Tapuriah Jain & Associates

KARNATAKA HIGH COURT

MRS. JUNE PERRETT DAUGHTER OF LATE…. VS. THE INCOME TAX OFFICER

DATED : 15.11.2007

Summarised Judgement (Scroll for Complete Judgement)

Introduction :

The assessee is one of the daughters of one A.W.S. Barnard. A.W.S. Barnard died leaving behind a Will appointing one Mrs. Elsie F. Barnard, Mr. Robin Alexander Barnard and Mr. David Barnard, as executors, who were all residents of United Kingdom. A.W.S. Barnard owned a residential house situated in Bangalore.

As per the Will, the executors were required to obtain probate of the Will and thereafter sell the residential property and divide the sale proceeds and distribute the same to the three sons and a daughter of A.W.S. Barnard. After the death of A.W.S. Barnard, the executors filed probate proceedings and obtained the probate by paying a court fee of Rs. 1,23,000 towards letter of administration.

Since the executors were residing in England, they were forced to come to India in order to settle the matter. The probate proceedings were opposed by one of the sons of A.W.S. Barnard. Therefore, there was a long-drawn litigation. Further, the house was illegally occupied by a maid-servant.

In order to secure the vacant possession of the property, the executors were forced to file an Eviction Petition in Bangalore and ultimately they succeeded in Court. Accordingly, the possession was obtained. After obtaining the possession and after clearing all the litigation pending over the house property, it was sold on 23.11.1995 for a total consideration of Rs. 1,18,46,850/-.

Facts of the Case :

The assessee being a daughter of A.W.S. Barnard, received 1/4th of the sale proceeds of the house, filed return of income for the assessment year 1996-97 showing 1/4th of the capital gains. While computing capital gains, she claimed certain expenditures incurred by the executors towards litigation expenses, travelling expenses incurred by them to travel from England to India and their stay at Bangalore and the fee paid to the Lawyers towards litigation expenses.

The expenses claimed by the assessee while computing the capital gains, was rejected by me Assessing Officer. Against the said order, she filed an appeal before the Commissioner of Income Tax (Appeals), which appeal was also allowed in part denying the expenses incurred towards legal and professional taxes, executors expenses in India, executors expenses in England and the Court fee paid to obtain letter of administration. Against the order of the Commissioner of Income Tax (Appeals), an appeal was filed before the Tribunal and the same has also been rejected.

Against the concurrent findings of the authorities below, the present appeal is filed, raising the following substantial question of law:

Whether the assessee can claim deduction incurred by her while computing capital gains under Section 48(1) of the Income Tax Act towards the expenses incurred by the executors for legal and professional charges and court fee expenses?

Observation of Court : 

After hearing the parties, we have noticed that the real owner of the property in question late A.W.S. Barnard had executed a Will. The executors who were residing in London were required to obtain the probate and the letter of administration and any expenditure incurred by the executors in order to obtain the probate and the letter of administration are to be treated as expenses incurred by them in connection with the transfer of property in question, since the executors could not sell the property to any party without a letter of administration. Admittedly, the person executed the Will was a Christian. When a Christian has executed a Will, without there being a probate, the letter of administration will not be granted to the executors. 

Therefore, the department cannot expect the executors to spend the money from their pocket in order to obtain the letter of administration. Therefore, the amount spent by the executors to obtain probate and letter of administration has to be treated as expenditure incurred to transfer the property. Similarly, without paying the court fee, no letter of administration would be issued by the court. Therefore, Rs. 1,23,000/- paid by the executors as court fee at the time of obtaining the letter of administration has to be treated as expenditure incurred in connection with the transfer of property.

Then the last question to be considered by us is, whether the amount spent by the executors to secure an order of eviction to evict unauthorised occupant has to be treated as expenditure in connection with the transfer of property?

The executors could have sold the property even without evicting the unauthorised occupant. If such an attempt were to be made by the executors, no man of prudence would have come to buy the property, since the unauthorised occupant were claiming adverse possession of the property. In order to clear the cloud cast on the property, me executors were required to file a civil suit. Any expenses incurred in connection with such suit has to be treated as expenditure in order to transfer the property. 

Our view is supported by the judgment of the Bombay High court in the case of Commissioner of Income Tax (Appeals) v. Miss. Piroja C Patil reported in : [2000]242ITR582(Bom) . In the aforesaid case, certain eviction proceedings were initiated to evict the unauthorised occupant from the land. Due to eviction of the unauthorised occupant from the house, the value of the property was increased and the expenditure incurred for vacating the land has been treated as cost of improvement. Similarly, in this case also, if the unauthorised occupant had not been evicted, the value of the property would have been decreased instead of increasing. 

Therefore, we have to treat the expenditure incurred by the executors to evict the unauthorised occupant as an amount spent towards cost of improvement of the property. In the circumstances, we have to answer the question of law framed in favour of the assesse.

In so far as the judgment relied upon by the revenue is concerned, in the aforesaid case a sum of Rs. 41,507/- was claimed by the assessee towards lawyer fee travelling expenses and damages for wrongful detention of the property. The Court, while doubting the genuineness of the claim of the assessee therein has rejected the contention of the assessee.

Here the Assessing Officer or the Commissioner of Income Tax (Appeals) are not doubting the claim made by the assessee. But the contention of the Assessing Officer in the instant case is that the amount claimed by the assessee are not in connection with the transfer of the property. Therefore, the judgment relied upon by the revenue has no application to the facts and circumstances of this case. In the result, the questions of law raised in this appeal are answered in favour of the appellant.

Judgement :

Accordingly, this appeal is allowed by holding that the assessee is entitled to claim deduction of the amount incurred towards legal and professional tax, executors expenses in England and India and the court fee expenses.

