Income Tax Appellate Tribunal - Madras
First Wealth-Tax Officer vs Smt. N.P. Saraswathi Ammal on 15 October, 1987
Equivalent citations: [1988]26ITD250(MAD)
ORDER
George Cheriyan, Vice President
1. These appeals, all filed by the revenue and arising out of wealth-tax proceedings, relate to the assessment years 1970-71 to 1974-75 inclusive. The relevant valuation dates in each case is the last day of the financial year preceding the relevant assessment year.
2. The assessee is the widow of Shri N. Perianna Pillai who died on 3-4-1958. He left a will dated 16th February, 1958. As considerable arguments were advanced by the revenue with reference to the terms of the will, we would set out a free English translation thereof as under :
Will of N. Perianna Pillai, son of Nainamalai Pillai, Solia Velalar, Pro. Ramajayam Transports and Agriculturists, Paramathi Road, Namakkal, Namakkal Tq. whole heartedly made on the 16th day of February, 1958 when in full possession of his senses and memory.
As my health is not all right now and as I intend going to Madras for medical treatment ; I desire to make an arrangement for my properties and hence I am writing this will. All my immovable and movable properties, Government bonds, company shares, bus service and connected assets are my self-acquired properties. My 'Ramajayam Motor Service' and the buses and spare parts and other assets and liabilities connected with it and permits and other rights I leave to my wife, Saras-wathi Ammal and my four sons born through her. They are entitled to enjoy them absolutely and equally. My wife Saraswathi Ammal shall get my Life Insurance amounts and company shares absolutely. Besides these, all the immovable and movable properties, money-lending assets, Government Bonds shall after me through this will go to my wife, Saraswathi Ammal and all my sons and daughters numbering eight born through her. They shall get them absolutely and equally. If there are any liabilities, my wife and children shall discharge them with the help of my assets. My mother Veerammal, owns separate properties. Still my wife and children shall support her during her lifetime. My wife Saraswathi Ammal shall be guardian and manager of my minor children and shall protect the properties till they attain majority and deliver possession to them on their attaining majority. My wife Saraswathi Ammal shall collect the rent from my buildings and lease amounts from my lands after my life time. I am entitled to cancel or alter this will. This will shall come into force after my death. Written with my consent.
Shri Perianna Pillai had taken out six life insurance policies. The assured sum was Rs. 2,50,000. The nominee in each of the policies was his wife Smt. Saraswathi Ammal, the assessee, in the present case. After his death, the Life Insurance Corporation of India declined to make payment of the policy amounts on the ground that there were certain misrepresentations, etc., in obtaining the policies. The assessee, therefore, filed a suit in the sub-court of Salem on 3-4-1961. This suit was decreed on 25-4-1968 whereby the LIC was directed to pay a sum of Rs. 2,50,000 with interest at 6% per annum from the date of the suit and cost. The LIC filed an appeal to the High Court on 12-6-1969 and applied for stay of execution of the decree. The High Court directed the LIC to deposit a sum of Rs. 3,97,811 consisting of principal of Rs. 2,50,000, cost determined at Rs. 23,561 and interest worked out at Rs. 1,24,250. This amount was deposited on 12-7-1969. Such amount was directed to be invested in Government securities which was done. On 30-7-1974, the LIC and the assessee filed a memo of compromise whereby the suit claim was settled at Rs. 3,95,870. This amount was paid to the assessee. Excess amounts went to the LIC. From the assessment year 1975-76 onwards, there is no dispute because the assessee had received the amount and the same was duly accounted for in the wealth. For the assessment years now under consideration, according to the assessee, no amount could be included because the property, namely the right to receive the life insurance amount had to be assessed separately under the provisions of Section 19A of the Wealth-tax Act. The ITO did not agree. He included in each of the assessments the'amount of Rs. 3,95,870 which was what was received in terms of the compromise. The assessee appealed. The AAC set out the facts. He thereafter, stated that the matter stood concluded by a decision of this Tribunal in ITA No. 1744/Mds/82 and CO No. 2/Mds/83 in the assessee's own case. The appeal and the Cross Objection referred to arose out of income-tax proceedings and the question was whether the interest component was assessable in the assessment year 1975-76. The Tribunal set out the facts and came to the conclusion that the assessee could not be assessed in respect of the income from interest because there was no material to come to the unequivocal conclusion that the interest was received as a legatee. The Tribunal stated that the assessee had received it in the capacity of an executor or administrator having regard also to the provisions of Section 168 of the Income-tax Act, 1961. In coming to this conclusion, the Tribunal had referred also to the relevant provisions of the Insurance Act, the Indian Succession Act, etc.
