Commissioner of Wealth-Tax, Calcutta Vs.
O.M.M. Klnnison [1986] INSC 180 (29 August 1986)
PATHAK, R.S. PATHAK, R.S. MUKHARJI,
SABYASACHI (J)
CITATION: 1986 AIR 2019 1986 SCR (3) 674 1986
SCC (4) 297 JT 1986 295 1986 SCALE (2)355
ACT:
Wealth Tax Act, 1957: s. 6, cl. (i)-Asset-A
right in the nature of a chose-in-action enforceable in England- Whether liable
to wealth tax.
HEADNOTE:
'A', a company, the managing agents of two
Indian companies entered into a sub-partnership with one 'B' in 1907 and shared
equally the emoluments from the managing agency. 'B' died in 1316 leaving a
Will bequeathing all his property to his wife 'C'. 'C' executed two deeds of
assignment in 1927 assigning her share of the emoluments under the
sub-partnership in favour of her son 'D', who began to receive the half share
of the emoluments from the managing agency. 'D' executed a Will in 1935
appointing his wife and a solicitor as executors and trustees upon trust of his
real and personal estate. 'D' who was domiciled in England died in 1943. The
High Court in England granted probate of the Will in June, 1943. Letters of
Administration were obtained in India in August, 1944. The widow of 'D' was a
non-resident and not a citizen of India.
The Will inter alia empowered the two trustees
to sell, call in and convert into money such parts of the estate as may not
consist of money, at such time and in such manner as they thought fit,
postponing such sale and conversion for such period as they thought proper.
They were enjoined after meeting the funeral and testamentary expenses, and
debts and legacies to invest the residue of the ready monies arising from such
calling in and conversion of the estate, with the consent of the assessee
during her life and afterwards at the discretion of the trustees, in the
investments authorised under the Will and to transpose with investments into
others, and to stand possessed of the residue of such monies and all
investments and the income thereof upon trust subject to the further powers and
provisions declared under the Will. It was provided that the trustees would pay
the income of the residuary trust fund to the assessee during her life. After
the death of the assessee the trustees would stand possessed of the residuary
trust fund in trust for 675 the benefit of the testator's children in
accordance with the further provisions of the Will.
The corpus of the trust consisted of certain
shares in an Indian company and the income from the managing agency of the
Indian companies. The question that arose was whether the widow of 'D' was
liable to wealth tax on her interest in the Indian assets in the hands of the
trustees. The Wealth Tax officer assessed her to tax for the assessment years; 1957-58
to 1962-63.
The appeals filed against the assessments
were dismissed by the Appellate Assistant Commissioner, who held that the
assessee possessed rights and interest in the shares and the managing agency
which were tangible moveable properties located in India and, therefore,
subject to wealth tax under the Act.
In appeals before the Appellate Tribunal it
was contended by the assessee that the assets held by her were situated outside
India and being a non-resident she was not taxable thereon. Alternatively it
was urged that she was entitled to exemption under sub-cl. (iv) of cl. (e) of
s.2 of the Wealth Tax Act. The Tribunal held that the assessee who has a life
interest in the testamentary trust estate comprising inter alia of the shares
in an Indian Company and commission from the managing agency of an Indian Company
can be said to have an interest in such shares and commission and that such
interest is property located in India so as to be taxable under the Wealth Tax
Act. It further held that the life interest of the assesee in the testamentary
trust estate is not an annuity which is exempt under s. 2(e)(iv) of the Wealth
Tax Act.
The matter was referred to the High Court at
the instance of the assessee. It took the view that the right which the
assessee acquired h under the trust was a right to have the trust administered
in accordance with the provisions of the Will. While the legal ownership of the
trust properties including the shares and the managing agency, vested in the
trustees and remained so vested, the beneficial interest of the assessee did
not extend to any right in any of the trust properties in specie and did not
confer upon her any right of ownership over any property. (, Having regard to
the nature and character of the right considered with the nature and extent of
the powers conferred on the trustees to deal with the estate before the
assessee could be said to have any right to the residual income, and the fact
that the appropriate forum for the administration of the trust estate and for
enforcement of the rights of the beneficiary under the Will were the
appropriate courts in England, I I 676 the High Court held that the assets of
the assessee must be regarded as foreign assets and, therefore, not located in
India. The Revenue obtained a certificate under s. 23 of the Act and preferred
appeals to this Court On the question whether during the year ending on the
valuation date the assessee's life interest in the testamentary estate of her
husband consisting of the Indian shares and the commission from the managing
agency of the Indian companies could be said to constitute an asset located
outside India, and whether the assessee was entitled to the benefit of cl. (i)
of s. 6 of the Wealth Tax Act.
