SMT. SNEHLATA R. PARIKH VS COMMISSIONER OF WEALTH TAX
1995 P T D 826
[209 I T R 791]
[Gujarat High Court (India)]
Before G. T. Nanavati and Y.B. Bhatt, JJ
Smt. SNEHLATA R. PARIKH
Versus
COMMISSIONER OF WEALTH TAX
Wealth Tax References Nos. 3, 3-A to 3-D of 1981, decided on 24/08/1993.
Wealth tax---
-----Executor---Liability of executors---Effect of S.19-A, Indian Wealth Tax Act, 1957---Wealth Tax Act, 1957, S.19-A.
In view of the express and categorical language of section 19-A of the Wealth Tax Act, 1957, the net wealth of the estate of a deceased person would remain chargeable to tax in the hands of the executor or executors. This liability of the executors will continue till the date of complete distribution of the estate to the beneficiaries according to their several interests. Subsection (6) makes it clear that if any assets of the estate are distributed to, or applied to the benefit of, any specific legatee of the estate, then that estate has to be excluded from computation of the net wealth represented by the executor and the estate so excluded, to the extent such assets are held by the legatee, will have to be included in the net wealth of such specific legatee:
Held, on the facts, that, admittedly, till the assessment year 1973-74, no asset of the estate of the deceased was distributed amongst the legatees or applied to the benefit of the legatees. Hence, the share of the assessee in the residuary estate of the deceased was not liable to be included in the net wealth of the assessee for the assessment years 1969-70 and 1970-71 to 1973-74.
Navnit Lal Sakarlal v. CIT (1992) 193 ITR 16 (SC) rel.
CIT v. Navnitla Sakarlal (1980) 125 ITR 67 (Guj.) held no longer good law.
Navnital Sakarlal v. CWT (1977) 106 ITR 512 (Guj.) and V.M. Raghavalu Naidu and Sons v. CIT (1950) 18 ITR 787 (Mad.) ref.
K.H. Kaji for the Assessee.
B.J. Shelat instructed by M.R. Bhatt of Messrs R.P. Bhatt & Co. for the Commissioner.
JUDGMENT
G.T. NANAVATI, J.---As the Tribunal has made only one reference even though there were five separate reference applications, we have directed the office to give five separate numbers to these references by treating the reference arising out of Reference Application No.536 of 1980 in respect of the assessment year 1969-70 as Reference No.3 of 1981 and the references arising out of Reference Applications Nos. 537 to 540 of 1980 in respect of the assessment years 1970-71 to 1973-74 as Wealth Tax References Nos.3-A, 3-B, 3-C and 3-D of 1981, respectively. ,
As the point which arises for consideration in these references is identical, all these references are heard together and disposed of by this common judgment.
Smt. Ansuyaben expired on June 3, 1968 leaving behind her a will dated February 23, 1968. Under the will, she bequeathed all her properties to her children, viz., Snehlata R. Parikh, the assessee, in these cases, and her brother, Jitendra Ramniklal. They were also made executors of the will. According to the will, the two executors had to incur expenditure for obtaining probate or succession certificate after the demise of Ansuyaben, had to perform the after death ceremony according to the status of the family of the deceased and had to discharge liabilities arising under the Income Tax Act, the Wealth Tax Act and the Estate Duty Act. All these liabilities were to be discharged from the estate of the deceased. From the residue, Jitendra was to be given shares of the companies wherein he was a director and the balance was to be distributed equally between Jitendra and the assessee. The executors incurred the expenditure as required and also made payments in 1969, totalling Rs.1,54,000 towards the estate duty liability. In 1975, a further sum of Rs.1,35,000 was paid as estate duty after the first assessment order in that behalf was passed. The shares of the value of Rs.7,07,000 were distributed on March 31, 1975, and jewellery worth Rs.1,95,000 was distributed on September 23, 1977. In the wealth-tax proceedings for the assessment year 1969-70 and onwards, the Wealth Tax Officer sought to include the half share of Ansuyaben in the wealth tax assessment of the assessee on the ground that it had vested in the assessee. The said step was objected to by the assessee on the ground that no part of the estate of Ansuyaben could be treated as wealth of the assessee till all the liabilities of taxation were discharged and execution of the will was completed. The Wealth Tax Officer rejected the said contention and included the half share in the estate of Ansuyaben in the assessee's taxable wealth for the said assessment years. In the appeals filed by the assessee, the Appellate Assistant Commissioner made a slight modification in the order passed by the Wealth Tax Officer. He agreed with the view that the half share which the assessee got in Ansuyaben's estate was rightly included in the assessee's taxable wealth. He then held that as she was given a share only in the residue of the estate which remained after the shares were given to Jitendra, only half share, in the residue of the estate of the deceased could be regarded as her taxable wealth. He, therefore, directed the Wealth Tax Officer to recompute the correct value of the assessee's interest in the estate. The assessee then approached the Tribunal. The main contention raised on behalf of the assessee before the Tribunal was that no part of the estate of Ansuyaben was includible in the taxable wealth of the assessee in any of the years in view of section 19-A of the Act. The Tribunal held that the assessee had a right in the estate as residuary legatee right from the date of death of Ansuyaben and that she was liable to be assessed in respect of every wealth in her wealth tax assessment. The Tribunal taking this view dismissed the appeals.
