ALLAHABAD HIGH COURT

CIT VS. A.M.L. PRICE

DATED : 23.04.2007

Summarised Judgement (Scroll for Complete Judgement)

Introduction :

The assessee along with his two brothers, namely Sarvasri P.A.G. Price and J.A.W. Price, was the owner of the building 'Royal Hotel', 56-58, The Mall, Meerut Cantt., each having 1/3rd share in it. Sri A.M.L. Price was a resident of UK and the remaining two brothers were carrying on the hotel business, known as 'Royal Hotel', in partnership having equal shares therein. Sri A.M.L. Price was only realising the rent of Rs. 500 per year for use and occupation of the building by the remaining two brothers. Sri P.A.G. Price died intestate in the year 1977 and his share was inherited by his surviving brothers. Thus, they became the owners to the extent of half share each in the building.

Facts of the Case :

The business of Royal Hotel, after the death of Sri P.A.G. Price, had been taken over and continued by the remaining partner. Sri J.A.W. Price, became the sole proprietor of the Royal Hotel. Sri J.A.W. Price died on 25th July, 1979. He executed a will in favour of one Mrs. Essma Jones, resident of UK, and also appointed executors, namely, Sri H.A. Sarkies and Shri A.M.L. Price (assessee). It is a matter of record that the probate could not be obtained from the Court of competent jurisdiction as necessary steps were not taken. The application for probate was rejected on technical grounds and not on merits.

Before the tax authorities, the assessee's case was that since probate was not granted for technical reasons, the will continued to hold the field and, therefore, in terms of the said will, it was the executor or administrator, as the case may be, of the deceased, who would be the legal representative for all purposes and further the property of the deceased person vested in him in view of Section 211 of the Indian Succession Act. It was accordingly claimed that the half share in the property of the hotel and income thereof was assessable in the hands of the executors since there was no administrator appointed by the Court.

The AO rejected the plea and treated the will as invalid on the ground that the application for probate had been rejected by the Court. According to the-AO, the assessee who was the sole surviving brother of Sri J.A.W. Price, was the legal heir and the entire income from the property in question was assessable in his hands. The Dy. CIT(A) upheld the orders of the AO.

In appeal, the Tribunal opined that since the probate application had been rejected on technical ground, the will still held the field. The Tribunal further held that the order of the II Addl. District Judge rejecting the application for probate did not operate as res judicata in view of the decision of the apex Court in the case of Sheodan Singh v. Daymo Kunwai : [1966]3SCR300.

Referring to Sections 211 and 213 of the Indian Succession Act, the Tribunal opined that Section 213 was not applicable whereas Section 211 referred to the executor or administrator, as the case may be, as his legal representative for all purposes and vested in him all the property of the deceased as such.

The Tribunal also referred to Section 168 of the Act, which provided that subject to the provisions contained in that section, the income of the estate of a deceased person shall be chargeable to tax in the hands of the executor or executors and this being a case where the executor had been named in the will left by the deceased and which had not been declared as non-genuine by a Court of competent jurisdiction under the Indian Succession Act.

The Tribunal, therefore, held that the half share of the income from the estate of the deceased could not be clubbed with the income of the assessee. The additions made by the ITO and confirmed by the Dy. CIT(A) were accordingly deleted.

Following questions of law :

1. Whether on the facts and in the circumstances of the case, the Tribunal was legally correct to hold that the share of income from the estate of the deceased was not includible in the hands of the assessee especially when the Will has not been administered and probate application stands rejected by the competent Court?

2. Whether the Tribunal was legally correct to hold that the will still holds the field even when the probate was not granted?

3. Whether the Tribunal was legally correct to hold that provisions of Section 213 of the Indian Succession Act were not applicable in proceedings before the IT authorities?

Observation of Court :

We find that the income of an estate of a deceased person is to be charged to tax in the hands of the executor by treating it to be an individual, if there is only one executor and if there are more than one executor, then as an AOP. It further provides that the assessment of an executor has to be made separately from any assessment that may be made on him in respect of his own income. Thus, for the purposes of the Act, the executor is treated to be a separate assessee other than his individual assessment.

In the present case, we find that the assessing authority has not followed the provisions of Section 168 of the Act and instead has assessed the income of the deceased in the individual hands of the respondent assessee by clubbing the same, which was not permissible under the law. As there were two executors mentioned in the will by the deceased, the assessment, if any, could have been made on the two executors' treating them to be an AOP and not on the individual.

Judgement :

Further, we are of the considered opinion that where the application for grant of probate is rejected by a competent Court on some technical grounds, such as, for want of steps, the will executed by the deceased does not cease. It is still in existence and, therefore, the respondent assessee will not inherit the property in his individual capacity as a natural heir, but shall be governed by the provisions of Section 211 of the Indian Succession Act and the assessment of income derived from the estate of the deceased is to be made under Section 168 of the Act.

