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TMI Blog1999 (8) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... stees ? 3. Whether, on the facts and in the circumstances of the case, K. R. Patel and B. G. Amin were liable to be assessed as trustees under section 161 of the Income-tax Act, 1961 ?" The questions arose from the order of the Appellate Tribunal in the following circumstances. One Mrs. Bhikubai Chandulal Jalundhwala, a resident of Bombay, executed a will on January 5, 1962. She died three days later on January 8, 1962. During her lifetime she was possessed of considerable properties both movable and immovable. K. R. Patel, the appellant, and B. G. Amin, solicitor, since dead, were appointed as executors and trustees under the will. The executors and trustees under the will were directed first to pay all the debts, funeral, death and other testamentary expenses, estate duty, Government dues as soon as possible. Two immovable properties under the will were bequeathed to two different individuals. It was provided in the will that the executors and trustees should convey these immovable properties after obtaining probate of the will and until this was done to deal with the rents and income arising therefrom in the same manner as of other estate. The will also recited that the testa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s may appear to be just and necessary and which in their absolute discretion they may think proper. My executors and trustees shall also be entitled to use such part or parts of the said moneys for the benefit of and for providing aid to such religious institution or institutions as they may in their absolute discretion think fit." The executors and trustees filed the estate duty return in July, 1962, disclosing the total value of the estate as Rs. 19 lakhs. Assessment was completed on March 17, 1963, on a total value of the estate of Rs. 24 lakhs. The estate duty amounting to a little over Rs. 4.57 lakhs was paid on March 28, 1963. Probate of the will was granted on April 5, 1963. The immovable properties mentioned in the will were transferred in October, 1963, and February, 1964. By February, 1964, all the payments as devised by the will were made to the respective legatees. On June 19, 1963, an application was filed by the executors and trustees under section 18 of the Bombay Public Trusts Act, 1950, for registration of the public trust created under the will. The application was filed under protest. It was contended that it was not a case of creation of a trust under the will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make fresh assessment in the capacity as trustees. At the instance of the Revenue the three questions set out in the beginning of this judgment were referred by the Appellate Tribunal under section 256(1) of the Act to the High Court for its decision. The High Court answered these questions in the following manner : "1. 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, 2. During the assessment year 1964-65, K. R. Patel and B. G. Amin received no income as trustees. 3. During the assessment year 1964-65, K. R. Patel and B. G. Amin were not liable to be assessed as trustees." During the assessment proceedings it appears that B. G. Amin, one of the two executors and trustees, died and further proceedings were carried on by the suriviving trustee, K. R. Patel. During the pendency of this appeal, K. R. Patel also died. The trust had been named as Bhikhubai Chandulal Jalundhawala Trust. After the death of K. R. Patel, the trustees were appointed by the Deputy Charity Commissioner of the trust, who have been impleaded as appellants. The question that arises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be leviable upon and recoverable from the person represented by him. 168. (1) Subject as hereinafter provided, the income of the estate of a deceased person shall be chargeable to tax in the hands of the executor,--- (a) if there is only one executor, then, as if the executor were an individual ; or (b) if there are more executors than one, then, as if the executors were an association of persons ; and for the purposes of this Act, the executor shall be deemed to be resident or non-resident according as the deceased person was a resident or non-resident during the previous year in which his death took place. (2) The assessment of an executor under this section shall be made separately from any assessment that may be made on him in respect of his own income. (3) Separate assessments shall be made under this section on the total income of each completed previous year or part thereof as is included in the period from the date of the death to the date of complete distribution to the beneficiaries of the estate according to their several interests. (4) In computing the total income of any previous year under this section, any income of the estate of that previous year distribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a building belonging to a public trust shall be valid without the previous sanction of the Charity Commissioner. Sanction may be accorded subject to such conditions as the Charity Commissioner may think fit to impose with regard to interest, benefit or protection of the trust. It would, therefore, appear that trustees are not free to deal with the properties of the trust even if the will empowers them to do so. The executors and trustees filed an application for registration of the trust under the provisions of the Bombay Public Trusts Act on the directions issued by the Assistant Charity Commissioner. They filed the application on June 19, 1963, under protest. The trust was registered on December 29, 1964. Non-registration of the trust under the Act entails penalty under section 66 of that Act. A Division Bench of the Bombay High Court in Chhatrapati Charitable Devasthan Trust v. Parisa Appa Bhoske, AIR 1979 Bom 218, has taken the view that unless a trust is duly registered under section 18 of the Bombay Public Trusts Act read with sections 17, 19, 20 and 21 of that Act, the trust