AI Drafter 
TaxTMI 
TaxTMI 
1964 (4) TMI 111
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessed in the hands of the applicant for the assessment years 1948-49, 1949-50 and 1950-51 is exempt under section 4(3)(i) of the Income-tax Act?" The facts relating to the two questions are substantially different. Hence we deal with the two questions separately. 3. To take up the first question, the facts relating thereto are: The assessment years with which we are now concerned are the years 1948-49, 1949-50 and 1950-51. The relevant accounting periods are the years ending March 31, 1948, March 31, 1949 and March 31, 1950. One Haji Alimohamed Haji Cassum owned extensive properties. He left a will dated November 30, 1934, which is annexed hereto as annexure "A" and forms part of the case, and by clause (1) thereof he appointed certain persons as executors. It runs as follows: "I appoint my dear wife Bai Fatmabai, (2) Rustomji Dhanjishaw Dallas, (3) Navroji Merwanji and my sons, (4) Sulleman and (5) Cassum in case and when they shall respectively attain majority executors and trustees of this my will." The testator died on November 6, 1946. Of the above persons appointed as executors....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs. Subsequently, by an order of court dated June 30, 1950, the joint receivers were discharged and in their stead the court receiver was appointed. The relevant portion of the order dated June 30, 1950, runs as follows: "IT IS R. J. Kolah with Dilip Dwarkadas, for the assessee. G. N. Josh and R. J. Joshi, for the Commissioner. JUDGMENT TAMBE J.- This is a reference under sub-section (1) of section 66 of the Indian Income-tax Act, 1922 (hereinafter referred to as "the Act"). The assessee before us is a court receiver appointed by this court in a suit filed on its Original Side, Suit No. 3415 of 1947. The assessment years with which we are here concerned are 1948-49, 1949-50 and 1950-51; the relevant account years are financial years ending 31st March, 1948, 31st March, 1949 and 31st March, 1950, respectively. The dispute relates to 1/3rd share of the income of the property in those relevant accounting years and the question that arises for decision is whether the said income is liable to be taxed under the provisions of the Indian Income-tax Act and if so whether the applicant before us is liable to be assessed in respect of the said income. The question ari....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entioned in the said paragraph that there are certain liabilities of the estate which have to be met, and outstandings to be recovered. Paragraph 6 mentions that 15 properties worth over Rs. 12 lakhs have been handed over to the heirs of the deceased according to their shares and allotment has been made in accordance with valuation made by the architects as against their respective shares, and remaining properties that still remain to be distributed or divided are of over Rs. 20 lakhs in value and in respect of division of this remaining properties there are certain disputes between the heirs. Some of the heirs proposed that these properties should be sold by public auction, while some other heirs proposed that these properties should be sold by private contract with the consent of major heirs. This paragraph, however, in the terms mentions that there was no dispute amongst the heirs as regards the amount as directed by the testator to be set apart and utilised for charitable purposes and they proposed to put the said directions as regards application of the moneys for charitable purposes on a proper footing by having regular declaration or declarations of trust prepared with plain....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ived by the joint receivers in the previous years relevant to the assessment years. On an application by the court receiver, he was allowed by the Tribunal to raise these contentions. The argument advanced on his behalf was that he (court receiver) was not in receipt of the profits during the period the income was earned and, therefore, he was not assessable in respect thereof. The Tribunal rejected this contention on the ground that there was continuity in the office of the receiver and the change of the incumbent of that office did not alter the position. The decision in Asit Kumar Ghose v. Commissioner of Agricultural Income-tax [1952] 22 I.T.R. 177, which was cited on behalf of the court receiver before the Tribunal, was held by the Tribunal as not applicable to the facts of the case. The decision of the Tribunal on this aspect of the case has given rise to the question as regards the liability of the court receiver to be assessed on the income in respect of these aforesaid three assessment years. Turning to the second aspect of the case, the court receiver contended before the Income-tax Officer that the income to the extent of 1/3rd of the estate was exempt under section 4....