3. Before us, the submission of the learned Departmental Representative was that under general law, the assessee was not an 'administrator' because the assessee had not been appointed by a competent authority as an administrator. He also submitted that the will did not name the assessee as an 'executor'. The assessee was, therefore, not a specified executor. According to him, on a reading of the will, it could not also be said that the assessee became an 'executor' by implication in terms of the will. He stressed,that the'assessee was not required to collect the assets and then distribute the debts. Merely because the assessee was called upon to discharge the liability along with the children with the help of the assets left behind by the deceased, the assessee did not become an 'executor' by implication. All that happened, according to the learned Departmental Representative, was that the assessee had been appointed as testamentary guardian. The learned Departmental Representative relied on the very elaborate and illuminating discussion in the judgment of the Bombay High Court in the case of CWT v. Keshub Mahindra [1983] 139 ITR 22 wherein the scope of the provisions of Section 19A was fully examined and it was pointed out by the Bombay High Court that even the extended meaning of the term 'executor' within the terms of the Explanation to the provisions of Section 19A would apply only to such persons who are administering the estate in accordance with the directions of the will of the deceased. According to the learned Departmental Representative, the assessee in the present case was not administering the property in terms of the will. He also referred to certain observations of the Bombay High Court at page 45 of 139 ITR that where the absolute ownership right vested in an assessee the ownership is not in any way affected by the fact that the assessee may be required to pay off certain debts or to recover certain debts which may have become due by the deceased. For all these reasons, the learned Departmental Representative stated that the right to receive the life insurance money was rightly included.
4. The learned counsel for the assessee, on the other hand, advanced his arguments with reference to three aspects. His first submission was that the Will made the assessee an 'executrix' by implication. Therefore, till the money was received from the Life Insurance Corporation in respect of that asset the provisions of Section 19A were applicable and the amount receivable could not be included in the hands of the assessee. Secondly, he submitted, that the LIC had denied the liability to pay any amount. This was, therefore, not a case whether there was a right to receive the amount as in the case of compensation which was awarded by a competent authority and the valuation of which was the subject of discussion and decision in the case of Mrs. Khorshed Shapoor Chenai v. ACED [1980] 122 ITR 21 (SC). The learned counsel reiterated, therefore, that no value at all could be included under any circumstances. Finally, he submitted that if neither of the earlier propositions was acceptable, only a heavily discounted value could be taken because it was the LIC which had denied the liability to pay and the willing buyer would not have paid anything more than 10 per cent of the amount at the highest considering the hazards of litigation, etc.
5. The learned Departmental Representative countered the plea by first of all submitting that the discount had to be considered with reference to each valuation date if at all a discount was to be made. Regarding the aspect that the assessee was an executrix by implication, he stated that he had already addressed his arguments as to why this was not the correct position. Even if the assessee could be held to be an executrix by implication, he relied on a deed of partition dated 12th January, 1972 executed between the assessee and her four sons who had attained majority by then and their wives. He referred to a recitation in the said deed of partition that the parties had made and had agreed to make other arrangements and allotments to adjust the rights between themselves in regard to the movables and other assets not included in the partition deed. He stated that the debts which each person was saddled with was quantified. Though there was no express mention of the right to receive the life insurance money, he submitted it should be taken in view of the recital in the partition deed that it was settled that this would go to the assessee.
