JUDGMENT
Govindan Nair, J.
1. The question referred to us by the Income-tax Appellate Tribunal, Cochin Bench, is in these terms :
” Whether, on the facts and in the circumstances of the case, the assessment of the income of the estate of late Sri P.K. Raman in the hands of Sri K.P. Narayanan has to be made under Section 41 of the Indian Income-tax Act, 1922 ? ”
2. The facts and circumstances of the case are that one Sri P. K. Raman who was ordinarily resident in Ceylon and who was doing business in Colombo had executed a will dated June 21, 1945, (annexure “A”), bequeathing large estates and properties owned by the said Raman. Mundan, the brother of Raman, was appointed executor under the will. Raman died on June 8, 1948. Till and up to the assessment year 1954-55, the assessments were made on Mundan in his capacity as the executor of the estate of late P. K. Raman. Though on the basis of a return filed by Mundan
for the assessment year 1955-56, an assessment had been made, that assessment was set aside, the matter having been reopened under Section 34 of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act). Mundan in the meantime died and one K. P. Narayanan, another brother of the deceased, was appointed by the court to which Mundan had applied for a probate, as administrator. Notice was issued to the said Narayanan and since there was no response an assessment was made for the year 1955-56, under Section 23(4) of the Act. The same procedure was followed for the year 1956-57. The assessee filed appeals and contended that a compromise had been entered into when the proceedings for probate was pending before the District Court, Colombo, and that thereafter the position of the executor, Mundan, was that of a trustee and hence it was urged that the legatees were to be assessed under Section 41 of the Act. The other points raised in the appeals are not relevant for this reference. The appeals were rejected by the Appellate Assistant Commissioner by order, annexure “D”. There were further appeals before the Tribunal and those appeals also have been dismissed.
3. The contention that had been urged by the assessee before the Appellate Assistant Commissioner and repeated before the Tribunal was that the executor had assented to the properties bequeathed under the will being vested in the legatees and that he had so specifically stated in the compromise reached between the contesting parties in the proceedings for probate that were pending before the District Court, Colombo. The compromise itself is annexure “B” to the statement of the case. It is necessary to mention a few more facts.
4. When Mundan applied for probate of the will, annexure “A”, one Achikannu and her daughter, Devaunie, objected contesting the genuineness of the will. The said Achikannu also applied for letters of administration on the ground that she was the widow of the deceased, P. K. Raman, and that her daughter, Devaunie, was the daughter of Raman through her. It was these claims put forward by Achikannu on her own behalf and on behalf of her daughter, Devaunie, that were settled by compromise annexure “B”. Provision was made in paragraph 18 of annexure “B” that “petitioner (Mundan who applied for the probate) and the said legatees under the said Last Will personally do pay to the said 7th and 8th respondents Achikannu and Devaunie a sum of Rupees three lakhs and forty thousand (Rs. 3,40,000) as follows……” We may extract paragraph 9
of the compromise :
” 9(a). It is further ordered and decreed of consent that the properties referred to in the clause numbered (2) in the said Last Will and Testament to wit premises No. 26, Hill Street, in Colombo and an extent of forty-five (45) acres from and out of the said Estate called and known as
‘Bandiruppuwa Estate’ and the properties referred to in the clause num
bered (5) in the said Last Will and Testament to wit all cash in banks and
cash in hand at the time of the testator P.K. Raman’s death his jewellery
and ornaments and all his business and their establishments and assets
belong absolutely to and are the property of (1) Devaunie, (2) Devanayaki,
(3) Ammaravathie, and (4) Seelavathi all laughters of P.K. Sangaram
in equal shares.
