Kerala H.C : These two writ petitions are filed by two legal heirs of an assessee who expired on 1st Sept., 1990. Deceased was assessed to income-tax upto asst. yr. 1991-92.

Counsel Appeared

C. Kochunni Nair & Dale P. Kurian, for the Petitioner : P.K. Ravindranatha Menon & George K. George, for the Respondent

Note : The decision of Division Bench now rendered is published as P.V. Chandran vs. CIT (2001) 165 CTR (Ker) 172

JUDGMENT

J.B. KOSHY, J. :

These two writ petitions are filed by two legal heirs of an assessee who expired on 1st Sept., 1990. Deceased was assessed to income-tax upto asst. yr. 1991-92. But, his assessments were revised during the financial year 1994-95 and refunds were ordered to be granted. Accordingly, refunds were given with interest under s. 244(1A) of the IT Act, 1961 (for short ‘Act’) to three legal heirs in equal proportion. All the legal heirs received Rs. 2,78,160 each as interest on the refund. During the accounting year 1995-96, when the legal heirs filed return, they included the ‘interest on refund’ received by them as ‘income’ in the respective return. It was assessed to tax. Subsequently, two of the legal heirs, i.e., petitioners herein filed revision applications before the CIT under s. 264 of the Act claiming exclusion of the interest offered for assessment on the ground that it is not an income in their hands liable to be taxed. By Ext. P3 common order (produced in both the writ petitions) their revision petitions were dismissed. Petitioners are challenging the above order in these petitions. The short question involved herein is whether the interest received under s. 244(1A) on the refund amount ordered by the Department and received by the legal heirs of the assessee to whom the refund relates is a capital receipt at the hands of such legal heirs or a revenue receipt exigible to income-tax. According to the petitioners, interest received in this case is the income of the deceased person to his estate and such income accrued after his death when received by the legal heirs, becomes a capital receipt and not a revenue or trading receipt or an income chargeable to income-tax in the hands of the legal heirs. It is also contended that s. 159 is also not applicable and it is applicable only if the income accrued before his death and received by the legal representatives after his death. Here, interest has accrued only after the death as the assessments were revised in 1994-95 only and assessee expired as early as in 1990.

It is admitted in Ext. P3 order of the CIT also that s. 159 arises only in cases where income of the deceased person accrued before his death but received by the legal representatives after his death. In the instant case, during the lifetime of the deceased, he did not get the right of receiving the interest. It is contended by the Revenue that since s. 159 is not applicable and interest accrued after the death of the assessee and right to refund and interest arose on reassessment after the death of the assessee, interest cannot be treated as income of the deceased assessee but income of the legal representatives in their hands and hence rightly assessed in their hands.

4. No decision exactly covering the points in question was cited before me by both sides. According to the senior standing counsel for the Department, it is not section but s. 168 has to be applied. He also cited the decisionsJames Anderson vs. CIT (1960) 39 ITR 123 (SC) : TC 20R.980, Estate of VR. RM. S. Chockalingam Chettiar vs. CIT (1960) 40 ITR 429 (Mad) : TC 44R.869 and CIT vs. Mrs. Usha D. Shah (1981) 127 ITR 850 (Bom) : TC44R.797. Section 168 applies to executors of will, administrators or persons managing the estate and not mere legal representatives. Revenue pointed out various decisions to show that interest on refund received by an assessee is an income as defined under s.2(24). In CIT vs. G.R. Karthikeyan (1993) 112 CTR (SC) 302 : (1993) 201 ITR 866 (SC) : TC 38R.306 it was held that definition of ‘income’ in s. 2(24) is not exhaustive but inclusive and any type of income or receipt by an assessee will be covered by its wide net unless it is exempted under s. 10. In Dooars Tea Co. Ltd. vs. CIT (1962) 44 ITR 6 (SC) : TC 31R.495. Supreme Court held that the word ‘income’ under s. 2(24) is formidably wide. It was also pointed out that even the insurance receipt was held to be taxable income in Raghuvanshi Mills Ltd. vs. CIT (1952) 22 ITR 484 (SC) : TC 38R.301. It is not disputed by the learned counsel for the petitioners also that if an assessee receives the interest on refund in a particular year, it will be an income in his hands in that accounting year. It will still be so if s. 159 applies or if there was execution in view of s. 168. It was held as early as in 1953 in CIT vs. Maharajadhiraj Sir Kameshwar Singh (1953) 23 ITR 212 (Pat) : TC 38R.1017. But the sole contention is that here interest was received for the estate of the deceased and since it is admitted that s. 159 was not applicable, said receipt of interest on refund accrued to the estate of the deceased after his death can, at the most, be called capital receipt by the legal representatives and it is not taxable in the hands of the legal representatives. He also cited the decision in CIT vs. J.V. Kolte (1998) 148 CTR (Bom) 454 : (1999) 235 ITR 239 (Bom) : TC S32.3084 in the matter of payment from approved superannuation fund in the absence of special provisions. Regarding income received from the annuity deposited from the legalrepresentative, decision of the Supreme Court in Kapil Mohan vs. CIT (1999) 151 CTR (SC) 102 : (1999) 235 ITR 278 (SC) was cited. In that case, it was held that even though income from annuity deposit is income in the hands of original depositor, on the original depositor’s death when that is received as part of the estate, it cannot be taken as the income in the hands of the legal representative as it became part of the estate of the deceased.

The Supreme Court held as follows : “Becoming a part of his estate, his legal representatives become entitled to recover it, and they would under the general law be entitled to recover it in one lump sum, paying no tax on it (except estate duty, should a statute levying it be on the statute book at the relevant time). Sub-para 4(a) of the scheme does no more than recognise that the unpaid balance of the annuity deposit has to be paid over to the original depositor’s legal representatives, adding only this; that it would be paid in instalments as annuity. Though so paid in annuity from the repayment is of capital. It cannot be taxed as income in the hands of the legal representative unless the statute were expressly to deem it to be income in his hands. As to the argument based on equity, it has long been recognised that tax and equity are strangers. Just as reliance upon equity does not avail an assessee, so it does not avail the Revenue. The legal representative of a deceased depositor cannot be made to pay income-tax upon the annuity only because the original depositor had not been required to pay income-tax on the amount of the annuity deposit, on the basis that what the Revenue had lost out on then should be recouped to it now.” Since no decision on the point in question regarding income-tax assessment of interest on refund accrued after the death of the original assessee but received by legal representative is cited by both sides and the question involved in the case is very important, I am of the opinion that this issue has to be decided by a Bench of this Court. Therefore, I adjourn the matter to be placed before the honourable Chief Justice for appropriate orders.

[Citation : 248 ITR 761]