, arguing that the distribution should occur immediately after the testator's death per the will. The assessee contended that the estate was still managed by the executor and should be assessed under section 168 of the Income-tax Act and section 19A of the Wealth-tax Act. The AAC upheld the WTO's view, citing the immediate effect of the will upon the testator's death.

For the assessment year 1975-76, Upendrabhai Maganbhai Patel filed a wealth-tax return as HUF. The WTO and AAC included the assets per the will in the net wealth of the assessee. For the assessment years 1973-74 to 1975-76, Upendrabhai filed returns as executor, and the WTO completed assessments on a protective basis, which the AAC upheld.

3. Validity of Reopening Assessments Under Section 147(a)/148:

For the assessment years 1974-75 to 1977-78, the ITO initiated proceedings under section 147(a)/148, believing income escaped assessment. The ITO included the income from the estate in the legatee's hands, which was not disclosed in the original returns. The AAC upheld the ITO's decision. The assessee argued that the estate was under the executor's administration, and assessments should be made on the executor under section 168.

Tribunal's Findings:

The Tribunal examined the scope of section 168 and section 19A of the Wealth-tax Act. Under section 168, the income of the estate of a deceased person is chargeable to tax in the executor's hands until complete distribution to the beneficiaries. The Tribunal noted that the estate duty assessment was completed only on 17-3-1978, indicating that the administration was not complete during the relevant valuation dates and accounting periods. The will appointed Upendrabhai as executor, and he managed the properties on behalf of the minor legatees.

The Tribunal concluded that the assessments should be made on the executor until the administration is complete. The initiation of proceedings under section 147(a) was deemed invalid as the income should be assessed in the executor's hands under section 168.

Disposition of Appeals:

- WT Appeals Nos. 251, 252, and 253: The assessments were completed on a protective basis. The Tribunal held that the assessments should be final and not on a protective basis, allowing the appeals for statistical purposes.
- WT Appeals Nos. 255, 256, 257, 258, and 259: The assessments were made in the hands of legatees. The Tribunal set aside the WTO and AAC orders, directing assessments in the executor's hands under section 19A.
- WT Appeal No. 254: The assessment was made in the status of HUF. The Tribunal set aside the assessment order, directing assessments in the executor's individual capacity under section 19A.
- IT Appeals Nos. 674, 675, 676, and 677: The Tribunal found the initiation of proceedings under section 147(a) invalid. The assessments were set aside, directing assessments in the executor's hands under section 168.

Result:

All the appeals were decided in favor of the appellants, with assessments to be made on the executor under section 168 of the Income-tax Act and section 19A of the Wealth-tax Act.

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