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Issues Involved:
1. Whether the petitioners can be legally assessed as "an association of individuals." 2. Whether the allowances paid to various family members under the will are assessable as income in the hands of the petitioner. Issue-wise Detailed Analysis: 1. Assessment as "an association of individuals": The first issue pertains to whether the executors of the estate can be assessed as "an association of individuals" for the assessment years 1933-34, 1934-35, 1935-36, and 1936-37. The estate of Lala Shankar Shah was initially assessed as a Hindu undivided family. However, the Assistant Commissioner later assessed it as an association of individuals. The executors protested this assessment. The Department relied on precedents such as Hotz Trust, Simla v. Commissioner of Income Tax, Punjab, and Trustees of Sir Currimbhoy Ibrahim Baronetcy Trust v. Commissioner of Income Tax, Bombay. However, the court distinguished these cases based on their specific facts. It was emphasized that each case must be decided on its own facts, focusing on the deed appointing the executors and the limits of their authority. The court concluded that the term "ausiya" used in the will was loosely applied, and the real owners of the estate were the minor heirs. The executors were merely managers acting under the court's instructions, not deriving income as an association of individuals. The executors' role was limited to managing the estate until the minors reached adulthood. The court found that the executors did not carry on any business activities beyond realizing outstanding debts, and thus, they could not be treated as an association of individuals for income tax purposes. 2. Assessability of allowances as income: The second issue concerns whether the allowances paid to various family members under the will for the assessment years 1935-36 and 1936-37 are assessable as income in the hands of the petitioner. The Department relied on the Privy Council decision in P.C. Mullick and Another v. Commissioner of Income Tax, Bengal, where it was held that sums applied by executors according to the testator's directions were not deductible. However, the court compared this with the case of Raja Bejoy Singh Dudhuria v. Commissioner of Income Tax, Calcutta, where a portion of income was diverted by an overriding title before it became income in the hands of the assessee. The court noted that in the present case, the allowances were obligatory payments under the will, similar to the maintenance decree in Raja Bejoy Singh's case. The beneficiaries could not refuse these payments, and the allowances were thus diverted from the estate's income before it reached the beneficiaries. The court concluded that the obligatory nature of the allowances under the will meant they should not be included in the estate's income for tax purposes. This interpretation was supported by similar views in other cases, such as In the matter of Charusila Dasi and Commissioner of Income Tax, Bombay v. D.R. Naik. Conclusion: The court answered both questions in the negative, indicating that the executors could not be assessed as an association of individuals and the allowances paid under the will should not be included in the estate's income. The Commissioner was directed to pay the assessee's costs in full.
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