TMI Blog1964 (4) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... antially 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 Rustomji Dhanjishaw Dallas, party No. 2 abovenamed, declined to act as an executor. The other four persons named above entered upon their duties as executors on the demise of the testator. The will is unprobated. 4. Disputes and differences appear to have arisen amon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 arises thus: One Haji Alimohamed Haji Cassum owned extensive properties. He died testate on November 6, 1946, having made a will of date November 30, 1944. We would later advert to the various clauses of this will. Suffice it to say that by the said will he left 1/3rd share of his property to certain charities. By the said will also he appointed, (1) his wife Bai Fatmabai,(2) Rustomji Dhanjishaw Dallas, (3) Navroji Merwanj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat still remain to be distributed or divided are of over ₹ 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 plaintiffs as trustees. Under these circumstances the plaintiffs felt and were advised that it would be in the interest of all the parties and a saving of considerable sum of moneys to the estate and consequently also to charity if the estate is administered by and under the directions of this court and a receiver is appointed with power to sell the remaining properties and to divide the net estate divisible among th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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(3)(i) of the Act on the ground that the said share of the estate, namely 1/3rd, was held for charitable purposes. Thus, according to the court receiver, out of the total income arrived at for the three years the 1/3 part thereof was exempt from taxation under section 4(3)(i) of the Act. The exemption claimed was in respect of amounts ₹ 57,512, ₹ 57,113 and ₹ 51,922 respectively in the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 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 Act? When the reference came for hearing before us, we felt some difficulty in answering the second question, because the Tribunal had not recorded its finding on the question as to whether the legacies mentioned in sub-clauses (a) to (g) of clause 4 of the will, or any one or more of them, were for religious or charitable purposes within the meaning of section 4(3)(i) of the Act. We, therefore, directed the Tribunal to submit a supplemental statement of the case regarding its finding on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 to the legatees, it cannot be said that the executor is holding a property under trust or under legal obligation. According to Mr. Joshi that state is reached only when the administration is complete and the properties allotted to the respective legatees are ascertained. Mr. Joshi further argues that the will directs the executors to set apart 1/3rd property, to carry out the directions given by the testator in sub-clauses (a) to (g) of paragraph or clause 4 of the will. That setting apart i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the estate which had to be met and outstandings to be recovered. We have also already extracted the relevant passage from the written statement filed by the Advocate-General of Bombay. These, read with paragraph 4 of the will--on which the claim for exemption under section 4(3)(i) is founded--show that during the material time, the administration of the estate was not complete and no trust or other legal obligation had emerged. No material was placed before us to show that the administration was complete and that a trust or legal obligation in the nature of trust had come into existence. In the absence of any such material, we are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 legacies mentioned therein have been paid. The trust for charitable and religious purposes, in our opinion, therefore, comes into existence on the conclusion of the administration of the estate, i.e., after all the expenses have been incurred and the legacies mentioned in the will had been paid or at the most at the point of time when it is ascertained that the funds in the hands of the executors were sufficient to carry out the bequests made in the will . It would be seen that our finding in that case that the trust did not emerge till the administration was complete was in the context of the facts of that case and not as a general proposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 part of the remaining 2/3rd of my estate and effects to be divided and distributed among my heirs according to Sunni Mohamedan Law..... It would be seen that the scheme of clause 4 of the will, in brief, is: First, to pay the funeral expenses, expenses for obtaining a probate and debts, if any, and then to set apart 1/3rd of the remaining property for carrying out certain dispositions mentioned in sub-clauses (a) to (f) of clause 4 of the will. If, after meeting and providing for these dispositions out of the 1/3rd property any is left, then that residue has to go to his heirs as would the remaining 2/3rd property. Clause 5 of the will deals with what is to happen if 1/3rd share is not sufficient to carry out the dispositions made by the testator in sub-clauses (a) to (f) of clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause 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 to the commencement of the first accounting period itself. It has also not been found that in the assessment years any amount had to be paid by way of funeral expenses in respect of the testator. It has been found as a fact that no probate has been taken. There was obviously no expense. The expression debts if any indicates that, on the date the testator was making the will, he was not in debt. He has not made any mention of his indebtedness. However, a provision has been made for the payment of debts, if at all it happened that he has some debts to pay. It has not been found as a fact by the Tribunal that there was any liability or any debts worth the name which had remained to be paid which would affect the position of bringing into existence of a trust under clause 4 of the will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 mutual consent and hold the legacies as a trustee even before all the debts are discharged. The question that next arises is whether the executors in the present case had shed their character as executors and assumed the character of the trustees under the will. In other words, whether the executors were holding a 1/3rd share of the property as trustees for carrying out the dispositions made by the testator in clause 4(a) to (f) of the will, or, at any rate, were holding 1/3rd share in the property under legal obligation to carry out the dispositions of the testator in sub-clauses (a) to (f) of clause 4 of the will. In our opinion, the test in each case is to find out whether the executors have assented to hold a property for the benefit of the beneficiaries. In other words, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces 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 on 7th October, 1947, prior to the completion of the relevant accounting