COMMISSIONER OF WEALTH TAX Vs. S M BHANDARI

JUDGEMENT

(1.) This reference arises under section 27(1) of the Wealth-tax Act, 1957 (27 of 1957), for short "the Act", at the instance of the Revenue, which reads thus :

(2.) The facts set out in the statement of the case are that one Pannalal Lahoti executed a will on 21/04/1956, and he died seven days thereafter, i.e., 28/04/1956, leaving behind him his widow, Bheema Bai and daughter, Govind Bai, as his heirs. Under the will, he also bequeathed a sum of Rs. 50,000 to Aruna Bai - a minor (his daughters daughter) to be paid to her on her attaining majority. He has given authority to his wife to adopt a son, pursuant to which his widow adopted Sureshchandra Lahoti as his son. Under the will, on such adoption, his widow, daughter and adopted son, each was entitled to 1/4th share and the residuary estate, viz., the 1/4th share would be utilised as a fund for hospital and educational institutions. Under the will, he appointed his wife, Bheema Bai, and his brother-in-law, Balakrishnaji Bandari, as the executors. Since Beema Bai also died subsequently, Balakrishnaji Bandari became the sole executor. The executor paid to the adopted son, Sureshchandra Lahoti, certain amounts towards household expenses, insurance premium, etc., from time to time. In the first instance, these amounts have been exclude by the Wealth-tax Officer from the net wealth of the estate of the deceased, Pannalal Lahoti. But subsequently, during the current assessments for the years 1973-74 and 1974-75, the Wealth-tax Officer has reopened the assessments for the assessment years 1968-69 to 1972-73 and the amounts paid to Sureshchandra Lahoti were brought into the net wealth and in appeal and the Appellate Assistant Commissioner dismissed the appeal. On further appeal to the Income-tax Appellate Tribunal, while upholding the power and legality of reopening the assessments of the years 1968-69 to 1972-73, it held that since the income has already been passed on to Sureshchandra Lahoti, it remained no longer the wealth of the deceased, Pannalal Lahoti, and, therefore, it is to be deducted from the estate of the deceased, thus :

(3.) Sri Suryanarayana Murthy, learned standing counsel for the Revenue, has contended that by operation of sub-section (6) of section 19A of the Act any assets distributed or applied to a specific legatee are excluded from the net wealth in the hands of the executor or executors. Sureshchandra Lahoti is not a specific legatee. He is only a residuary legatee. Therefore, the amounts paid by the executor to Sureshchandra Lahoti are not excludable from the net wealth of the estate of the deceased. In support thereof, he placed reliance on V. M. Raghavalu Naidu and Sons v. CIT (1950) 18 ITR 787 (Mad) and Administrator-General of West Bengal v. CIT [1965] 56 ITR 34 (SC).