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... could emerge. The administration was not complete during the relevant years and the executors were not, therefore, holding the properties as trustees for and on behalf of the clients. In this view of the matter, the Tribunal dismissed the appeal. The Tribunal also did not record its finding as to whether the legacies mentioned in clause 4 of the will were for public charitable purposes or not. On an application made by the court receiver, the Tribunal has drawn up a statement of the case and has referred to us the following two questions of law: "(1) Whether on the facts and in the circumstances of the case the assessments made for these assessment years 1948-49, 1949-50 and 1950-51 on the court receiver appointed by orders of the court dated August 30, 1950 are validly passed? (2) Whether on the facts and in the circumstances of the case, 1/3rd of the remaining property mentioned in clause 4 of the will dated November 30, 1934, could be said to be held under trust or other legal obligation within the meaning of section 4(3)(1) of the Indian Income-tax Ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....i Pillai [1962] 46 I.T.R. 666. Mr. Joshi appearing for the Revenue on the other hand in the first instance contends that the statement of case shows that the contention raised by the court receiver before the income-tax authorities and the Tribunal was that 1/3rd income of the property was held on trust for charitable purposes which shows that the case put forward by the Income- tax Officer and the Tribunal was that a charge was created on the 1/3rd income for charitable purposes. According to Mr. Joshi, there was no case put forward before the Tribunal that any property was held under trust or under legal obligation the purpose of which was religious or charitable. When the charge is created merely on income and no trust is created in respect of property, no exemption under section 4(3)(i) of the Act was available to the assessee. He placed reliance on a decision in Raja P.C. Lall Chaudhary v. Commissioner of Income-tax [1957] 31 I.T.R. 226. Mr. Joshi's alternative contention is that till the legacies are assented to by executors expressly or by necessary implication either by handing over the properties to the legatees or by setting apart properties for being handed over t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the estate" and the exemption was claimed under section 4(3)(i). When we turn to section 4(3)(i) it becomes clear that the exemption is claimable only when it is urged that property is held under trust or legal obligation and not merely when the income of the property is held under trust or under legal obligation. The word "it" refers to estate and not to the word income. No doubt is however left when we turn to the appellate order of the Tribunal which is annexure "C" to the statement of the case. We find that the contention raised was that the 1/3rd share in the property was held under trust. This aspect of the case the Tribunal dealt with in paragraphs 12 and 13 of its order and the material observations of the Tribunal are as under: "Thus, the position is clear that until the estate is fully administered, i.e., all the expenses have been discharged and the legacies have been paid off, there can be no ascertainment of the residue. We have already quoted a portion of paragraph 5 of the plaint wherein the executors themselves stated that there were certain liabilities....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ated for application of the income to the purposes mentioned in clause 12 of the will. In our opinion, therefore, on the construction of the will, it appears that the trust in respect of the Hubli factories comes into existence on the ascertainment that its income is not required for payment of legacies". We then examined clause 14 of the will under which, according to us, a trust has been created. We further observed that "this construction finds further support from the language of clause 14 and in our opinion the trust is really created by clause 14 of the will. In this clause she has directed that as to whatever property there may be left belonging to her, she gave all that to her trustees for being utilised for charitable purposes mentioned in clause 12 above. Had she by clause 12 created a trust in respect of the Hubli factory as from her death, clause 12 would have been couched in different language. Clause 14 in that case would have been restricted to properties other than the Hubli factories mentioned in clause 12. Such, however, is not the case. Clause 14 relates to all her property, that is, left after the expenses mentioned in the will have been incurred and the legacie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bsp; "After paying and providing for my funeral expenses and the expenses of obtaining probate if probate is taken out and debts, if any, I direct that my executors and trustees shall set apart 1/3rd of my remaining property estate and effects movable and immovable whatsoever and wheresoever situate and I dispose of the said 1/3rd as follows:" Then follow sub-clauses (a) to (g). It may be stated that we have already stated the findings of the Tribunal in respect of the said sub-clauses (a) to (g). It is further necessary to mention that in sub-clauses (g) there is no disposition of property. On the other hand that sub-clauses only relates to what should be done after the bequests mentioned in sub-clauses (a) to (f) are carried out. Sub-clause (g) is in the following terms: "After meeting and providing for the aforesaid legacies bequests and dispositions given or made in sub-clauses (a) to (f) above the rest and residue which may remain of the said 1/3rd of my property estates and effects movable and immovable shall fall into and form....
