Order
D. Manmohan, J.M.
The appeal filed by the assessee pertains to assessment year 1994-95. Vide ground Nos. 1 and 2, the assessee contends that the assessing officer erred in applying the provisions of section 50 of the Income Tax Act, The facts of the case in short are as order :
2. The assessee’s husband, late Subramaniam carried on the business of printing and book binding at Dhanraj Industrial Estate. In Unit No. 4, he was running the business of book binding in his capacity as an agent of court receiver, High Court, Mumbai on payment of royalty Rs. 5,500 per month which had to be deposited with the court receiver. From Unit No. 10A, he was running the business of printing as a proprietary concern, Subramaniam expired on 5-5-1989. Subsequent to death, a dispute arose regarding the inheritance of his property. Brothers of late Subramaniam filed a petition for probate in the High Court claiming that they would succeed to the property as per the will. Late Subramaniam’s wife and minor sons filed a caveat objecting to the grant of probate and thus, the matter was converted into a suit bearing No. 3 of 1990 and the court receiver was appointed to administer the estate of the deceased. After three years of litigation, the matter was settled and as per the consent terms filed in the court, appropriate orders were passed by the Hon’ble High Court on 12-3-1993, whereby the estate of the deceased was to be divided amongst his 4 legal heirs, i.e., his wife-the assessee herein, his two minor sons and his mother-assessee’s mother-in-law, each would be entitled to 1/14th share in the net estate of the deceased.
3. Thereafter, vide a deed dated 9-2-1994, Gala No. I0A, Dhanraj Industrial Estate was sold for a sum of Rs. 43 lakhs. Assessee’s share was Rs. 10,75,000. Similarly, Gala No. 4, Dhanraj Industrial Estate was also sold by an agreement dated August 1993 for a sum of Rs. 45,25,000. As per the consent terms and the consequent order passed by the Hon’ble Bombay High Court, assessee’s share in the said property was 12 per cent which works out to Rs. 5,43,000 by taking into consideration the sale price. Assessee’s minor children have also received a similar amount on the sale of Gala Nos. 4 and 10A.
4. In the return filed for the assessment year 1994-95 the assessee declared a sum of Rs. 9,77,400 towards long-term capital gains arising out of the sale of the aforementioned two Galas. It may be stated here that Gala No. 10A was purchased by late Subramaniam on 22-1-1982 for a sum of Rs. 3,75,000 whereas Gala No. 4 was not purchased by the late husband of assesseeit was the property of the partnership firm. Due to disputes amongst the partners of the firm who were carrying on business from Gala No. 4, official receiver was appointed by the court and the official receiver had allowed Subramaniam to carry on business from the said premises on payment of certain amount.
5. During the course of assessment proceedings, the assessing officer verified the details with regard to the amount offered to tax. She observed that the assessee took the cost of Gala No. I0A at Rs. 3,25,000 whereas the agreement dated 22-1-1982 shows that the property was purchased by her husband, late Subramaniam for a sum of Rs. 3,75,000. According to the assessing officer provisions of section 5O(1)(ii) of the Income Tax Act were applicable to this case because the premises was used by assessee’s late husband for the purpose of his business and consequently, she held that the cost in the hands of the assessee would be the WDV of this asset at the beginning of the previous year and not the original purchase value. She further observed that the assessee is also not entitled to claim the benefit of indexation of cost since Gala No. 10A formed part of the block of assets in the hands of late Subramaniam. The assessing officer therefore, concluded that the assessee wrongly increased the cost of this building in her hands and thereby reduced the income arising to her from capital gains. According to the assessing officer, the WDV of Gala No. l0A, as on 1-4-1993, would be Rs. 1,05,914 which has to be taken as the cost of asset for computing the capital gains.
6. Similarly, with regard to the other premises located at Gala No. 4, it was also used by the assessee’s late husband for the purpose of business. Hence, the assessing officer was of the opinion that the WDV of Gala No. 4 as on 1-4-1993 has to be taken as the cost but since the assessee was unable to furnish any information regarding the original cost of asset, the assessing officer estimated the probable WDV of Gala No. 4 at Rs. 1,20,000. Thus, the total income liable for tax as long-term capital gains was determined at Rs. 15,77,122 and after allowing deduction of Rs. 25,000 only towards advocate fees, the balance amount was brought to tax by treating the same as long-term capital gains. The assessing officer also clubbed the income of minor children in the hands of the assessee under section 64(1A) of the Income Tax Act.
7. Aggrieved, assessee contended before the Commissioner (Appeals) that section 50 of the Income Tax Act is applicable only in a case where an asset is part of ‘block of assets’ during the year of sale and the language of section 50 of the Income Tax Act presupposes existence of the block of assets and continuance of the business whereas Gala Nos. I0A and 4 were no longer part of block of assets at the time of transfer and therefore section 40 has no application. The plea of the assessee did not appeal to the Commissioner (Appeals) and, therefore, she confirmed the order of the assessing officer.
8. Further aggrieved, assessee is in appeal before us. The learned counsel appearing on behalf of the assessee submitted that upon the death of assessee’s husband, the business carried on from Gala Nos. 4 and 10A was discontinued and, therefore, block of assets did not remain as business assets and as per the direction of the Hon’ble High Court, the assessee and her two minor sons became entitled to 1/4th share each as per the Hindu Succession Act, 1956. Adverting out attention to section 50 of the Income Tax Act, the learned counsel submits that the legislature never intended to deny the benefit under section 48/49 of the Income Tax Act. As could be seen from use of expression “is an asset forming part of a block of assets” in section 50, the word “is” signifies that the business is continued in the year of sale of the property which formed part of the block of assets, the absence of the word “was” also supports the claim of the assessee. The learned counsel further submitted that in the instant case, the share in the estate was received by her as per the Hindu Succession Act and, therefore, section 49 of the Income Tax Act ought to have been applied by the assessing officer for allowing benefit of cost indexation method on the cost of purchase of property in the hands of the previous owner. As regards Gala No. 4, the learned counsel submitted that the assessee has not claimed any depreciation and hence section 50 has no application. On the other hand, the learned Departmental Representative that section 50 is applicable in a case where a particular property was part of the block of assets on which depreciation was claimed earlier. He also adverted our attention to section 176(3A) of the Income Tax Act to submit that the assessee shall be deemed to be carrying on the business and hence, the property continues to be part of the block of assets upto the date of sale. He thus strongly supported the orders of the tax authority.