(b) It is further ordered and decreed and it is hereby declared of consent that the properties mentioned in the clause numbered eight (8) in the said Last Will and Testament belonging to and are the property of (1) Devaunie, (2) Devanayaki, (3) Ammaravathie, (4) Seelavathi, all daughters of P.K. Sangaram, (5) Ainmu, (6) Karthiaini and (7) Meenachi, all daughters of P. K. Mundan in equal shares. ”
5. The only other paragraph of the compromise which is relevant is paragraph 14 which is in these terms :
” 14. It is further ordered and decreed of consent, that the petitioner P.K. Mundan or his attorney or duly authorised agent be forthwith placed in possession of the entire estate and properties of the deceased P. K. Raman save and except the premises No. 81, Hill Street, in Colombo and the forty (40) acres and the twenty (20) acres out of the Bandiruppuwa Estate. ”
6. The contention urged by the assessee before the Appellate Assistant Commissioner has been negatived by him on the basis of the decision of the Income-tax Appellate Tribunal, Madras Bench, for the assessment year 1950-51, a copy of which order has been produced as annexure “E”. The relevant part of the order of the Appellate Assistant Commissioner is in paragraph 5 of annexure ” D ” which we may read :
” 5. The question whether the beneficiaries could be directly assessed was the subject-matter of an appeal filed by the late P. K. Mundan before the Appellate Tribunal in respect of the assessment year 1950-51. The Tribunal has traced the history of the case in their order, I.T.A. No. 4025 of 1955-56, dated 26-11-1956 and have held that the residuary estate which has to be distributed to the beneficiaries (sic) under the Will after meeting the liabilities and charges on the estate had not yet become ascertained even at the time of Mundan’s death in 1956 and Mundan was administering the estate only as Executor of the last Will of Raman and was in receipt of the income therefrom and even on the date of his death on 8-3-1956 no accounts had been filed by Mundan in the Court nor had he been discharged from the executorship and, therefore, an assessment on Mundan was justified in the capacity of the executor of the Will of the late Raman. During the previous years relevant to the assessments under appeal, viz., the assessment years 1955-56 and 1956-57,
except for a few days in the last month of March, 1956, P. K. Mundan was functioning as the executor and had he been alive the assessment would have to be made on him is the executor of the Will of the late P.K. Raman. The Tribunal has held that as the residuary estate had not yet become ascertained the assessment on Mundan for 1950-51 was proper. For the same reasons as the residuary estate had not yet become ascertained the Income-tax Officer was justified in not making an assessment directly on the beneficiaries for the assessment years 1955-56 and 1956-57 also. Therefore, the plea that the assessment should have been made on the beneficiaries directly is rejected. ”
7. When we turn to annexure ” E “, the order of the Income-tax Appellate Tribunal, Madras Bench, for the assessment year 1950-51, we find the basis of the observations of the Appellate Assistant Commissioner is what is stated in paragraphs 6, 7 and 8 of the order, annexure “E”. In paragraph 6, the distinction between an executor and the trustee is pointed out and, in paragraph 7, a passage from the judgment of Justice Viswanatha Sastri in V.M. Raghavalu Naidu and Sons v. Commissioner of Income-tax, [1950] 18 ITR 787 (Mad) is quoted and thereafter it is stated in paragraph 8 of annexure ” E ” as follows:
“8. In the present case, the executor had yet to pay the aforementioned sum of Rs. 3,40,000 to Devayani which he could do only by raising loans or by selling a part of the estate in addition to discharging certain liabilities of the Testator. This indicates that the Executors’s function in regard to the administration of the estate in question has not yet come to an end nor can it be stated from the aforesaid facts that the residue of the estate which can be said to belong to the residuary legatees had become ascertained. The executor, had thus yet to perform certain duties and, therefore, following quotation from his Lordship, Justice Viswanatha Sastri’s judgment, we hold that the executor in the present case still remained as executor and had not become trustee of the residuary legatees in regard to the residuary estate. Hence, we hold against the assessee in this contention also.” .
