Case: Administrator-General of West Bengal Vs. Commissioner of Income Tax, Calcutta

? 332 Os. 7d., as being Income-tax on income payable to the Association and applicable, and in fact applied, by it solely for charitable purposes. The application being unsuccessful, the Secretary of the Association applied for and obtained a rule nisi calling upon the Special Commissioners of Income-tax to show cause why a writ of mandamus should not issue to them commanding them to allow exemption from income-tax on the income in question and to repay the sum of ? 332 Os. 7d."14. The House of Lords held, inter alia, following the decision in Lord Sudeley v. Attorney-General, 1897 AC 11, that"prior to the ascertainment of the residue, the Association as residuary legatee had no interest in the Testators property, that the taxed income of the estate prior to such ascertainment was income of the Executors, and that it was not received by them as trustees on behalf of the Association."15. In the Court of Appeal the Master of Rolls observed that"the income that they were receiving in the meantime was income which they were receiving not on behalf of themselves as executors for application in the due administration of the estate. "16. Viscount Finlay observed as follows :"It appears to me that the present case is really decided by the decision of this House in Lord Sudeleys case [(1897) A.C. 11]. It was pointed out in that case that the legatee of a share in a residue has no interest in any of the property of the testator until the residue has been ascertained. His right is to have the estate property administered and applied for his benefit when the administration is complete. The income from which this Income-tax was deducted was not the income of the charity. It was the income of the executors. They were, of course, bound to apply it in due course of administration, but they were not trustees of any part of it for the charity. There had been no creation of a trust in favour of the charity in respect of this income, it was never paid over to the charity as income. What was ultimately paid over on the close of the administration was the share of the whole estate, consisting of capital and accumulated income, which fell to the charity. The executors, not the charity, were the recipients of this income, and there is no relation back in the case of the bequest of a residue. If no right of deduction at the source had existed it is the executors and the executors only who could have been made liable for the tax."17. Viscount Cave put the point thus :"When the personal estate of a testator has been fully administered by his executors and the net residue ascertained, the residuary legatee is entitled to have the residue as so ascertained, with any accrued income, transferred and paid to him; but until that time he has no property in any specific investment forming part of the estate or in the income from any such investment, and both corpus and income are the property of the executors, and are applicable by them as a mixed fund for the purposes of administration. This was fully explained in (1897) A.C. JJ."18. Subsequent cases such as the Maria Celeste Samaritan Society of the London Hospital v. Commissioner of Inland Reveune, (1927) 11 Tax Cas 226 and Corbett v. Commissioners of Inland Revenue, (1937) 21 Tax Cas 449, have taken the same view. In the latter case, the decision in Dr. Barnardos case was hold to have laid down "a general proposition applicable to all cases of residue which is being ascertained and which cannot be ascertained until the administration is complete."19. Mr. Sastri relied on IN re CunliffeOwen Moutain v. Inland Revenue Commissioner, 1953-1 Ch 546, but, in our opinion, the Court of Appeal has not taken any different view. The Court of Appeal was concerned with the interpretation of S. 27(1) of the Finance Act, 1949, whereby legacy duty was not payable in certain events. It examined the nature of the title of a residuary legatee, and held that"the title of a residuary legatee to a residuary estate remains the same both before and after the completion of the administration, notwithstanding that it is not until it is complete that he can say that any particular asset or any particular income is his, and not merely part of the general estate of the testator."It repelled the argument that pending final administration a residuary legatee has only an expectancy, in the eye of law. But this conclusion does not lead to the next step that an executor or administration receives the income on behalf of the residuary legatee.20. In 1950-18 ITR 787 : (AIR 1950 Mad 790 ), the Madras High Court held that S. 41 of the Act had no application where the administration of the estate had not been completed by the executors.21. The High Court in this case had repelled the argument on behalf of the Revenue that the Administrator-General did not come within the purview of S. 41 of the Act on the ground that "the Administration-General when appointed by the Court is expressly covered by the section and it cannot be said that because he has the powers of an executor, he must be treated differently." In our opinion, the fact that the Administrator-general is expressly mentioned in S. 41 does not conclude the matter. The section prescribes another condition and that is that the income must be received by him up behalf of a person or persons. This condition must be fulfilled before S.41 becomes applicable. The position of an Administrator-General appointed de bonis non is in no way different from that of an executor vis-a-vis the income he receives from the estate.22. Accordingly, we hold that S. 41 of the Act is not applicable in the present case as the appellant received the income on his behalf and not on behalf of the five sons of the deceased Raja.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]11. It seems to us that during the administration of the estate, the appellant did not receive the income on behalf of the five sons. When he received the income, he had a discretion to use it either for paying legacy A or legacy B or for meeting other expenses. If there was a saving in one year, next year he could appropriate it for paying legacy C or D or for meeting other expenses. What the five sons were entitled to was the residue of the estate and any savings that might be out of the income of the estate would be received by them finally, not as their income but as part of the residue.In 1950-18 ITR 787   : (AIR 1950 Mad 790  ), the Madras High Court held that S. 41 of the Act had no application where the administration of the estate had not been completed by the executors.21. The High Court in this case had repelled the argument on behalf of the Revenue that the Administrator-General did not come within the purview of S. 41 of the Act on the ground that "the Administration-General when appointed by the Court is expressly covered by the section and it cannot be said that because he has the powers of an executor, he must be treated differently." In our opinion, the fact that the Administrator-general is expressly mentioned in S. 41 does not conclude the matter. The section prescribes another condition and that is that the income must be received by him up behalf of a person or persons. This condition must be fulfilled before S.41 becomes applicable. The position of an Administrator-General appointed de bonis non is in no way different from that of an executor vis-a-vis the income he receives from the estate.22. Accordingly, we hold that S. 41 of the Act is not applicable in the present case as the appellant received the income on his behalf and not on behalf of the five sons of the deceasedt repelled the argument that pending final administration a residuary legatee has only an expectancy, in the eye of law. But this conclusion does not lead to the next step that an executor or administration receives the income on behalf of the residuary legatee.