1973 (4) TMI 25 - HC - Wealth-tax

One Palaniappa Mudaliar owned considerable movable and immovable properties. He died on June 14, 1937, leaving behind him his only son Pichai alias Shanmugasundaram. The deceased had executed a will on 4th March, 1936 - Whether an executive-assessee is liable to wealth-tax in respect of the property held by him under will - We have already expressed our view that section 3 as such imposes charge only on those who own the wealth and not on those who merely possess the wealth for specified purposes without any personal or beneficial interest either in the properties or in their income. We are, therefore, clearly of the view that before the introduction of section 19A executors cannot be brought to charge under section 3 of the Wealth-tax Act in respect of the properties held by them as per the directions in the will except as provided under section 19.

Issues Involved:
1. Assessability of the executors under the Wealth-tax Act, 1957, for assessment years 1957-58 to 1961-62.
2. Status of the executors as either 'executors' or 'trustees' under the will.
3. Determination of the status of the executors as 'individuals' within the meaning of section 3 of the Wealth-tax Act, 1957.

Issue-wise Detailed Analysis:

1. Assessability of the Executors under the Wealth-tax Act, 1957:
The primary issue was whether the executors could be assessed under the Wealth-tax Act for the assessment years 1957-58 to 1961-62. The Tribunal upheld the wealth-tax assessments on the executors, treating them as trustees or managers on behalf of the beneficiaries. The Tribunal's decision was based on the premise that the executors had become functus officio and were merely trustees. However, the court disagreed, stating that the executors had not completed their executorial functions as the ultimate distribution of the estate could not occur until the death of Pichai, as directed in clause 20 of the will. Therefore, the executors could not be assessed under the Wealth-tax Act as trustees.

2. Status of the Executors as 'Executors' or 'Trustees':
The second issue was whether the executors had ceased to be 'executors' and had become 'trustees' of the estate. The Appellate Assistant Commissioner and the Tribunal had held that the executors had become trustees after performing the initial executorial functions. However, the court found that the executors were still performing their executorial duties as the ultimate distribution of the estate had not yet occurred. The court referenced V. M. Raghavalu Naidu & Sons v. Commissioner of Income-tax and Commissioner of Income-tax v. Estate of Late T. P. Ramaswami Pillai to support the position that executors do not become trustees until the estate is fully administered and the residue is ascertained. Consequently, the court held that the executors had not become trustees and continued to act as executors.

3. Status of the Executors as 'Individuals' within the Meaning of Section 3:
The third issue was whether the executors could be considered 'individuals' under section 3 of the Wealth-tax Act. The court referred to the Supreme Court decisions in Banarsi Dass v. Wealth-tax Officer and Gordhandas Govindram Family Charity Trust v. Commissioner of Income-tax, which interpreted the word "individuals" to include groups of individuals. Therefore, the court held that the executors, as a group of individuals, could be considered 'individuals' under section 3 of the Wealth-tax Act. This question was answered in the affirmative and against the assessee.

Additional Considerations:
The court also addressed the applicability of section 19 and section 19A of the Wealth-tax Act. Section 19 imposes liability on executors to pay wealth-tax for the financial year in which the deceased died, but not for subsequent years. The court cited Jamnadas v. Commissioner of Wealth-tax, which held that executors could not be assessed for wealth-tax beyond the financial year of the deceased's death. The introduction of section 19A in 1965 clarified the liability of executors for wealth-tax, but this provision was not retroactive. The court concluded that before the introduction of section 19A, executors could not be assessed under section 3 for the wealth held by them.

Conclusion:
The court answered the first and second questions in the negative and the third question in the affirmative. The executors were not assessable under the Wealth-tax Act for the years in question, had not become trustees, and could be considered 'individuals' under section 3. The assessees were entitled to their costs, with counsel's fee set at Rs. 250.

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