8. Though the Appellate Assistant Commissioner proceeded on the basis that ” the Tribunal has held that as the residuary estate had not yet become ascertained the assessment on Mundan for 1950-51 was proper. For the same reasons as the residuary estate had not yet become ascertained the Income-tax Officer was justified in not. making an assessment directly on the beneficiaries for the assessment years 1955-56 and 1956-57 also. Therefore, the plea that the assessment should have been made on the beneficiaries directly, is rejected.” The Tribunal does not specifically find in its order annexure ” G ” that the residuary estate had not been determined. In fact, the contention was raised by the assessee that the amount of Rs. 3,40,000 payable to Achikannu and Devaunie which was the only amount which was relied on as outstanding and payable “was not an amount stipulated to be paid under the will “, that it was a liability created by the legatees on their own accord and as part of the compromise and that, therefore, there had been no necessity for the executor to continue for the purpose of carrying out the administration of the estate. This contention as such has not been dealt with in the Tribunal’s order though We notice that there is an assertion in paragraph 11 of annexure ” G ” that ” Mundan continued to be an executor till his death and on his death an administrator was appointed by the court to administer the estate “. The Tribunal, it seems to us, decided the case on the basis of the contention that has been raised before the Tribunal by the departmental representative that the recitals in the compromise, annexure ” B “, cannot be taken to be an assent under Section 332 of the Indian Succession Act, 1925. This contention is noticed by the Tribunal in the last part of paragraph 8 of its order, annexure “G”, and this has been accepted in paragraph 9. In that paragraph the Tribunal proceeded to extract a portion of the order of the Income-tax Appellate Tribunal, Madras Bench, annexure ” E “, in support of its conclusion that there has been no assent. We consider that the above facts that we have stated are the only relevant facts for determining the question referred to us. We specifically say so for the reason that at the very fag end of the argument of the case, in. fact, when the judgment was about to the dictated, counsel for the revenue took permission and urged that all the legatees were not parties to the compromise, annexure “B”, and that all the properties of the deceased were not included in the compromise and further that Clause 8 of the will, annexure ” A “, would show that this was a case where the residuary estate had to be determined and that, therefore, before the determination of the residuary estate there can be no question of an assent. We do not think that, at this stage, we will be justified in dealing with the question as to whether all the legatees had joined the compromise petition or whether all the properties of the deceased have been included in the compromise petition because these are pure questions of fact relating to which there had been no contention at any stage of the assessment proceedings and because those facts had not been adverted to or considered by any of the authorities and such questions do not arise from the order of the Tribunal. Regarding the third point mentioned we shall deal with it at the proper stage as to whether this was a case where there was a need to determine the residuary estate.
9. The principles that are applicable in cases of this nature have been well-settled. The question is often, if not always, one of difficulty. Kekewich J. observed in Timmis, In re : Nixon v. Smith, [1902] 1 Ch D 176, 182 (Ch D) at page 182 :
” There are few things more difficult than to determine when an executor ceases to have duties qua executor or virtute officii, or, as it is phrased in the Finance Act, ‘as such’. There are few wills which come before the court which do not contain directions to persons as executors and as trustees, and it is a common case that the same persons are executors and trustees.”
10. Nevertheless if there are specific bequests and if there is an assent by the executor which assent may be verbal, express or implied from the conduct of the executor, that would be enough to divest the interest of the executor and to transfer the subject of the bequest to the legatee. It is unnecessary to quote decisions for this proposition because the matter is now governed by sections 332 and 333 of the Indian Succession Act, 1925.
11. This is the principle that has been applied by English judges in English courts as well–and this has been so ruled in an authoritative pronouncement, in which if we may say so with great respect, two very able and learned Judges of the Madras High Court, after an exhaustive review of the case law held that the principles enunciated in the Indian Succession Act in this regard are the same as those established by the decisions of the English courts. The case itself is an authority for the proposition, the well-known proposition, that there can be no assent by the executor when the residuary estate had not become settled. Perhaps the best statement of the law in this regard is that of Lord Halsbury in Lord Sudeley v. Attorney-General, [1897] AC 11 (HL) in which the learned judges made the following observations :
“It is uncertain until the residuary estate has been ascertained of what it will consist. It may consist of many things–it may consist of only a sum of money–and until that has been ascertained the actual right capable of instant assertion does not exist; and whether the character is that of executor or of trustee seems to me to be immaterial, because the legatee had no right to go and say ‘ I will have this or that part of the assets ‘. If a trustee is to be the character filled, the cesttti que trust has no right to apply to the trust fund until a trust fund has been constituted, and by the hypothesis the trust fund is not constituted……..”
