Overriding title and estate income: will not divert income from tax where no specific charge on receipts existed.

The estate income was held not to be diverted by an overriding title or trust merely because the will required the executors and trustees to discharge the deceased's debts and liabilities before applying the residue to charity. No specific charge on the income was created, and the income was received as income of the estate rather than on behalf of the creditors. Section 325 of the Indian Succession Act was treated as stating only the ordinary obligation to satisfy liabilities out of the estate, not as diverting income at source. The income was therefore assessable in the hands of the assessees, and the Revenue succeeded.

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Issues: Whether the share income of the estate was diverted by an overriding title or trust so as not to accrue to the assessees and, consequently, not to be taxable in their hands.

Analysis: The will required the executors and trustees first to discharge the deceased's debts and liabilities and then apply the residue for charity, but it did not create any specific charge on the income of the estate or indicate that the income was received by the assessees on behalf of the creditors. Section 325 of the Indian Succession Act codified no more than the ordinary obligation of an heir or recipient of an estate to satisfy liabilities out of the estate. The authorities relied on for the assessee concerned interest on liabilities actually paid and not the principal liabilities now in issue. On the facts, the income was received as income of the estate and not diverted before accrual.

Conclusion: The income was not diverted by an overriding title and was assessable in the hands of the assessees; the answer is against the assessee and in favour of the Revenue.

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