PETITIONER:
NAVNIT LAL SAKAR LAL
Vs.
RESPONDENT:
COMMISSIONER OF INCOME TAX
DATE OF JUDGMENT29/10/1991
BENCH:
RANGNATHAN, S.
BENCH:
RANGNATHAN, S.
RAMASWAMI, V. (J) II
OJHA, N.D. (J)
CITATION:
1992 AIR 466 1991 SCR Supl. (1) 585
1992 SCC (1) 185 JT 1991 (4) 186
1991 SCALE (2)893
ACT:
Income Tax Act, 1961:
Section 168 Income from estate of deceased
person--Properties bequeathed to two grandsons--No executor
named in the will--Son of testator administering the es-
tates--Part of estate duty liability outstanding--Vesting of
properties in the legatees---When takes place---Administra-
tion of estate---Whether complete Half of the income from
estate assessed at the hands of assessee one of the two
legatees--Assessments whether validity made.
HEADNOTE:
The grandfather of the appellant assessee executed a will
in 1956 bequeathing his properties to the assessee and his
brother. The testator died in 1957 and since no executor was
named in the will, his son 'S'describing himself as the
legal representative of the deceased, furnished Income Tax
and Wealth-Tax returns in respect of the estate of the
deceased and he was assessed on the basis of the said re-
turns up to assessment year 1967-68.
In respect of the assessee, the Income Tax Officer took
the view that the estate of the deceased vested in the two
grandsons viz., the assessee and his brother immediately on
the death of the testator, as per the terms of the will. The
Income Tax Officer included half of the income from proper-
ties left behind by the deceased in the total income of the
assessee in respect of assessment years 1963-64 to 1967-68,
rejecting the assessee's contention that the estate was in
the administration of the Executor and the income thereof
had rightly been assessed in the hands of the executor. On
appeal, the Appellate Assistant Commissioner confirmed the
view taken by the Income Tax Officer. However, the Income
Tax Appellate Tribunal took the view that the assessee was
not taxable in respect of any part of the estate of the
deceased, and deleted the additions made in the assessment
orders.
instance of the Revenue, reference was made to the
High the question of assessability of the half share of the
estate of the
586
deceased at the hands of the assessee, and the High Court
answered the question in favour of Revenue. Aggrieved
against ,the High Court's orders the assessee preferred the
present appeals.
On behalf of the assessee, it was contended that where a
person dies, the income of the estate of the deceased person
is chargeable to tax in the hands of the executor, and since
'S' the son of the deceased was an 'executor' within the
meaning of Section 168 of the Income Tax Act, 1961 in re-
spect of the estate of the deceased, the income from the
properties left behind by the deceased was to be assessed in
the hands of the Executor only and not in the hands of the
appellant assessee, and that the discharge of the estate
duty liability of the estate of the deceased being one of
the primary functions of an executor the administration of
the estate cannot be said to be complete until the estate
duty liability was properly provided for.
On behalf of the Revenue, it was contended that the will
contained a direct and simple bequest in favour of the
assessee and his brother;, that there was nothing in the
estate to be administered and the properties vested in the
two legatees immediately. It was also contended that the
delay on the part of the executor in making payment of
estate duty and handling over the properties to the two
legatees cannot postpone the vesting of the estate in the
two beneficiaries.
JUDGMENT:
Allowing the appeals, this Court,
HELD :1.1 Section 168(3) of the Income Tax Act, 1961
makes it clear that the executor will continue to be as-
sessed until the estate is distributed among the benefici-
aries equally according to their several interests. This
provision does not enact anything different from the pre-
existing law on the subject. [596 B]
1.2 In view of the facts and circumstances of the
present ease, the High Court was wrong in coming to the
conclusion that the administration must be deemed to have
come to an end.
Raghavalu Naidu & Sons v.C.L T., [1950] 18 I.T. R. 787
(Mad.), referred to. [595 E]
2.1. Having regard to the nature of the properties left
by the deceased it is clear that the executor had certain
steps to take before he could wash his hands off the admin-
istration of the estate. The movable properties and the
immovable properties belonging to the deceased in his indi-
vidual capacity had to be divided into two equal shares and
handed over to the two beneficiaries. A perusal of the
assessment order also
587
indicates that the deceased had a half share in a firm. The
executor, continued to derive a half share from the firm.