12. The same is the view taken by the House of Lords in their decision in Barnardo’s Homes v. Special Income-tax Commissioners, [1921] 2 AC 1; 7 TC 646 (HL). These decisions have been relied on by Justice Viswanatha Sastri in his judgment in V.M. Raghavalu Naidu and Sons v. Commissioner of Income-tax and on the facts of the case that was before them, their Lordships came to the conclusion that the residuary estate had not been settled and, therefore, the stage at which the assent could be given by the executor had not been reached and consequently there was no divesting of the title from the executor to the legatees. It was further ruled that the income was therefore of the executor and that Section 41 of the Act had no application. It is this ruling that has been relied on by the Income-tax Appellate Tribunal, Madras Bench, in annexure “E” and it is the reasoning in the order, annexure “E”, that has been accepted by the Appellate Assistant Commissioner in annexure “D”, and to some extent by the Tribunal in its order, annexure “G”, Counsel for the revenue has relied on the decision in V. M. Raghavalu Naidu and Sons v. Commissioner of Income-tax and the principles laid down by the House of Lords and strenuously urged before us that this was a case where the principles laid down in those decisions must be applied. We find it difficult to accept this contention. We think that the principles of these decisions cannot apply to the facts of this case as put forward and on which the question of liability to tax has to be determined. We say so for the following reasons : This was not a case where the debt which had been relied on as the one outstanding and before the settlement of which the residuary estate could not be said to have been determined was a debt stipulated for payment in the will. We do not think, therefore, the obligation to discharge this debt was an obligation of the executor, Mundan, qua executor, though by virtue of the compromise entered into, annexure “B”, to which the executor was also a party, he may have an obligation to discharge the debt. As far as the executor is concerned, his functions as an executor under the will are only to administer the estate of the deceased in accordance with the terms of the will. If any other obligations are incurred by the executor with the specific consent of the legatees, we do not think that those obligations arise as executor. Secondly, this was not a case of there being no specific bequests but of bequests being made of the residue after payment of certain debts or of prior legacies. No doubt, as pointed out earlier, counsel for the revenue relied on paragraph 7 of the will, annexure ” A “, and paragraph 8 of the will to contend that they were debts to be paid and that the testator himself has used the words ” the rest and residue” in paragraph 8. Regarding paragraph 7, what is directed therein is that the executor must pay a sum of Rs. 10,000 Ceylon money to his Lordship the Bishop of Colombo of the Church, of Ceylon for the School of the Deaf and Blind. It was suggested that this debt had to be paid and it was hinted that this might not have been discharged by the executor. Paragraph 8 following the recital of this obligation has used the words that we have quoted ” the rest and residue ”
and it was further urged by counsel that it is not possible to say that this is a case in which the residue had become settled. This contention is not without force. But the weakness of the contention arises from the fact that it was not urged at any time that the amount to be paid to the Bishop had not been paid and therefore, the residue had not become settled There is no mention either in the order of the Appellate Assistant Commissioner, annexure “D”, or in the order of the Tribunal, annexure “G”, about this debt to the Bishop and it was not suggested at any time that it had not been discharged. An argument before us is not sufficient. This may cause doubts and suspicions in our minds as to a question of fact which was never in the minds of the department or of the assesses at any stage of the assessment proceedings. But we cannot rest our decision on such doubts and suspicions. The only debt, if debt it be, which has been relied on before the Appellate Assistant Commissioner and the Tribunal was a sum of Rs. 3,40,000 payable to Achikannu and Devaunie. In this view of the matter we think that if a residue had to be settled as a result of the direction to pay Rs. 10,000 to the Bishop, it had been settled because there was no case that the debt had not been paid at the time of the compromise, annexure “B”, dated March 21, 1951. So there was no impediment to the assent being given. The question then is whether there is such an assent. The Tribunal has accepted the contention of the departmental representative that what is stated in paragraph 9 is applicable only between the said Achikannu and Devaunie on the one hand and the legatees on the other. We have already read paragraph 9 of the compromise, annexure “B”, and we feel no hesitation in holding that what is stated therein has been agreed to by the executor. This is sufficient to import assent of the executor.
