Section 168 of the Income Tax Act, 1961 provides that the income of the estate of a deceased person shall be chargeable to tax in the hands of the executor to the estate of the deceased.

Text of Section 168

Executors.

168. (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 association of persons;

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.

Separate PAN required for filing the return of the executor

The executor shall be assessed in respect of the income of the estate separately from his personal income. Thus, there would be a separate PAN required for filing the return of the executor.

The income of a deceased up to the date of death is to be assessed separately as if the deceased were alive, in the hands of the legal representative. (Section 159). The income of the estate of a deceased shall be assessed in the hands of the 'executor' under section 168 of the Act.

Status of the Executor in case of testate death

If there is only one executor, then he will be treated as an individual. In case of more than one executor, they shall be regarded as Association of Persons. The residential status of the executor shall be decided according to the residential status of the deceased person during the year in which his death took place. The executor has the right to recover or to retain the amount utilised for payment of liability of the deceased person.

Assessment of executors - Deceased person will be assessed as an individual through the executor

Normally when a person dies, his legal heirs or executors distribute the assets left by the deceased on the date of death. It may happen on many occasions that due to some reason or the other, complete distribution of the assets left by the deceased does not take place. In such circumstances, the undistributed assets will continue to belong to estate of the deceased person till distribution among the legal heirs is completed. Income arising out of such assets will be taxed at the prevalent rate in the hands of the executor in his capacity as executor and such income shall not be included in the income of the executor or legal heir(s).

For example, if the deceased on the date of his death had bank balance, loans and advances to the tune of Rs. 20,00,000 and after one year from the date of his death the executor had distributed a sum of Rs. 4,00,000 only amongst the legal heirs, the income arising out of the balance assets of Rs. 16,00,000 belonging to the deceased will be taxed under the Income Tax file of the deceased for which Income Tax Return will have to be filed by the executor, and the Income tax file will continue such time as the complete distribution of the estate of the deceased takes place and when the amount in respect of the estate of the deceased is distributed to the beneficiaries of the estate according to the Will, or as per law.

Thus, in terms of Section 168 of the Income Tax Act, 1961, separate assessment shall be made on the total income of each previous year in respect of the estate of the deceased which has not yet been distributed. Hence, even when a person is dead there can be separate assessment in the name of the deceased till complete administration takes place.

Position when an individual leaves a will appointing executor(s)

Where however the individual dies leaving a will and appointing an executor or executors, section 168 comes into play. In such a case, income derived from the business or other assets is to be assessed in the hands of the executors. But such income cannot be clubbed with the income arising to the executors in their individual capacities, that is to say, income from their own business, properties, profession, etc. The position will be the same in a case where there are no executors but an administrator or a receiver is appointed by the court for the estate of the deceased. In such cases, the estate left by the deceased vests in the executors or administrators or receiver, as the case may be, and continue to be so vested in them till the distribution of the estate or the administration thereof is completed. The income arising from the estate will also naturally vest in them. But the beneficial owners of the estate and the income therefrom are either the legatees or the legal heirs as the case may be.

Income from estate of deceased belongs to legal heirs and not to deceased

Section 168 provides for an entirely different situation, namely, the assessment of the “income of the estate of a deceased person”. Where an individual, who had earned income in a given accounting year, dies in the course of the year, intestate, his estate devolves on his legal heirs, who will take the same as tenants in 'common. The income arising subsequent to the death of the individual will naturally accrue and belong to such legal heirs. Hence such income will be chargeable to tax in their hands. If the deceased had been carrying on a business and his legal heirs continue the same after his death, the income that may accrue from such business may be assessed in their hands in the status of an association of persons, since they have associated for the purpose of carrying on the business. Even income derived from other assets like property, shares, deposits, etc., can, in case the legal heirs do not partition the same between them, be assessed in their hands in the status of body of individuals. Such assessments can never be assessments on the estate of the deceased. They are only assessments on the legal heirs of the deceased to whom alone the income will accrue and belong.

Section 168(1)

As per section 168(1)(a) of the Act had there been only one executor, the assessment would have been as if the executor were an individual. If, however, there are more than one executors, the assessment would be in the status of an association of persons [Section 168(1)(b)]

 As can be seen from section 168, if the executor is a single person, the assessment would be in the capacity of an individual. If, however, there are more than one executors, the assessment would be as an AOP.

Section 168(1)(b) – Deceased died in middle of assessment year - He was assessed as individual up to date of his death and his executors were assessed as AOP for remainder of assessment year - Executors claimed set off of carried forward capital loss incurred by deceased against certain capital gains in their assessment - Set off of impugned capital loss could be allowed notwithstanding difference between executors’ status and that of deceased - Treatment of executors as AOP is only for statistical purposes and incidence of tax is really on estate of deceased

During the assessment year 1974-75, relevant to the accounting year ending 31.03.1974, R died on 17.12.1973. Following R’s death two assessments were made for the said assessment year, one up to 17-12-1973, i.e., up to the death of R, in the status of an individual and the other for the period from 17.12.1973 to 31.03.1974 in the status of AOP on the executors of R’s will, under section 168(1)(b). During the accounting period in question, the said executors sold certain foreign shares from which they derived some long-term capital gains. The executors in their assessment as AOP claimed the set off of certain capital loss, suffered by the deceased R, against the aforesaid capital gains. The ITO rejected the executor’s claim on the ground that R and the executors were two distinct entities, namely, individual and AOP. On appeal, the AAC confirmed the ITO’s order. On further appeal, the Tribunal upheld the claim of the executors' (subject only to the fulfilment of conditions of section 72) on the ground that what was being assessed was only the estate of the deceased and not the executors personally. On reference:

Held ; It is clear from a reading of sections 159 and 168 that both of them deal with assessment on legal representatives. Section 159 is meant to enable the revenue to make an assessment on the legal representative in respect of the income which accrued to or was received by the deceased. Section 168 authorises an assessment on the legal representative in respect of the income which accrues to him, after the death of the deceased, on the estate being vested in him. Though the assessment is of the executor or executors, as the case may be, for all practical purposes it is the assessment of the deceased. The words in section 168(1) make it clear that the incidence of tax is on the estate of the deceased. The assessment is either on the deceased or the actual beneficiaries and even in the case of assessment according to the procedure under section 159, the incidence of tax is on the estate. In such a situation, due to the correlation of sections 159 and 168 the two separate assessments for the same year would not make the assessees to be two distinct entities. Further, as per section 168(1)(a), had there been only one executor, the assessment would have been as if the executor were an individual. It is, therefore, only for statistical purposes that the executors of the estate of the deceased are assessed as AOP, otherwise for the purpose of rates, etc., the assessment has to be deemed to be on the assessee or the actual beneficiaries. Accordingly, in the instant case, the executors were entitled to claim the set off of capital loss incurred by the deceased against their income from the estate of the deceased notwithstanding their status as AOP as against the deceased’s status as individual. In the result, we answer the question in the affirmative, that is, in favour of the assessee and against the department. - [CIT v. G.B.J. Seth (1982) 133 ITR 192 : (1981) 6 Taxman 318 (MP)]

Separate Assessment [Section 168(2)]

The assessment of an executor under this section shall be made separately from his personal assessment (from any assessment that may be made on him in respect of his own income) even if the executor is the sole beneficiary and has applied a part of the estate to his benefit.

