1979 (4) TMI 23 - HC - Income Tax

Summary

Issues Involved:
1. Whether the properties of the deceased vested in the official trustee as a trustee from the inception and therefore the income is not assessable under section 168 of the Income-tax Act, 1961.
2. Whether assessments should be made distributively under section 161(1) of the Income-tax Act, 1961, without aggregation.

Detailed Analysis:

Issue 1: Vesting of Properties in the Official Trustee
The primary issue was whether the properties of the deceased vested in the official trustee of Madras as a trustee from the very inception, making the income from the estate non-assessable under section 168 of the Income-tax Act, 1961. The deceased executed a will appointing the official trustee as the sole executor and trustee of his properties. The will directed the trustee to sell all the properties and invest the proceeds in Government securities, with specific instructions on how to distribute the income. The official trustee obtained probate of the will on May 3, 1961, and subsequently sold several properties.

The Income Tax Officer (ITO) assessed the income under section 168, treating the official trustee as an executor. The assessee contended that he should be assessed as a trustee, relying on previous judgments (CIT v. Estate of late T. P. Ramaswami Pillai and Court Receiver v. CIT). The Tribunal ruled in favor of the assessee, stating that the properties vested in the official trustee as a trustee from the inception, and the income was exempt under section 11 of the I.T. Act, 1961.

The High Court upheld the Tribunal's decision, stating that the official trustee's role as an executor ended upon obtaining probate, and he assumed the role of a trustee. The court referred to sections 7(6) and 9 of the Official Trustees Act, 1913, which indicate that the properties vest in the official trustee as a trustee upon obtaining probate. The court concluded that the official trustee should be assessed as a trustee, not as an executor, for the relevant assessment years.

Issue 2: Distributive Assessment under Section 161(1)
The second issue was whether the assessments should be made distributively under section 161(1) of the Income-tax Act, 1961, without aggregation. The Tribunal held that the official trustee, as a representative assessee, should be assessed under section 161(1), and the income disbursed to various beneficiaries should not be aggregated for tax purposes.

The High Court agreed with the Tribunal, stating that the official trustee should be assessed in the manner indicated in section 161(1). The court emphasized that the amounts disbursed to the beneficiaries should be taxed separately, and the aggregate tax should be recovered from the official trustee. This interpretation aligns with the provisions of sections 160(1)(iii) and 160(1)(iv) of the Income-tax Act, 1961, which define the official trustee as a representative assessee.

Conclusion
The High Court answered both questions in the affirmative and against the revenue. The properties vested in the official trustee as a trustee from the inception, making the income non-assessable under section 168. The assessments should be made distributively under section 161(1) without aggregation. The revenue was ordered to pay the costs of the assessee, with a counsel's fee of Rs. 500.