13. It was further argued that if the title to the estate vested by virtue of the compromise annexure “B”, there was no need or there was no occa-tion to issue a probate to the executor and it was further urged that this court must proceed on the basis from the grant of the probate to .Mundan that he was an executor in whom the estate id vested and that the grant of a probate by an order of court in probate proceedings is a judgment in rem and has a conclusive ness guaranteed by Section 41 of the Evidence Act and that it Is not possible to postulate as long as the probate remained and had not been revoked that the title did not remain vested with the executor. It was also pointed out that when Mundan died on March 8, 1956, towards the close of the accounting year which ended on March 31, 1956, (the relevant accounting period for the assessment year 1956-57), an administrator had been appointed by the court and therefore the position continued as it was till the death of Mundan even thereafter. Emphasis was laid on the fact that an administrator was appointed as late as 1956
and that this cannot be postulated without there being an estate vested in the executor or administrator. The answer to this contention, we think, is contained in George Attenborough & Son v. Solomon, [1913] AC 76 (HL) to the following effect :
” Executors they remained, but they were executors who had become divested, by their assent to the dispositions of the will, of the property which was theirs virtute officii; and their right in rem, their title of property, had been transformed into a right in personam–a right to get the property back by proper proceedings against those in whom the property should be vested if it turned out that they required it for payment of debts for which they had made no provision. ”
14. It is impossible to look, at the grant of the probate which is merely the official act of the court where the probate proceedings were pending, recognising and accepting the terms of the compromise, annexure “B”, divorced from the term of the compromise. The grant of the probate in this case has to be understood as the implementing of the desire of the parties that were before the court and their desire and their intentions and the arrangements reached between them which have been incorporated in categorical terms in the compromise. It is impossible to read the grant of the probate or for that matter the appointment of K.P. Narayanan as administrator after the death of Mundan as something different than for the purpose mentioned in the compromise, annexure “B”. The legal character with which Mundan and Narayanan had been clothed as a result of the orders of the court have to be inferred from the terms of the compromise petition and if we so understand the grant of the probate, we have to repeat the words of Lord Haldane in George Attenborough & Son v. Solomon that ” executors they remained, but they were executors who had become divested”. This we think is the correct view to take on the facts of this case. In that light, the properties were not vested in the executor, Mundan, or in Narayanan and Section 41 of the Evidence Act cannot be relied on for giving these persons a right in rem.
15. Before we close the discussion, it is necessary to advert to two decisions of the English courts. Commissioners of Inland Revenue v. Smith, [1930] 1 KB 713; [1930] 15 TC 661 (CA) and Carlish v. Commissioners of Inland Revenue, [1958] 38 TC 37, 63 (CA) for the proposition that ” there was no rule of law that the mere existence of an outstanding mortgage prevented the residue from being ascertained and the executor thereafter giving assent to the legacy in favour of the residuary legatee”. Lawrence L.J. in Commissioners of Inland Revenue v. Smith said :
“It has been mooted, but I do not think seriously contended, that the existence of a debt or debts or liabilities which are outstanding prevents the assent of the executor being inferred by his conduct. In my judgment that is not so.”
16. And this decision has been affirmed in Carlish v. Commissioners of Inland Revenue and both these decisions have been cited with approval by Ramachandra Iyer C.J. in the decision in Commissioner of Income-tax v. Estate of Late Sri T.P. Ramaswami Piliai, [1962] 46 ITR 666 (Mad) wherein it was held that notwithstanding the existence of liabilities which had to be discharged by the executor the estate had vested with the legatees. So, we think that if for any reason it can be said that the sum of Rs. 3,40,000 payable to Achikannu and Devaunie are amounts that should be discharged by Mundan in his capacity as executor and acting as such–we have already held, it is not so–even then, it cannot be said that by reason of what is stated in paragraph 9 of the compromise, annexure “B”, the assent of the executor had not been given and that that assent is insufficient to vest the properties with the legatees.
17. In the light of the above, we answer the question referred to us in the affirmative, that is, in favour of the assessee and against the department. The assessment will have to be made under Section 41 of the Act. We direct the parties to bear their respective costs. 18. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.