Assesses was executor as well as sole beneficiary of his father’s estate - ITO assessed him separately for income as executor and his personal income - Commissioner directed ITO to include assessee’s income as executor in his personal income - Tribunal justified in setting aside commissioner’s order

The assessee’s father died on 18.05.1970. Before his death, he was assessed as individual. By a Will, dated 15.05.1970, he had bequeathed his entire property exclusively to the assessee. After his death, the ITO made two separate assessments in respect of deceased's income for the assessment year 1971-72, one in respect of his income for the period from 01.01.1970 to 18.05.1970 in the hands of the assessee, as his legal representative under section 159, and the other relating to the period from 18-5-1970 to 31.12.1970, also in the hands of the assessee as executor of his estate under section168. Since the assessee was also an income-tax assessee, with the financial year as his accounting year, a separate assessment for the assessment year 1971-72 was made on him in his individual capacity in respect of his income. The Commissioner, acting under section 263, took the view that the assessment made in respect of assessee in his individual capacity was erroneous and prejudicial to revenue inasmuch as the ITO failed to include in the assessed income of the assessee the income derived by him from 18.05.1970 to 31.03.1971 from the assets inherited by him from his father. The assessee pleaded that assessment in respect of the income from the estate of his father for the aforementioned period had been correctly assessed in his hands as an executor under the mandatory provisions of section168 and, therefore, that income was not includible in his personal assessment. Rejecting the assessee's plea, the Commissioner observed that the assessee became the absolute owner of the estate of his father as also the income there from immediately after the death of the deceased and when that was the position according to the Will, there was no question of any formal declaration of the administration of the estate being complete. The assessee was acting in the dual capacity of executor as well as the legatee of the estate in question and as there was collusive action between the legatee and the administrator (which were the same person) to delay the completion of administration of the estate to reap the benefit of low taxation, the department was within its right to go behind the apparent state of things to find the real owner of the income from estate. Accordingly, the Commissioner cancelled the assessee’s personal assessment and directed the ITO to make fresh assessment after including in the assessee's income the income which accrued to him from the estate of his deceased father pertaining to the period from 10.05.1970 to 31.03.1971. On second appeal, the Tribunal, to counter Commissioner’s argument, referred to Kanga and Palkhiwala’s Law and Practice of Income Tax where it is said that even if the executor is the sole beneficiary, it does not necessarily follow that he receives the income in the latter capacity. Moreover, the Tribunal found that there was no evidence on record to prove that the assessee was in any way delaying the completion of the administration of the estate of his father. On the contrary, it was seen from the records that he was taking all possible steps to expedite the administration of the estate. In this view of the matter and the clear provisions of section 168(2), the Tribunal held that the ITO’s order was not erroneous and, consequently, the Commissioner could not assume jurisdiction under section 263. The Commissioner’s order was, therefore, set aside. On reference :

Held : The income received by the executor of an estate during the course of its administration belongs to him and he alone is liable to be assessed as suck even if he is the sole beneficiary. The title of the residuary legatee accrues only when the administration is complete and after the residue is ascertained and not till then. This principle is enshrined in section 168. In the instant case, therefore, the Tribunal’s order, setting aside the order of the Commissioner under section 263 by which assessee’s income as executor of his father’s estate was sought to be included in his personal assessment, was justified. – [CIT v. Bakshi Sampuran Singh (1982) 133 ITR 650 : (1980) 18 CTR 248 : 4 Taxman 539 (P&H)]

Executor will continue to be assessed until the estate is distributed among the beneficiaries equally according to their several interests [Section 168(3)]

Section 168(3) specifies that the assessment under this section shall be made on the executor for every previous year (accounting year) from the date of death to the date of complete distribution to the beneficiaries of the estate according to their several interests.

Executor will continue to be assessed until the estate is distributed among the beneficiaries equally according to their several interests

BD, an individual, died on 31.12.1957 and, as per his will, his property was to devolve on his two grandsons, assessee and his brother. No executor, was named in will. Thereafter, his son SB described himself as executor, was assessed to tax up to year 1967-68 in respect of estate of BD. Tribunal found that nothing was distributed to legatees, by executor SB up to 1970 and this finding was not challenged by revenue. Nothing indicated that assessment proceedings were in any way delayed by executor. Further, nothing suggested that payment of estate duty was delayed deliberately by executor. Executor SB had yet to take certain steps regarding devolution/administration of estate. Fact of a part of estate duty liability being outstanding should not be ignored in deciding issue as to whether administration of estate is complete. On facts, income from share of assessee under will did not vest in him as administration of estate of BD was not complete and was not liable to be taxed in his hands but in hands of executor under section 168. [In favour of assessee] (Related Assessment years : 1963- 64 to 1967-68) – [Navnit Lal Sakarlal v. CIT (1992) 193 ITR 16 : 63 Taxman 518 : (1991) 100 CTR 125 (SC)]

Sub-section (3) of section 168 does not provide for making separate assessments on executors on respective shares of beneficiaries of estate in total income of estate in each completed year or part thereof prior to complete distribution of that estate among beneficiaries according to their respective shares

On account of difference of opinion between the Judges of the Division Bench, the question came up for consideration before the Chief Justice was whether section 168(3) provides for making of a single assessment on the total income of each previous year or part of a previous year on the executors, or the making of separate assessments on the executors on the total income of each previous year or part of previous year according to the several interests of the beneficiaries out of the total income of each previous year or part of previous year.

The purpose of sub-section (3) of section168, is to provide -

(i)      that if a testator dies in the middle of a previous year, there should be two separate assessments on the executors - one from the commencement of that previous year up to the date of his death and another separate assessment for the remaining part of that previous year; and

(ii)     that if the complete distribution of the estate among the beneficiaries is completed in the middle of the previous year, there should be two separate assessments in respect of that year - one from the date of commencement of the previous year up to the date of such complete distribution of the estate and another for the remaining part of that previous year.

But for the provisions of sub-section (3) of section 168, there could be only one assessment under section 159 on his executors for the whole of the previous year in which the testator died, as if he had not died, and it would have been doubtful if two assessments could be made on the executors, one in respect of the portion of the previous year prior to the complete distribution of the estate among the beneficiaries and another, in respect of the remaining portion of that previous year.

It is reasonable to construe the words ‘according to their several interests’ occurring at the end of sub-section (3) of section 168, as qualifying the immediately preceding words "complete distribution to the beneficiaries of the estate" in that sub-section and not as qualifying the words which occur at the commencement of that sub-section. The words “according to their several interests” seem to indicate that the completion of the distribution of the estate contemplated in that sub-section, is the one which is in accordance with the several interests of the beneficiaries.

In view of aforesaid, it could be concluded that sub-section (3) of section 168 does not provide for making separate assessments on the executors on the respective shares of the beneficiaries of the estate in the total income of the estate in each completed year or part thereof prior to the complete distribution of that estate among the beneficiaries according to their respective shares. – [Estate of Late H.H. Rajkuerba, Dowager Maharani Saheb of Gondal v. CIT (1982) 135 ITR 393 : 29 CTR 346 (Karn.)]

Specific and Residuary Legacies [Section 168(4)]

Section 168(4) specifies that any income distributed to the legatees in any year shall not be taxed in the hands of the executor but should be taxed in the hands of the legatees who have received the income from the executor.

Assessee was sole executrix as well as sole residuary legatee under will of her husband - Though administration of deceased’s estate was not complete, income derived from estate of deceased husband of assessee was credited to her personal bank account - Impugned income was not income distributed to, or applied to for the benefit of specific legatee and, therefore, it could not be included in personal assessment of assessee under section 168(4) and the fact that executrix herself was residuary legatee and as such was ultimately entitled to remaining income of estate after same was fully administered, was of no relevance

The assessee was the sole executrix and the sole residuary legatee under the last will and testament of her late husband. The probate of the will was granted to the assessee on 6-10-1966 on her giving an undertaking to the Probate Commissioner that she would render a full account of the administration of the estate within six months or within the extended time granted by the Probate Commissioner. The ITO found that amounts representing the income from the estate of her deceased husband were deposited in her personal account during the previous years relevant to the assessment years in question. The ITO assessed the said income in the hands of the assessee under section168(4) on the ground that the assessee as a sole executrix had distributed the said income to herself as a sole legatee. On appeal, the AAC held that the administration of the estate had not been completed before the end of the relevant previous years since the estate duty which was a first charge on the estate still remained unpaid and the mere fact that the income from the estate was credited by the executrix to her personal bank would not amount to distribution of income of the estate to herself as a sole legatee. He, accordingly, directed the ITO to exclude the said incomes from the individual assessments of the assessee. On further appeal, the Tribunal also upheld the AAC's order.

