TMI Blog1977 (8) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... on 41(1) of the Indian Income-tax Act, 1922 ?" The question relates to the assessment year 1961-62, for which the accounting year is the financial year 1960-61. One Maganlal Dayabhai died on March 21, 1945, leaving a will executed on July 5, 1943, and leaving him surviving his widow, Savitagouri, two minor sons, Jayendrakumar and Mahendrakumar, and six daughters, three of whom were married. Under the will Savitagouri and four others were appointed as executors and trustees. The deceased left a fairly large estate and the sources of income of the estate were : (1) interest on securities, (2) income from property, (3) dividends, and (4) interest. By the said will the deceased directed the executors by clause 5 thereof to spend certain amounts in connection with his funeral ceremonies, pilgrimage expenses of his wife and children and to pay certain sums to the Lohana Boardings and Lohana Balashram. By clause 6 thereof he directed the executors and trustees to set apart a sum of Rs. 10,000 in trust and to utilise its income for helping the Lohana community and for payment to Anandashram. Certain specific legacies of various amounts were directed to be paid to the various legatees as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her sons. But if the deceased son has not left a wife or children, then the income of his share shall be paid to the other surviving sons in equal shares." The other sub-clauses of clause 9 deal with the rights of the legatees in the immovable property at Dadar, but the said rights are not relevant for consideration for the assessment year with which we are concerned. Clause 10 of the will and its sub-clauses are as under : "10(a) After the dispositions mentioned in paras. 6 to 9 above are carried out, my immovable and movable property which may remain over shall be treated as my residuary estate. Until my aforesaid son, Jayendrakumar, or if I have more than one son, then my youngest son completes the age of 21 years, my executors shall administer the whole of my residuary estate as the trustees of my property and until then my wife, my son or sons and my unmarried daughters shall live together in my bungalow at Rajkot or Malad and the expenses of their maintenance shall be defrayed out of the net income from the property situate on Dadar Road at Bombay, subject to the directions made in para. 9 above. For the maintenance of my aforesaid family and other expenses of (my) family ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a surplus in the income after deduction of the expenses relating to the repairs, etc., of the properties. 11. If and when my aforesaid son, Jayendrakumar, or if I have more than one son, my youngest son completes twenty-one years, they are the absolute owners of my entire residuary estate ; but if at that time, my wife, Savitabai, be alive, and any of my daughters be unmarried, there shall be a charge on my residuary estate for the monthly sums referred to in sub-clauses (b) and (e) of para. 10 and after a separate provision is made for the payment of the monthly sums thus directed to be paid, my trustees shall hand over my residuary estate to my aforesaid son or sons and if there be more sons, the same shall be distributed amongst all in equal shares." If regard be had to the provisions of sub-clause (f) of clause 9 of the will it is quite clear that having regard to the dispositions made by him, his two sons, Jayendrakumar and Mahendrakumar, had a life interest in the Dadar property. However, such life interest was not to commence without other limitations and it was to start after the youngest son, namely, Mahendrakumar, in the present case completed the age of 21 years w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtent as would be leviable upon and recoverable from the persons on whose behalf the income was earned. An alternative contention was urged on behalf of the assessee to the effect that the income from the Dadar property held upon trust should be assessed in the hands of the trustees and the income from the residuary estate in the hands of the executors both separately. It was further contended that the Income-tax Officer erred in clubbing both the incomes and assessing them in the hands of a single assessable unit. The argument was that both the estates were governed by section 41 of the Act as the shares of the beneficiaries in both the cases were known and determinate. Certain cases were also cited in support of this contention. Both these contentions urged on behalf of the assessee were rejected by the Appellate Assistant Commissioner and he agreed with the manner in which both the incomes were assessed by the Income-tax Officer and accordingly upheld the assessment. In a second appeal by the assessee before the Tribunal, the contention on behalf of the assessee was that the income-tax authorities were in error in coming to the conclusion that the income was not earned by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l reference is made to the second proviso to section 41, but that is a mistake for the first proviso. It is from this order of the Tribunal that the above modified question arises for our determination. Mr. Mehta on behalf of the assessee submitted that the taxing authorities and the Tribunal were in error in taking the view that the whole of the balance of the income of the Dadar property after making the payments contemplated in clause 9(e) of the will and the income from the residuary estate have to be taxed in the hands of the trustees and assessed at the maximum rate as contemplated by the first proviso to section 41(1). He submitted that it may be that certain expenditure that may have been incurred by the trustees during the interval prior to September 14, 1964, that is the day on which the younger son, Mahendrakumar, attained the age of 21, may be indeterminate or unknown; still whatever surplus was left was definite and the shares therein were determinate, namely, for the benefit of the two sons, Jayendrakumar and Mahendrakumar. His submission was that the mere fact that certain indefinite expenditure was to be incurred during the relevant accounting year would not empo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indeterminate or unknown. What we have to consider in the present case is, having regard to the various provisions in the will, whether in the relevant accounting year for the assessment year 1961-62, the individual shares of the persons on whose behalf income, profits or gains were receivable by the trustees and executors were indeterminate and unknown. If they were so indeterminate and unknown, then as contemplated by the first proviso, the tax shall be leviable and recoverable at the maximum rate. Having regard to the provisions of the first proviso, what we have to consider in the present case is, are the individual shares of the persons on whose behalf income, profits and gains were receivable by the trustees and executors indeterminate or unknown ? If they were so indeterminate or unknown then tax has to be levied and recovered at the maximum rate. Whether the individual shares of the persons on whose behalf the income, profits and gains are receivable, are indeterminate or unknown will depend upon the provisions of the will for the relevant accounting period. Under the will made by the deceased on July 5, 1943, he gave certain specific pecuniary legacies to various perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f that clause is that until the younger son, ie., Mahendrakumar, attained the age of 21 years, the executors and the trustees were to administer the whole of the residuary estate in the manner as therein directed. The deceased owned a bungalow at Rajkot as well as at Malad and liberty under this clause was given to the wife, sons and unmarried daughters to live together in the bungalow either at Rajkot or at Malad. So far as expenses for maintenance, etc., are concerned, the same were to be defrayed out of the net income of the property situate at Dadar subject to the directions made in clause 9 of the will. The deceased by this clause further directed that for maintenance of the family a sum up to Rs. 650 per month was to be spent. Besides this, the will directed that so far as the administration of the residuary estate continued in the hands of the trustees, even the three married daughters had the right to come and stay with their children at the deceased's place and get their maintenance. If such a choice was made by the married daughters the trustees were under an obligation to accept the claim and to make separate arrangements for their residence in the bungalow at Rajkot. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the question whether in the accounting year 1960-61, the shares of the beneficiaries in the income utilised therefor were determinate or known. No member of the family could insist on a particular specific amount being utilised for his or her maintenance. Similarly, what amount should be set apart for the maintenance of the married daughters and their children was not specified. Thus, till Mahendrakumar attained 21 years, the administration of the trust estate was required to be made in accordance with the provisions contained in clause 10. It is quite clear that it was not possible for any particular beneficiary to say and quantify whether his share was determinate or known. It is, however, urged by Mr. Mehta that it may be that whatever expenditure was required to be incurred under clause 10 of the will may be regarded as indeterminate or unknown, but if there was any surplus, then having regard to the provisions of clause 11 of the will it was to be automatically accumulated and was to be disposed of in the manner contemplated by clause 11 of the will upon Mahendrakumar attaining the age of 21 years. He submitted that so far as this possible surplus was concerned, as the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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