6. The learned counsel for the assessee relied on the same partition deed to state that the parties had described the assessee as 'executrix' in terms of the will in the very same deed of partition. This was how the parties had understood the terms of the will and this was how he stated the Tribunal had understood the capacity of the assessee in terms of the will. He stated that against the decision of the Tribunal in income-tax proceedings, an application for reference was made (R.A. No. 888/84) and no reference was granted. The matter was pursued before the Hon'ble High Court and was dismissed vide TCP No. 83/86, dated 1-9-1986. He, therefore, submitted the matter stood concluded in favour of the assessee.
7. We have considered the rival submissions. Section 2(a) of the Indian Succession Act defines 'administrator' as under :
'administrator' means a person appointed by competent authority to administer the estate of a deceased person when there is no executor.
Section 2(c) of the Indian Succession Act defines 'executor' as under:
'executor' means a person to whom the execution of the last will of a deceased person is, by the testator's appointment, confided.
From the aforesaid definitions, it is clear that under general law, an 'administrator' has to be appointed by a competent authority. In the present case, there is no such appointment. Therefore, under general law, there is no 'administrator'. From the above definitions, it is also clear that an 'administraor' can be appointed only when there is no executor. In other words, where there is an executor, the question of appointment of an 'administrator' cannot arise. An 'executor' could be one who is specifically mentioned by name in the will. Where there is no specific mention, it could also be examined and determined whether the testator in terms of the will has, by implication, nominated a person as 'executor'. The above is the position under the general law. In the present case, there is no appointment of an 'administrator' under the general law by a competent authority. The will does not mention a specific 'executor'. The deed of partition shows that the parties to the same, namely, the assessee and her sons who had attained majority and were legatees under the will had considered that the assessee was the 'executrix'. That, of course, is not conclusive on the point as to whether the assessee could be considered 'executrix' by implication. The assessee was managing the properties after the death of Shri Perianna Pillai because at that time the sons were minors in respect of certain assets.. Therefore, if the terms of the will are read as a whole, it could be construed that the assessee became the 'executrix' by implication. The Tribunal, in the income-tax proceedings, apparently proceeded on this basis. That apart, with reference to the extended definition in the Explanation to Section 19A of the word 'executor' as including within the meaning of that terms not only 'administrator' but 'other persons administering the estate of a deceased person', the assessee could be considered to be a person who was administering the estate on the facts of the case in accordance with the directions in the will of the deceased. This was the view taken by the Bench, of this Tribunal in the income-tax proceedings when they referred to the analogous provisions of Section 168 of the Income-tax Act and came to the conclusion that the income could not be assessed in the hands of the assessee as specific legatee.
8. The provisions of Section 19A of the Wealth-tax Act read as under :
19A. (1) Subject as hereinafter provided, the net wealth of the estate of a deceased person shall be chargeable to tax in the hands of the executor or executors.
(2) The executor or executors shall, for the purposes of this Act, be treated as an individual.
(3) The status of the executor or executors shall for the purposes of this Act as regards residence and citizenship toe the same as that of the deceased on the valuation date immediately preceding Ms death.
(4) 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 net wealth or on the net wealth of the deceased Under Section 19.
(5) Separate assessments shall be made under this sectidn in respect of the net wealth as on each valuation date as is included in the period from the date of the death of the deceased to the date of complete distribution to the beneficiaries of the estate according to their several interests.
(6) In computing the net wealth on any valuation date under this section, any assets of the estate distributed to, or applied to the benefit of, any specific legatee of the estate prior to that valuation date shall be excluded, but the assets so excluded shall, to the extent such assets are held by the legatee on any valuation date, be included in the net wealth of such specific legatee on the valuation date.
Explanation : In this section, 'executor' includes an administrator or other person administering the estate of a deceased person.