On reference, the revenue contended that the assessee as sole executrix was also the sole residuary legatee in the instant case and since the income from the estate was ultimately to be appropriated by the sole residuary legatee and since the sole executrix had, as a matter of fact, distributed such income from the estate to her personal account, the said incomes were to be included in the total income of the assessee.

Held : In the instant case, it had been found by the Tribunal as a fact that as admittedly estate duty in respect of the estate remained unpaid and the estate, therefore, had not been fully administered, the extent of residuary legatee could not be ascertained and no part of the income from the estate could be distributed to the residuary legatee. It was immaterial if the executrix herself was the residuary legatee and as such was ultimately entitled to the remaining income of the estate after the same was fully administered. Accordingly, the Tribunal, in the present case, was justified in excluding the income from the estate of deceased from the individual assessment of the assessee. [In favour of the assessee] – [CIT v. Mrs. A. Ghosh (1986) 159 ITR 124 : 25 Taxman 81 (Cal.)]

“Executor” includes [Explanation to Section 168]

The Explanation at the end of the section states that the term ‘executor’ includes an administrator or other person administering the estate of a deceased person.

The executor continues to be the executor till final disbursement of the residue to the legatees as per the will of the deceased.

Income arising from properties left behind by late husband of assessee could not be assessed in hands of assessee in her individual capacity; it was to be assessed in hands of assessee as an executor of estate of deceased

Where the assessee was the wife and sole surviving successor and legal heir of the deceased : and the question arose as to whether the income arising from properties left behind by the late husband of the assessee could be assessed in the hands of the assessee in her individual capacity.

Held that the High Court in the assessee’s own wealth-tax case came to the conclusion that the assessee as an individual could be charged to wealth-tax only after the estate had been fully administered and the residue became available to the individual. The High Court had held that properties, of which the estate of the deceased was comprised of could not form part of taxable wealth of the assessee-individual. In the circumstances, there could be no question of holding that income from such properties was taxable in the hands of the assessee-individual. Assessment years 1981-82 and 1982-83 – [CIT v. Mrunalinidevi Puar of Dhar (2008) 305 ITR 263 (Guj.)]

Assessee along with his brother ‘J’ was owner of a building having half share each - Deceased ‘J’ executed a will in favour of one ‘E’ and also appointed ‘H’ and assessee as executors - Application for probate was rejected on technical grounds - Even when application for grant of probate was rejected by a competent court on some technical grounds, Will did not cease and continued to be in existence and, therefore, assessee would not inherit property in his individual capacity as a natural heir - Assessee’s case would be governed by section 211 of the Indian Succession Act and assessment of income derived from estate of deceased was to be made under section 168 - Since in instant case there were two executors mentioned in will by deceased, assessment, if any, could have been made on two executors treating them to be an AOP and not on individual

Instant 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. From the reading of section 211, it is clear 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.

From the reading of section 168, it is clear 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 instant case, it was found that the assessing authority had not followed the provisions of section168 and instead had assessed the income of the deceased in the individual hands of the assessee by clubbing the same, which is 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, 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 is, therefore, the assessee would not inherit the property in his individual capacity as a natural heir, but would 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 was to be made under section 168. [In favour of the assessee] (Related Assessment years : 1984-85 to 1986-87) – [CIT v. A.M.L. Price (2007) 295 ITR 45 : 211 CTR 15 : 165 Taxman 54 (All.)]

If an amount is not in nature of income but is in nature of capital and is properly to be considered as part of estate itself, it would be non-taxable in hands of executors - KSE, a partner in chartered accountants firm, retired on 01.01.1985 - He expired on 29.02.1988 - His wife, who was also his executrix, received certain amount from firm as per clause 14(a) of partnership deed - This was claimed as capital receipt in return but Assessing Officer, relying on provisions of sections 168 and 176(4), rejected claim and brought amount to tax as income from other sources - When KSE expired, said amount was due to him and a debt was created in his favour and, hence, it became part of his estate and what constituted part of estate could never be considered later as income thereof - Therefore, amount received by executrix of KSE represented capital receipt and not income and section 168 was wrongly invoked by Assessing Officer to tax same

It was not possible to accept the contention that having courted assessments earlier on the receipts under clause 14(a) of the partnership deed, it was not open to resile from that position and challenge the assessment for a later year. A receipt cannot be taxed merely because the assessee has offered the same for assessment without question or that he has not challenged the assessment in earlier years in appeal. If assessability of a receipt is to depend upon the conduct of parties in filing returns of income, then equally it may be said that if a sum is excluded from the return, the same cannot be taxed. Taxability does not depend upon what view the parties may take with regard to their rights but depends on the true position in law. If a sum is in law taxable as income, the fact that the assessee or even the ITO takes a different view would not matter. Conversely, if a sum in law cannot be taxed, it cannot be brought to tax merely because in the earlier years it was taxed without demur. It is open to the assessee in a later year, on becoming aware of his rights and also the true legal position, to question the assessment of the receipt. The preliminary point raised by the department was, therefore, to be rejected.

Under section 168 of the new Act, the subject-matter of assessment is the ‘income’ of the estate of a deceased person and the same shall be chargeable to tax in the hands of the executor or executors. Both under the old Act as well as under section168, a distinction was maintained between the ‘estate of a deceased person’ and the ‘income’ of the estate of a deceased person. Under both the enactments it is only the income arising to the estate that is chargeable to tax in the hands of the executor or executors. It follows, therefore, that if an amount is not in the nature of income but is in the nature of capital and is properly to be considered as part of the estate itself, it is not taxable in the hands of the executors. This position has not undergone any change despite the introduction of a specific provision, viz., section 168. Therefore, in an assessment which is sought to be made upon the estate of a deceased person under the provisions of section 168, it would still be a proper enquiry as to whether the amount sought to be included in the assessment represents income or is received as part of estate itself.

It would, therefore, be proper and necessary to examine the question whether the arrear of fees due to the deceased and received by the executrix, viz., his wife, after his death on 29.02.1988, was to be treated as income of the estate or as part of the estate itself. A perusal of the clause 14(a) of the deed of partnership showed that even after the retirement from the firm, KSE was rendering certain professional services and assistance as may be required by the firm in respect of which he was to be paid certain fees. It could not be disputed that the amount of Rs. 1,10,856 remained to be paid to KSE at the time of his death and that the same was paid to the executrix after the death and during the previous year ended 31.03.1990. Thus, on the date on which at the time when ‘KSE’ passed away, which was 29.02.1988, the amount was due to him and a debt was created in his favour. Thus, the amount became part of his estate which he was capable of disposing of by Will. If that was the position, the receipt of the aforesaid amount by the executrix after the death of KSE could not be considered to be the income of the estate because what constituted part of the estate could never be considered later as the income thereof. In the instant case though there was no reference to any separate ruling by any Court to the effect that the amount payable under clause 14(a) of the partnership deed would form part of the estate of late KSE, under general principles, it could not be disputed that whenever a man dies possessed of income, that becomes part of his estate. The amounts due to late KSE under clause 14(a) would form part of the estate left behind by him and it would make no difference that there was no estate duty assessment on the death of KSE. The Estate Duty Act, 1953 was abolished in 1985 and since KSE passed away in 1988, there was no question of any estate duty assessment on his death. The argument of the assessee that the amount received by the executrix of ‘KSE’ represented capital receipt and not income was well-founded and required to be accepted.