The assessee moved the Tribunal for referring the following three questions in respect of each assessment year to this Court:
"(1) Whether, on the facts and in the circumstances of the case, the one half portion of the residuary estate of Smt. Ansuyaben Ramniklal is liable to be included in the net wealth of the assessee for the relevant assessment year?
(2)Whether on the facts and in the circumstances of the case, the executors of the will of Smt. Ansuyaben Ramniklal and not the assessee is liable to be assessed under section 19-A of the Wealth Tax Act in respect of the estate of Smt. Ansuyaben?
(3)Whether, on the facts and in the circumstances of the case, can it be said that the execution of the will of late Smt. Ansuyaben Ramniklal was complete and the wealth was liable to be included in the wealth of the applicant in the relevant year?"
What is contended by learned counsel for the assessee is that the Tribunal completely went wrong in deciding the appeals in the light of the observations made by this Court in Navnitlal Sakarlal v. CWT (1977) 106 ITR 512 and in CIT v. Navnitlal Sakarlal (1980) 125 ITR 67. He submitted that Navnitlal Sakarlal's case was decided when section 19-A was not on the statute book. He further submitted that in view of the specific provisions made in section 19-A, the net wealth of the estate of a deceased person is now chargeable to tax in the hands of the executor or executors. Moreover, as provided in subsection (5) of that section, separate assessments have to be made under the said section-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. Thus, according to learned counsel for the assessee, till complete distribution of the estate is done, in respect of the estate "which remains in the hands of the executors, wealth tax can be levied only upon the executor and not upon the legatee.
On the other hand, it was submitted by learned counsel for the Revenue that the appeal filed against the decision of this Court in Navnitlal Sakarlal's case (1977) 106 ITR 512 is still pending in the Supreme Court and till then, the decision of this Court should be regarded as final and binding on this Court.
We will deal with the contentions raised on behalf of the Revenue first. Admittedly, in Navnitlal Sakarlal's case (1977) 106 ITR 512, the question whether the properties which devolved upon the assessee under the will could be said to be assets belonging to the assessee on the relevant valuation dates, was required to be decided with reference to the position of law which prevailed before April 1, 1965, that is, when section 19-A was not on the statute book. This Court, therefore, following the general principle, held that the right to receive the clear residue, even though the date of actual receipt is deferred is still property and constitutes an asset for the purpose of wealth tax. Therefore, the interest which devolved upon the assessee under the will in the surplus, if any, of the separate property of his grandfather was an asset belonging to the assessee on the relevant valuation dates and could also be legitimately taken into account in computing his net wealth. Though under the Income Tax Act, there was a specific provision with respect to the liability of the executor, no such provision was made in the Wealth Tax Act till April 1965. Therefore, this Court was obviously required to decide the questions of liability of the executor and the legatee by referring to the general principles of law and sections 3 and 4 of the Wealth Tax Act. This Court was, therefore, required to determine the liability after ascertaining to whom the asset belonged. Now, a material change is made in this behalf. The Legislature has stepped in and now it is provided that the net wealth of the assets of the deceased's beneficiaries shall be chargeable to tax in the hands of the executor or executors. In view of this change m the position of law, in our opinion, the binding effect of decision of this Court in Navnitlal Sakarlal's case has disappeared. Now, we will have to decide the question not by referring to the general principles but by referring to the provisions contained in section 19-A of the Act.