Dismissing the Appeals, ^
HELD: The asset in question of the assessee
was a right in the nature of a chose-in-action enforceable in an appropriate
Court in England and, therefore, must be regarded as a foreign asset, an asset
not located in India.
The assessee was, therefore, entitled to the
benefit of cl. (i) of s. 6 of the Wealth Tax Act. [686C] On the relevant
valuation dates the estate of the testator had not been completely and finally
administered and the trustees had not proceeded to the point where it could be
said that there was a clear and ascertained residue from which the income
payable to the assessee as a beneficiary under the Will could be known, and
whether the assessee was entitled to income arising from the Indian shares and
the managing agency of the lndian Companies. All that the assessee was then
entitled to was the right to have the trust administered. [685G-H; 686A] Having
regard to the several considerations patent in this case that the settlement
was an English settlement created by an Englishman who was resident in England,
that it was an English Will proved in England, and the trustees were residents
in England and moreover that the assessee, the beneficiary, was an English
woman, who was also residing in England, the High Court rightly held that the
right of assessee was in the nature of chose-in-action enforceable in England.
[686B-C] Attorney General v. Johnson, [1907] 2 K.B. 885; In re Smyth, [1898] 1
Ch. 89; Sudeley (Lord) v. Attorney General, [1897] Appeal Cases 11;
Philipson-Stow and others v. Inland Revenue Commissioners, [1961] Appeal Cases
727; Skinner and others v. Attorney General, [1939] 3 All E.R. 787; In re
Smith, Decd. Executor Trustee and Agency 677 Company of South Australia Ld. v.
Inland Revenue Commissioners, A [1951] I Ch 360; Commissioner of Stamp Duties
(Queensland) v. Hugh Duncan Livingston, [1965] Appeal Cases 694; Dr. Barnardo's
Homes v. Special Income Tax Commissioners, [1921] 2 Appeal Cases 1; A. & F.
Harvey Ltd.
as Agents to Executors of the Estate of late
Andrew Harvey v. Commissioner of Wealth Tax, [1977] 107 I.T.R. 326, referred
to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 1181 to 1186 (NT) of 1974 From the Judgment and order dated 16th February,
1973 of the Calcutta High Court in Matter No. 198 of 1968. C S.C. Manchanda,
K.C. Dua and Miss A. Subhashini for the Appellant.
D.N. Gupta, (not present) for the Respondent.
The Judgment of the Court was delivered by
PATHAK, J. These appeals by certificate granted by the High Court of Calcutta
are directed against a judgment of the High Court disposing of six wealth tax
references on the following questions of law: E "I. Whether on the facts
and in the circumstances of the case, the Tribunal is right in holding that the
assessee who has a life interest in the testamentary trust estate of late C.H.
Kinnison comprising inter alia of the shares in an Indian company and
commission from the managing agency of an Indian Company can be said to have an
interest in such shares and commission and that such interest is property
located in India so as to be taxable under the Wealth-Tax Act?
2. Whether on the facts and in the
circumstances of the case, the Tribunal is right in holding that the life
interest of the assessee in the testamentary trust estate of late C.H.Kinnison
is not an annuity which is exempt under Section 2(e)(iv) of the Wealth-Tax
Act?" Heilgers & Co. were managing agents of the Kinnison Jute Mills H
678 Co. Ltd and the Naihati Jute Mills Co. Ltd, both Indian companies, for
several years Heilgers & Co. entered into a sub-partnership from time to
time with James Alexander Kinnison under which the two shared equally the
emoluments from the managing agency. The last of such sub-partnership
agreements was entered into on December 16, 1907 Kinnison died on April 13,
1916 leaving a will dated June 2, 1916 under which he gave all his property to
his wife Helen. Helen Kinnison executed two deeds of assignment dated December
12, 1927 assigning her share of the emoluments under the sub-partnership in
favour of her son Clive Hastings Kinnison. Thereafter the son began to receive
the half share of emoluments from the managing agency.