The legal fees due to the deceased on the date of his death will be part of his estate and that will probably be taken into account for the purpose of assessment of estate duty; hence, the arrears of fees, which could not be taken to be the income of the estate, could not be brought to charge under section 168.

The assessee in the instant case was the executrix of the estate of late KSE. The assessment had been made by the Assessing Officer specially referring to and invoking the provisions of section168 which he had rightly described as mandatory. The Assessing Officer had also brought into play the provisions of section 176(4).

There is a striking difference between the provisions of section168 and section 176(4), section 168 is concerned with the assessment of the income of the estate of a deceased person, whereas section 176(4) is not so concerned. In section 168, the subject-matter of tax is the income arising to the estate as such, whereas in section 176(4) the subject-matter is the sum received by the recipient. Under section168, the income of the estate of a deceased person is brought to assessment in the hands of the executor or executors, whereas the recipient of the sum contemplated under section 176(4) need not necessarily be the executor or executors and may be different.

The Assessing Officer had misunderstood and misapplied the provisions of section 176(4) to include the aforesaid amount in the present assessment. The assessment before was that of the estate of the KSE which had been rightly assessed under section 168. There appeared to be only one executrix and that was his wife. The status was described as individual. The Assessing Officer was not justified in including the aforesaid amount in the assessment of the estate. According to section 176(4), the amount ought to have been included in the hands of the recipient, whoever he or she was, and could not be included as income of the estate. It may be that the recipient happened to be the wife of late KSE, who was also the executrix of the estate. That did not, however, authorise the Assessing Officer to include the amount in the assessment of the estate which was an entirely different assessee. Under section 176(4), the arrears of fees can be brought to tax only in the hands of the recipient and the same could not be included in the present assessment which was made upon the estate of late KSE under section 168.

As a result of the aforesaid discussion, the assessment of the sum of Rs. 1,10,856 in the assessment of the estate of late KSE under section 168 was contrary to law and could not be upheld. In the result, the order of the CIT(A) is upheld, though for entirely different reasons and the appeal is dismissed. [In favour of assessee] (Related Assessment year : 1990-91) – [ITO v. Estate of late K.S. Engineer (2001) 117 Taxman 77 (ITAT Mumbai)]

According to will left by deceased, his minor children were admitted by executor to benefits of partnership firm by contributing capital from accounts of deceased - ITO included share income of minors from sums along with other income of estate on ground that capital of minors had come from estate - Once it was found that admission of minors to benefits of partnership was made de hors capital contribution and there being no direct nexus between capital contribution and benefits arising from partnership, it was not open to ITO to invoke section 168 to club share income of minors with income of estate

Deceased died leaving behind him a registered will in which his cousin brother was appointed as an executor to supervise the estate, the legatees under the will being his wife and minor children, who were entitled to the control of estate on becoming major. The executor continued the partnership business in which the deceased was the partner. The minor children were admitted to the benefits of the partnership and capital contribution for such admission was made by making withdraw also from the account of the deceased in the firm.

The ITO included the share income arising to the minors from the sums along with the other income of the estate on the ground that the capital contribution for the minors to become partner had flown from the estate.

On appeal, the AAC held that since the capital was withdrawn from the estate account and as the investment of the capital was a condition of the deed of partnership and the capital of the minors flew from the funds of the estate, the share which became due to the minors had to be included along with the other income.

The Tribunal, on second appeal, held that although the capital was contributed as required by the terms of the partnership deed, there was nothing in the deed to show that it was a condition precedent for admitting the minors to the benefits of partnership, the connection between the income and the contribution was so remote which would not justify their inclusion. On reference :

The entire case had to be decided on the basis of the express finding recorded by the Tribunal, viz., “thus the admission of the minors for the benefits of partnership is independent of capital contribution.” In view of the above specific finding, unless it was established that the contribution of capital was condition for the admission of the minors to the benefits of the partnership, the share income of the minors could not be regarded as having arisen from the capital contribution. The minors were admitted to the benefits of the partnership and it was found that the deceased built up the business of the firm and the other partners agreed to take the minors to the benefits of the partnership in consideration of the services rendered by the deceased to the firm and to fulfil the wishes of the deceased. Therefore, the view of the ITO that because of the capital contribution the minors were admitted to the benefits of the partnership could not be sustained. Under the will of the deceased, the executor was required to hand over the estate to the legatees when the minors attained majority but the fact remained 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 accounts, the executor had given effect to the wishes of the testator.

Thus, there was no nexus between the capital contribution and the profits earned by the firm. The share income to the minors arose 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 could not be stated that from the mere fact that the fund for the capital contribution flew 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 divested of his title in the funds in favour of the minors and after such divestiture of the funds, the minors became the owners of the funds lying in the capital accounts as capital contribution. Therefore, the provisions of section 168 on which reliance was placed by the revenue had no application as those provisions deals with the income of the estate. The Tribunal, no doubt, relied upon the provisions of section 168(4) on the ground that an income had been distributed or applied for the benefits of any specific legatee of the estate, that income should be excluded from the income of the estate, in the view of position stated above, it was not the income of the estate and it was not necessary to consider the question whether the income had been applied for the benefit of a specific legatee of the estate. There was no direct nexus between the capital contribution and the benefits that arose from the partnership and in that situation, there was hardly any way to invoke the provisions of section 168.

In view of the specific directions and wishes of the testator in the will, the executor joined as a partner and utilised the capital balance of the deceased as part of his share capital and distributed a portion of the amount to the minors’ share capital. Once it was found that the admission of minors to the benefits of partnership was made de hors the capital contribution, it was not open to the ITO to invoke section 168 to club the share income of the minors with the income of the estate. The same principle would equally apply for the inclusion of the amount standing in the current account in the wealth-tax proceedings of the estate.

Therefore, the Tribunal was right in holding that the inclusion of share income from the firm in the estate was not justified. Further, once one reached 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 could not 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 could not be said to have been received by him in his capacity as executor. 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.

The finding of the Tribunal was that the minors were admitted because of the efforts of the deceased made by him during the period when he was a partner and in fulfilment of the wishes of the deceased, they became admitted, and, therefore, the question whether the executor had the power to transfer the money during the period of minority did not assume much importance in view of the finding that there was no connection between the capital contribution and the share income accrued on admission of the minor children to the benefits of the partnership firm. The ITO was, therefore, not justified in clubbing, the minor’s share income from the firm with the income of the estate. [In favour of assessee] (Related Assessment years : 1978-79 and 1979-80) – [CIT v. A. Savudappan (2000) 244 ITR 620 : (2001) 165 CTR 506 : (1999) 104 Taxman 682 (Mad.)]

Executor late C bequeathed certain properties to his brother’s minor son, by executing a will - Father of minor, R, was made ‘executor’ of will - Property was to be handed over to said brother’s son on his attaining majority - Income accrued in relevant assessment year in respect of estate left by C and bequeathed to minor, was assessable in hands of ‘executor’ under section 168(2) and not in hands of minor

Late C bequeathed certain properties to his brother’s minor son, by executing a will. The father of the minor, R, was made ‘the executor’ of the will. Certain income accrued in the relevant assessment year in respect of the estate bequeathed by C to the minor under the will. This income had been assessed in the hands of R as executor of the will under section 168(2). However, the ITO also added the aforesaid income in the minor’s hand. On appeal, the Commissioner (Appeals) held that under section 168(2) it was mandatory for the ITO to assess the estate of the deceased in the hands of the executor so long as the assets of the estate were not fully distributed to the various claimants. He, therefore, deleted the aforesaid addition so made to minor’s income.

