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TMI Blog1946 (11) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... ry estate subject to certain pecuniary legacies payable under his father's will and that, therefore, except in regard to the aforesaid sum of ₹ 1,984 representing the interest payable to such legatees, the deduction claimed was in truth in respect of a payment to himself. The assessee appealed to the Income-tax Appellate Tribunal who considered that the administration of the testator's estate had not been completed and the residue ascertained and that it was still in the hands of the assessee in his capacity as executor and had not become his property. The Tribunal accordingly allowed the appeal and directed the exclusion of the balance of ₹ 20,124 also from the assessment. Thereupon the Commissioner of Income-tax, Madras, applied to the Tribunal to state the case and refer it to this Court, claiming that a question of law arose out of its order, and the Tribunal, agreeing that a point of law was involved, referred to this Court for its decision the following question :- Whether on the facts and in the circumstances of the case, the sum of ₹ 20,124 was allowable as a deduction as interest on borrowed capital within the meaning of Section 10(2)(iii) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day of each month after my decease. No. IV. ₹ 15,000 (Fifteen thousand rupees) with annual interest at the rate of six per centum accruing thereon to my son Kennard Ramsay Unger by monthly instalments of ₹ 125 (One hundred and twenty five rupees) on the 1st day of each month after my decease. Then follow provisions regarding the disposal of his residuary estate, on the interpretation and effect of which the present controversy largely turns. They are as follows :- After the deaths (and not till then) of the aforementioned Emilie Unger and Mary (May) Elizabeth Unger (legatees numbered I and II) I direct my executors to close the accounts of my estate and after setting apart sufficient money or fund or property to disburse and discharge completely the aforementioned legacies numbered I to IV, to divide the balance or residue of my estate into three equal shares to be distributed as follows :- Residuary Estate.-One share of the residue to be paid or given to my son, Oscar Ramsay Unger (Captain, Indian Medical Service), or his heirs. One share to be paid or given to my daughter, Tessa Ramsay Bartley (wife of W.K. Bartley), or to her heirs; one shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the directions contained in the will and not as a device for avoiding due assessment to tax, and that finding has not been questioned before us. It may be mentioned here that till the year 1942-43 when the assessment now in question came to be made, the assessee had all along been maintaining his accounts on the same basis, claiming deduction every year of the interest debited to the estate in the assessment of his personal income and returning such interest for assessment as income received by him as executor of his father's estate, and the Income-tax authorities had been making assessments accordingly. The relevant provisions of the Indian Income-tax Act, 1922, are as follows:- Section 10(1). The tax shall be payable by an assessee under the head 'profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him. (2) Such profits or gains shall be computed after making the following allowances, namely:- ****** (iii) in respect of capital borrowed for the purposes of the business profession or vocation,.........the amount of the interest paid: The question is whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having become the property of the assessee. We are of opinion that this contention must prevail. It is to be noted that there are no words of gift of the residue in the will apart from the direction for its distribution after the deaths of the two persons aforementioned. The rule of construction applicable in such cases is thus stated in Jarman on Wills :- A leading distinction is that if futurity is annexed to the substance of the gift the vesting is suspended ; but if it appears to relate to the time of payment only the legacy vests instantor (Seventh Edition, Vol. II, p. 1373). ****** It should seem too, that, where the only gift is in the direction to pay or distribute at a future age, the case is not to be ranked with those in which the payment or distribution only is deferred, but is one in which time is of the essence of the gift. (p. 1376). And the learned author cites, among others, Re Eve ; Belton v. Thompson 93 LT 235, as illustrating the rule. There a testator directed his trustees to pay a legacy of 1,000 six years after my decease. The legatee died within three years after the testator's death. Kekewich, J., held that, there being no gift ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orte testatoris has or has not taken place, as where conditions of survivorship and the like are objected to the direction to pay. But where there is a direction to pay the income of a fund to one person during his lifetime and to divide the capital among certain other named and ascertained persons on his death, even although there are no direct words of gift either of the life-interest or of the capital, the rule is that vesting of the capital takes place a morte testatoris in the remaindermen, No life-interest is interposed in the present case. The persons after whose deaths the residue is to be distributed might die before or after all the instalments of their pecuniary legacies are paid, and it cannot, therefore, be said that the distribution has been deferred for the convenience of the fund. The case thus calls for the application of the rule and not of the exception stated by Mr. Jarman. The contingent character of the gifts is emphasized by the bequest in the alternative to the heirs of the first-named legatee in each case. Ordinarily, an alternative gift is intended to take effect only in the contingency of the first-named legatee dying in the testator's life- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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