On February 25? 1935 Clive Hastings Kinnison
executed a will appointing his wife, olive Kinnison, and one William John
Collyer, a solicitor, as executors and trustees, and under the terms of the
will be gave a pecuniary legacy of f 5000 to his wife and devised and bequeated
his real and personal estate to the trustees upon trust to apply the income
from the trust estate in accordance with the provisions of the will, Clive
Hastings Kinnison, who was domiciled in England, died on March 9, 1943. The
High Court of Justice in England granted probate of the will on June 1, 1943.
The net value of the personal estate was determined at 7, 73, 978 and the
estate duty payable in the United Kingdom amounted to 5, 34, 544 l0 s. 5 d.
Letters of Ad ministration were obtained in India on August 23. 1944 and the
stamp duty paid at the time of obtaining the Letters of Administration amounted
to Rs.4,44,258.
The widow, olive Kinnison, was non-resident
and not a citizen of India. The question arose whether she was liable to wealth
tax on her interest in the Indian assets in the hands of the trustees. The
average income dervied by her during the three years preceding the date of
valuation, March 9, 1957 relevant to the assessment year 1957 58 totalled
Rs.3,25,585. She was then 63 years of age. Taking the average income into
account and applying the appropriate multiplying factor in order to arrive at
the capital value of the assets in her hands, the Wealth Tax officer computed
the net wealth at Rs.20,34,906. Adopting the assessment year 1957-58 as typical
of these years, similar wealth tax assessments were made for the assessment
years 1958-59 to 1962-63.
The assessee appealed against the wealth-tax
assessments before 679 the Appellate Assistant Commissioner and contended that
she was a non-resident and that the value of the assets located outside India
should be excluded in computing the total wealth. The corpus of the trust
consisted of certain shares in an Indian company and the income from the
managing agency of the Indian Companies. The contention was repelled by the
Appellate Assistant Commissioner, who held that the assessee possessed rights
and interest in the shares and the managing agency which were tangible moveable
properties located in India and, therefore, subject to wealth-tax under the
Wealth Tax Act. He rejected also the contention regarding the valuation of the
assets.
The assessee then appealed for all the six
assessment years to the Appellate Tribunal. She contended that the assets held
by her were situated outside India, and being a non-resident she was not
taxable thereon. Alternatively. she urged that she was entitled to exemption
under sub-clause (iv) of clause (e) of s. 2 of the Wealth Tax Act. The
Appellate Tribunal did not accept either contention and dismissed the appeals.
At the instance of the assessee the Appellate
Tribunal referred the two questions of law set out earlier to the High Court of
Calcutta for each of six assessment years. By its judgment dated February 16,
1973 the High Court answered the first question in favour of the assessee and
against the Revenue and the second question in favour of the Revenue and
against the assessee. Thereafter the Revenue obtained a certificate under s. 29
of the Wealth Tax Act to enable it to prefer an appeal to this Court against
the judgment of the High Court on the first question.
In this appeal we are concerned solely with
the question whether the assessee is entitled to the benefit of cluase (i) of
s. 6 of the Wealth 1: Tax Act. Clause (i) of s. 6 provides:
"6. In computing the net wealth of an
individual who is not a citizen of India, or of an individual or a Hindu
undivided family not resident in India or resident but not ordinarily resident
in India, or of a company not resident in India (i during the year ending on
the valuation date- (i) the value of the assets and debts located outside
India;
(ii) xx xx xx 680 shall not be taken into
account." The clause provides for the exclusion of the value of the assets
and debts located outside India when computing the net wealth of an individual
who is not a citizen of India or not resident in India or resident but not
ordinarily resident in India. It is not disputed that the assessee is a
non-resident, and therefore, the only question is whether during the year
ending on the valuation date her life interest in the testamentary estate of
her husband Clive Hastings Kinnison consisting of the Indian shares and the
commission from the managing agency of the India companies could be said to
constitute an asset located outside India.