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KARNATAKA HIGH COURT

MRS. JUNE PERRETT DAUGHTER OF LATE…. VS. THE INCOME TAX OFFICER

DATED : 15.11.2007

Case Number : ITA No. 181 of 2002

Judge : K.L. Manjunath and ;Arali Nagaraj, JJ.

Prouncement : 15^th November, 2007

Judgment :

1. This Petition by the sole surviving executor raises a question which is as interesting as it is difficult. The sole surviving executor appointed under the Will and the grantee of the Probate seeks from this Court in its testamentary jurisdiction, an order, appointing another person, not being an executor, to administer the estate jointly with him. Can such an order be made?

2. Framroze Dinshaw Bilimoria, the Petitioner herein, and Chinubhai Nagindas Mehta were the executors and trustees appointed under the Will and Codicil respectively, dt. 13/2/1957 and 25/11/1965, executed by Hirjeebhoy Dinashaw Bilimoria. In testamentary Petition No. 265 of 1968, the probate of the Will was granted to the Petitioner and Chinubhai Mehta --- Framroze Bilimoria, the third executor, having died during the pendency of the petition. The probate is dt. 10th March, 1989. After the death of Chinubhai Mehta on 10th May, 1989, the Petitioner is the sole surviving executor of the estate of the deceased, Hirjeebhoy Bilimoria.

The Petitioner, 89 years of age, seeks a direction under S. 302 of the Succession Act that in the interest of the estate and the beneficiaries, some fit and proper person be 'appointed to act along with the Petitioner'.

3. The Petitioner seeks the appointment of a person not being an executor to 'act' jointly with him. Whether such an appointment could be made by the Court exercising testimentary jurisdiction may be considered in the light of the provisions of the Succession Act.

'Executor' of a Will is the person to whom the execution of the Will of a deceased is, by the testator's appointment, confided. He administers the estate by virtue of the grant made in his favour by the probate. There are only two ways of rightfully administering the estate of a deceased. It may be done by virtue of the Letters of Administration which are granted in cases of intestacy. 

The Letters of Administration may also be granted when a testator dies leaving a Will but without naming an executor or if there be an executor, such executor is legally incapable, or refuses to act or dies before the Will is proved. So also when a proving executor dies without fully adminstering the estate, the Letters of Administration with the Will annexed may be granted. The substance of the matter is that only a person who is granted the legal right to administration can administer the estate.

4. Consider the nature of the appointment sought in this petition. The petitioner who is administering the estate as an executor appointed by the Will wants the Court to 'appoint to act along with the Petitioner'. It is clear that the Petitioner due to his age wants someone to assist him. That is why he seeks the direction to appoint someone to 'act'. The capacity of the person sought to be appointed needs to be understood. Prayer (a) of the petition is revealing. The Petitioner wants such person to 'act along with' him, for the purposes set out therein. The prayer proceeds to state the purpose of such appointment. Such person shall have 'power to prosecute all pending proceedings and to give effectual discharge on behalf of the estate.'

After the grant of probate, the power to prosecute legal proceedings belongs only tothe executor and no other person. The executor as the legal representative can give discharge on behalf of the estate. Therefore, the Petitioner seeks the appointment of another person to perform the duties and exercise the powers of an executor.

5. The deceased confided into the hands of the executor, the administration of his estate. I have carefully and anxiously endeavoured to discover whether the Court exercising testamentary jurisdiction can authorise by the stamp of its sanction the appointment of any other person to 'act along with' the executor for the purpose of administration of the estate. The executor, besides being the chosen confidante of the testator, has a unique position. He derives his title from the Will. He is the legal representative of the estate. After the probate is granted, as in this case, the powers of execution vest in the executor or the surviving executor. 

Even when all the executors die, the estate cannot he represented except by-appointment of a new representative for administering the estate. No such representation can be granted as long as there is an executor who continues the chain of representation.

The rule applicable in the case of death of one or more executors has been stated in unmistakable terms. The powers of representation vest in the surviving executor except in the cases in which the Will contains 'any direction to the contrary'. There is no such 'direction to the contrary' in the Will of the deceased Therefore, in this case, no one except the Petitioner can 'act' to administer the estate.

6. It is clear from the scheme of the relevant provisions of law that the acts of representation of the estate of the deceased can be done only by the executor. 

That is why the probate shall be granted only to an executor; the grantee of the probate alonecan sue or prosecute am suit or otherwise act as representative of the deceased', and upon the death of one of several executors', the obligation to administer accrues to the surviving executors. The sanctity of the Will and therefore, of the appointment of executor is highlighted by the law which declares that the probate shall be granted 'only to an executor appointed by the Will'.

In the circumstances of this case, permitting anyone except the Petitioner to act even jointly with him to do the acts set out in the petition and summarised in paragraph 4 of this judgment is to permit such appointee to represent the estate. I am afraid, the petition cannot be allowed without deviating from the law laid down in the Succession Act. Therefore, as long as one of the joint grantees of the probate is alive, no one can be appointed to 'act' with him for doing acts of administration of the estate.

7. This petition is for direction under S. 302 of the Succession Act. Such directions must necessarily be 'in regard to the estate or in regard to the administration thereof' These words limit the authority of the Court to question arising between executors or between executors and legatees, and which relate, to the administration of the estate. What the Petitioner seeks is beyond the scope of the administration of the estate. 

He seeks a direction that a person who is not appointed executor by the Will be permitted to do acts which are in the exclusive authority of the executor. Such a direction is clearly beyond the advisory scope of S. 302 of the Succession Act - for, it seeks to entrust the administration of the estate to a person not named by the testator and who is not in law entitled to administer the estate of the deceased.

8. Petition is dismissed.