There is no information on record as to how this share in
the firm held by the deceased was disposed of. It was part
of the duties of the executor to make arrangements regarding
the devolution of the share of the deceased in the firm by
having the two legatees taken in as partners in respect of a
one-fourth share each in the firm. in the absence of any
such steps, the asset in question cannot be deemed to have
vested in the beneficiaries. [595 E-H]
2.2. There is nothing on record to indicate that there
was any deliberate attempt on the part of the executor to
postpone the distribution of the estate. There is also
nothing to indicate that the assessment proceedings were in
any way delayed by the executor or the other legal represen-
tatives. A substantial part of the estate duty had been
paid without delay and there is nothing to suggest that the
payment of the balance of the estate duty was delayed delib-
erately by the executor. [593 C-E]
Navnitlal Sakarlal v.C.W.T., (1977) 106 I.T.R. 512, ap-
proved.
Navnitlal Sakarlal v. 677; (1978) 125 I.T.R. 67, overruled.
3. Under the Estate Duty Act, the accountable person is
jointly and severally liable for the whole of the duty along
with other accountable persons. This does not necessarily
mean that the incidence of the duty will ultimately fall on
him always. But he has to consider ways and means of paying
the duty and, though he may or may not be able to pay off
the entire estate duty before distributing the estate, he
will be exposing himself to a great risk if he does not make
adequate arrangements for the due payment of the duty,
before distributing it. The High Court was wrong in taking
the view that the fact of a part of the estate duty liabili-
ty being outstanding should be ignored in deciding the issue
as to whether administration is complete. [594 D-G]
Leelavatamma v.C.E.D, (1991) 188 I.T.R. 803 (SC), relied on.
C.I.T. v. Bakshi Samparan Singh [1982] 133 ITR 650
(P&H); C.I.T. v. Ghosh, (1986) 159 ITR 124 (Cal.); Raghavalu
Naidu & Sons v. C.I.T. (1950) 18 ITR 787 (Mad.); referred
to.
XXX XXX XXX
588
RANGANATHAN, J. Balabhai Damodardas, aged 98 years,
executed will on October 6, 1956, so that, after his death,
his property might be administered as per this” desire”. The
material provisions of the will were follows:
“2. I have the following properties of my
ownership:-
(a) My individual i.e. ‘personal movable and
immovable property which is being assessed in
Income Tax as individual.
(b) Whatever right, title and interest I have
in movable and immovable properties of our
joint family.
There was no executor named in the will.
3. The above movable and immovable properties
I may enjoy, sell or exchange in future, but
if by God’s will at the time when I am not
alive whatever is left of my individual per-
sonal property of my ownership including
additions or deletions therefrom after paying
my debts, income-tax, super-tax, estate duty,
municipal tax etc. and any other outstandings
as also medical expenses and expenses for
obsequial ceremonies and charity and also my
right, title and interest in our joint family
movable and immovable properties, in that way
all my property when I am not alive shall be
taken possession of by my two grandsons Nav-
nitlal Sakarlal and Nandkishore alias Shamub-
hai Sakarlal and they shall use and enjoy the
same as they desire.”
There was no executor named in the will.
Balabhai Damodardas died on 31-12-57. Thereafter, his
son, SakarBalabhai, describing himself as the legal repre-
sentative of the deceased, furnished returns of income as
well as returns of wealth in respect of the’ estate of the
deceased Balabhai Damodardas and he was assessed on the
basis of those returns for the assessment years following
the death and up to assessment year 1967-68.
