P V CHANDRAN Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THESE two writ petitions are filed by two legal heirs of an assessee who expired on September 1, 1990. The deceased was assessed to income-tax up to the assessment year 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 Section 244(1A) of the Income-tax Act, 1961 (for short "the 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 the 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., the petitioners herein filed revision applications before the Commissioner of Income-tax under Section 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 exhibit P-3 common order (produced in both the writ petitions) their revision petitions were dismissed. The petitioners are challenging the above order in these petitions.

(2.) THE short question involved herein is whether the interest received under Section 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 Section 159 is also not applicable and it is applicable only if the income accrued before his death and is 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 the assessee expired as early as in 1990.

(3.) 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 the 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 Chief Justice for appropriate orders."