cannot be said to be registered merely when an application under section 18 is filed. Registration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Courts, namely, CIT v. Estate of Late Sri T. P. Ramaswami Pillai [1962] 46 ITR 666 (Mad), Court Receiver v. CIT [1964] 54 ITR 189 (Bom) and CIT v. Estate of V. L. Ethiraj (By Official Trustee) [1979] 120 ITR 271 (Mad). Strong reliance has been placed by the appellant on the decision of the Madras High Court in CIT v. Estate of V. L. Ethiraj (By Official Trustee) [1979] 120 ITR 271 (Mad). In this case one Ethiraj executed his will under which he created a trust in respect of his properties and appointed the official trustee of Madras as the sole executor and trustee. Ethiraj died on September 8, 1960. The official trustee applied for the probate of the will of Ethiraj under section 222 of the Indian Succession Act read with section 7(6) of the Official Trustees Act, 1913. Probate was granted to him on May 3, 1961. After obtaining the probate, the official trustee sold various properties of the testator as directed in the will. He was to perform various other functions. The balance of the money realised from the estate of the testator was to be utilised in awarding scholarships for students studying in the Ethiraj College for Women. For the assessment year 1961-62, the official tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and brother-in-law as trustees and almost imposed certain duties of executorial nature. These were like payment of Specific legacies and funeral expenses. The trustees under the will filed returns stating that they ceased to be executors and claimed that the trust was wholly for religious and charitable purposes and thus, the entire income from the properties was exempt from taxation. The Revenue contended that since the debts had not been fully discharged the trustees could be assessed only as executors under section 41 of the Indian Income-tax Act, 1922, and the income was not exempt from tax. The question which came up for consideration of the court was whether any part of the income of the estate of the testator was exempt under the proviso to section 4(3)(i) of the Indian Income-tax Act, 1922. The court said that to the extent the income from the properties specified in the will had been applied towards payment of monthly allowances to the various relations of the deceased, there would be no exemption under section 4(3)(i) and the rest of the income would be exempt from that provision. The court observed that there was no invariable rule that an executor could not shed his cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The estate was not distributed or applied for the benefit of the beneficiaries till August 5, 1970. Even the firm in which the deceased had a half-share was continuing and the executor had yet to make arrangements regarding the revaluation of the share of the deceased in the firm. This court said that in the absence of any steps taken by Sakarlal, the estate could not be deemed to have been vested in the beneficiaries and the administration of the estate could not be said to have come to an end. The court said that "the question in each case is : has the administration reached a point at which you can infer that the administration has been completed, the residuary estate has been ascertained, the bequest of the residue has been assessed to and the residuary estate, therefore, became vested in trustees, be they the executors themselves or strangers ? In other words, can it be said that the residuary estate had taken concrete shape and could and should have been handed over by the executors to the persons beneficially entitled but for the fact that the estate is settled in trust and vested in the executors as trustees ?" This court upheld the order of the Appellate Tribunal that Navn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer or assent to him or by appropriation. In CIT v. Estate of Late A. V. Viswanatha Sastri [1980] 121 ITR 270 (Mad), a testator, a senior advocate practising in the Supreme Court, died. He executed a will by which he appointed his son as an executor of the will. The son filed returns in his capacity as an executor for certain years. During that period, however, he received various amounts which were professonal fees payable to the deceased. He did not offer these amounts for assessment claiming that these professional fees were not liable to be taxed in his hands. His plea was negatived by the Revenue being of the view that section 176(4) of the Income-tax Act, 1961, specifically provided for taxability of the professional income received after discontinuance of the profession and included the arrears of the professional fees in the income earned from the estate of the deceased. The court held that the arrears of fees realised by the executor will have to be taxed in his hands as a recipient in the year of receipt and brought to tax in the hands of the executor along with the income of the estate. The court said that the legal fees due to the deceased on the date of death was one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93 of that Code.
366. Residue after usual payments to be paid to residuary legatee. The surplus or residue of the deceased's property, after payment of debts and legacies, shall be paid to the residuary legatee when any has been appointed by the will."
In the present case when we examine clause 20 of the will read with other clauses, it is apparent that the trust was to come into being only after funeral and other expenses were met, legatees paid and properties converted into cash by the executors and trustees that administration of the estate would come to an end and all the amount thus lying with the executors and trustees would form the corpus of the trust. The 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.
Accordingly, we uphold the decision of the High Court in the impugned judgment and dismiss the appeal with costs. X X X X Extracts X X X X X X X X Extracts X X X X
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