Commissioner of Income Tax vs Mrs. Marry Joseph

R. Jayasimha Babu, J.—The assessment year is 1983-84. The question referred at the instance of the Revenue is,

Whether, on the facts and in the circumstances on the case, the Appellate Tribunal is right in law in holding that the capital gains arising on the sale

of the Quilon property is not assessable in the hands of the assessee but only in the hands of her four daughters ?"" The Quilon property is the one

referred to in the will of the deceased father of the assessee, the late S. A. Pereira, who, in his will dated September 11, 1979, dealt with that

property thus :

Regarding my house property at Quilon in survey No. 11005 in Uliyakoil Village, Quilon Taluk, Quilon District, Kerala State, I bequeath the

same to my daughter. The income or sale proceeds of the said property have to be utilised for the education and marriage of my grand children.

The balance, if any, can be taken by my daughter.

The testator was also the owner of two businesses, both styled as Colombo Saree Works, one located in Coimbatore, and the other in Kerala

State. He bequeathed the business in Kerala to his wife, and the business in Coimbatore was bequeathed to his daughter-assessee.

During this assessment year, the assessee sold the property for a consideration of Rs. 3,60,000. She deposited the proceeds in equal shares in

the names of her four daughters in the business which had been bequeathed to her. She did not report any capital gain arising from the sale of the

property.

The Assessing Officer, however, held that she had, in fact, derived capital gains from the sale, and that such capital gain was taxable in her

hands. He did so after rejecting the assessee''s claim that the property did not belong to her, but belonged to her four daughters and that any

assessment of the capital gain will have to be in their hands. The capital gain was determined by the Assessing Officer at Rs. 1,88,466 after

deducting from the purchase price, the cost of acquisition of Rs. 18,000 and the deductions allowed u/s 80T which was then on the statute book.

The assessee having carried the matter in appeal, the Commissioner accepted the assessee''s case that in terms of the will she was not the

legatee, but her children were. For so holding, reliance was placed on Section 88 of the Indian Succession Act.

The Revenue having thereafter carried the matter to the Tribunal, the Tribunal affirmed the order of the Commissioner. It also has held that the

assessee is a trustee for her daughters.

Learned counsel for the Revenue submitted that the Commissioner, as also the Tribunal have fallen into error in holding that the assessee was

not the owner and that she was not liable to be taxed on the capital gain resulting from the sale of the property. It was rightly pointed out by

counsel that in terms of the will, the bequest is in favour of the assessee which resulted in her becoming the legal owner of the property. If the

assessee is regarded as a trustee for her daughters in view of the charge created on the property in favour of the assessee''s daughters for their

education and marriage expenses, even then, the assessee would still be liable, as she would become a representative assessee as a trustee

appointed under a testamentary instrument in view of Section 160(1)(iv) of the Income Tax Act. As provided in Section 160, Sub-section (2) of

the Act, every representative assessee is deemed to be an assessee for the purposes of the Act.

The terms of the will are quite clear. The testator clearly bequeathed the properties to his daughter, the assessee. The bequest was not in favour

of the grandchildren. The daughter in whom the property vested after the demise of the testator was required to apply the income from the

property for the education and marriage of her children. In the event of the property being sold, the proceeds were also to be applied for the same

purposes. The residue, if any, after meeting those expenses was to belong to the assessee. The assessee''s position, as held by the Tribunal, would

in the circumstances be that of a trustee of the income and the sale proceeds for her daughters. As a trustee appointed under a testamentary

instrument, she would become a representative assessee u/s 160(1)(iv) of the Act and, as such, is deemed to be an assessee for the purposes of

Section 160(2) of the Act.

The question referred is, therefore, answered by holding that the assessment is to be made on the assessee as a representative assessee for each

one of her four daughters for whose education and marriage expenses the proceeds of the sale were required to be applied in terms of the will

executed by the assessee''s father.