Administrator-General of West Bengal Vs.
Commissioner of Income-Tax, Calcutta [1964] INSC 221 (6 October 1964)
06/10/1964 SIKRI, S.M.
SIKRI, S.M.
SUBBARAO, K.
SHAH, J.C.
CITATION: 1965 AIR 1436 1965 SCR (1) 650
ACT:
Indian Income-tax Act, 1922, s. 41-Administrator-General
appointed administrator de bonis non of property passing under will-Residue
property to go to testator's sons after payment of various
legacies-Administrator-General whether receives income of estate on behalf of
the testator sons during period of administration-Whether assessable under s. 41.
HEADNOTE:
T died in 1938. According to his will certain
legacies were to be paid out of his estate during a period of fifteen years
after his death, the estate being managed by executors and trustees during that
period; and the residue thereafter was to go to his five sons. Probate was
granted to the five sons on August 24 1938, but by an Order dated May 10, 1948
the High Court appointed the Administrator-General of West Bengal as Administrator
de bonis non of the property. In income-tax proceedings relating the assessment
years 1950-51 and 1951-52 the Administrator-General-appellant hereinclaimed
that assessment should be made under s. 41 of the Indian Income-tax Act, 1922,
because the income of the estate was receivable by him on behalf of the five
sons of the testator, their shares in the said income being definite and
determinate. His claim was rejected by the assessing and appellate authorities.
The High Court held that the Administrator-General when appointed by the Court
was expressly covered by s. 41 as one of the persons to whom that section
applied, but the shares of the sons not being determinate as long as the
administration lasted the proviso to s. 41(1) was attracted, and tax was recoverable
at the maximum rate. Appeal was filed by the Administrator-General before the
Supreme Court, with a certificate under s. 66A(2) of the Act.
The appellant urged that the High Court had
wrongly held that the shares of the five sons were not determinate. On behalf
of the Revenue it was contended that s. 41 did not apply at all because the
appellant received the income not on behalf of the five sons but as an
executor.
HELD : The fact that the
Administrator-General was mentioned in s.41 did not conclude the matter. There
was another condition to be fulfilled before that section could apply, namely,
that the income had to be received by him on behalf of a person or persons. In
the instant case the Administrator-General did not receive the income on behalf
of the five sons What the five sons were entitled to was the residue of the
estate, and any savings that might be out of the income of the estate would be
received by them finally not as their income but as a part of the residue. The
position of an Administrator-General appointed de bonis non was in no way
different from that of an executor vis-a-vis the income he received from the
estate. [656 A-B; 659 B-C].
V. M. Raghavalu Naidu v. Commissioner of
Income-tax and Excess Profits Tax, Madras, 18 I.T.R. 787, R. v. Income-tax
Special Commissioners 7 T.C. 646, Lord Sudeley v. AttorneyGeneral, [1897] A.C.
11, Marla Celeste Samaritan Society of the London Hospital v. Commissioner of
Inland Revenue, 11 T.C. 226 and Corbett v. Commissioner of Inland Revenue, 21
T.C. 449, relied on.
651 Asit Kumar Ghose v. Commissioner of
Agricultural Income-tax, West Bengal, 22 I.T.R. 177 and Birendra Kumar Dutta v.
C.I.T. Calcutta, (1961) 42 I.T.R. 661
referred to.
In re Cunliffe-Owen Mountain v. Inland
Revenue Commissioner, (1953) 1 Ch. 545, distinguished.
CIVIL APPELLATE JURISDICTION : Civil Appeals
Nos. 168 169 of 1964.
Appeals from the judgment and order dated
December 5, 1961, of the Calcutta High Court in Income-tax Reference No. 116 of
1957.
A. V. Viswanatha Sastri, K. Rajendra
Chaudhuri, M. Rajagopal and K. R. Chaudhuri, for the appellant (in C.A. No. 168
of 1964).
K. Rajendra Chaudhuri and K. R. Chaudhuri,
for the appellant (in C.A. No. 169 of 1964).
