AI Drafter 
TaxTMI 
TaxTMI 
1961 (10) TMI 73
X X X X Extracts X X X X
X X X X Extracts X X X X
....annan, and his brother-in-law, T. P. Ramaswamy Pillai, as trustees of his estate. The following are some of the provisions of this will: " After my lifetime after the 10th day funeral rites are over, the aforesaid trustees shall take possession of all my properties, cash on hand and the account books, after taking proper accounts with the assistance of kanakkupillais employed in my office, and do all things in accordance with this will. My son, Sivakumaran, shall safeguard the properties and the account books until then and hand them over to the trustees. The trustees shall not only take possession of the properties given to me by the grace of Lord Thiruvateeswarar and set out in Parts I and II of Schedule A below but shall also treat the properties left out by me by oversight as properties included in this will and take possession of them. In addition to this, the trustees shall take possession of my accounts also, ascertain the profit and loss and deducting the amounts payable according to this will, invest the remaining moneys in Government securities or in buildings which will yield....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ator's estate from September 30, 1948, and accordingly there was no income to be assessed in their hands. 8. The Income-tax Officer rejected the above claim in the following words reproduced from his order for 1950-51: " The assessee's claim cannot be accepted. According to the terms of the will all the properties except jewels and vessels were to be taken under the trust and certain allowance payments were to be made to specified persons and to charities from out of the income of the properties. It is clear, therefore, that the trust is not a specific legatee within the definition in section 142 of the Indian Succession Act, viz., ' where a testator bequeathes to any person a specified part of his property which is distinguished from all other parts of his properties the legacy is said to be specific'. The assessee's wife and son are specific legatees in respect of the jewels and vessels bequeathed to them in paragraphs 14, 15 and 16 of the will. The residue of the estate is bequeathed in trust. Under section 366 of the Indian Succession Act, ' the surplus or residue ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sioner rejected both the above contentions in all the four appeals holding that the testator's estate had not been fully administered so that the executorial functions continued right throughout the various years in question and also that there was no actual mortgage or charge on the properties for the interest claimed. A copy of his consolidated order for all the years is annexed hereunto as annexure " C " and forms part of the case. 13. The assessee thereupon appealed to the Tribunal repeating the same contentions as before the Appellate Assistant Commissioner. In these appeals the Tribunal held in its preliminary order as follows: " No doubt, as stated by the income-tax authorities, the executorial functions must cease as a condition precedent for trusteeship to start, In this case, however, trusteeship in the above facts and in the peculiar circumstances of the case can be said to have started almost immediately the executors obtained probate and all the properties to automatically vest in the trustees, due not only to same identity of the two officers but also due to the fact that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lities for very nearly that amount. One of the principal creditors was the income-tax department itself, which had to be paid nearly Rs. 6,34,018. On April 25, 1948, T.P. Ramaswami Pillai executed a will substantially devoting his properties to a number of religious charities. The will stated that it was the intention of the testator that the charities which he himself was performing during his lifetime and certain other charities should be performed after his death on a permanent basis and for that purpose he appointed two trustees, namely, his son, Sivakumaran, and his brother-in-law, Ramaswamy Pillai. The relevant clauses of the will are these: At present many charities are being performed by me from out of the income of the aforesaid properties. I intent that even after my lifetime the said charities and some other charities besides, should be performed. Those charities are set out below. I appoint the undermentioned persons trustees so that the aforesaid charities may be performed in perpetuity: 1. My son, Selvachiranjeevi Sivakumaran alias Kannappan. 2. His maternal uncle, Ramaswamy Pillai, son of Ponnuswami Pillai." The testator then proceeded to prescribe the su....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The will in form creates a trust in respect of the entire properties owned by the testator for the various purposes aforesaid, some of them for the benefit of his wife and son and his descendants and most of them for the religious and charitable purposes specified therein. Sivakumaran and Ramaswamy Pillai are expressly appointed as trustees for the trust created by the will. Certain duties of an executorial nature, for example, payment of certain specific legacies, payment for the funeral expenses of the testator, are also entrusted to them. The trustees who are appointed under the will for the purpose of the trust created thereunder are also executors by implication. It was on this view that probate was applied for on the original side of this court in respect of the will by Sivakumaran and Ramaswamy Pillai. Probate was duty granted to them and in compliance with the terms of the probate the executors aforesaid filed their accounts for administration from the date of death of the deceased till August 23, 1950, the date up to which accounts were directed to be filed. As we stated earlier, there were considerable debts due by the deceased. A portion of them, however, appears to hav....