We are concerned in these appeals with the income tax
assessments of Navnitlal Sakarlal (herein referred to as the
‘assessee’), one of the two grandsons of Balabhai Damodar-
das, to whom the latter had bequeathed his properties, for
the assessment years 1963-64 to 1967-68. The Income Tax
Officer took the view that the estate of Balabhai Damodardas
had
589
vested in the two grandsons immediately on his death as per
the terms of the will. He, therefore, proceeded to assess
the assessee and his brother separately in respect of one
half of the income from the properties let behind by Balab-
hai Damodardas. The contention of the assessee, that the
estate of the deceased was still under Administration and
continued to be so till August 5, 1970; and that the income
thereof had rightly been as sessed, in the earlier years as
well as in the year as well in the years presently under
consideration, in the hands of Sakarlal Balabhai as execu-
tor, was rejected. The Appellate Assistant Commissioner also
confirmed the view taken by the Income-Tax Officer, though,
for the assessment years 1966-67 and 1967-68 he made some
modifications in the assessments with which we are not here
concerned.
The Income Tax Appellate Tribunal had earlier taken the
view, in the wealth-tax assessments of the assessee and his
brother for the assessment years 1963-64 and 1964-65, that,
on the death of Balabhai Damodardas, the assessee and his
brother had become the owners of interests in the estate in
accordance with the will and were consequently assessable to
wealth-tax in respect of their respective shares in the
estate. This view had also been upheld by the Gujarat High
Court in its judgment reported at Navnitlal Sakarlal
v.C.W.T. [1977] 105 I.T.R.512. However, when the income-tax
appeals for the assessment years 1964-65 to 1967-68 came up
before the Tribunal, it took the view that the assessee was
not taxable in respect of any part of the income of the
estate of Balabhai Damodardas for these assessment years.
The additions made in the assessment orders in this respect
were deleted.
At the instance of the Revenue, the following question
was referred to the High Court of Gujarat for its opinion
under section 256(1) of the Income Tax Act.1961:
“Whether the Income Tax Appellate Tribunal was
right in law in holding that half share of the
income in respect of the estate of late Shri
Balabhai Damodardas was not taxable in the
hand of the assessee when the estate was being
administered by Shri Sakarlal Balabhai, having
regard to the provisions of Section 168 of the
Income Tax Act, 1961?”
This question has been answered by the High Court – its
decision had been reported as Navnitlal Sakarlal v CIT in
[1978] 125 I.T.R.67 – in the negative and in favour of the
Revenue. The present appeals have bee preferred by the
assessee from the High Court’s judgment.
590
At the outset, two aspects which had been raised before
the High Court, may be cleared up. In the first place, the
contention of the assessee before the High Court was that
the decision in the wealth-tax case would not govern the
income tax assessments in view of the provisions contained
in Section 168 of the Income Tax Act, 1961, a provision
corresponding to which (viz. s.19A) has been introduced in
the Wealth Tax Act only on 1.4.65. The High Court pointed
out – and it is common ground before us that “in view of the
distinction between the provisions of the Wealth Tax Act and
the Income Tax Act and in view of the fact that, for the
relevant years under consideration before the Division Bench
which considered the wealth-tax case, namely, assessment
years 1963-64 and 1964-65, section 19-A was not on the
statute book, the decision in the wealth-tax case will not
affect the decision in this case except in an indirect
manner”. The second issue, on which a certain amount of
debate took place before the High Court, was as to whether
Sakarlal Balabhai could be treated as an ‘executor’ within
the meaning of section 159 of the Income Tax Act,1961,
considering that the will had not named any executor and
that Sakarlal Balabhai had taken charge of the estate and
began administering it voluntarily. On this point, the High
Court has held, after discussing the relevant provisions,
that Sakarlal Balabhai was a person who intermeddled with
the estate of the deceased and was, therefore, included in
the definition of ‘legal representative’ for the purposes of
the Income Tax Act. On this point also there is no dispute
before us.
The only questions arising for our consideration is
about the proper mode of assessment of the income from the
properties left by Balabhai Damodardas. The procedure to be
followed., when an assessee dies, is set out in section 168
of the Act. This section reads as follows:
168. (1) Subject as hereinafter provided, the
income of the estate of deceased person shall
be chargeable to tax in the hands of the
executor,
(a) If there is only one executor, then, as if
the executor were an individual; or
(b) If there are more executors than one,
then, as if the executors were an association
of persons;
and for the purposes of this Act, the executor
shall be deemed to be resident or non-resident
according as the deceased person was a resi-
dent or non-resident during the previous year
in which his death took place.