On appeal, the revenue contended that since the assessee was the sole beneficial owner of the estate, the entire income therefrom accrued to him notwithstanding his minority and there was nothing left to be administered, so that R was only a trustee of his minor child and could not be assessed as an executor.

Held : 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 property of the deceased person vests in him as such. In the instant case, in the will, it was specifically provided that till the minor attained majority, the assets and liabilities would vest in R as ‘executor’ of the will. The executor was authorised by the deceased to manage the assets and liabilities at his absolute discretion and hand them over to his son after he attained majority. Thus, the intention of the deceased that the ascertained estate existing when the assessee attained majority should vest in the assessee was made absolutely clear in the will. Having, regard to the specific directions contained in the will and the provision of section 211 of the Indian Succession Act, it could not be held that immediately on the death of late C his estate automatically vested in the assessee. The estate vested and would continue to remain vested in R as executor and representative of the deceased till the assessee attained majority. In these circumstances, executorial functions could not be treated as completely performed and R could not be treated as trustee or representative of the assessee.

In the circumstances, the said income had been rightly assessed in the hands of the executor and the assessment in the hands of the minor was uncalled for. The order of the Commissioner (Appeals) deleting the addition was, therefore, upheld. [In favour of assessee] – [Second ITO v. C.P. Venkatesh (Minor) [1988] 30 TTJ 673 : 27 ITD 298 (Mad.)]

Section 168 has no application to a case where heirs succeed to property of deceased not by testamentary succession but by operation of law - Once property absolutely vests in heir according to law of succession, then ownership is not in any way affected by fact that heir is required to discharge debts of deceased

On the death of one ‘N’, who died intestate, his property was inherited by his wife, i.e., the assessee, three minor children and mother of the deceased in accordance with the provisions of the Indian Succession Act, 1925. Thereafter, the assessee obtained letters of administration from the High Court in regard to the property and credits of her deceased husband. For the relevant assessment years, the ITO assessed the assessee in her capacity as administrator of the estate of ‘N’. On appeal before the Commissioner (Appeals), the assessee claimed that the provisions of section168 were not applicable to the present case and, therefore, the assessment should have been made in the hands of the legal heirs of the deceased in proportion to their shares of interest and not a single assessment against the assessee in her representative capacity. The Commissioner (Appeals), however, rejected the assessee’s claim.

On second appeal, the revenue contended that the assessee having obtained letters of administration in regard to the estate of her deceased husband, could not be allowed to say that she was not administering the estate of the deceased, particularly so when there were debts repayable out of the assets of the deceased.

Held : Both section 168 of the 1961 Act and section 19A of the Wealth-tax Act, 1957, provide for a special case of assessment against executors and the language in the two provisions are practically similar. While dealing with section 19A it was held in the case of CWT v. Keshub Mahendra (1983) 139 ITR 22 (Bom.) that section 19A applies only to the property administered by a person according to the directions in a will. In other words, section 19A is inapplicable to a case of intestate succession. On the same analogy, section168 also can be said to apply only to a case where the deceased has left a will and administration has to be made in accordance with the directions of the will.

There is another reason also to hold that section168 has application only to an estate passing on by testamentary succession. Under sub-section (4) of section168, where any income of the estate is distributed to, or applied to the benefit of any legatee, so much of the distributed or applied part shall be excluded from assessment in the hands of the executor or administrator. If sub-section (4) has to be given effect to an estate managed by an administrator or other person administering the estate of the deceased, it can only be in the case where the estate has passed by testamentary succession, for a legatee can only be in case of disposition by a will and there cannot be a case of legatee in the case of intestate succession. The present case, therefore, did not come within the compass of section168. The property was inherited by N’s wife, the assessee, minor children and mother. The assessee had been in charge of the property of her minor children.

There was, therefore, no question of administering the estate and all that she had to do was to discharge certain debts. In Keshub Mahendra’s case (supra) it was observed that once the property absolutely vests in the heir according to the law of succession, then the ownership is not in any way affected by the fact that the heir is required to discharge debts of the deceased or he was to recover debts due to the deceased. Therefore, the assessee, in the instant case, could not be said to be administering the estate of her deceased husband owing to the fact that the deceased owed certain debts which the assessee felt bound to discharge.

Accordingly, section 168 had no application as the deceased had not left a will and therefore, the impugned assessments made against the assessee in her representative capacity as administrator of the estate of the deceased had to be struck off. – [Smt. Salma Irani v. ITO (1986) 24 TTJ 147 : (1985) 14 ITD 233 (Bom.)]

Deceased left a Will according to which shares of legal heirs including that of assessee were definite, determinate and separate - ITO framed assessment on protective basis in capacity of AOP as against individual status claimed by assessee - AAC directed ITO to make regular assessment in status of individual, by treating assessee as executor under section 168 - In absence of assessee having been appointed or designated by said Will as executor, assessee could not be assessed under section 168 - ITO rightly framed assessment in status of AOP

The assessee’s father expired, leaving a Will according to which, the deceased bequeathed his undisputed estate to his wife, two daughters and one son (the assessee). For the relevant assessment year, the assessee filed the return in the status of an individual with respect to the entire estate including the shares of the deceased’s daughters and widow. The ITO observed that the shares of the legal heirs being determinate by the Will, the income arising out of the respective shares of the estate was assessable in their respective hands. Thus, the ITO framed the assessment on protective basis in the status of an AOP, as against individual status claimed by the assessee. On appeal, the AAC held that the assessment should be made in the status of an individual treating the assessee as an executor under section 168 and directed the ITO to make a regular assessment accordingly. On revenue’s appeal :

Held : All the four legal heirs of the deceased got the property in the manner mentioned in the Will and their shares were definite, determinate and separate. The assessee, as the deceased’s son, was to get whatever was mentioned in the Will and also the residue of the estate. The Will was silent about mentioning or appointing him as an executor. Section 168 is applicable only when the executor is designated or appointed as such. Therefore, section 168 was not applicable to the present case. Hence, the ITO had rightly framed the assessment in the status of an AOP and also on protective basis. – [ITO v. R.K. Mittal (1986) 24 Taxman 290 (ITAT Delhi)]

NOTE

As regards the deceased’s life insurance policy it was held that the deceased’s widow, as a nominee of the deceased’s life insurance policy, received the LIC policy estate on the basis of policy and not through the will and, hence, the said asset was not includible in the above assessment.

Assessee ‘V’, A lady, married one ‘D’ on 11.01.1949 under provisions of Special Marriage Act, 1872 - Other assessee, ‘A’, was daughter of ‘D’ and ‘V’ - ‘D’ died on 06.10.1973 and after his death his mother challenged validity of marriage of ‘D’ and ‘V’ - Thereupon, on application of ‘V’ court upheld validity of said marriage and granted letters of administration on 30.11.1977 as claimed by ‘V’ - In view of fact that ‘D’ had not executed any will and he had died intestate and that properties of ‘D’ vested in his legal heirs, i.e., ‘V’ and ‘A’, immediately on his death, income from said properties for relevant assessment years should have been taxed in hands of ‘V’ and ‘A’ equally instead of taxing entire income in hands of ‘V’ only treating her as administrator of D’s estate

The assessee, ‘V’, a Christian lady, married one ‘D’ on 11.01.1949 under the provisions of the Special Marriage Act, 1872. The other assessee ‘A’ was the daughter of ‘D’ and ‘V’. ‘D’ died on 06.10.1973 and after his death his mother ‘M’ challenged the validity of the marriage of ‘D’ and ‘V’. There- upon ‘V’ applied for letters of administration and the First Civil Judge, while upholding the validity of the said marriage on 30.11.1977 granted the letters of administration to ‘V’. ‘D’ owned considerable property which came in possession of ‘V’ and ‘A’ on the death of ‘D’ as his legal heirs. For the relevant assessment years, ‘V’ and ‘A’ filed separate returns of their income and each of them included her half share in the income from the said properties. In the assessment of ‘V’, the ITO observed that the whole income from the estate of ‘D’ should be assessed in the hands of ‘V’ in her capacity as administrator of the estate under section 168. However, ‘V’ had filed the return in her individual capacity and not in the capacity of an administrator. Even then the ITO included the entire income of the estate in the said individual assessment. As regards the assessment of ‘A’, the ITO assessed her on protective basis, on the ground that the said half income had already been included in the assessment of ‘V’.

