1999 (8) TMI 3 - SC - Income Tax

Executor Or Trustee - Application For Registration - Functions of the trustees and executors as imposed upon them did not come to an end till February, 1964, and it, therefore, cannot be said that there was any trust created under the will till that time. Section 168(3) of the Act makes it clear that the executor will continue to be assessed until the estate is distributed among the beneficiaries according to their several interests.

Summary

Issues Involved:
1. Determination of whether K. B. Patel and B. G. Amin held the properties as trustees from the time of the death of Bhikhubai Chandulal or from when probate of the will was obtained.
2. Assessment of whether K. R. Patel and B. G. Amin received income of certain parts of the estate as executors and income of the remaining parts as trustees.
3. Determination of whether K. R. Patel and B. G. Amin were liable to be assessed as trustees under section 161 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Determination of Trustee Status:
The primary issue was whether the executors held the properties as trustees from the time of the testator's death or from the date when probate was obtained. The High Court concluded that K. R. Patel and B. G. Amin did not hold the properties as trustees either from the time of the death of Bhikhubai or from the date on which probate of the will was obtained. This decision was based on the interpretation of the will and the duties assigned to the executors, which included paying off debts, funeral expenses, and other testamentary expenses before any trust could be considered as created.

2. Income Received as Executors vs. Trustees:
The second issue was whether the income received by K. R. Patel and B. G. Amin during the assessment year 1964-65 was in the capacity of executors or trustees. The High Court held that during the assessment year 1964-65, K. R. Patel and B. G. Amin received no income as trustees. The reasoning was that the administration of the estate had not been completed by that time, and thus, the income could not be considered as received by trustees.

3. Assessment Liability under Section 161:
The third issue was whether the executors were liable to be assessed as trustees under section 161 of the Income-tax Act, 1961. The High Court concluded that during the assessment year 1964-65, K. R. Patel and B. G. Amin were not liable to be assessed as trustees. This conclusion was drawn from the fact that the administration of the estate had not been completed, and the executors had not yet assumed the role of trustees.

Additional Considerations:
The Supreme Court examined the provisions of sections 160(1)(iv), 161(1), and 168 of the Income-tax Act, 1961, and various relevant judgments to determine the applicability of these sections. The court noted that under section 168(3) of the Act, the executor continues to be assessed until the estate is distributed among the beneficiaries according to their several interests. The court also emphasized the importance of the trust's registration under the Bombay Public Trusts Act, 1950, which was completed after the close of the previous year, and the administration of the estate was not completed until February 1964.

Conclusion:
The Supreme Court upheld the High Court's decision, affirming that the executors did not hold the properties as trustees from the time of death or probate, did not receive income as trustees during the assessment year 1964-65, and were not liable to be assessed as trustees under section 161 of the Income-tax Act, 1961. The appeal was dismissed with costs.