591
(2) The assessment of an executor under this
section shall be made separately from any
assessment that may be made on him in respect
of his own income.
(3) Separate assessments shah be made under
this section on the total income of each
completed previous year or part thereof as is
included in the period from the date of the
death to the date of complete distribution to
the beneficiaries of the estate according to
their several interests.
(4) In computing the total income of any
previous year under this section, any income
of the estate of that previous year distribut-
ed to, or applied to the benefit of, any
specific legatee of the estate during that
previous year shah be excluded; but the income
so excluded shall be included in the total
income of the previous year of such specific
legatee.
Explanation: In this section, “executor”
includes an administrator or other person
administering the estate of a deceased person.
On behalf of the appellant, Sri Salve submits that, when
a person dies, the income of the estate of the deceased
person is chargeable to tax in the hands of the executor,
separate assessments being made on the total income of each
completed previous year or part thereof comprised in the
period from the ‘date of the death to the date of complete
distribution to the beneficiaries of the estate according to
their several interests’. He points out that it is now
common ground that Sakarlal Balabhai was an ‘executor’
w,thin the meaning of section 168 in respect of the estate
of the deceased. The Tribunal has also given a categorical
finding of fact in the following terms:
“Balabhai Damodardas died on December 31,
1957, leaving behind as his next-of-kin a son,
named Sakarlal Balabhai, three daughters and a
number of grand-children including the appel-
lant assessee and his brother. On the death of
Balabhai Damodardas, Shri Sakarlal Balabhai
took charge of the properties left behind by
the deceased and started administering them.
By an order made on December 30, 1961, an
amount of Rs.1,04,619 was determined as the
estate duty payable on the properties passing
on the death of Balabhai Damodardas. It is not
in dispute that upto the close of the assess-
ment year 64/65, part of the estate duly
592
was remaining unpaid and further upto the last
day of the accounting year for the assessment
year 67/68 which is the last assessment year
in appeal, the estate was not distributed or
applied for the benefit of the assessee and
his brother, the two legatees. As a matter of
fact nothing was distributed till 5th August,
1970″.
He submits that, on the above finding of fact and the
dear terms of sec.168(3) & (4), the income of the properties
left by Balabhai Damodardas ‘had to be assessed in the hands
of Sakarlal Balabhai, commencing from the date of death and
at least till the 5th of August, 1970.
We are of the opinion that the above contention urged
on behalf of the assessee is well founded. There is now no
dispute that Sakarlal Balabhai was the executor in respect
of the estate left by Balabhai Damodardas. There is also no
dispute that the income from the properties left by Balabhai
Damodardas was assessed in the hands of Sakarlal Balabhai
for the assessment years 1958-59 to 1962-63. Nothing has
happened since to change the above position. The Tribunal
has found that Sakarlal Baiabhai was administering the
estate as an executor and that the estate was not distribut-
ed till the 5th of August, 1970. It has also pointed out
that the estate duty payable in respect of the properties
passing on the death of Balabhai Damodardas had not been
paid till the close of the previous year relevant to the
assessment year 1964-65. Though the Tribunal has not set out
in detail the manner in which the estate was ultimately
distributed, it has given a categorical finding that, as a
matter of fact nothing was distributed till the 5th of
August, 1970, implying that there was a distribution on that
date. The Revenue has not challenged the correctness of this
finding of fact either generally or by raising a specific
question of law as to whether this finding was based on any
material. In the face of these findings by the Tribunal, it
is not possible to hold that the administration of the
estate was complete in any of the previous years with which
we are concerned.
