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

2. The facts and circumstances referred to are set out in the statement of the case by the Appellate Tribunal and are as follows. One Raja Profulla Nath Tagore died on July 2, 1938, leaving an elaborate Will dated March 14, 1927, by which certain legacies were left to specified persons and institutions, the residue being given to five sons. The residue was disposed of thus by clause 81 of the Will :"Save and except the legacies that I have provided for in this my present Will and save my garden house at Allambazar Tagore Villa together with articles of furniture I give to my sons all my remaining moveable and immoveable properties that will be left and also the moveable and immoveable properties whereto my right will accrue in future. Subject to the management and payment of these several trusts (Debutter, etc.) and the legacies that I have created or I have directed the, creation thereof in this Will my sons shall continue to hold and enjoy all the said moveable and immoveable properties.The facts and circumstances referred to are set out in the statement of the case by the Appellate Tribunal and are as follows. One Raja Profulla Nath Tagore died on July 2, 1938, leaving an elaborate Will dated March 14, 1927, by which certain legacies were left to specified persons and institutions, the residue being given to five sons. The residue was disposed of thus by clause 81 of the Will :"Save and except the legacies that I have provided for in this my present Will and save my garden house at Allambazar Tagore Villa together with articles of furniture I give to my sons all my remaining moveable and immoveable properties that will be left and also the moveable and immoveable properties whereto my right will accrue in future. Subject to the management and payment of these several trusts (Debutter, etc.) and the legacies that I have created or I have directed the, creation thereof in this Will my sons shall continue to hold and enjoy all the said moveable and immoveable properties.Clause 10 of the said Will provided for the payment of the legacies thus:"The legacies fixed in this my present Will shall have to be paid in full within 15 years of my death and these 15 years my Estate shall be managed under the supervision of my Executors and Trustees. As to the various legacies that I have made a mention of this my Will, my Executors and Trustees shall pay up all the said legacies out of the small savings made from the income of my Estate year after year. For paying up the legacies my Executors and Trustees shall not be competent to sell any portion of my Estate or any immoveable property. As to what I have arranged to pay to the different parties, in this my present Will, my Executors and Trustees shall not pay any interest on those legacies nor shall the legatees be competent to claim any interest."4. It is not necessary to set out the other clauses of the Will, but we may mention that there were numerous legacies which had to be paid before the residue could be ascertained.5. Probate of the Will was granted to the said five sons on August 24, 1938, but by an order dated May 10, 1948,the High Court appointed the Administrator General of West Bengal as Administrator and ordered that letters of administration de bonis non of the property and credits of the deceased (Raja Profulla Nath Tagore) with a Copy of the Will annexed thereto be granted and issued out.6. The Administrator General of West Bengal, hereinafter referred to as the Appellant, submitted returns in respect of the Assessment Years2, the accounting years being(1356 B.S.) and(1357 B.S.), showing income of Rs. 36,611 for the first year and Rs. 39,630 for the second year. He claimed that the income was specifically receivable on behalf of the said five sons of the deceased, and their shares in the said income were definite and determinate. Thed the claim for the Assessment Yearon the ground that "the Administrator General of West Bengal is only an executor of the estate of Raja P. N. Tagore and that the execution is not yet complete. Under the circumstances the question of the beneficiaries does not arise and the Administrator General himself is assessable as Executor to estate P. N. Tagore". He passed a similar order in respect of Assessment YearAppellate Assistant Commissioner upheld the orders of theOfficer. Following the principles laid down in the decisions in V. M. Raghavalu Naidu and Sons v. Commr. ofand Excess Profits Tax, Madras,ITR 787 : (AIR 1950 Mad 790  ) and Asit Kumar Ghose v. Commissioner of AgriculturalITR 177 (Cal), he held that the "levy of tax on the separate individual incomes of the beneficiaries can be made only when the administration of the estate has been completed and the residue of the estate has been ascertained." It was conceded before him that the administration of the estate was not completed till the end of the accounting yearThe Appellate Tribunal also rejected the contention. It held that :"It is the condition of the application of this section (S. 41) that the Administrator General of West Bengal shall receive the income on behalf of the beneficiaries. We have held that having regard to S. 211 of the Indian Succession Act the Administrator General of West Bengal receives it as legal representative of the deceased person and not on behalf of the beneficiaries. The latter he can do only if the administration of the estate is complete or if there are specific directions to that effect. The proviso goes further and enacts that when such income is not specifically receivable on behalf of one person or where the individual share of the person on whose behalf it was receivable is indeterminate or unknown, tax shall be levied and recoverable in the maximum rate. There is no doubt in this case that the Administrator General of West Bengal is not receiving the income specifically on behalf of any beneficiary. Further there are certain benefactions and payment in their very nature involving the share income of the beneficiaries being indeterminate or unknown. So truly speaking the tax must be levied in the maximum rate. But the assesses is not entitled to claim that the income of the beneficiaries must be separately assessed and not together in the hands of the Administrator General of West Bengal."7. Then the Appellate Tribunal on the application of the Appellant, referred the two questions reproduced above. The High Court held that"the Administrative General when appointed by the Court is expressly covered by the section ( S. 41) and it cannot be said that because he has the powers of an executor he must be treated differently."It further held that"the income from the properties did not so long as administration was incomplete become theirs. It cannot, therefore, be said of the sons that they had any determinate share in the profits or gains of the estate or any part thereof in the accounting years. The proviso to S. 41 (1) is, therefore, attracted on the facts of this case, making the tax recoverable at the maximum rate."

Court's reasoning:
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.