TMI Blog1973 (4) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... properties. He died on June 14, 1937, leaving behind him his only son Pichai alias Shanmugasundaram. The deceased had executed a will on 4th March, 1936, under which the following persons have been appointed as executors : 1. M. Tirumani Mudaliar 2. P. N. V. Palaniappan 3. P. M. P. Muthukumarappa Mudaliar 4. Veerabhadra Mudaliar 5. S. Palaniappa 6. S. R. Veerappan The will, after providing for certain specific legacies, directed the executors to devide and distribute equally the residue among the aurasa of Pichai living at the time of his death. Up to the assessment year 1959-60 income-tax assessments had been made on the executors, hereinafter referred to as the assessees, in the status of an " association of persons ". In respect of the assessment years 1957-58 to 1961-62, a notice under section 14(2) of the Wealth-tax Act, hereinafter referred to as the Act, was served on the assessees, calling for a return of wealth. A return was duly filed by them in respect of each of the said years declaring that there was no net wealth chargeable to tax under the Act as the executors constituted an association of persons, that an association of persons was not a " person " wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal reference was made to the series of income-tax assessments made on the executors in the status of an association of persons in support of their case that their status should be taken as an association of persons also under the Wealth-tax Act. They also referred to clause 20 of the will which provided for the ultimate distribution of the estate to the residuary legatees on the death of Pichai and argued that the residuary legatees could not be known until the death of Pichai and, therefore, the executorial function had not come to an end and that as such they cannot be treated as trustees functioning as a group of individuals. The revenue had contended that the executors in the circumstances of the case have shed their character as executors and they have become merely trustees, that the residue being readily ascertainable, the postponing of the distribution of the estate until after the death of Pichai cannot justify the continuance of the executors' function, and that even though they continued to function, they should be treated only as trustees. It was also contended by the revenue that the executors being the legal owners of the property, they were liable to be charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 of the Wealth-tax Act, 1957, was, therefore, valid in so far as it purports to levy wealth-tax in respect of the net wealth of a group of individuals such as a Hindu undivided family. The main contention in that case was that the word " individuals " in entry 86 meant only individuals and not a group or groups of individuals. The Supreme Court, however, construed the word " individuals " as including a group of persons forming a unit. In the second case, the Supreme Court has construed the word " individuals " occurring in section 3 of the Wealth-tax Act and held that it would include individuals, and that the trustees of the trust as a group of individuals constituted an assessable unit under the Act. The third question is, therefore, answered accordingly. The second question, however, has to be answered in the negative and in favour of the assessee. The Wealth-tax Officer proceeded on the basis that the administration of the estate has not come to an end and that, therefore, the assessees continued to be executors during the assessment years in question. It is only the Appellate Assistant Commissioner who held that the assessees have completed all the executorial functions l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties of an executorial nature were also entrusted to them. Before discharging all the duties the said two persons filed returns as trustees stating that they had ceased to be executors and claiming that as the trust was wholly for religious and charitable purposes, the income from the properties was exempt from taxation. The revenue took the view that as the debts had not been fully discharged, they could be assessed only as executors and not as trustees under section 41 of the Income-tax Act and that the income was not exempt from tax. On those facts the court held that there is no invariable rule that an executor cannot shed his character as an executor and assume the character of a trustee before all the debts are discharged and legacies paid, and that it is open to an executor to vest the peoperty in the legatees with mutual consent and hold the legacies as a trustee even before all the debts are discharged. In that case the court held that the legacy had been ascertained and the executors have assented to vest the properties in the legatees. The difference between an executor and a trustee is that an executor is the representative of the testator for all purposes while a tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e estate amounting to Rs. 9 lakhs and odd. In the financial year ending 31st October, 1959, i.e., the assessment year 1960-61, the executors were assessed by pay wealth-tax in respect of the estate of the deceased and there was no dispute between the parties as regards that assessment. But the executors were called upon to submit a return under the Wealth-tax Act for the financial year ending 31st October, 1960, i.e., the assessment year 1961-62, by issuing a notice under section 14(2). The executors challenged the validity of that notice. The court held that, apart from section 19, there is no other provision