On behalf of the Revenue, Sri Manchanda vehemently contends
that the will contained a direct and simple bequest in
favour of the assessee and his brother. He submits that
there was nothing in the estate to be administered and that
the properties directly vested in the two legatees immedi-
ately in equal shares. According to his submission, the mere
fact that Sakarlal Balabhai purported to take charge of the
estate and administer it and was prolonging the so-called
administration by delaying the payment of estate duty and
the handing over the properties to the only two legatees,
593
cannot postpone the vesting of the estate in the two benefi-
ciaries. It is submitted that there was no complicated
process of administration called for in the present case. He
submits that the intervention of Sakarlal Balabhai was part
of a device to postpone a direct and immediate vesting of
the income and the properties in the hands of the legatees
in view of the high rates of tax applicable to their indi-
vidual assessments and to cordon off the income and the
estate into a separate assessment, purportedly on a socalled
executor. He submits that the Court should not encourage
attempts of this type to avoid the legitimate incidence of
taxation and that, in the circumstances, the answer given by
the High Court to the reference should be upheld.
There are a number of difficulties in accepting the
contention put forward by Sri Manchanda. In the first place,
the contention, its present form, has not been put forward
at any of the earlier stages. There is nothing in the state-
ment of facts or in the orders of the authorities to indi-
cate that there was any deliberate attempt on the part of
the executor to postpone the distribution of the estate. As
we have mentioned earlier, Balabhai Damodardas died on
31.12.57 and the assessment to estate duty of the estate
passing on his death was completed on December 30, 1961.
There is nothing to indicate that the assessment proceedings
were in any way delayed by the executor or the other legal
representatives. A substantial part of the estate duty had
been paid by October or November 1963. There is nothing to
suggest that the payment of the balance of the estate duty
was delayed deliberately by the executor.
Again, the submission that there was nothing in the
estate to be administered and this process was being delib-
erately prolonged by the executors and the legatees is not
based on the record. Though a reference has been made to the
estate duty liabilities being outstanding, there is nothing
to show that the only thing that remained to be done was the
payment of estate duty and that nothing else remained to be
done. There is no information on record before us as to the
various assets and liabilities of the estate shown by the
executor. No attempt has been made to find out whether there
were any other outstanding liabilities and when these were
discharged. We have mentioned earlier that the Tribunal has
found that something was done towards the distribution of
the estate in 1970 and it is not the suggestion of the
Department that this finding is based on no material. It is,
therefore, not possible to allow the counsel for the Revenue
to raise this contention at this stage.
Proceeding on the premise that only the estate duty
liability was outstanding, a contention appears to have been
put forward for the
594
Revenue that the discharge of the estate duty liability is
the personal liability of the residuary legatees and is no
part of the duties of the executor. This argument has been
accepted by the High Court. On behalf of the assessee, it is
submitted that the discharge of the estate duty liability in
respect of the estate of the deceased is one of the primary
functions of an executor and that the administration of the
estate can not be said to be complete until the estate duty
liability is properly provided for, vide: C.I.T.v. Ghosh
(1986] 159 I.T.R. 124 (Cal). We are of opinion’that there is
forece in the appellant’s contention. It seems that, under
the English Law, estate duty is regarded as part of the
“testamentary expenses” in respect of certain kinds of
property: [See Williams on Executors and Administrators,
14th Edn.Vol.1, pp.452-4]. The Estate Duty Act makes the
executor one of the accountable persons. Under S.55, he has
to deliver an account of the estate passing on the death. He
is accountable, under S.53, for the whole of the estate duty
on the property passing on the death though he will not be
liable for duty in excess of assets of the deceased which he
actually received or which, but for his own neglect or
default, he might have received. He is jointly and severally
liable for the whole of the duty along with other account-
able person. It is true that this does not necessarily mean
that the ultimate incidence of the duty will ultimately fall
on him always. But he has to consider ways and means of
paying the duty and, though he may or may not be able to pay
off the entire estate duty before distributing the estate,
he will be exposing himself to a great risk if he does not
make adequate arrangements for the due payment of the duty,
before distributing it. The proposition enunciated in the
cases referred to by the High Court that the estate duty is
a personal liability of the heirs and is not a debt or
encumbrance deductible in computing the principal value of
the estate – a proposition now settled by the decision of
this Court in Leelavatamma v.C.E.D. [1991] 188 I.T.R. 803
(S.C) or the fact that the estate duty is a charge on the
immovable properties passing on death do not detract from
the duties and responsibilities of the executor, as an
accountable person, to make satisfactory arrangements for
the payment of the estate duty. It is, therefore, difficult
to accept the view of the High Court that the fact of a part
of the estate duty liability being outstanding should be
ignored in deciding the issue as to whether administration
is complete.