X X X X Extracts X X X X
X X X X Extracts X X X X
....disposing powers, it is apparent that he has created the trust of the entire property over which he had disposing power. It is also clear that the persons whom he appointed executors were also appointed by him as trustees for giving effect to the trust which he intended to create by the will. The question next that arises is at what point of time the trust, which the testator intended to create of 1/3rd share of his property, had come into existence under the provisions of the will. It would be seen that according to clause 4 of the will all that is required to be done prior to setting apart 1/3rd property is to defray the funeral expenses, expenses for obtaining probate if probate was required to be taken out and the discharge of the debts, if any. When these things are done under clause 4 of the will, then the trust would come into being. We have already referred to the trust envisaged under clause 4 of the will. Now the testator died on November 6, 1946. We are here concerned with the period April 1, 1947, to March 31, 1948, and onwards. It could hardly be said that any funeral expenses had to be incurred in these assessment years. The testator was dead about 4 or 5 months prior....
X X X X Extracts X X X X
X X X X Extracts X X X X
....till has remained to be divided and there is a dispute about it. One-third share in the testator's property is of considerable value and would be sufficient to carry out the dispositions made by the testator in paragraph 4 of the will. No doubt, the plaint mentions that certain obligations have to be met but neither the Income-tax Officer nor the Tribunal has stated the extent thereof. Mr. Kolah in the course of his argument has mentioned that only a few electricity bills, sundry bills, etc., had to be paid at the time the plaint was filed and there was no indebtedness in its real sense. These being the circumstances, in our opinion, the mere fact that there were some liabilities to be met would not come in the way of bringing into existence the trust as envisaged by clause 4 of the will. We refer here to a decision in Commissioner of Income-tax v. Estate of Late Sri T. Ramaswami Pillai [1962] 46 I.T.R. 666 in which it has been held that there is no invariable rule that an executor cannot shed his character as an executor and assume the character of a trustee under the will, before all the debts are discharged and legacies are paid; he can vest the property in legatees with mut....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pally this dispute that had brought the matter to the court. The plaintiffs have stated in the plaint that this position having been reached, they would be now executing the regular conveyance to put on proper footing the directions given by the testator in paragraph 4 of the will. Recitals in paragraph 6 of the plaint in this respect are in the following terms: "There is no dispute however as regards the amounts directed by the testator to be set apart and/or utilised for charitable purposes and the plaintiffs propose to put the said directions as regards application of the moneys for charitable purposes on a proper footing by having regular declaration or declarations of trust prepared with plaintiffs as trustees." From the aforesaid circumstances and these recitals in the plaint, there can hardly be any doubt that the executors had assented to hold 1/3rd property for the benefit of the legatees or beneficiaries under sub-clauses (a) to (f) of clause 4 of the will, prior to the date the plaint had been filed in the court. It would be seen that the plaint was filed in court....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e not allocated for this purpose. In other words, the argument is that it cannot be said with certainty that any particular property is held under trust for the said purpose and, therefore, no trust has come into existence. No doubt, 1/3rd share has not been partitioned and separated as such. But having known what the property is, there is no difficulty in knowing what its 1/3rd share is. It is a well-known principle ; that what can be ascertained is certain. In our opinion, it is not, in the circumstances of the case, possible to hold that there is any uncertainty about the trust property. It is indeed true that the executors had not executed a regular trust deed for the purpose of giving effect to the directions given by the testator in paragraph 4 of the will. Assuming that this factor would come in the way of bringing into existence of a fullfledged trust, there can hardly be any doubt that the executors having assented to hold 1/3rd share in the property vesting the benefits thereof in the beneficiaries, were holding it under a legal obligation to give effect to the dispositions mentioned in subclauses (a) to (f) of clause 4 of the will. The next question that arises is whe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the use of the hall to the members of other communities for the said purpose on paying certain charges. However, if there be days on which the hall is free, i.e., not having been given either to the members of the Jamat or to the members of other communities, then his son, Hajee Cassum Joosub, during his lifetime and after his death his nearest male descendants whether lineal or collateral were permitted to use the hall on permission being granted to them for use by the trustees. The clause further directs that if however again the use of the hall is required by any of the Jamats, then the Hajee Cassum Joosub or his male descendants must forthwith vacate the hall. On account of the aforesaid limited use of the hall granted to Hajee Cassum Joosub and his male descendants, the Tribunal held that the purpose of sub-clause (d) was not entirely charitable. The Tribunal noticed that under a scheme framed by the High Court the said terms of the aforesaid trust deed of October 8, 1894, were varied. The scheme framed by the High Court took effect from October 17, 1950. The Tribunal held that from the date of the scheme framed by the High Court it could be hardly said that the purpose of sub....