To resolve the question it is necessary to
advert to some of the provisions of the will executed by Clive Hastings
Kinnison. After setting forth certain bequests, including one of a pecuniary
legacy to the assessee in the sum of 5000 to be paid to her upon his death, the
testator devised and bequeated all his real and personal estate to two trustees
upon trust that they would at such time and in such manner as they thought fit
sell, call in and convert into money such parts of this estate as may not
consist of money, postponing such sale and conversion for such period as they
thought proper, but all this without diminishing or abridging their statutory
power of appropriation and without affecting the treatment and application of
the income accruing from the estate for the time being remaining unsold from
the time of the testator's death as if it was income from investments directed
under the will. The trustees were enjoined, after meeting the funeral and
testamentary expenses and debts and legacies, to invest the residue of the
ready monies arising from such calling in and conversion of the estate, with
the consent of the assessee during her life and afterwards at the discretion of
the trustees, in the investments authorised under the will and to transpose
such investments into others, and to stand possessed for the residue of such
monies and all investments and the income thereof upon trust subject to the
further powers and provisions declared under the will. It was provided that the
trustees would pay . the income of the residuary trust fund to the assessee
during her life. After the death of the assessee the trustees would stand
possessed of the residuary trust fund in trust for the benefit of the
testator's children in accordance with the further provisions of the will. The
trustees were also empowered to exercise the power of appropriation conferred
upon a personal representative by s. 41 of the Administration of Estate Act,
1925. They were also empowered to determine what articles 681 would pass under
any specific bequest contained in the will and to A determine whether any
monies were to be considered as capital or income, and whether and in what
manner any expenses or other payments ought to be borne or paid out of capital
or income or apportioned between capital and income and how valuations were to
be made for any purpose of hotchpot advancement or appropriation or otherwise.
The High Court observed that ordinarily, as
the shares and managing agency were both located in India, the right of the
assessee to receive income out of such trust property from the trustees would
have constituted an asset located in lndia for the purposes of the Wealth Tax
Act, but it held that having regard to the nature and character of that right
considered together with the provisions relating to the intervention of the
trustees and the special directions and powers given to them the asset must be
regarded as located outside India. That conclusion, said the High Court, arises
from the nature and extent of the powers conferred on the trustees to deal with
the estate before the assessee could be said to have any right to the residual
income. The High Court observed that the testator intended that his property
should be converted into personalty and he gave the necessary directions to the
trustees to dispose of the estate or part thereof by sale. It was pointed out
that the testator never intended that the assessee should have any share in the
trust properties, including the managing agency and the shares of the Indian
companies, nor could the assessee in her capacity as beneficiary enter into
possession of any of the trust properties nor claim any right of ownership in
any of the trust properties, including the managing agency and the share. In the
opinion of the High Court, the right which the assessee acquired under the
trust was a right to have the trust administered in accordance with the
provisions of the will. While the legal ownership of the trust properties
including the shares and the managing agency vested in the trustees and
remained so vested, the beneficial interest of the assessee did not extend to
any right in any of the trust properties in specie and did not confer upon her
any right of ownership over any property. Having regard to the fact that the
settlement under the will was an English settlement, created by the will of a
testator who was an Englishman and resident of England, and the will being an
English will which was proved in England, and the trustees to the settlement
being residents of England, and the assessee, the beneficiary, was an English
woman who resided in England, the appropriate forum for the administration of
the trust estate and for enforcement of the rights of the beneficiary under the
will were the 682 appropriate courts in England. The High Court observed that
the right of the assessee was a right in the nature of a chose-in-action
enforceable in the appropriate courts of England, that the nature and character
of the asset must be considered to be foreign in quality, and that the assets
of the assessee must be regarded as foreign assets and therefore not located in
India. In conclusion, the High Court held that the assesses was entitled to the
benefit of cluase (i) of s. 6 of the Wealth Tax Act.
It will be evident from a perusal of the
judgment under appeal that in reaching its conclusions the High Court relied
principally on Attorney General v. Johnson, [1907] 2 K.B. 885. In that case the
testator, who at the time of his death was entitled to a certain tea estate in
Upper Assam, executed a will appointing two executors and trustees, and after
bequeathing certain legacies he left the residue of his real and personal
estate to the trustees upon trust to sell the residuary estate (as did not
already consist of money) and, after paying the legacies enumerated in the
will, to invest the residue of the net moneys in the investments mentioned in
the will. The trustees were directed to apply the annual income arising from
the residuary estate and investments thereof to the payment of life annuities
to certain persons, including one Marie Graf.
