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PETITIONER: ADMINISTRATOR-GENERAL OF WEST BENGAL

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, CALCUTTA

DATE OF JUDGMENT: 06/10/1964

BENCH: SIKRI, S.M. BENCH: 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   herein- claimed  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

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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.  Attorney- General, [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.

JUDGMENT: 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.  Raja- gopal  and K. R. Chaudhuri, for the appellant (in  C.A.  No. 168 of 1964). K.   Rajendra Chaudhuri and K. R. Chaudhuri, for the  appel- lant (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

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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               whereto  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 refer- red 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 Commis-

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sioner  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

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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, sub- mitted 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  asso-               ciation 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

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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  (Wheatcroft 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  un- successful, 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

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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,

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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. 660