which would bring the executors within the charging section, that section 19 will apply only to the financial year in which the assessee died and that, therefore, the executors cannot be made liable to wealth-tax for the subsequent years in respect of the estate which is administered by them under the terms of the will. The court said : " It appears to us that on a true construction of the provisions of section 3 read with the definitions of the various phrases which we have referred to above and also read with the provisions in sections 4 and 5 relating to ascertainment an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a deceased individual which continues in the hands of the executors. In Commissioner of Income-tax v. Amarchand N. Shroff, the Supreme Court, while construing section 24B of the Income-tax Act which is similar to section 19(2) of the Wealth-tax Act, expressed as follows : " Income-tax is exigible in reference to a person's total income of the previous year......... The assessee under the Act has ordinarily to be a living person and cannot be a dead person because his legal personality ceases on his death. By section 24B the legal personality of a deceased assessee is extended for the duration of the entire previous year in the course of which he died and, therefore, the income received by him before his death and that received by his heirs and legal representatives after his death but in that previous year becomes assessable to income-tax in the relevant assessment year ...... Any income received in the year subsequent to the previous or the account year cannot be called income received by the person deceased. The provisions of section 24B do not extend to tax liability of the estate of a deceased person beyond the previous or the account year in which that person dies ...... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable, if he had not died, may be assessed or determined, and collected from the estate in the hands of the legal representative." Mr. Balasubrahmanyan for the revenue does not seek to rely on section 19 for the purpose of supporting the assessment in this case. What he contends is that the above decisions cannot be taken to lay down the proposition that the charge under section 3 cannot be imposed on the executor directly as a person possessing wealth, that therefore, even without the aid of section 19, a levy under the Wealth-tax Act on the executor is justified under section 3 and that an executor has to be treated as an individual in view of the decision of the Supreme Court in Gordhandas Govindram Family Charity Trust v. Commissioner of Income-tax already referred to. The revenue does not dispute the fact that wealth-tax is payable only by an individual who owns wealth in respect of which tax is made payable. But it is said that as the entire property of the deceased had vested in the executors in this case, they as a group of individuals could be assessed under section 3 in respect of the property which had vested in them. Section 3 of the Act imposes a charge to wealth- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply to the said premises. Mere possession and enjoyment of the superstructure by the chief tenant was held insufficient to claim legal ownership of the same. This decision in fact supports the assessee's stand that though the property had vested in them, it did not belong to them. The following observations of Lord Macnaghten in Heritable Reversionary Company v. Millar is quite instructive : " The words 'property' and 'belonging to' are not technical words in the law of Scotland. They are to be understood, I think, in their ordinary signification. They are in fact convertible terms; you can hardly explain the one except by using the other. A man's property is that which is his own, that which belongs to him. What belongs to him is his property. " The learned counsel for the revenue relies on the following observations of Lord Esher M. R. in In re Millar : Ex parte Official Receiver : " The phrase 'belonging to the society' in the Friendly Societies Act, 1875, section 15(7) (repealed) which gave protection to a registered society upon the bankruptcy of any of its officers having in his possession, by virtue of his office, any money or property, 'belonging to the society', ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficiaries cannot claim a share of the residue of the estate until it is ascertained either in whole or in part and transferred to them, and that prior to such ascertainment of the residue the income from the residuary estate continues to be that of the executors and that it was not received by them as trustees on behalf of the residuary beneficiaries. It is true that in that case the income from the estate in charge of the Administrator-General was treated as income and assessed as such under the Income-tax Act, but that is for the reason that the tax is levied on the income of a person and the Administrator-General as an individual received income from the estate in his charge. But the same principle is not applicable in relation to the Wealth-tax Act as wealth-tax is levied on a person who owns wealth and not on persons who merely possess wealth of another person or persons for specific purposes. The executors as such can never claim any beneficial interest in the property in their charge. Though in law an executor possesses almost all the rights of an owner, he cannot take the place of the owner, for the property or its income can never be enjoyed absolutely by him for his own i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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