R. V. Easwar, J.M. - (1.) IN this appeal by the Department, the following grounds have been taken : "(1). On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that provisions of s. 176(4) of the IT Act are not applicable to the facts of the case and thereby erred in deleting the addition made by the AO of Rs. 1,10,856 which was received as per cl. 14(a) of the partnership deed by the legal heirs of the assessee on his retirement and subsequent death. (2). On the facts and in the circumstances of the case and in law, the learned CIT(A) failed to take cognisance of the decision in the case of CIT vs. Vishwanath Shastri's Estate (1980) 121 ITR 270 (Mad) relied by the AO in the assessment for invoking provisions of s. 176(4) of the IT Act, and treating the executors as recipient thereof within the meaning of s. 176(4) and thereby erred in deleting the addition made by AO under s. 176(4) holding that the amount received by the executors vide cl. 14(a) of the partnership deed, dt. 15th March, 1982, is a capital receipt."
(2.) Mr. Kaikhushroo Engineer, who passed away on 29th February, 1988, was a chartered accountant. He was a partner in M/s. Sorab S. Engineer & Co., a firm of chartered accountants. He retired from the said firm w.e.f. 1st January, 1985. In respect of fees received from the firm after the said date, as per cl. 14(a) of the deed of partnership, and during his lifetime, he was assessed to income-tax. He died on 29th February, 1988. For the year ended 31st March, 1990 (asst. yr. 1990-91), which is the year in appeal, his legal heirs received a sum of Rs. 1,10,856 from the firm as per cl. 14(a) of the partnership deed. In the return filed, exemption from income-tax was claimed in respect of the aforesaid receipt on the ground that it was a capital receipt, relying on the judgment of the Bombay High Court in CIT vs. Late F. Summersgill (1977) 112 ITR 617 (Bom). The AO negatived the claim holding that in the asst. yr. 1989-90 (previous year 1st March, 1988 to 31st January, 1989), a similar claim was wrongly accepted under s. 143(1)(a) to rectify which action was being taken under s. 147. He further held that after the death of the assessee, the provisions of s. 168 came into play and if those provisions are applied the executors have to be assessed till the administration of the estate is complete and under those provisions any income accruing to the legal representative must be brought to tax-in his hands since the estate vests in him and that these provisions are mandatory. According to him, as per the decision of the Madras High Court in the case of Estate of Late Viswanatha Sastri (supra), the executor may be taxed as "the recipient" of the income under s. 176(4) and this decision squarely applied to the present case. He sought to distinguish the judgment of the Bombay High Court (supra) cited on behalf of the assessee holding that the facts are different in that case. In this view of the matter he included the sum of Rs. 1,10,856 in the assessment under the head "other sources".
(3.) AN appeal was taken to the CIT(A) against the decision of the AO. The CIT(A) was of the view that the amount received by late Mr. Engineer under cl. 14(a) of the partnership deed represented a capital receipt in the hands of the legal heirs, that the judgment of the Bombay High Court applied, that the executors were not carrying on any profit-earning activity, that they merely collected the amounts due to the estate of late Mr. Engineer and that the provisions of s. 176(4) were not attracted since they spoke of a "discontinued" profession whereas in the present case the profession was very much in existence. He, therefore, deleted the amount from the assessment.;