C. K. Daphtary, Attorney-General, R.
Ganapathy Iyer, R. H. Dhebar and R. N. Sachthey, for the respondent (in C.A.
Nos. 168-169 of 1964).
The Judgment of the Court was delivered by
Sikri J. These are two appeals by certificates under S. 66A(2) of the Indian
Income Tax Act, 1922, against the judgment of the High Court at Calcutta,
answering two questions referred to it by the Income-tax Appellate Tribunal
against the appellant. The two questions are :
1. Whether on the facts and in the
circumstances of the case, the assessments on the Administrator-General of West
Bengal as an individual and not as representing the shares of the various
beneficiaries under the Will of the late Raja P. N. Tagore separately was in
accordance with law ?
2. If the answer to Question No. 1 be in the
affirmative, then whether on the facts and in the circumstances of the case,
the assessment of the said Administrator-General at the maximum rate was legal
? The facts and circumstances referred to are set out in the statement of the
case by the Appellate Tribunal and are as follows. One Raja Profulla Nath
Tagore died on July 2, 1938, leaving an elaborate will dated March 14, 1927, by
which certain legacies were left to specified persons and institutions, the
residue being given to five sons. The residue was disposed of thus by clause 81
of the Will 652 "Save and except the legacies that I have provided for in
this my present Will and save.
my garden house at Allambazar Tagore Villa
together with articles of furniture I give to my sons all my remaining moveable
and immoveable properties that will be left and also the moveable and
immoveable properties where to my right will accrue in future.
Subject to the management and payment of
these several trusts (Debutter etc.) and the legacies that I have created or I
have directed the creation thereof in this Will my sons shall continue to hold
and enjoy all the said moveable and immoveable properties." Clause 10 of
the said Will provided for the payment of the legacies thus :
"The legacies fixed in this my present
Will shall have to be paid in full within 15 years of my death and these 15
years my Estate shall be managed under the supervision of my Executors and
Trustees. As to the various legacies that I have made a mention of in this my
Will, my Executors and Trustees shall pay up all the said legacies out of the
small savings made from the income of my Estate year after year. For paying up
the legacies my Executors and Trustees shall not be competent to sell any
portion of my Estate or any immoveable property. As to what I have arranged to
pay to the different parties, in this my present Will, my Executors and
Trustees shall not pay any interest on those legacies nor shall the legatees be
competent to claim any interest." It is not necessary to set out the other
clauses of the Will but we may mention that there were numerous legacies which
had to be paid before the residue could be ascertained.
Probate of the Will was granted to the said
five sons on August 24, 1938, but by an order dated May 10, 1948, the High
Court appointed the Administrator-General of West Bengal as Administrator and
ordered that letters of administration de bonis non of the property and credits
of the deceased (Raja Profulla Nath Tagore) with a copy of the Will annexed
thereto be granted and issued out.
The Administrator-General of West Bengal,
hereinafter referred to as the Appellant, submitted returns in respect of the
Assessment years 1950-51 and 1951-52, the accounting years 653 being 1949-50
(1356 b.S.) and 1950-51 (1357 B.S.), showing income of Rs. 33,611 for the first
year and Rs. 39,630 for the second year. He claimed that the income was
specifically receivable on behalf of the said five sons of the deceased, and
their shares in the said income were definite and determinate. The Income-tax
Officer rejected the claim for the Assessment year 1950-51 on the ground that
"the Administrator-General of West Bengal is only an executor of the
estate of Raja P. N. Tagore and that the execution is not yet complete. Under
the circumstances the question of the beneficiaries does not arise and the
Administrator-General himself is assessable as Executor to estate P. N.
Tagore." He passed a similar order in respect of Assessment year 1951-52.
The Appellate Assistant Commissioner upheld the orders of the Income Tax
Officer.