The questions referred to us are, therefore, answered in favour of the assessee and against the Revenue.

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ALLAHABAD HIGH COURT

CIT VS. A.M.L. PRICE

DATED : 23.04.2007

Pronouncement : 23 April, 2007

Bench : R Agrawal, B Sapru

JUDGMENT R.K. Agrawal, J.

The Tribunal has referred the following questions of law under Section 256(1) of the IT Act, 1961 (hereinafter referred to as "the Act") for opinion to this Court:

1. Whether on the facts and in the circumstances of the case, the Tribunal was legally correct to hold that the share of income from the estate of the deceased was not includible in the hands of the assessee especially when the Will has not been administered and probate application stands rejected by the competent Court?

2. Whether the Tribunal was legally correct to hold that the will still holds the field even when the probate was not granted?

3. Whether the Tribunal was legally correct to hold that provisions of Section 213 of the Indian Succession Act were not applicable in proceedings before the IT authorities?

2. The reference relates to the asst. yrs. 1984-85 to 1986-87.

Briefly stated, the facts giving rise to the present reference are as follows:

The assessee along with his two brothers, namely Sarvasri P.A.G. Price and J.A.W. Price, was the owner of the building "Royal Hotel", 56-58, The Mall, Meerut Cantt., each having 1/3rd share in it. Sri A.M.L. Price was a resident of UK and the remaining two brothers were carrying on the hotel business, known as "Royal Hotel", in partnership having equal shares therein. Sri A.M.L. Price was only realising the rent of Rs. 500 per year for use and occupation of the building by the remaining two brothers. Sri P.A.G. Price died intestate in the year 1977 and his share was inherited by his surviving brothers. 

Thus, they became the owners to the extent of half share each in the building. The business of Royal Hotel, after the death of Sri P.A.G. Price, had been taken over and continued by the remaining partner. Sri J.A.W. Price, became the sole proprietor of the Royal Hotel. Sri J.A.W. Price died on 25th July, 1979. He executed a will in favour of one Mrs. Essma Jones, resident of UK, and also appointed executors, namely, Sri H.A. Sarkies and Shri A.M.L. Price (assessee). It is a matter of record that the probate could not be obtained from the Court of competent jurisdiction as necessary steps were not taken.

The application for probate was rejected on technical grounds and not on merits. Before the tax authorities, the assessee's case was that since probate was not granted for technical reasons, the will continued to hold the field and, therefore, in terms of the said will, it was the executor or administrator, as the case may be, of the deceased, who would be the legal representative for all purposes and further the property of the deceased person vested in him in view of Section 211 of the Indian Succession Act. 

It was accordingly claimed that the half share in the property of the hotel and income thereof was assessable in the hands of the executors since there was no administrator appointed by the Court. The AO rejected the plea and treated the will as invalid on the ground that the application for probate had been rejected by the Court. According to the-AO, the assessee who was the sole surviving brother of Sri J.A.W. Price, was the legal heir and the entire income from the property in question was assessable in his hands. The Dy. CIT(A) upheld the orders of the AO. In appeal, the Tribunal opined that since the probate application had been rejected on technical ground, the will still held the field.

The Tribunal further held that the order of the II Addl. District Judge rejecting the application for probate did not operate as res judicata in view of the decision of the apex Court in the case of Sheodan Singh v. Daymo Kunwai . Referring to Sections 211 and 213 of the Indian Succession Act, the Tribunal opined that Section 213 was not applicable whereas Section 211 referred to the executor or administrator, as the case may be, as his legal representative for all purposes and vested in him all the property of the deceased as such. 

The Tribunal also referred to Section 168 of the Act, which provided that subject to the provisions contained in that section, the income of the estate of a deceased person shall be chargeable to tax in the hands of the executor or executors and this being a case where the executor had been named in the will left by the deceased and which had not been declared as non-genuine by a Court of competent jurisdiction under the Indian Succession Act. 

The Tribunal, therefore, held that the half share of the income from the estate of the deceased could not be clubbed with the income of the assessee. The additions made by the ITO and confirmed by the Dy. CIT(A) were accordingly deleted.

3. We have heaid Sri R.K. Upadhaya, learned standing Counsel appearing for the Revenue. Nobody has appeared for the respondent assessee.

4. The learned standing Counsel submitted that the respondent assessee was named the executor in the will left by the deceased and the application for grant of probate has been dismissed for want of steps. According to him, under Section 211 of the Indian Succession Act, 1925, the executor of a deceased person is his legal representative for all purposes and all the properties of the deceased person vest in the executor and, therefore, the respondent was rightly assessed in respect of the income of the property left by the deceased. He also invited our attention to the provision of Section 168 of the Act, which provides for assessing the income of the deceased in the hands of the executor. 