year to the first assessment year 1948-49. There is also another circumstance in the case that gives support to this inference and, that is, the executors had kept in their hands only the 1/3rd share of the income. The remaining 2/3rd income was distributed by the executors to the heirs in accordance with their respective shares, and the order of the Income-tax Officer which has been filed shows that it is the heirs who had been taxed in respect of that income and not the court receiver. The order further mentions that the 1/3rd income in the hands of the executors was held by them for charity. Annexure F is the preliminary decree made by this court in the aforesaid Suit No. 3415 of 1947. The decree directs the taking of certain accounts by the Commissioner for taking accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 whether the purposes mentioned in sub-clauses (a) to (f) of clause 4 of the will are religious or charitable purposes. Sub-clause (a) of clause 4 directs the executors and trustees to spend or cause to be spent up to ₹ 10,000 in reciting fatiahs and giving feasts, etc. The Tribunal has found the purpose of sub-clause (a) to be religious and there is no dispute about it. Sub-clause (b) directs the trustees to establish a lying-in hospital for poor Mohamedans and a dispensary at a cost of about ₹ 5 lakhs. The Tribunal has found this purpose to be charitable and for the benefit of the public. There is no dispute about it. Sub-clause (c) directs ₹ 1,00,000 to be given to the trustees of the orphanage established by the testator's father. The Tribunal has found the said purpose as charitable and there is no dispute about it. Sub-clause (d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-clause (d) as varied by the High Court was not exclusively charitable, but till that date the purpose was not wholly charitable. Mr. Kolah contends that having regard to the terms of the trust deed dated October 8, 1894, the Tribunal was not justified in holding that even prior to October 7, 1950, the purpose of sub-clause (d) was not entirely charitable. There is considerable force in the contention of Mr. Kolah. It is indeed true that under certain circumstances and conditions, Hajee Cassum Joosub and his male descendants were allowed to use the hall. They were not members of the public but then it has to be noticed that the use of the hall granted to them was a very limited one and that was only when the hall was not wanted either by the members of any Jamat or members of any other community for the purposes of holding religious ceremonies and marriages, etc. In other words, the use granted to these p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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, the 1/3rd of the estate left by the testator would considerably exceed in value the payments directed to be made and set apart for charitable purposes by the testator in his will. The value of the entire estate would be about ₹ 35 lakhs. Property worth about ₹ 15 lakhs has been allotted to the various heirs in accordance with their respective shares and property worth over ₹ 12 lakhs has still remained to be distributed. The value of 1/3rd of the entire estate comes to about ₹ 11 or 12 lakhs approximately. According to Mr. Joshi, to give effect to the disposition mentioned in sub-clauses (a) to (f) of clause 4 of the will, property worth not more than ₹ 9? lakhs or ₹ 10 lakhs would be required, and the remaining property, namely, property to the extent of about ₹ 2 lakhs out of the said 1/3rd share cannot be said to be held in trust for religious or charitable purposes. There is some force in this contention. The matter however will have to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed 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 the Indian Income-tax Act which enables an Income-tax Officer to assess the receiver, who is for the time being in office, in respect of the income received by a person who was receiver in office during the relevant accounting year. Mr. Kolah in support of his contention has placed reliance on a decision in Asit Kumar Ghose v. Commissioner of Agricultural Income-tax [1952] 22 I.T.R. 177. Mr. Joshi on the other hand contends that there is a continuity in the office of the receivership. Receiver is an officer of the court. The incumbents of the office may change but the office of receivership has a continuity, whosoever may be its incumbent. The court receiver was therefore liable to tax in respect of the aforesaid three assessment years. The argument advanced by Mr. Joshi can hardly be of any assistance to the revenue, at least in respect of the income of the first two assessment years which had been received not by the private receivers but by the execut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ume 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 is indeed true that, in the instant case, the plaintiffs who were executors had applied for appointment of a receiver. But on appointment of the receiver at their instance it cannot be said that the receiver had become the plaintiff. The property is held by the private receivers in order to safeguard it and to make it available to such party as the court may direct or for such purpose as the court may direct. In the circumstances, the line of reasoning adopted by the Tribunal cannot be accepted and this disposes of the reference relating to the first two assessment years. Turning to the third assessment year, we have already stated that the income in respect of this year, namely, 1950-51, was partly received by the private receivers and the court receiver was appointed after the completion of the accounting year. The statement of the case shows that by an order made by the court on June 30, 1950, the private receivers were removed from the office of the receivership and instead the court receiver was appointed. In other words, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to his or its income, profits and gains, as the case may be, received by him or it, during the previous year relevant to the assessment year. The units of assessment are as follows: (i) individual, (ii) Hindu undivided family, (iii) company, (iv) local authority, (v) firm itself or the partners of the firm individually, (vi) other association of persons or the members of the association in- dividually. The word individual has been held to be wide enough to include a group of persons forming a unit and includes a corporation created by a statute. Private receivers appointed by the court and the court receiver do not fall under any of the aforesaid units except individual . If that be the true position, it is clear that the private receivers and the court receiver are not the same entity. If even there be any continuity in the office of receiver, there is no identity established to shift the liability of the private receiver on the court receiver. The scheme of sections 22 and 23 is also that the unit of assessment that has received income that is chargeable to tax has the liability to file a return, and powers are given to the Income- tax Officer to iss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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