On appeals, the AAC held that the provisions of section 168 were not applicable and that ‘V’ was liable to be assessed in respect of half income derived from the estate, while ‘A’ was liable to be assessed for the other half income on regular assessment and not on protective basis. The AAC, therefore, set aside the ITO’s order. On appeal by the revenue, it was contended that since ‘V’ had been granted letters of administration on 30.11.1977 by the First Civil Judge, the entire income was liable to be assessed in the hands of ‘V’ as an administrator.

Held : In the instant case, it was an admitted position that the deceased had not executed any will. Consequently, there was no question of any ‘executor’ administering the estate of the deceased. Since the deceased had died intestate, the property vested in the legal heirs, i.e., ‘V’ and ‘A’ immediately on his death. The term ‘administrator’ in the Explanation to section168 refers to the administrator appointed by the Court when the executor dies or when no executor is named in the will. The reason for non-application of the said section in cases where the death is intestate is that the properly vests in the legal heirs from the time of the death of the deceased and that the said vesting does not remain in abeyance. Subsequent grant of letters of administration in cases of intestate death would not divest the legal heirs of the property vested in them, particularly when the heirs are already in possession as heirs at the time of grant of letters of administration. It was to be noted, in the instant case, that the purpose for which an order for grant of letters of administration was obtained by ‘V’ was to protect the property from going into the hands of her mother-in-law. ‘V’ and ‘A’ were already in possession of the properties as legal heirs. Their title was being disputed by ‘M’. As a measure of protection against the said assault on the title, the proceeding for obtaining letters of administration were initiated. Consequently, the order of the Court dated 30.11.1977 granting letters of administration would not make any difference as far as the legal position regarding the title was concerned.

Therefore, the AAC, in the instant case, was right in holding that half the income was liable to be assessed in the hands of ‘V’, while the other half was liable to be assessed in the hands of ‘A’. [In favour of assessee] – [Third ITO v. Mrs. Veera D. Thackersey (1985) 14 ITD 141 (ITAT Bombay)]

R, who died intestate, left behind substantial debts and some properties - After his death, in suit filed against legal representatives, creditors obtained decrees against estate in hands of legal representatives and got a receiver appointed to take custody of properties which were later sold and realisations credited to suit - Despite there being no will, receiver could not be treated as person administering estate of deceased and made liable to tax on capital gains arising from sale of properties

The deceased, R, who died intestate, left behind substantial debts and some properties. The creditors filed suits against his legal representatives, who were his two daughters, and obtained decrees. On the creditors filing execution petitions, and also asking for the appointment of a Receiver, the Court appointed ‘N’ as Receiver for the custody and management of the properties of the deceased and to credit the realisation therefrom to the suit. The properties were sold on 07.10.1979. Being of the opinion that the capital gains from the sale of properties may be taxable, the Court appointed on 01.04.1981, one K as Receiver for the purpose of filing income-tax returns and making rateable distributions among the creditors after excluding the income-tax liability. On 12.08.1980, the ITO had served a notice on N under section 139(2), but no return was filed in response to the notice as N had died. Subsequently, K filed two returns purported to be on behalf of the two daughters, the legal representatives. Notices were issued to K by the ITO under section 142(1), but K replied that no income was admitted by him, because the two returns had been filed on behalf of the legal representatives and not as receiver. The ITO, however, completed the assessment under section 144, read with section168, holding K liable for tax as administrator of the estate. K appealed to the Commissioner (Appeals), contending that the assessment should have been made on the legal heirs and not on the receiver, and his contention was accepted by the Commissioner (Appeals), and the assessment was cancelled. On appeal by the revenue :

Held : Immediately after R’s death, his daughters being his class I heirs inherited his properties with the obligation to discharge the debts due from him. Unlike in the case of the sons, the daughters have no pious obligation to pay the debts of their father. The necessary corollary of this position was that the daughters would be liable to discharge the debts of the father only to the extent of the value of the assets inherited by them through their father. There is no question of any executor administering the estate of the deceased. The question of an executor administering the estate of deceased person would arise only if such an executor was appointed by the terms of a will left behind by the deceased by which the testator ordained the executor to take over his properties, administer them and to discharge the debts due from him. As can be seen from section 168(3), the property of the deceased should be assessed only for the period which commenced from the date of the death to the date of complete distribution to the beneficiaries of the estate according to their several interests. This position presupposes the necessity of an executor to distribute the assets of the deceased according to the proportion in which they were asked to be distributed among the beneficiaries by the deceased in his will. Once there is no will, there is no question of an executor appointed to the estate of the deceased. It is no doubt true that in the Explanation to section 168, the word ‘executor’ includes the administrator or other person administering the estate of the deceased person. Now the question is whether the receiver, while taking possession of the estate of R or while conducting auction of some of the items constituting the estate of late R acted as a person administering the estate of the deceased person. Once R died, his properties were inherited by his two daughters. No suits were filed during the lifetime of late R and all of them were filed only against his legal representatives. It was not disputed that the decrees in the suits were obtained against the legal representatives of R but were not obtained during the lifetime of R. Therefore, the liability of the legal representatives would extend only up to the assets of the deceased held by them (see section 52 of the Code of Civil Procedure, 1908). Simply because some suits were filed against legal representatives, that by itself did not prevent the succession of the assets by the legal representatives of R. There cannot be any vacuum in the case of devolution. Thus, the devolution could not be kept in abeyance from the date of death of R till the date of obtaining decrees by his several creditors. Further, all the creditors were only simple money-creditors but did not acquire any right or interest whatsoever in the properties held by R prior to his death. Therefore, as all the creditors filed the suits making the two daughters of R as defendants and as all the decrees were obtained only against the estate of R in the hands of the two daughters and as N or K, receivers, were appointed only to take possession of the properties, realise the benefits and to deposit the net profits thus derived by them into Court, it could not be said that the said Receiver, N or K, were in any way administering the estate of the deceased person. It was neither the scope of the suit nor the warrant of the appointment of the Receiver to admit of any such interpretation.

There was, therefore, no justification to treat either N. or K. as persons administering the estate within the meaning of section 168, and the assessments framed against K were illegal The Commissioner (Appeal), was therefore, justified in the view he took. – [ITO v. K. Krishnamachari  (1985) 11 ITD 194 (ITAT Hyderabad)]

Assessee’s husband, who had taken life insurance policies for which assessee was nominee, bequeathed, under will, policy amounts to assessee and named assessee as administrator of his estate - after his death, assessee’s claim for insurance amounts was under dispute with lic, resulting ultimately in compromise, and assessee received policy amounts with interest - Interest so received was assessable only as income of estate under section 168, and not as income of assessee

The assessee’s husband had taken out life insurance policies on his life and had nominated her under section 39 of the Insurance Act. Under a will, he bequeathed the insurance amounts to her and also named her as the administrator of his estate after his death. After his death the assessee’s claim for the insurance amounts from the LIC was under dispute, resulting ultimately in a compromise under which the assessee received the policy amounts with interest. The ITO treated the interest so received as the assessee’s income since she was the sole legatee for that amount. The Commissioner (Appeals), however, held that the interest accrued only to the estate and could not be taxed in the hands of the assessee-legatee until its distribution and that the receipt by the assessee was only a receipt on distribution of the estate and could not be treated as income includible in her total income. On second appeal :

Held : Under section 39 of the Insurance Act, where a nomination has been made for the purpose of receiving the amount assured, the suit for recovery of that amount should be filed only by such nominee. But, that does not mean that the amount is receivable by the nominee in his own account but it is received only on behalf of the estate of the deceased as the nominee is accountable to the heirs of the deceased since the nomination does not by itself amount to a will. In this case, therefore, the assessee had filed a suit for recovery of the amount only in the capacity of a nominee and was bound to account for the receipt of the amounts to the estate of the deceased of which she was the administrator under the will.