Moreover, in the matter of the same assessee arising under the Income-tax Act, after considering the position arising as a result of administration of the estate under the will, and after referring to section 168(31, of the Act, the Supreme Court in Navnit Lal Sakarlal v. CIT (1992) 193 ITR 16 observed that the executor will continue to be assessed until the estate is distributed among the beneficiaries according to their several interests. The Supreme Court has then pointed out that the new provision does not enact anything different from the pre-existing law on the subject. It referred, with approval; to the following statements made in V.M. Raghavalu Naidu and Sons v. CIT (1950) 18 ITR 787, 804 (Mad.) (at page 25 of 193 ITR):
"Chapter VII of the Indian Succession Act, 1925, succinctly defines the duties of executors. Shortly stated, it is their duty to clear the estate- to pay the debts, funeral and testamentary expenses and the pecuniary legacies, and to hand over the assets specifically bequeathed to the specific legatees. When all this has been done, the balance left in the executor's hands is the residue and must be paid over to the residuary legatee under section 366 of the Succession Act or held in trust for them, if the directions in the will require the residue to be so held. Section 211(1) of the Succession Act constitutes the executor of a deceased person his legal representative for all purposes and vests all the property of the deceased in the executor. Though no time-limit is fixed by the section for the duration of the office of executor with its powers and rights, and in this sense an executor remains an executor for an indefinite time, the property, which he has in the estate that devolves upon him and over which his powers extend, does not remain his indefinitely. By his assent to the disposition in the will they become operative, the executor is protan to divested of the property which was his virtue office, and the legatees have vested in them as owners, the property in the subject-matter of the bequests. Under sections 332 and 333 of the Succession Act, the assent of the executor to a legacy may be express or implied from his conduct. By assent is meant not that the executor concurs in the dispositions in the will but that he assents to the disposition taking effect upon the specific property if the bequest is specific, upon the sum of money if it is pecuniary, or upon the residue brought out by the executor at the end of the administration, if it is a residuary bequest. There is the same necessity for the executor's assent to a bequest of the residue as to a bequest of a specific or pecuniary legacy. So soon as he assents to the dispositions of the will---and the assent may be express or implied from his conduct---they become fully operative and the title of the legatees becomes absolute.
The Supreme Court then held that: "the residuary legatee might be interested in the estate subject to the payment of debts and legacies, but he did not become the proprietor or owner of the residue except when a residue had been ascertained which, on completion of administration, is made over to him by the executors:"
In the light of this view taken by the Supreme Court, though under the Income Tax Act, 1961, the correctness of what has been held by this Court in Navnitlal Sakarlal's case (1977) 106 ITR 512 becomes doubtful. Again, as stated earlier, now the position of law is different after the enactment of section 19-A and, therefore, we are not bound to follow the said decision.
In view of the express and categorical language of section 19-A, the net wealth of the estate of a deceased person would remain chargeable to tax in the hands of the executor or executors. This liability of the executors will continue till the date of complete distribution of the estate to the beneficiaries according to their several interests. Subsection (6) makes it clear that if any assets of the estate are distributed to, or applied to the benefit of, any specific legatee of the estate, then that estate has to be excluded from computation of the net wealth represented by the executor and the estate so excluded, to the extent such assets are held by the legatee, will have to be included in the net wealth of such specific legatee. It appears from this provision made in section 19-A that the Legislature has preferred to levy and collect tax in the hands of the executors till any of the assets of the estate are not distributed or applied to the benefit of any specific legatee.
Coming to the facts of the case, it is an admitted position that till the assessment year 1973-74, no asset of the estate of the deceased was distributed amongst the legatees or applied to the benefit of the legatees. It is nobody's case that the distribution was not made till then with some ulterior motive and to deprive the Revenue of its legitimate dues by way of wealth tax.
For the reasons stated above, we answer question No.1 in the affirmative and question No.2 in the negative, that is, in favour of the assessee and against the Revenue. So far as question No.3 is concerned, we answer the question in the negative, that is, in favour of the assessee and against the Revenue with the clarification that what was meant by that question- was whether administration of the estate in terms of the will was complete or not. References are disposed of accordingly. No order as to costs.
M.B.A./707/T.F Order accordingly.