He, therefore, submitted that the Department had rightly assessed the respondent treating him to be the executor of the deceased. He also placed reliance upon a decision of the apex Court in the case of Mrs. Hem Nolini Judah v. Mrs. Isolyno Sarojbashini Bose and Ors. , in which the apex Court has held that Section 213 of the Indian Succession Act creates a bar to the establishment of any right under a will by the executor or the legatee unless probate or letters of administration of the will have been obtained, whether that right is claimed by the person as plaintiff or defendant.

It is not in dispute that the respondent was having half share in the building "Royal Hotel" after the death of Sri P.A.G. Price who died intestate in the year 1977. Sri A.M.L. Price who is the respondent here, was only realising the rent of only Rs. 500 per year for use and occupation of the building by the remaining two brothers. After the death of P.A.G. Price, the hotel business had been taken over by J.A.W. Price who died on 25th July, 1979. He had executed a will in favour of one Mrs. Essma Jones, a resident of UK, and had appointed two executors, namely, H.A. Sarkies and Sri A.M.L. Price. Upon issue of notice under Section 148 of the Act, the respondent had filed his return of income showing an annual income of Rs. 500 per annum as income from the house property. However, the AO had added the entire income of the hotel at the hands of the respondent.

5. The question is as to whether where a probate has not been granted and the application has been rejected on some technical grounds, the respondent would inherit the entire property as a natural heir of the deceased or the estate would go to the person mentioned in the will.

6. In the case of Mrs. Hem Nolini Judah (supra) the apex Court while considering the provision of Section 213 of the Indian Succession Act, has held that a bar is created to the establishment of any right under will by an executor or a legatee unless probate or letters of administration of the will have been obtained. In the present case, the respondent is not claiming any right under the will. On the other hand, his case is that he has not inherited any property of the deceased in view of the will executed by him.

7. The present case would be governed by Section 211 of the Indian Succession Act which deals with the character and property of executor or administrator as such. For ready reference, Section 211 is reproduced below:

211. Character and property of executor or administrator as such.--(1) The executor or administrator, as the case may be, of a deceased person is his legal representative for all purposes, and all the property of the deceased person vests in him as such.

(2) When the deceased was a Hindu, Muhammadan, Sikh, Jaini or Parsi or an exempted person, nothing herein contained shall vest in an executor or administrator any property of the deceased person which would otherwise have passed by survivorship to some other person.

From a reading of the aforesaid provision, it is seen that the executor of a deceased person is his legal representative for all purposes, and all the property of the deceased person vests in him as such. Thus, for all practical purposes, the executor is to be treated to be the person in whom the property of the deceased vests as a legal representative.

8. Section 168 of the Act deals with the situation for assessment of the income of the estate of a deceased. It reads as follows:

168. Executors.--(1) Subject as hereinafter provided, the income of the estate of a deceased person shall be chargeable to tax in the hands of the executor,-

(a) if there is only one executor, then, as if the executor were an individual; or

(b) if there are more executors than one, then, as if the executors were an AOP;

and for the purposes of this Act, the executor shall be deemed to be resident or non-resident according as the deceased person was a resident or non-resident during the previous year in which his death took place.

(2) The assessment of an executor under this section shall be made separately from any assessment that may be made on him in respect of his own income.

(3) Separate assessments shall be made under this section on the total income of each completed previous year or part thereof as is included in the period from the date of the death to the date of complete distribution to the beneficiaries of the estate according to their several interests.

(4) In computing the total income of any previous year under this section, any income of the estate of that previous year distributed to, or applied to the benefit of, any specific legatee of the estate during that previous year shall be excluded; but the income so excluded shall be included in the total income of the previous year of such specific legatee.

Explanation--In this section, 'executor' includes an administrator or other person administering the estate of a deceased person.

From a reading of the aforesaid provision, we find that the income of an estate of a deceased person is to be charged to tax in the hands of the executor by treating it to be an individual, if there is only one executor and if there are more than one executor, then as an AOP. It further provides that the assessment of an executor has to be made separately from any assessment that may be made on him in respect of his own income.

Thus, for the purposes of the Act, the executor is treated to be a separate assessee other than his individual assessment. In the present case, we find that the assessing authority has not followed the provisions of Section 168 of the Act and instead has assessed the income of the deceased in the individual hands of the respondent assessee by clubbing the same, which was not permissible under the law. As there were two executors mentioned in the will by the deceased, the assessment, if any, could have been made on the two executors' treating them to be an AOP and not on the individual. 

Further, we are of the considered opinion that where the application for grant of probate is rejected by a competent Court on some technical grounds, such as, for want of steps, the will executed by the deceased does not cease. It is still in existence and, therefore, the respondent assessee will not inherit the property in his individual capacity as a natural heir, but shall be governed by the provisions of Section 211 of the Indian Succession Act and the assessment of income derived from the estate of the deceased is to be made under Section 168 of the Act.

9. The questions referred to us are, therefore, answered in favour of the assessee and against the Revenue. There shall be no order as to costs.