1983 (9) TMI 31 - HC - Income Tax

Summary

Issues:
1. Assessment of income in the capacity of executor or trustee
2. Timing of trust creation under the will
3. Assessment of income from estate assets

Analysis:

The judgment involved a dispute regarding the assessment of income from an estate in the capacity of an executor or a trustee. The deceased left a will appointing the assessee and another person as executors and trustees. The will directed the executors to convert all estate properties into cash and use the residue for charitable purposes. The executors obtained probate in 1963 and began administering the estate by selling some assets and distributing specific bequests.

The primary issue was whether the executors should be assessed as trustees from the date of death or from the date of obtaining probate. The Tribunal held that the executors became trustees upon obtaining probate in 1963. However, the High Court analyzed the will's provisions and the progress of estate administration. It noted that a significant portion of the estate remained unadministered by the end of the relevant assessment year, indicating that the trust for charitable purposes had not yet come into existence.

The High Court referred to a similar case in the Madras High Court where it was held that until the residue is ascertained and executor's assent is given, the administration is not complete. Applying this principle, the High Court concluded that for the assessment year in question, the assessee could not be assessed as a trustee but should be assessed in the capacity of an executor.

Regarding the timing of trust creation under the will, the High Court emphasized that the trust for charitable purposes would come into existence only after the estate had been converted into cash. Since a substantial portion of the estate remained unadministered, the trust had not yet been created during the relevant assessment year.

In conclusion, the High Court answered the questions posed by the Revenue in favor of the Revenue. It held that the executors were not to be assessed as trustees during the assessment year in question, as the trust for charitable purposes had not yet come into existence. The assessee was directed to pay the costs of the reference to the Revenue.