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ar bequest to the Kajipura Trust of an ascertained item of the property of the testator. Mr. Joshi in the course of his argument conceded before us that it could be said that this item of the property was held in trust by the executors for charitable purposes. In view of this, it is not necessary to deal in detail with the finding of the Tribunal that the purpose of sub-clause (f) was not wholly charitable till 1950, i.e., till the date on which the High Court framed a scheme. The result thus is that the dispositions made in sub-clauses (a) to (f) of clause 4 of the will are of a religious or charitable nature. It is next contended by Mr. Joshi that having regard to the admissions made by the executors themselves in the plaint, it cannot be said that the entire 1/3rd property was held by the trustees under a trust or legal obligation the purpose of which was exclusively religious or charitable. Now the argument is founded on certain admissions made in the plaint filed by some of the executors in this court. Those admissions are that the property has been valued by independent valuers and on the valuation made by the valuers, and as also according to the view of the plaintiffs, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ceived by the executors. The private receivers were appointed by the court on July 15, 1949. Even the private receivers had not received the entire income of the assessment year 1950-51. The private receivers had received part of the income of the accounting year relevant to the assessment year 1950-51. The private receivers were removed on June 30, 1950, and that was after the close of the relevant previous year relating to the assessment year 1950-51. The court receiver had not received any part of the income in any one of these three years. The assessment of the court receiver is under section 41 of the Act. Now the question to be considered is whether on the facts on record the income of these three years could be assessed in the hands of the court receiver. The argument of Mr. Kolah is that under the scheme of the Indian Income-tax Act as well as on the terms of section 41, under which the court receiver has been assessed, the person who could be assessed is only the person who has received the income. The person who has not received the income is not liable to be assessed save and except cases provided under section 24B of the Indian Income-tax Act. There is no provision in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....no application to the facts of the present case, and the reasons given by the Tribunal are in the following terms: "In that case the residuary legatee applied to the court for appointment of a receiver in place of the executors appointed under the law. Therefore, in such a case it is the executors who were divested of their duties and the receiver came on the scene. It was, therefore, possible to successfully contend that there was no relationship between the receiver and the executors and that the assessment proceedings taken against the executors could not be continued in their hands. In this case, the appointment of joint receivers was made in 1949 only at the instance of the executors and, therefore, there was continuation of the personality of the executors." It is difficult to agree with this line of reasoning of the Tribunal, and indeed this line of reasoning has not been supported by Mr. Joshi before us. It is difficult to assume that if a receiver is appointed at the instance of the executor himself then that receiver has a continuation of the personality of the executors. It i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt to the assessment year or was a person who was entitled to receive the income in that year. Assuming that there is any continuity in the office of the receiver, it is difficult to say that a receiver for the time being in office is the person who has received the income or was entitled to receive the income in the year in which he was not in office. It must be noticed that the liability imposed by section 41 is on "such receiver", i.e., the receiver who had received or was entitled to receive income, profits and gains in the relevant year. Had the legislature intended to fasten the liability to be assessed on a receiver who was in office at the time of the assessment, the section would have been differently worded. To accept the contention of Mr. Joshi, in our opinion, would involve violence to the language used in section 41 of the Act. Turning to the general scheme of the Income-tax Act enacted in the charging sections 3 and 4 and the sections relating to the filing of return and assessment, i.e., sections 22 and 23, it is apparent that the tax is imposed on the different units of assessment in relation to his or its income, profits and gains, as the case may be, received by h....