Executor-as-manager principle and overriding charge on estate income excluded the amounts from assessable income.

A will that vests the estate in beneficiaries and assigns executors only managerial functions does not make those executors assessable as an association of individuals for estate income, because mere collection of debts and temporary control under court supervision is not carrying on a business in common. Allowances imposed by the will as obligatory charges on the estate are deductible from estate income, since the amount is diverted at source by overriding title before it becomes income of the assessee. On that reasoning, the estate was not chargeable in the hands of the so-called executors, and the charged allowances were excluded from assessable income.

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Issues: (i) Whether the persons named in the will could be assessed as an association of individuals in respect of the estate income. (ii) Whether the monthly and annual allowances payable under the will were deductible from the estate income and taxable only in the hands of the recipients.

Issue (i): Whether the persons named in the will could be assessed as an association of individuals in respect of the estate income.

Analysis: The dispositive terms of the will showed that the estate was intended to vest in the beneficiaries, while the persons described as executors were appointed mainly to manage the property during the minority of the heirs and to work under Court supervision. The direction to convert the property into cash, the limited authority to carry on business temporarily, and the absence of any beneficial ownership in the so-called executors showed that they were only managers on behalf of the real owners. Mere collection of outstanding debts did not amount to carrying on a business in common by an association of individuals.

Conclusion: The persons named in the will could not be assessed as an association of individuals. The answer was in the negative and in favour of the assessee.

Issue (ii): Whether the allowances payable under the will were deductible from the estate income and taxable only in the hands of the recipients.

Analysis: The allowances were imposed by the will as obligatory charges on the estate and could not be defeated by the beneficiaries. Where the testator's directions create a binding charge that diverts the sum before it becomes income in the beneficiary's hands, the amount so charged is not income of the assessee. This was treated as analogous to a diversion of income by overriding title rather than a mere application of income after receipt.

Conclusion: The allowances were not taxable as part of the estate income in the hands of the assessee. The answer was in the negative and in favour of the assessee.

Final Conclusion: The estate was not chargeable in the hands of the so-called executors as an association of individuals, and the obligatory allowances under the will were excluded from their assessable income as amounts diverted by a binding charge. The reference was answered against the Revenue.

Ratio Decidendi: Where a will or similar instrument makes the beneficiaries the real owners and imposes only managerial functions on executors, the executors are not assessable as an association of individuals; and where a charge is obligatory and diverts income at source before it reaches the assessee as income, the charged sum is not includible in taxable income.

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