Business succession and executor taxation: legal ownership on death triggered succession, while widow's payment was not trustee income.

Section 25(4) treats succession to a business as occurring when legal ownership and control pass, not merely when executors later sell the business. On the stated facts, the executors became the legal owners on the testator's death and succession was complete then, even though they were not beneficial owners. Section 41(1) applies only where income is receivable by a trustee for another person; a legacy paid by executors during estate administration does not, by itself, create a trust. The payment to the widow was therefore treated as an estate administration payment, outside trustee taxation, because no trust in the income-bearing property had yet arisen.

---

---

Issues: (i) Whether succession to the testator's business under section 25(4) occurred on his death or only on the later sale of the business by the executors; (ii) whether the amount paid to the widow under the will was received by the executors as trustees so as to attract section 41(1).

Issue (i): Whether succession to the testator's business under section 25(4) occurred on his death or only on the later sale of the business by the executors.

Analysis: The expression "succeeded" in section 25(4) was treated as denoting a transfer of ownership, not merely a formal change in management. The executors, on the death of the testator, became the legal owners of the business and carried it on with the same power and authority as the deceased had possessed. The fact that they were not the beneficial owners did not prevent succession within the meaning of the section, because the statutory requirement was ownership in the sense of legal control and capacity to carry on the business.

Conclusion: Succession took place on the death of the testator on 9 April 1942, and not on the later sale of the business.

Issue (ii): Whether the amount paid to the widow under the will was received by the executors as trustees so as to attract section 41(1).

Analysis: Section 41(1) applied only where income was receivable by a trustee on behalf of another person. The payment to the widow was held to be a legacy paid in the course of administration of the estate. At the relevant stage, no trust in the income-bearing property had come into existence, because the executors had not yet purchased and held the Government promissory notes directed by the will. A mere executor does not become a trustee for legatees merely because he administers the estate and makes the first payment under the testamentary direction.

Conclusion: Section 41(1) did not apply to the payment made to the widow.

Final Conclusion: The reference was answered against the assessee on both questions, with the business succession held to arise on the testator's death and the widow's payment held outside the scope of trustee taxation.

Ratio Decidendi: For section 25(4), succession occurs when another person steps into the legal ownership and control of the business, and for section 41(1), a mere executor making a testamentary payment in administration is not a trustee unless a trust has actually arisen.

---