Following the principles laid down in the
decisions in V. M. Raghavalu Naidu v. Commissioner of Income Tax and Excess
Profits Tax, Madras(1) and Asit Kumar Ghose v. Commissioner of Agricultural
Income-Tax, West Bengal(1), he held that the "levy of tax on the separate
individual incomes of the beneficiaries can be made only when the
administration of the estate has been completed, and the residue of the estate
has been ascertained." It was conceded before him that the administration
of the estate was not completed till the end of the accounting year (1950-51).
The Appellate Tribunal also rejected the contention. It held that :
"It is the condition of the application
of this section (s., 41) that the Administrator General of West Bengal shall
receive the income on behalf of the beneficiaries. We have held that having
regard to Section 211 of the Indian Succession Act the Administrator General of
West Bengal receives it as legal representative of the deceased person and not
on behalf of the beneficiaries. The latter he can do only if the administration
of the estate is complete or if there are specific directions to that effect.
The proviso goes further and enacts that when such income is not specifically
receivable on behalf of one person or where the individual share of the person
on whose behalf it was receivable is indeterminate or unknown, tax shall be
levied and recoverable in the maximum rate. There is no doubt in this case that
the Administrator General of West Bengal is not receiving the income specifically
on behalf of any beneficiary. Further there are certain benefactions (1) (1950)
18 I.T.R. 787.
(2) (1952) 22 I.T.R. 177 654 and payment in
their very nature involving the share income of the beneficiaries being
indeterminate or unknown. So truly speaking the tax must be levied in the
maximum rate.
But the assessee is not entitled to claim
that the income of the beneficiaries must be separately assessed and not
together in the hands of the Administrator-General of West Bengal." Then
the Appellate Tribunal, on the application of the Appellant, referred the two
questions reproduced above. The High Court held that "the
Administrator-General when appointed by the Court is expressly covered by the
section (S. 41) and it cannot be said that because he has the powers of an
executor he must be treated differently." It further held that "the
income from the properties did not so long as administration was incomplete
become theirs. It cannot, therefore, be said of the sons that they had any
determinate share in the profits or gains of the estate or any part thereof in
the accounting years. The proviso to S. 41 (1) is, therefore, attracted on the
facts of this case, making the tax recoverable at the maximum rate." The
learned counsel for the appellant in Civil Appeal 168 of 1964, Mr. Viswanatha
Sastri, has urged that the High Court was wrong in holding that the shares of
the five sons were indeterminate. He said that their shares were 1/5th each,
and what has to be seen is whether the shares are determinate and not whether
the actual sum, which each son would get is variable or not. Income may be
variable but the shares of the sons are fixed. In this connection, he relied on
the decision in Birendra Kumar Datta v. Commissioner of Income tax,
Calcutta(1). He further said that S. 41 was mandatory and if the proviso to S.
41 did not apply, the Income-tax Officer was bound to assess the appellant
under S. 41.
The learned Attorney-General, on behalf of
the Revenue, submitted that S. 41 did not apply at all because in the facts and
circumstances of the case, the appellant did not receive the income on behalf
of the five sons but received it like an executor. He said that an executor was
not mentioned in s. 41 and was assessable under ss. 3 & 4 of the Act. In
the alternative, he argued that the share of the sons were indeterminate. As we
are inclined to accept the first submission of the learned Attorney-General, we
need not express any opinion on the question whether (1) (1961) 42 T.T. R. 661.
