1969 (11) TMI 24 - HC - Income Tax

Summary

Issues Involved:
1. Administration of the estate and payment of estate duty.
2. Executor's role and transition to trustee.
3. Jurisdiction and authority of the Income-tax Officer.
4. Application of Section 160 vs. Section 168 of the Income-tax Act, 1961.
5. Judicial intervention in the assessment process.

Issue-wise Detailed Analysis:

1. Administration of the Estate and Payment of Estate Duty:
The testator, Ramkumar Bangur, passed away in 1961, leaving a will that appointed his nephew, Gobind Lal Bangur, as the executor and trustee. The will directed the executor to pay all debts, funeral, and testamentary expenses, and set aside Rs. 4 lakhs for the widow. Up to the assessment year 1963-64, the estate was assessed on Gobind Lal Bangur as the executor. However, the executor had not yet paid the Rs. 4 lakhs to the widow or obtained probate due to unpaid estate duty. The respondent-Income-tax Officer argued that estate duty was not a debt outstanding at the time of death and should be paid by liable persons under the Act. The petitioner contended that without paying the estate duty, probate could not be obtained, and the administration of the estate was incomplete.

2. Executor's Role and Transition to Trustee:
The respondent-Income-tax Officer proposed that the executor was now holding assets as a trustee for the widow and the adopted son, Gokul Chand Bangur, since the execution of the will was complete. The petitioner objected, asserting that the administration was not complete as the legacy to the widow had not been paid or assented to. The court referenced the principle that executors become trustees only after the estate is fully administered, debts and legacies are paid, and the residue is ascertained.

3. Jurisdiction and Authority of the Income-tax Officer:
The court acknowledged that the Income-tax Officer had jurisdiction to make the assessment and could choose to assess under Section 160 or Section 168. The issue was whether the officer was proposing to act in a manner not sanctioned by law. The court emphasized that the officer must give the petitioner an opportunity to be heard and could be prohibited from proceeding in a manner not permitted by law.

4. Application of Section 160 vs. Section 168 of the Income-tax Act, 1961:
Section 160 pertains to the assessment of a representative assessee, including trustees, while Section 168 deals with the assessment of executors. The court noted that until the estate is fully administered, the executor remains in charge and does not become a trustee. The respondent's insistence on assessing under Section 160 was not based on legal principles, as the administration was incomplete, and the executor had not transitioned to a trustee.

5. Judicial Intervention in the Assessment Process:
The petitioner sought the court's intervention to prohibit the Income-tax Officer from making the assessment under Section 160. The court referenced a Supreme Court decision that allowed prohibition if an officer acted without jurisdiction. However, in this case, the officer had jurisdiction but was proposing to act in a manner not sanctioned by law. The court decided not to interfere at this stage, as the petitioner could object during the assessment process, and any unlawful order could be challenged later.

Conclusion:
The court discharged the rule and vacated all interim orders, directing the Income-tax Officer to act according to law in making the proposed assessments for the years 1964-65 and 1965-66. The order's operation was stayed for a fortnight after the vacation, and no costs were awarded.