In the light of our aforesaid findings, the value of the right to receive the amounts from the Life Insurance Corporation cannot be included in the hands of the assessee but would be separately taxable under the provisions of Section 19A. The learned Departmental Representative submitted that at least by the time of the partition deed, on 12-1-1972, it should be presumed that there was distribution of the property in question in terms of oral agreement between the heirs. No doubt, there is a mention in the partition deed of agreement to distribute the movable properties having been separately arrived at. But the LIC had filed an appeal which was pending in the High Court in 1972 challenging the decision of the Sub-Judge directing the LIC to pay the amounts to the assessee. The compromise in this regard with the LIC was arrived at by the assessee only much later in 1974. There is, therefore, no clinching material in the absence of the parties having been examined, etc., as to whether any agreement had been arrived at regarding the final disposition of the amount payable in terms of the life insurance policies. It would appear that the final estate duty payment, though the assessment was completed much earlier, was made only as late as on 26-12-1974 by the assessee and this came to Rs. 59,830. Therefore, we are unable to accept the plea of the learned Departmental Representative that on any date prior to the arriving at of the compromise which was on 30-7-1974, it could be concluded that there was a complete distribution to the assessee as legatee of the item of property in dispute. We would, therefore, following the conclusion in income-tax proceedings which have now become final, hold that the value of the right to receive the amounts from the LIC in terms of the policies taken out by the deceased could not be included in the hands of the assessee as legatee in any of the assessment years now under consideration. We would accordingly direct exclusion from each of the assessments of the amount of Rs. 3,95,870 which is the view taken by the A AC and. with which we agree.
9. For the sake of completeness, we may state that while under the Income-tax Act a mere right to receive an amount may not result in income accruing, under the Wealth-tax Act, property of every nature is an asset and is a concept of the widest term. Had not the provisions of Section 19A been applicable, the question would have arisen of valuing the assessee's right to receive the amounts from the LIC. Merely because the LIC had disputed the assessee's right to receive the amount that would not have rendered the right, which the assessee was pursuing, one which fell outside the scope of valuation under the Wealth-tax Act.
10. The suit in the present case was no doubt decreed on 25-4-1968 and amounts were deposited in the High Court in 1969 and kept in the form of fixed deposits. However, the assessee had not come into possession of the same. The appellant in the present case was the Life Insurance Corporation of India which was a statutory body and a willing buyer would have considered that such body would have filed an appeal only because on legal advice it was considered that they had a good case. The appeal was actually pending in the High Court. There is also a chance in the event of the LIC losing in the High Court considering the stakes involved that the LIC might have considered pursuing the matter further. A willing buyer would have also looked to the fact that the prospect of litigation coming to an end would, have taken a considerable period. The Sub-Judge had given his judgment in 1968, 7 years after the suit was filed by the assessee. The assessment yea.rs before us are 1970-71 to 1974-75. Keeping in view the time that may be taken for getting a final decision and keeping in view the possibility that the final decision may not also be in the assessee's favour, a willing buyer would certainly have made a large discount for the probable value. We consider, on the facts of the case, that the market value can be fixed after allowing for adequate discount at 30 per cent of the figure of Rs. 3,95,870 in each of the years. We are unable to agree with the learned counsel for the assessee that no value at all should be taken. The policies had been taken out by the deceased. The assessee was the nominee under the policies. The assessee was the eventual legatee to whom the policy amounts were to go in terms of the will on the death of the deceased. The will came into operation and the assessee had a right to receive the policy amounts. Such right was property and the market value thereof had to be determined for wealth-tax purposes. Merely because the LIC disputed the claim or even refuted it, the assessee's right did not cease to be property. Such right had to be valued on each of the relevant valuation dates. In the view that we have taken, the value of such right on each of the valuation dates at 30 per cent would have come to Rs. 1,18,740 or in round figures Rs. 1,20,000. This would have been the value we would have upheld for inclusion in each asst. year were we to come to the conclusion that the provisions of Section 19A were not applicable. But having held that the provisions of Section 19A are applicable, as we have already held, no portion of the amount of Rs. 3,95,870 is assessable in any of the years in the hands of the assessee as legatee. Hence, the said amount would fall to be excluded as held by the AAC and the appeals of the revenue are dismissed.