The remainder, if any, of the annual income
was to be distributed between a number of persons, including Henry James Reeves
and the said Marie Graf. The trustees were also directed that until the sale of
the estate they were to carry on the trade or business of a tea planter (which
had been carried on by the testator), and for that purpose to employ the
existing capital and such additional capital as they considered fit to draw from
the residuary estate. Henry James Reeves and Marie Graf died a few years after
the death of the testator, and the tea estate remained unsold when the
proceedings commenced which have rise to the litigation. The King's Bench
Division of the High Court held that the share of the deceased beneficiaries,
Henry James Reeves and Marie Graf, in the surplus income and in the annuities
constituted property not situate out of the United Kingdom and, therefore,
liable to estate duty and succession duty under the English law. Bray, J., who
delivered the judgment, held that it was the intention of the testator that his
property should be converted into personality, and he had given a direction to
his trustees to sell, that he had never intended that the beneficiaries named
in the will should have any share of his real estate or of his business, and
that therefore, they could never enter into possession. The learned Judge
emphasised that the testator wished the estate to be dealt with and 683 managed
by his trustees, and not by the beneficiaries. The testator A merely gave the
latter the right of having the trusts of the will administered in the proper
forum, namely, in the Courts of England, and the net surplus divided amongst
them. He pointed out that it was an English chose- in-action. In reaching this
conclusion, the learned Judge relied on the observations of Lopes L.J., in
Attorney General v. Lord Sudeley, [1896] I Q.B. 354 and Romer, J. in in re
Smyth [1898] I Ch. 3 89. The former of the two cases was affirmed in appeal by
the House of Lords in Sudeley (Lord) v. Attorney General, [1897]. Appeal Cases
11. As that case was the subject of considerable comment in the Courts in
England, reference may be made appropriately to what was said there. The
testator executed a will in which, after bequeathing various legacies and
annuities, he gave all the residue of his real and personal estate to two
executors upon trust to pay the income to his wife and after her death to
distribute it between his brother and certain other persons. The executors and
trustees were to leave the residuary personal estate invested as they found it
at the time of the testator's death unless they considered it proper to change
any investment. By a codicil he revoked the gift to his brother and gave that
share to his wife absolutely. The testator was domiciled in England, and upon
his death the will and codicil were proved in England by his executors, who
were themselves domiciled in England, but the testator's estate included
mortgages of real estate in New Zealand. The wife died in 1893, and her will
likewise was proved in England by her executors (the appellants), two of whom
were also her husband's executors. In estimating the probate duty payable upon
her one-fourth share of her husband's residuary personal estate, the appellants
excluded the value of the New Zealand mortgages. The Attorney General claimed
that one forth of the value of the New Zealand mortgages ought to have been
included for the purposes of probate duty. In resisting the claim the appellants
stated that at the time of the wife's death her husband's personal estate had
not been fully administered and was in the course of administration, that one
legacy given by the will then remained unpaid, and that the amount of the clear
residue had not yet been ascertained but it was envisaged that there would be a
large residue excluding the New Zealand mortgages over and above the debts and
legacies. It asserted that no appropriation had been made of the New Ci Zealand
mortgages, nor of any securities or portions of securities to particular shares
of the net ultimate residue. The House of Lords held that the right of the
wife's executors did not extend to one-fourth or any part of the mortgages in
specie but consisted of the right to require her husband's executors to
administer his personal estate and to receive from them a one-fourth part of
the clear residue, and that this H 684 was an English asset of the wife's
estate, and therefore, probate duty was payable under her will upon one-fourth
part of the value of the New Zealand mortgages. Lord Halsbury, L.C. Observed:
"Now, if the only things that the
legatee is entitled to is the fourth share of an ascertained residuary estate,
I say that to 13 my mind it is impossible to maintain that the character of any
part of that estate can be ascertained so as to make it possess a specific
locality until that has happened; it is a condition precedent to know what the
residuary estate is, and until that has been ascertained you cannot tell of
what it will consist. The right of the person to bring an action or to insist
upon the performance of the trust may be one thing; but I want to know what the
things is, and until I ascertain that, and until the thing comes into
existence, it appears to me the question does not arise. Well, if that is
right, then the thing that the legatee is entitled to, call it a debt, call it
something that must be administered either by trustee or executor, the
character of that, the local charac- ter, is fixed by the persons, call them
debtors or call them trustees, I do not care which. Under these circumstances
it appears to me there can be but one answer to the question, and that is that
the debtors are here and have to administer here.