The High Court has also expresed the view that the
administration of the estate should be deemed to be complete
as the estate could and ought to have been handed over by
the executor to the legatees. It has accepted this submis-
sion because, in its view, the executor had postponed the
actual distribution between the two residuary legatees
though all debts
595
had been discharged and the residue could have been easily
ascertained. Applying the test propounded by Viswanantha
Sastri,] in Raghavalu Naidu & Sons v.C.I.T. [1950] 18 I.T.R.
787 (Mad.) viz:
“[C]an it be said that the residuary estate
had taken concrete shape and could and should
have been handed over by the executors to the
persons beneficially entitled but for the fact
that the estate is Settled in trust and vested
in the executors as trustees?”
The High Court held:
“Under these circumstances, the only conclu-
sion that could be drawn is that by the com-
mencement of the period that is under consid-
eration, the residuary estate must be deemed
to have been ascertained and the residuary
estate must be said to have taken concrete
shape and should have been handed over by
Sankarlal, the father of the assessee. Administra
tion had reached such a point that one can infer that the
administration had been completed and the residuary estate
had been ascertained or was capable or easily capable of
being ascertained”.
We find it difficult to accept this conclusion. Even
leaving the estate duty out of account, it is difficult to
see how the High Court could have reached this conclusion.
Having regard to the nature of the properties left by Balab-
hai Damodardas, it is clear that the executor had certain
steps to take before he could wash his hands off the admin-
istration of the estate. The movable properties and the
immovable properties belonging to Damodardas in his individ-
ual capacity had to be divided into two equal shares and
handed over to the two beneficiaries. A perusal of the
assessment order also indicates that Balabhai Damodardas had
a half share in a firm known as Mangaldas Balabhai & Co. It
appears that Sankarlal Balabhai, as executor, continued to
derive a half share from the firm. There is no information
on record as to how this share in the firm held by Balabhai
Damodardas was disposed of. It was part of the duties of the
executor to make arrangements regarding the devolution of
the share of Balabhai Damodardas in the firm say, for exam-
ple, by having the two legatees taken in as partners in
respect of a one-fourth share each in the firm. In the
absence of any such steps, the asset in question cannot be
deemed to have vested in the beneficiaries. In fact, even in
what may be described as much clearer situations and where
the executor was also the sole beneficiary, it has been held
that the administration is not complete vide, C.I.T. v.
Bakshi
596
Sampuran Singh, [1982] 133 I.T.R. 650 (P&H) and C.I.T. v.
Ghosh [1986] 159 I.T.R. 124 (Cal).
Section 168 (3) makes it clear that the executor will
continue to be assessed until the estate is distributed
among the beneficiaries equally according to their several
interests. This provision does not enact anything different
from the pre-existing law on the subject which has been
clearly enunciated by Viswanatha Sastri, J. in Raghavalu
Naidu, cited earlier, in these words:
“Chapter VII of the Indian Succession Act, 1925, succinctly
defines the duties of executors. Shortly stated, it is their
duty to clear the estate – to pay the debts, funeral and
testamentary expenses and the pecuniary legacies, and to
hand over the assets specifically bequeathed to the specific
legatees. When all this has been done, the balance left in
the executor’s hands is the residue and must be paid over to
the residuary legatees under Section 366 of the Succession
Act or held in trust for them, if the directions in the will
require the residue to be so held. Section 211 (1) of the
Succession Act constitutes the executor of a deceased person
his legal representative for all purposes and vests all the
property of the deceased in the executor. Though no time
limit is fixed by the section for the duration in the office
of executor with its powers and rights, and in this sense an
executor remains an executor for an indefinite time, the
property, which he has in the estate that devolves upon him
and over which his powers extend, does not remain his indef-
initely. By his assent to the disposition in the will they
become operative, the executor is pro tanto
divested of the property which was his virtue
officii, and the legatees have vested in them
as owners, the property in. the subject-matter
of the bequests. Under Sections 332 and 333 of
the Succession Act, the assent of the executor
to a legacy may be express or implied from his
conduct. By assent is meant not that the
executor concurs in the dispositions in the
will but that he assents to the disposition
taking effect upon the specific property if
the bequest is specific, upon the sum of money
if it is pecuniary or upon the residue brought
out by the executor at the end of the adminis-
tration, if it is a residuary bequest. There
is the same necessity for the executor’s
assent to a bequest of the residue as to a
bequest of a specific or pecuniary legacy. So
soon as he assents to the dispositions of the
will — and the assent
597
may be express or implied from his conduct — they become
fully operative and the title of the legatees becomes abso-
lute. If there are trusts declared or created by the will in
respect of the subject-matter of the bequest the trusts take
effect on such assent, the estate vested in the executor as
such is divested and vests in the trustees of the will. The
fact that the executors are themselves the trustees does not
make any difference. Nor does the fact that the bequest is
of the residue affect the point, once the residue has been
ascertained in due course of administration. See Attenbor-
ough v. Solomon [1913] A.C. 76.