Under section 211 of the Indian Succession Act, all the property of the deceased person vests only in the administrator. Though under sections 332 and 349 of that Act, it may follow that when the administrator gives his assent to a specific legacy, the title of the legatee relates back to the date of death and the income arising from after the death and before the assent belongs to the legatee, but section168 of the Income-tax Act makes it clear that the income of the estate of the deceased person is chargeable to tax only in the hands of the executor until the date of the complete distribution to the beneficiaries of the estate. Therefore, until the income is actually distributed, it shall not be assessed in the hands of the legatee, but shall be assessed only in the hands of the executor which is defined to include an administrator. The mere fact that the executor is also the sole beneficiary is not sufficient to presume that there was an assent by the executor for the legacy.

In the present case, except for the fact that the assessee had to file a suit to recover the money and received it from the LIC, there was no other evidence to show that the assessee as an executor had assented to the legacy of the life insurance policies in her own favour by appropriating it unconditionally for her own use. On the other hand, the terms of the will suggested that even though she could recover the money as a nominee under the Insurance Act, she was bound as an administrator to see that all the debts were paid for which were charged on the Life Insurance amount also before she could appropriate the residue to herself as a specific legatee. The Commissioner (Appeals) was, therefore, justified and the impugned interest could not be included in the total income of the assessee. [In favour of assessee] – [ITO v. Smt. N.P. Saraswathi Ammal (1984) 8 ITD 210 (ITAT Madras)]

Income which related to period after death of assessee and was under administrator appointed by High Court, assessments could only be made on administrator and said income could not be included in assessee’s total income

The Tribunal held that in respect of the income which related to the period after the death of the assessee and was under the administrator appointed by the High Court, the assessments could only be made on the administrator and this income could not be included in the assessee’s total income. On reference:

In view of the provisions of section 168 wherein it is clear that an administrator appointed by the high Court would admittedly come within the purview of section 168, the Tribunal came to the correct conclusion. – [CIT v. Rani Jagadamba Kumari Devi (1983) 143 ITR 539 (Cal.)]

Deceased left two wills covering different properties situated in India and England and appointed different and distinct sets of executors for each will - ITO made single assessment under section 168 in status of AOP for aggregate income from Indian and foreign estate in the hands of executor of one of the wills without serving notices on all other executors - Executors present voluntarily furnished all requisite details and did not object to inclusion of income from foreign property covered by other will - Properties comprised in each will constituted one single composite estate after death of deceased - Impugned single assessment under section 168 in status of AOP valid under law

MM owned extensive property both in India and in England. He had executed two distinct wills, one covering Indian property and the other covering England property and appointed different sets of executors for the two wills. Consequent on his death, the appellant became the sole surviving executrix for Indian property and she was not one of the executors for the England property. For the assessment years 1965-66 to 1967-68, the ITO assessed, in the hands of the executrix as an AOP, the aggregate of the "Indian income" and "foreign income" qua the properties situated in both the countries. In her appeal before the AAC, the assessee claimed (i) that the income from UK properties was wrongfully assessed to tax, since it was of a separate set of executors appointed under a different will; and (ii) that the properties situated in each country should be regarded as constituting a separate estate within the meaning of section168 and the income therefrom was to be taxed separately. The AAC upheld the assessments, observing (i) that since a person could have only one estate, the entire estate of MM, wherever situated, constituted a single estate ; (ii) that the executors of England property (though not members of the AOP) should be deemed as members of such an AOP since income derived from that property was included in the assessments ; and (iii) that for taxing the entire income under section 168, it was immaterial and irrelevant whether or not the executrix in India had received the whole or any portion of the income from the other set of executors of UK property. On second appeal before the Tribunal, the assessee pleaded further (i) that, under the Indian Succession Act, 1925, the legal ownership, vested in the executors, was limited to only such of the properties for which they had been appointed as executors ; and (ii) that reading this provision together with section168, only income from Indian property was liable to be taxed in her hands. The Tribunal dismissed the appeals, holding, inter alia, (i) that the assessee’s additional plea had no bearing on the construction of section 168 under which the assessable entity (i.e., the estate of the deceased) always remained one and single and it could not vary according to the number of executors appointed for different properties left by the deceased ; and (ii) that the impugned assessment orders did not indicate that the executors objected to the inclusion of “foreign income” in their assessments.

On reference, the assessee also contended that the assessments could be validly made only if all the executors were served with notices and were present before the ITO and were collectively assessed as AOP.

Held : In jurisprudence, the estate of a deceased person by itself has no legal personality. The rights and liabilities of a dead man devolve upon his heirs, executors and administrators and not upon any fictitious entity known as his estate. The permission granted under law to make more than one will to cover different sets of properties and to appoint different and distinct executors is for the convenient administration of the estate only. The word “estate” itself signifies only the totality or entirety of the property of a deceased. Even if more than one will is executed, the estate, which was one and single during the lifetime of the testator, still continues as such even after his death and the theory that under such circumstances there are more than one separate estate has no basis in general law. The contention that there were two separate estates was thus not well-founded in law. A single assessment in the status of “AOP” in respect of the aggregate income from the two estates was, therefore, validly made under section168.

The executrix, who was taxed in the status of AOP, appeared to have furnished to the ITO the relevant information relating to income derived from the England property and did not object to its inclusion even when she was afforded full opportunity of being heard. They could not, therefore, plead, at a later stage as a last resort or an afterthought, that the assessment of the said income was not permissible unless all the executors were served and collectively taxed as “AOP”. Section 168 merely prescribes the method for making an assessment in a special case and does not bear upon the ITO’s initial jurisdiction but deals with the matter incidental to it. Any procedural omission or commission by the ITO in the exercise of his jurisdiction would nullify the assessment only if such omission, error or breach is so fundamental as could not be waived because it effects inherent jurisdiction. In the instant case, since the few executors, who were present before the ITO, had voluntarily furnished the requisite information and had not objected to the inclusion of foreign income, they must be taken to have exercised the option of abandoning the plea that such income was not taxable in their hands, and, having not raised an objection at the appropriate time, must be taken to have waived the same. - [Maharani Vijaykunverba Saheb v. CIT (1982) 136 ITR 18 : 8 Taxman 60 : (1981) 25 CTR 300 (Guj.)]