655 the shares of the five sons were
indeterminate or not, within the proviso to s. 4 1. Section 41 reads thus:
"41. Court of Wards, etc. (1) In the
case of income, profits or gains chargeable under this Act which the Courts of
Wards, the Administrators-General, the Official Trustees or any receiver or
manager (including any person whatever his designation who in fact manages
property on behalf of another) appointed by or under any order of a Court, or
any trustee or trustees appointed under a trust declared by a duly executed
instrument in writing whether testamentary of otherwise (including the trustee
or trustees under any Wake deed which is valid under the Mussalman Wakf
Validating Act, 1913 (6 of 1913) are entitled to receive on behalf of any
person, the tax shall be levied upon and recoverable from such Court of Wards,
Administrator General, Official Trustee, receiver or manager or trustee, or
trustees, in the like manner and to the same amount as it would be leviable
upon and recoverable from the person on whose behalf such income, profits or
gains are receivable, and all the provisions of this Act shall apply
accordingly;
Provided that where any such income, profits
or gains or any part thereof are not specifically receivable on behalf of any
one person, or where the individual shares of the persons on whose behalf they
are receivable are indeterminate or unknown, the tax shall be levied and
recoverable at the maximum rate but, where such persons have no other personal
income chargeable under this Act and none of them is an artificial judicial
person, as if such income, profits or gains or such part thereof were the total
income of an association of persons :" It is not disputed that before S.
41 can be applied, it must be found that the Administrator-General was entitled
to receive income on behalf of a person or persons. It is common ground that
the administration of the estate was not completed within the accounting
periods in question. So the question boils down to this : Did the appellant
receive the income on his behalf or on behalf of the five sons during this
period ? It seems to us that during the administration of the estate, the
appellant did not receive the income on behalf of the five 656 sons. When he
received the income, he had a discretion to use it either for paying legacy A
or legacy B or for meeting the expenses. If there was a saving in one year,
next year he could appropriate it for paying legacy C or D or for meeting the.
expenses. What the five sons were entitled to was the residue of the estate
would be received by them finally, not as their income but as part of the
residue.
In England, apart from statutory provisions,
a residuary beneficiary is not regarded as taxable on income of an estate in
the course of administration. A share of residue does not belong to the
beneficiary until it is ascertained either in whole ox part by transfer or
assent to him or by appropriation (Wheat croft on Law of Income Tax, Surtax and
Profits Tax, section 1-1104).
The decision in R. v. Income Tax Special
Commissioners(1) (Ex parte, Dr. Barnardo's Homes) supports the contention of
the learned Attorney-General. The facts may be taken from the headnote.
"Mr. Denzil Thomson died on November 15, 1914, leaving the residue of his
estate to Dr. Bamardo's Homes National Incorporated Association. The Testator's
next-of-kin contested the will and the proceedings were compromised by the
Association making over to the next-of kin one-third of the residuary estate.
The proceedings delayed the division of the residuary estate, and the investments
constituting or representing the same remained under the control of the
Executors until May 1916, between which date and December 1916, two-thirds of
the investments were transferred to the association and one-third to the
Testator's next-of-kin. The income arising from the investments was received
under deduction of Income Tax and the total amount of tax deducted from such
income during the period between the date of the Testator's death and the dates
of transfer by the Executors amounted to pound 498 Os.
11d. The Association applied under Section
105 of the Income Tax Act, 1842, to the Special Commissioners of Income Tax for
repayment of two-thirds of that sum, viz., pound 332 Os. 7d., as being Income
Tax on income payable to the Association and applicable, and in fact applied,
by it solely for charitable purposes. The application being unsuccessful, the
Secretary of the Association applied for and obtained a rule nisi calling upon
the Special Commissioner of Income Tax to show cause why a writ of mandamus
should not issue to them commanding them to allow exemption from Income (1) 7
T.C. 646.
657 Tax on the income in question and to
repay the sum of pound 332 Os. 7d.
The House of Lords held, inter alia,
following the decision, in Lord Sudelev v. Attorney-General(1), that
"prior to the ascertainment of the residue, the Association as residuary
legatee had no interest in the Testator's property, that the taxed income of
the estate prior to such ascertainment was income of the Executors, and that it
was not received by them as trustees on behalf of the Association." In the
Court of Appeal the Master of Rolls observed that the income that they were
receiving in the meantime, was income which they were receiving not on behalf
of the residuary legatee at all but on behalf of themselves as executors for
application in the administration of the estate.' Viscount Finlay observed as
follows "It appears to me that the present case is really decided by the
decision of this House in Lord Sudelev's case(1). It was pointed out in that
case that the legatee of a share in a residue has no interest in any of the
property of the testator until the residue has been ascertained. His right is
to have the estate properly administered and applied for his benefit when the administration
is complete.