XXXX XXXX XXXXX XXXXX
The decision in Lord Sudeley v. Attorney- General, (1897)
A.C. 11 is authority for the position that even if the
trustees and executors happen to be the same persons, until
the claims of the testator’s estate for his debts and testa-
mentary expenses and the pecuniary and specific legacies
have been satisfied, the residue does not come into actual
existence. It is a non- existin thing, until that event has
occurred. The probability that there will be a residue is
not enough, but it must be actually ascertained. Dealing
with a trust of the residuary estate Lord Halsbury, L.C.
observed :’Even if the trustees and executors happen to be
the same persons,until the estate is fully administered
until the thing has been ascertained, until the trust fund
has been constituted, the thing of which the trustees are
trustees has not been ascertained. Till then the right of
the residuary legatee is to require the executors to admin-
ister the estate completely’.
XXX XXXX XXXXX XXXX
Younger, L.J. (afterwards Lord Blanesborough) in Barnardo’s
Homes v. Special Income Tax Commissioners
[1921] 2 A.C. 1 stated the law in these terms:
“Until the residue is ascertained, and until its existence
as net residue has been acknowledged by the executor, either
by payment to the residuary legatee, or if the residue be
settled, by the appropriation of a fund to meet the settled
residue, the residuary legatee has no iterest in any specif-
ic part of that which subsequently becomes residue as a
specific fund but his right is, until that moment of time
arrives, to have the estate administered in
598
due course’. The House of Lords affirmed the decision of the
Court of Appeal on the ground above stated.
XXXX XXXX XXXX XXXXX
The residuary legatee might be interested in the estate
subject to the payment of debts and legacies, but he did not
become the proprietor or owner of the residue except when a
residue had been ascertained which, on completion of admin-
istration, is made over to him by the executiors.
The question in each case is, has the administration reached
a point at which you can infer that the administration has
been completed, the residuary estate has been ascertained,
the bequest of the residue has been assessed to and the
residuary estate therefore became vested in trustees, be
they the executors themselves or strangers ?
In other words, can it be said that the residuary estate had
taken concrete shape and could and should have been handed
over by the executors to the persons beneficially entitled
but for the fact that the estate is settled in trust and
vested in the executors as trustees ?”
(Emphasis added)
We have, therefore, to look at the factual position and
find out whether the executor has ascertained the residue
and acknowledged its existence. Even taking it that the last
sentence’ of the above quotation goes a little further and
enables the Court to “deem” the administration to have come
to an end where the facts clearly show that everything
necessary has been done in this regard, it is difficult to
accept the conclusion of the High Court in the present case
that the administration must be deemed to have come to an
end in the face of the factual findings in the case which
have been referred to earlier.
For the reasons discussed above, we are of the opinion
that the High Court, in the circumstances of the case,
should not have interfered with the Tribunal’s finding and
that the question referred should have been answered in the
affirmative and in favour of the assessee. We, therefore,
allow the appeals and answer the above question in the
affirmative. The assessee will be entitled to his costs.
G.N. Appeals
allowed.
599