In case of undistributed estate of a coparcener in HUF, widow can not be taxed on proportionate share of HUF when her right in estate was not recognised and estate was administered by some other person

The assessee, a widow of a coparcener in a HUF, filed returns for the assessment years 1961-62 to 1963-64 showing incomes of Rs. 3,589, Rs. 5,423 and Rs. 6,070 respectively. On 16.08.1963, a compromise was made and the assessee received Rs. 10,70,000 in full satisfaction of her claim as widow. On the basis of details available from the returns filed by the assessee's mother-in-law who was administering the estate, the ITO added in the assessee's hands one-sixth share of HUF’s income derived from the property, business and other sources in the said assessments. In an appeal before the AAC, the assessee contended that she had not received any part of the share of the deceased's income and was, therefore, not taxable in respect thereof. The AAC found that, during the relevant periods, the estate was undistributed and was administered by the assessee's mother-in-law. The assessee could not be taxed even on accrual basis since her right to receive such income was never recognised during the relevant period. The AAC, therefore, held that till the estate was distributed, the assessee did not attract tax liability on the share income from the estate. He, accordingly, deleted the additions made by the ITO. The Department's appeal before the Tribunal was unsuccessful. The Tribunal took the view that the assessee did not receive any income either in her personal capacity or as an administrator and was, therefore, not liable to tax thereon. The income of undistributed estate would be taxable in the hands of the administrator. On reference :

Held : It was found as a fact that the estate was not being in assessee's possession but was administered by her mother-in-law. In terms of section 168 and, particularly of the Explanation to that section, the income-tax authorities had no discretion except to tax the income in the hands of the executor who is in de facto management of the property. The income arising from the undistributed personal estate of the deceased or the undistributed share of his interest cannot, therefore, be taxed in the hands of the assessee who was not the administrator of the estate at that time. [In favour of the assessee] – [CIT v. Mrs. Usha D. Shah (1981) 127 ITR 850 : (1979) 2 Taxman 154 (Bom.)]

In view of nature of duties required to be performed by administrator pendente lite appointed under section 247 of 1925 Act and in view of circumstances under which administrator pendente lite can be made, administrator pendente lite is not an administrator as contemplated in explanation to section 168, and as such section 168 does not apply – Where testator bequathed all his properties equally to his wife and six sons, pendency of adjudication on question of validity of will would not make shares of legatees indefinite or inascertainable and, therefore, assessment could not be made under section 164

The deceased left a will bequeathing all his movable and immovable properties equally to his wife ‘M’ and to his six sons. His wife was to have life interest and after her death, her share would be taken equally by his sons or their male heirs. While no executor was appointed under the will, the legatees applied for the grant of letters of administration in respect of the willed properties during the pendency of the probate proceedings one of the daughters of the testator filed a caveat challenging the will. Pending the suit, the High Court appointed ‘M’ as administratix pendente lite for the properties in question. For the relevant assessment years ‘M’ furnished returns as administratix pendente lite showing the status as individual, and claimed that the shares of the legatees being definite, the property income should be allocated amongst the seven beneficiaries under the will, by making assessment under section 161 but not under section 168.

The ITO, however, held that since the dispute about the will was pending, the number of legatees and the share of each legatee remained indeterminate and so the question of allocation of income amongst the seven beneficiaries did not arise at all and the income from the estate should be assessed in the hands of the administratix under section168. He was also of the view that the allocation of property income claimed by the assessee’s representative under section 26 did not arise at all and section168 did not contemplate any such allocation. He, therefore, included the whole income of the estate in the assessments of the administratix. On appeal, the AAC held that the shares were definite and so the consolidated assessment in the hands of ‘M’ was wrong.

On Revenue’s appeal, the Tribunal held that so long as the dispute between the heirs inter se was pending, it was not possible to hold that the shares were definite and ascertainable and the assessments should be made as “association of persons”.

On reference: In the instant case, there was no question of executor, but according to Explanation to section 168, the executor mentioned in that section included an administrator or other person administering the estate of the deceased person. An administrator can be appointed only if there is a suit pending touching the validity of the will or obtaining or revoking any probate or any grant of letters of administration. Secondly, such an administrator or administratix shall be subject to the immediate control of the Court which appoints him/her and shall act under the direction of that court. Thirdly, he or she shall have all the powers of a general administrator but he/she shall not have the power to distribute the estate. This was the effect of section 247 of the 1925 Act. In order to hold the estate of the testator, the executor or the administrator must be one where the will has been proved. Where the will has been proved, in those circumstances only either the executor or the administrator can be said to be holding the estate of the deceased and the said estate of the deceased can be said to have been vested either in the executor or the administrator, but where the question as to whether an executor or administrator to whom a copy of the will can be granted has not been decided and is pending and there is an administrator for the preservation of the property, there it cannot be said that on the appointment of such an administrator the estate of the deceased became vested in him. If there is no valid will the property would vest in the heirs at law on intestacy. In such a case such an administrator as an administrator pendente lite under section 247 of 1925 Act cannot have the estate of the deceased vested in him.

In view of the nature of the duties required to be performed by the administrator pendente lite appointed under section 247 of the 1925 Act, and in view of the circumstances under which administrator pendente lite can be made, the administrator pendente lite is not an administrator as contemplated in the Explanation to section168, and as such, section168 did not apply. Moreover, the bequests made in the instant case could not be described to be bequest of residuary estate. Hence, there was no question of the heirs not getting any estate until the residuary was determined, in the facts and circumstances of the case. Where a share of right to get a share of a person is dependent upon a contingency then it can be said that the share is either not definite or is not ascertainable but the litigation or adjudication made in the suit would not grant the share to the parties. It would only decide what was the share of the parties. That would be the true effect of the adjudication in the probate proceedings. The parties or heirs at law will not get their shares as a result of the adjudication as to the validity of the will. The probate proceedings will only adjudicate the validity of the will. But the shares of the parties will be either known from the will or if the will is not proved, on intestacy. The pendency of adjudication on the question of the validity of the will does not make the share of the parties contingent or uncertain. This is one of the processes open in law to adjudicate the title of the parties or the shares of the parties. The powers of the ITO are also, so far as revenue purposes are concerned, plenary in the sense he has to decide who is the owner and to whom does a particular income belong. He must, of course, decide the question in accordance with the other provisions of law. But it is for the revenue authority to decide in accordance with law the rights of the parties and to decide to whom the income in respect of the properties in question does belong. In that light, in such a case, the presence of the dispute as to the will, does make the share indefinite or unascertainable.

In the instant case, it could not be said that the share of the parties were not definite or ascertainable, but shares required to be ascertained and the authorities were competent to ascertain the shares. The revenue was also competent not make protective assessment. In order to protect the interest of the revenue protective assessments were recognised under the Act. The mere pendency of a dispute did not make, in the facts and circumstances of the case, the shares of the parties in the properties either indefinite or incapable of ascertainment. Therefore, the assessments should not be made as AOP under section 164 & 26. [In favour of assessee] (Related Assessment years : 1963-64 & 1964-65) – [Mahamaya Dassi v. CIT (1980) 126 ITR 748 (Cal.)]

Joinder of names of legal heirs of the deceased along with executors was not permissible

Under a will executed by Late Lala Karam Chand Thapar, two executors were appointed. Probate of the will was not taken and the administration of the estate was not complete. The assessment for the year 1964-65 was completed under section 143(3) read with section168 in the name of estate of late Lala Karam Chand Thapar represented by the executors and legal representatives of the deceased and others. The contention that the assessment was invalid since it was made not only on the executors but also on the legal heirs, was rejected by the AAC. The Tribunal also rejected the contention holding that the addition of the names of the legal representatives together with those of the executors was made out of abundant caution and that no illegality was committed thereby. On reference :

The assessment was not valid in law on the following grounds:

1. Since the administration of the estate was not complete, the executors appointed under the will were only the legal representatives and since the persons other than the executors did not intermeddle with the estate, they could not be the legal representatives. It is immaterial for the purpose of assessment, whether the probate of the will was taken or not.

2. The specific provisions of section 168 leave no scope for inclusion of names other than the executors as a measure of abundant caution.

3. The error of adding of additional names was not a mere irregularity, but affects the substance of the matter.

For the reasons given above, the contentions of the assessee will succeed. - [I.M. Thapar, Executor to the Estate of Late Lala Karam Chand Thapar v. CIT (1979) 116 ITR 797 : 1 Taxman 128 (Cal.)]