The fixing of the character of the asset by
the presence of the debtor may or may not have been logical, but it is so; and
if it is a debt and the debtor is here, that is the character of the asset as
fixed by the residence of the debtor, and the asset is English." To the
same effect, Lord Herschell pointed out:
" ......... until the estate is fully
administered it is impossible to say of what assets the residuary estate will
consist; we do not know how much the amount of the debt remaining unpaid was in
the present case, and there was only one legacy unpaid...... In truth, the
right she had was to require the executors of her husband to administer his
estate completely, and she had an interest to the extent of one-fourth in what
should prove to be the residuary estate of the testator, Algernon Tollemache.
Well, where was that situate? It seems to me that it can only be said to have
been situate in this country." 685 Lord Macnaghten and Lord Shand were of
the same opinion.
Lord A Davey pointed out that at the time of
the lady's death the testator's personal estate had not been fully administered
and the amount of the clear residue had not been ascertained, and that the lady
"at the time of her death had no right of property in or right to claim
any part of the mortgages in specie, and that the appellants, her executors,
acquired only a right to have the estate duly administered and to enforce that
right by an action for the purpose." In Philips on-Stow and others v.
Inland Revenue Commissioners [1961] Appeal Cases 727 the House of Lords doubted
the correctness of Attorney General v. Johnson (supra), and in Skinner and
others v.Attorney General, [1939] 3 All E.R. 787 and in In re SMITH,. Deed,
Executor Trustee and Agency Company of South Australia Ld. v.Inland Revenue
Commissioners [1931] I Ch 360 considerable difficulty was expressed by the
Court in following Sudeley (Lord) v. Attorney General (supra). But subsequently
the Judicial committee of the Privy Council in Commissioner of Stamp Duties
(Queensland) v. Hugh Duncan Livingston, [1965] Appeal Cases 694 pointed out
that Sudeley (Lord) v. Attorney General (supra) had been reaffirmed by the
House of Lords in Dr. Barnardo's Homes v. Special Incomc Tax Commissioner
[1921] 2 Appeal Cases 1 and that it was in no way qualified by Skinner and
others v. Attorney General (supra). In our own country, the Madras High Court
has held in A. & F.
Harvey Ltd. as Agents to Executors of the
Estate of late Andrew Harvey v. Commissioner of Wealth Tax, [19771 107 I.T.R.
326 a case where under the terms of a will executed and probated in England,
the beneficiary, who was a resident in England, was to be paid by the executors
who were also in England, the dividends on certain shares of a company in
India, that the right which the beneficiary had was merely a right to proceed against
executors for the purpose of claiming the income referable to the shares in
question, and that such right could not be regarded as an asset situated in
India, and therefore, the value thereof could not be brought to tax under the
Wealth Tax Act.
ln the present case, it does not appear that
on the relevant valuation dates the estate of the testator had been completely
and finally administered and that the trustees had proceeded to the point where
it could be said that there was a clear and ascertained residue from which the
income payable to the assesee as a beneficiary under the will could be known,
and whether the assessee was entitled to income arising from the Indian shares
and the managing agency of the Indian com- H 686 panies. All that the assessee
was entitled to on the valuation dates was the right to have the trust
administered and, as the High Court has observed, having regard to the several
considerations patent in this case that the settlement was an English
settlement, created by, an Englishman who was resident in England, that it was
an English will proved in England and the trustees were residents in England.
and moreover that the assessee, the beneficiary, was an English woman who was
also residing in England, therefore the proper forum for the enforcement of the
rights of the beneficiary under the will was- the appropriate Court in England. We agree with the High Court that asset in question was a right in the nature of a
chose in action enforceable in England. The right of the assessee was a right
enforceable in that Court and, therefore, must be regarded as a foreign asset,
an asset not located in India.
We affirm the answer returned by the High
Court to the first question referred to it, and agree that the question must be
answered in the negative, in favour of the assessee and against the Revenue and
that the appeal must, therefore, be dismissed.
As the respondent has not entered appearance
in this appeal there is no order as to costs.
P.S.S. Appeals dismissed.
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