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TMI Blog1998 (4) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... es "A" to "C" to the will. "A" Schedule consisted of immovable properties as well as certain amounts standing in the capital and current accounts of the firm. "A" Schedule was left to the wife of the late Savudappa Gounder and his two minor children, S. Ganesan and S. Savudeswari. "B" Schedule was left to the other relatives of the deceased. The executor, Savudappan, was empowered to continue the partnership business to operate the business accounts in Lakshmi Vilas Bank, to invest in business and to improve the wealth of the estate with a condition that he should hand over the estate after the minor children attained majority. The minor children were admitted to the benefits of the partnership and the capital contribution for the admission to the benefits of the partnership was made by withdrawing the amounts of the deceased in the firm. The executor filed the return of income admitting only the interest income paid by the firm, viz., K. Nallayan Gounder and A. Savudappa Gounder, on the credit balance in the books of the said firm in the name of the deceased. The Income-tax Officer, however, included the share income arising to the minors from the sums along with the other incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and even if there was nexus or connection, according to the Appellate Tribunal, the executor has assumed the character of a trustee in receiving the interest of the minors in the partnership. The Tribunal also noticed the fact that the share income was separately assessed in the hands of the minors subsequently. Placing reliance on the provisions of section 168(4) of the Income-tax Act, the Appellate Tribunal held that there was an application of income for the benefits of the legatees and the share income of the minors derived from the partnership could not be regarded as income derived by the executor in the course of administration of the estate. Applying the principle laid down in CIT v. Prem Bhai Parekh [1970] 77 ITR 27 (SC), the Tribunal held that the connection between the income and the contribution was so remote which would not justify their inclusions. The Tribunal, therefore, held that the Income-tax Officer was not justified in holding that the minors' share income from the firm and the income of the estate should be clubbed. The order. was followed by the Appellate Tribunal in deciding the wealth-tax assessments in favour of the assessee and in this view of the matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Act has no application on the facts of the case as the said section deals with the income of the estate distributed or applied for the benefits of any specific legatee and in the instant case, the capital contributed cannot be regarded as income of the estate distributed to a specific legatee so as to attract the provisions of section 168(4) of the Income-tax Act. He further submitted that it is not a case falling within the scope of section 64 of the Income-tax Act, but it is a case under section 168(1) of the Income-tax Act. Mr. R. Janakiraman, learned counsel for the assessee, on the other hand, submitted that the executor shed the character of executor and received the share income in the capacity of trustee of the minors. He also submitted that the minors were admitted to the benefits of the partnership as per the wishes of the testator and it is not a condition precedent for the minors for being admitted to the benefits of the partnership to contribute the capital and it is not correct to assume that the share income accrued to the minors because of their capital contribution. He also submitted that if the executor was taken as a partner, he has to share the loss, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the legatees when the minors attained majority, but the fact remains that the distribution of funds towards capital contribution of the minors was made in accordance with the wishes of the testator contained in the will. It was found that the funds left for the minors and their mother were laid partly in the capital accounts of the deceased and partly in the current accounts and by making necessary entries in the books of the account, the executor had given effect to the wishes of the testator. We are of the opinion that there is no nexus between the capital contribution and the profits earned by the firm. The share income arises to the minors not only by admission of the minors to the benefits of the partnership, but also by contribution of capital and physical labour of other partners and, therefore, it cannot be stated that from the mere fact that the fund for the capital contribution flowed from the estate, the entire share income arose to the minors, directly by virtue of admission to the benefits of the partnership. Further, by transferring a portion of the funds belonging to the deceased making it a part of the capital of the minors, the executor was divested of his title ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that the inclusion of share income from the firm in the estate was not justified and the Tribunal has come to the correct conclusion. Further, once we reach the conclusion that the capital contribution made on behalf of the minors was independent of the admission of the minors to the benefits of the partnership, it cannot also be stated that the executor received the income from the estate in his character, or capacity only of an executor of the estate. The executor by making necessary transfers in favour of the minor children had transferred the money in favour of the minor children and the money ceased to be a part of the estate and the money cannot be said to have been received by him in his capacity as an executor. In our opinion, the executor received the money as a trustee as he was not administering the properties of the estate and received the share income from the firm in his character as an executor. Learned counsel for the Revenue relied upon a decision of this court in CIT v. T. G. K. Raman [1995] 214 ITR 11, and the decision of the Supreme Court in the case of CIT v. M. R. Doshi [1995] 211 ITR 1. In our opinion, those decisions have no application to the facts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue because it was found that share income was assessed in the hands of the minors separately. We have no difficulty in accepting the submission made on behalf of the Revenue that merely because an assessment was made in the hands of the minors, it would not in any way preclude the Department from taxing the right person, if the facts so warrant. We have held that there is no connection between the share income and the capital contribution and in the absence of any nexus, the decisions relied upon by learned counsel for the Revenue need not be examined in detail except to state that they are not applicable to the facts of the case. The Tribunal, in our view, has come to the correct conclusion in holding that the Income-tax Officer was not justified in clubbing the minor's share income from the firm with the income of the estate. We also hold that since section 168(1) of the Act is not applicable it is not necessary to consider whether section 168(4) of the Act would apply to the facts of the case. Accordingly, we answer the questions of law in both the batch of cases in the affirmative and against the Department. However, in the circumstances of the case, there will be no order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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