The income from which this Income Tax was
deducted was not the income of the charity.
It was the income of the executors. They
were, of course, bound to apply it in due course of administration, but they
were not trustees of any part of it for the charity.
There had been no creation of a trust in
favour of -the charity in respect of this income, it was never paid over to the
charity as income. What was ultimately paid over on the close of the
administration was the share of the whole estate, consisting of capital and
accumulated income, which fell to the charity.
The executors, not the charity, were the
recipients of this income, and there is no relation back in the case of the
bequest of a residue. If no right of deduction at the source had existed it is
the executors and the executors only who could have been made liable for the
tax." (1) [1897] A.C. II.
658 Viscount Cave put the point thus :
"When the personal estate of a testator
has been fully administered by his executors and the net residue ascertained,
the residuary legatee is entitled to have the residue as so ascertained, with
any accrued income, transferred and paid to him; but until that time he has no
property in any specific investment forming part of the estate or in the income
from any such investment, and both corpus and income are the property of the
executors, and are applicable by them as a mixed fund for the purposes of
administration.
This was fully explained in Lord Sudeley v. The
Attorney-General [L.R. [1897] A.C. 11]." Subsequent cases such as the
Maria Celeste Samaritan Society of the London Hospital v. The Commissioners of
Inland Revenue(1) and Corbett v. Commissioners of Inland Revenue(2) have taken
the same view. In the latter case, the decision in Dr. Barnardo's case was held
to have laid down "a general proposition applicable to all cases of
residue which is being ascertained and which cannot be ascertained until the
administration is complete." Mr. Sastri relied on In re Cunliffe-Owen Mountain
v. Inland Revenue Commissioners(3), but, in our opinion, the Court of Appeal
has not taken any different view. The Court of Appeal was concerned with the
interpretation of s. 27(1) of the Finance Act, 1949, whereby legacy duty was
not payable in certain events. It examined the nature of the title of a
residuary legatee and held that "the title of a residuary legatee to a
residuary estate remains the same both before and after the completion of the
administration, notwithstanding that it is not until it is complete that he can
say that any particular asset or any particular income is his, and not merely
part of the general estate of the testator." It repelled the argument that
pending final administration a residuary legatee has only an expectancy in the eye
of law. But this conclusion does not lead to the next step that an executor or
administrator receives the income on behalf of the residuary legatee.
In V. M. Raghavalu Naidu v. Commissioner of
Income-tax and Excess Profits Tax(4) the Madras High Court held that S. 41 of
the Act had no application where the administration of -the estate had not been
completed by the executors.
(1) 11 T.C. 226. (2) 21 T.C. 449.
(3) [1953] 1 Ch. 545. (4) (1950) 18 I.T.R.
787.
659 The High Court in this case had repelled
the argument on behalf of the Revenue that the Administrator-General did not
come within the purview of S. 41 of the Act on the ground that "the
Administrator-General when appointed by the Court is expressly covered by the
section and it cannot be said that because he has the powers of an executor, he
must be treated differently." In our opinion, the fact that the
Administrator-General is expressly mentioned in S. 41 does not conclude the
matter. The section prescribes another condition and that is that the income
must be received by him on behalf of a -person or persons. This condition must
be fulfilled before s. 41 becomes applicable. The position of an
Administrator-General appointed de bones non is in no way different from that
of an executor vis-a-vis the income he receives from the estate.
Accordingly, we hold that s. 41 of the Act is
not applicable in the present case as the appellant received the income on his
behalf and not on behalf of the five sons of the deceased Raja. In view of the
above, the answers to the two questions set out in the beginning of the
judgment must be in the affirmative. The appeals are, therefore, dismissed with
costs. One set of hearing fee.
Appeals dismissed.
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