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o religious or charitable purposes within the meaning of section 4(3)(i) of the Act and how much of it was outside the exemption granted by that section. The Income-tax Officer submitted a report allocating separately the payments made for the charities as well as to the other beneficiaries. After a consideration of the report, the Tribunal held that the whole of the property in question could not be regarded as held in trust as that portion of the income from the properties that had been applied for payments of monthly allowances to the various relations of the deceased would be outside the provisions of section 4(3)(i) of the Act. To the extent of such allowances the income was held assessable. Exemption was granted in respect of the other income which was devoted to the charities. The Income-tax Officer was directed to amend the assessment accordingly. The conclusion of the Tribunal is challenged in this reference by the department on the ground that the estate of the deceased still continues with Sivakumaran and Ramaswamy Pillai in their capacity as executors and that the same had not yet vested in the trustees for the purposes designated under the will. A reading of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roperty. That cannot be done unless the debts are paid and provision made for the periodical payments to the relations of the deceased in conformity with section 343 of the Indian Succession Act. The default in respect of the first would render the ascertainment of the residue impossible and that in regard to the second would show that the administration by the executors was not yet complete. Any assent of the executors for the residuary estate taking effect would therefore be inoperative as the same has not yet been ascertained. Before we deal with the arguments it is necessary to point out that on a construction of the document, Sivakumaran and Ramaswamy Pillai, though designated as trustees of the charities, will be trustees as well for making the monthly payments to the relations, etc. The property is given to them with a burden, namely, of making the payments for the maintenance, etc. That being a specific duty case on them, the property of the testator should be held to vest in them for the purpose of payment to the relations, as also for the performance of charities. The trust is one and single. It cannot be held that a portion of it, namely, the monthly payments to the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rom conveyance, he can, by assent, vest the beneficial interest in the property in the legatee. By assent, it is meant, not an assent to the testator's disposition but a assent to such disposition taking effect, i.e., for vesting the property from the executor in the legatee. It is, therefore, implicit in the term "assent" that the executor is willing to vest the property in the legatee. Normally, an executor, being liable to pay the debts of the deceased, might not be willing to vest the property in the legatee till the debts are paid and the administration is complete. But nothing prevents him in law from so vesting the property even before the debts are paid. But there will, however, be a difference between a specific legacy and the residuary legacy in the matter of assent. The residuary legacy could be ascertained only after payment of the debts, specific legacies, charges, etc. But, in any case, an assent on the part of the executors to the taking effect of the legacy will vest title in the legatee. If after such assent the executor continues in possession of the property bequeathed, he would cease to be an executor and become the trustee for the legatee concerned. In a ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ced the income under discussion in this case." The question in this case is, has that stage been reached? Before answering the question, we have to deal with the two matters in respect of which it is contended the administration is not complete. The first is that so long as the executors have not created a fund for meeting the obligations to the relatives in perpetuity, the administration is not complete. To accept this argument would be that the administration in the instant case can never be completed. The testator has specifically directed that the properties should not be sold and that the payments to his relations as well as the charities should come out of the income from the properties left by him. Such payments being intended to be made for more than one generation the administration, in the sense in which it is contended for on behalf of the department, can never be complete within a reasonable time. Realising this difficulty, Mr. Ranganathan states that the executors can create a fund for meeting the monthly payments under section 343 of the Indian Succession Act by disposing of the property. Section 343 refers to a case of annuities under a will where no charge has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in favour of the residuary legatee in spite of the fact that there were outstanding liabilities of the deceased yet to be discharged came up for consideration in Commissioner of Inland Revenue v. Smith [1930] 1 K.B. 713, where the Court of Appeals held that there was no rule of law that the mere existence of an outstanding mortgage prevented the residue from being ascertained and the executor thereafter giving assent to the legacy in favour of the residuary legatee. In that case the testator directed a sale of his properties after payment of certain legacies and the distribution of the residue amongst his children in equal shares. The estate left by the deceased was subject to certain mortgages of considerable amount. The executors had been making payments to the children of the testator (the residuary legatees) from out of the amounts with them after crediting the share of the income relating to the residuary estate in their favour and debiting the payments made. One of the sons of the testator was assessed to super-tax in respect of the amount received from the executors. It was contended that as the mortgages had not been paid off, there was no ascertainment of the residue and w....