1981 (4) TMI 60 - HC - Income Tax

Executor's Tax Liability on Foreign Account Interest Upheld Under Income-tax Act

Estate Of Late HH. Rajkuerba, dowager Maharani Saheb Of Gondal Versus Commissioner Of Income-Tax, Karnataka

Estate Of Late HH. Rajkuerba, dowager Maharani Saheb Of Gondal Versus Commissioner Of Income-Tax, Karnataka - [1982] 135 ITR 393, 29 CTR 346 Issues Involved:1. Assessment under Section 168 of the Income-tax Act, 1961.2. Taxability of interest credited in a foreign bank account.3. Taxability of refund of annuity deposits.4. Deductibility of estate duty from refund of annuity deposits.5. Deductibility of estate duty from capital gains.Detailed Analysis:1. Assessment under Section 168 of the Income-tax Act, 1961:- The primary issue was whether the executors should be assessed under Section 168 of the Income-tax Act, 1961, and whether separate assessments should be made according to the several interests of the beneficiaries.- The Tribunal and lower authorities concluded that the administration of the estate was not complete, and thus the executors were liable to be assessed as an association of persons under Section 168.- A difference of opinion arose between the judges on whether Section 168(3) required separate assessments based on the beneficiaries' interests or a single assessment. The majority concluded that Section 168(3) does not mandate separate assessments according to the several interests of the beneficiaries.2. Taxability of interest credited in a foreign bank account:- The executors contended that the interest credited by Lloyds Bank, London, should not be included in the income until it was realized, as they were maintaining accounts on a cash basis.- The court held that under Section 168, the moment the interest is credited to the estate's account, it constitutes income of the estate, regardless of the executors' ability to access the account due to probate requirements.- The court concluded that the interest amount credited in the Lloyds Bank was assessable in the accounting year relevant to the assessment year 1967-68.3. Taxability of refund of annuity deposits:- The executors argued that the refund of annuity deposits should not be taxed as it was received by them as legal representatives and not by the depositor.- The court rejected this argument, stating that the refund of annuity deposits is income under Section 2(24) of the Act, whether received by the depositor or the executors.- The court held that the refund of annuity deposits was taxable in the hands of the executors.4. Deductibility of estate duty from refund of annuity deposits:- The executors claimed that the estate duty payable on the annuity deposits should be deductible from the refund of annuity deposits assessable as income.- The court referred to its earlier decision in K. Bhoomiamma v. CED, which held that estate duty payable is not deductible for determining the principal value of the estate liable to tax.- The court concluded that estate duty payable on the annuity deposits is not deductible from the refund of annuity deposits.5. Deductibility of estate duty from capital gains:- For the assessment year 1970-71, the executors contended that the estate duty on assets sold (shares and gold) should be deductible from the capital gains.- The court, referring to the same principles as in the annuity deposits issue, rejected this contention.- It was held that the proportionate estate duty relating to these assets cannot be allowed as a deduction while computing capital gains.Conclusion:The court affirmed the assessments made under Section 168 of the Income-tax Act, 1961, against the executors, and ruled against the assessees on all counts, including the taxability of interest credited in a foreign bank account, the taxability of refund of annuity deposits, and the non-deductibility of estate duty from both annuity deposits and capital gains.