9. Joining the issues, the learned counsel submitted that section 176(3A) applies to business income whereas in the instant case, Gala Nos. 4 and 10A were sold by the parties after they inherited the same under the Hindu Succession Act.
10. We have carefully considered the rival submissions and perused the record. A careful perusal of the provisions of sections 49 & 50 of the Income Tax Act reveals that section 50 is applicable only in a case where an asset forms part of a block of assets which implies that at the time of transfer, such assets should be part of the block of assets. Admittedly, after the death of Subramaniam in 1989, the business operations in Gala Nos. 4 and 10A ceased. Litigation regarding inheritance of the property continued from 1990 to 1994 which ultimately ended in a settlement and by virtue of the order of the hon’ble court, as per the consent terms, the assessee and the minor children became entitled to 1/4th share each in the impugned properties though they never carried on business. Thus, in the hands of the assessee and her minor children, rights on Gala Nos. 4 and 10A were acquired by virtue of inheritance and the sale of such an asset if specifically governed by section 49/48 of the Income Tax Act particularly when the impugned assets ceased to exist as ‘block of assets’, after 1989. We are therefore, of the opinion that the assessee is entitled to the benefit of index cost method for arriving at the cost of acquisition of the property.
11. This leaves us with the second issue. Vide ground Nos. 3 and 4, assessee contends that the income of the minor sons should not be clubbed in the hands of the assessee by applying section 64(1A) of the Income Tax Act. The case of the revenue is that after the death of her husband, assessee maintained her children and therefore, the income of the minor children has to be clubbed in her hands.
12. The assessee contended before the tax authorities that the word ‘maintenance’ has to be understood in the proper perspective. Assessee’s minor sons have separate source of income and, therefore, the assessee cannot be said to have ‘maintained’ her children. The assessing officer as well as the Commissioner (Appeals) rejected the claim of the assessee and, therefore, the assessee is in appeal before us.
13. The learned counsel appearing on behalf of the assessee submitted that soon after the death of Subramaniam, there was litigation and, therefore, the property was in the charge of the court receiver who paid Rs. 1,000 per month to the assessee and thus, the assessee had no other income to maintain her children. He further submitted that the minor children had independent taxable income and there are adequate withdrawals from their accounts which would be sufficient for their maintenance and thus, the income of the minor sons should not be clubbed in the hands of the assessee. Adverting our attention to section 64(1A) of the Act, the learned counsel submitted that Explanation (a) to section 64(1A) is applicable where marriage of the parents of the minor children ‘subsists’ and Explanation (b) applies where the marriage does not subsist. Taking us through Explanation (a), learned counsel submitted that soon after the death of Subramaniam the marriage between the assessee and her husband ceased to subsist and, therefore, the said Explanation has no application. As per Explanation (b), the income of the minor children has to be clubbed in the hands of that parent who maintains the minor child in the previous year. According to the learned counsel, the assessee did not maintain her minor children during the previous year and the word ‘maintains’ does not mean moral and physical assistance but the financial assistance.
14. On the other hand, the learned Departmental Representative submitted that the assessing officer as well as the Commissioner (Appeals) analysed the facts of the case to come to the conclusion that the assessee maintained her children and thus, submitted that Explanation (b) to section 64(1A) is applicable. He further submitted that even Explanation (a) to section 64(1A) is applicable to the instant case because even after the death of a spouse marriage does not cease to subsist.
15. We have carefully considered the rival submissions. Explanation to section 64(1A) which is relevant herein, is extracted here for the sake of cenvenience :
“Explanation : For the purpose of this sub-section, the income of the minor child shall be included,
(a) where the marriage of his parents subsists, in the income of that parent whose total income (excluding the income includible under this sub-section) is greater; or
(b) where the marriage of his parents does not subsist in the income of that parent who maintains the minor child in the previous year,
and where any such income is once included in the total income of either parent, any such income arising in any succeeding year shall not be included in the total income of the other parent, unless the assessing officer is satisfied, after giving that parent an opportunity of being heard, that it is necessary so to do.”
16. Upon the death of husband, marriage does not cease to subsist. Unless a spouse obtains a decree of divorce or lives separately by any other mode known to the law, marriage lasts for a lifetime and the death of one of the spouse would merely result in a loss of physical existence of one spouse but nevertheless marriage subsists. This is also not a case of remarriage of a surviving spouse. Thus, we are of the firm view that Explanation (a) to section 64(1A) is applicable to the instant case in which event the income of the minor children has to be included in the hands of the assessee herein. Having regard to the language of Explanation (a), i.e., “in the income of that parent, whose total income is greater”, the income of the assessee is greater inasmuch as, the other parent, i.e., late Subramaniam cannot be said to have earned any income during this year and thus the income, however negligible, earned by the other parent would automatically be greater as compared to the nil income of late Subramaniam. Since the income of the assessee is greater, we do not find any infirmity in the order of the Commissioner (Appeals) directing the assessing officer to club the income of the minor children in the hands of the assessee.
17. In the result, the appeal filed by the assessee is partly allowed.