1. The assessee is the sole surviving executor and trustee of the will of the late Mrs. Bhikhubai Chandulal Jalundhwala. She died on January 8, 1962, leaving an estate valued for the purpose of estate duty at Rs. 24 lakhs and consisting of movable and immovable properties. She left behind her last will executed on January 5, 1962. Under the provisions of the will, the deceased appointed the assessee and one B. G. Amin, Solicitor now deal, as executors and trustees thereof. She directed the executors and trustees by the will to pay her debts, funeral expenses and estate duty. She directed them to wind up a business that she was then conducting or to sell it as a going concern. She directed them to convert all the movable and immovable properties in her estate, other than those bequeathed specifically, into cash. She listed the specific bequests. Clauses 15, 16 and 20 of the will are most relevant to this proceeding and read thus :
'15. I direct that my executors and trustees of this my will shall convey to the respective legatees of my aforesaid immovable properties after obtaining probate of this my will and until such properties are transferred to the names of the respective legatees the rents or income arising therefrom shall be collected by my executors and trustees and shall be dealt with by my trustees in the same manner as my other estate.
16. After my executors and trustees have sold my other remaining properties both movable and immovable (and have converted the same into cash) my executors and trustees shall stand possessed of the same and the same shall be dealt with by them as hereunder provided. I direct that my executors and trustees shall sell all the shares and securities of which I may be possessed of at the time of my death. I also direct that my executors and trustees shall realise all my investments whatsoever made and shall convert the same into cash.
20. As to the entire residue of the amount lying with my executors and trustees I direct that my said executors and trustees shall use the same for providing educational and medical aid to the needy at their absolute discretion and in such manner as my said executors and trustees may deem fit. I direct that in furtherance of and for giving effect to the provisions of this clause my executors and trustees shall donate such amount or amounts to such educational institution, university or hospital authorities or maternity homes on such terms and conditions as may appear to be just and necessary and which in their absolute discretion they may think proper. My executors and trustees shall also be entitled to use such part or parts of said moneys for the benefit of and for providing aid to such religious institution or institutions as they may in their absolute discretion think fit.'
2. The executors and trustees obtained probate of the will on April 5, 1963. They carried out the directions in the will pertaining to specific bequests between August, 1963, and March, 1964.
3. On June 19, 1963, the executors and trustees made an application to the Deputy/Assistant Charity Commissioner, Greater Bombay Region, for registration of the trust under the will, to be known as the 'Bhikhubai Chandulal Jalundhwala Trust'. A copy of that application has been handed over to us. It lists the movable and immovable properties left behind by the deceased, other than those specifically bequeathed, as the movable and immovable properties belonging to the trust. In an annexure to the application, clauses 16 and 20 of the will are referred to and it is submitted that no trust would be created until after the executors and trustees had converted all the properties of the deceased into cash and the residue had been ascertained. Upon the application, the Charity Commissioner, on December 29, 1964, directed registration of the Bhikhubai Chandulal Jalundhwala Trust as a public trust under the Bombay Public Trusts Act. In his order, the Assistant Charity Commissioner noted that the exact trust property was yet to be ascertained.
4. The executors and trustees filed an income-tax return for the assessment year 1964-65, the previous year being October 29, 1962, to December 17, 1963, on February 13, 1965. They signed the return in the capacity of executors of the will. Against the order of assessment made by the ITO, the assessee, now the sole surviving executor and trustee, preferred an appeal before the AAC, and specifically raised the contention that the income of the estate was liable to be assessed in his hands in the capacity of a trustee and not in the capacity of an executor. The AAC held that the assessee was liable to be assessed in the capacity of an executor inasmuch as the administration of the estate had not been completed. The assessee appealed to the Income-tax Tribunal.
5. The Tribunal held that the deceased had settled her property on trust under the will, subject to the condition of payment of the legacies mentioned therein, that the trust resulted on her death, that the assessee and the late Amin straightaway acquired the role of trustees, and that the income ought to have been assessed as such. In any event, they had shed their character as executors and had acquired the character of trustees on April 5, 1963, when the probate was granted. Even if it were assumed that these conclusions were not correct, the position was that the whole estate, including the immovable properties and the amounts directed to be distributed by way of legacies, had vested in the assessee and the late Amin as trustees. Hence, the income of the immovable properties specifically bequeathed and of assets sufficient to pay off the monetary legacies and the outstanding estate duty would be assessable in their hands in their capacity as executors while the income from the remaining assets would be assessable in their hands as trustees. The Tribunal, accordingly, set aside the assessment order and directed the ITO to make a fresh assessment upon the assessee in the capacity of trustees.
6. At the instance of the Revenue, this reference to the High Court is made under s. 256(1) of the I.T. Act, and its opinion upon the following questions is sought :
'1. Whether, on the facts and in the circumstances of the case, K. R. Patel and B. G. Amin held the properties as trustees from the time of the death of Bhikhubai Chandulal, or whether they held the estate in that capacity from April 5, 1963, when probate of the will was obtained ?
2. Whether, on the facts and in the circumstances of the case, K. R. Patel and B. G. Amin received income of certain part of the estate as executors and income of the remaining part of the estate as trustees ?
3. Whether, on the facts and in the circumstances of the case, K. R. Patel and B. G. Amin were liable to be assessed as trustees under section 161 of the Income-tax Act, 1961 ?'
7. It appeared to us that better particulars were required of the progress of the administration of the estate, particularly during the relevant assessment year. Accordingly, counsel for the assessee handed over to the court a statement in this behalf.
8. Reading clauses 16 and 20 of the will together, it is clear that the executors and trustees were directed, first, to convert the immovable and movable properties comprising the estate into cash and, then, to use the entire residue of the estate, comprised now of that cash for the charitable objects mentioned in clause 20. The trust for the charitable objects was, therefore, under the provisions of the will, to come into existence after the executors and trustees had administered the estate and converted it, or at least a substantial portion of it, into cash.
9. A glance at the statement regarding the progress of the administration of the estate reveals that a very substantial portion of the estate had remained un-administered at the conclusion of the assessment year with which we are here concerned. It shows that the value of the immovable properties, shares, securities and jewellery comprised in the estate was stated for the purpose of probate as being Rs. 16,74,299, and that during the assessment year 1964-65, only a part thereof, of the aggregate value of Rs. 9,41,825, was sold or given away as and by way of legacies. Immovable property, shares, securities and jewellery comprised in the estate of the value of Rs. 7,32,474 thus remained to be administered and converted into cash at the conclusion of that assessment year.
10. Having regard to this factual position and to the provisions of the will to which we have adverted, it appears to us that for the assessment year 1964-65, the assessee could not validly claim to be assessed as a trustee, and that the AAC was right in assessing him in the capacity of executor.
11. Mr. Mehta, learned counsel for the assessee, drew our attention to a judgment of the Madras High Court in CIT v. Estate of Ethiraj (by Official Trustee) : 120ITR271(Mad) . The deceased, in that matter, had executed a will appointing the official trustee sole executor and trustee and had directed that the properties covered by the will would vest in the official trustee on his death, that the official trustee should sell all the properties by public auction and invest the net realisations in approved Government securities and pay certain legacies. The official trustee obtained probate on May 3, 1961. He claimed for the assessment year 1962-63 onwards that he should be assessed as a trustee. His claim was negatived by the Ito and by the AAC, but the Tribunal upheld it. The Madras High Court on a reference considered ss. 7(6) and 9 of the Official Trustees Act, and concluded that as the official trustee had been appointed both as sole executor and sole trustee, the properties initially vested in him as executor and, as soon as he obtained probate of the will, they vested in him as trustee. The assessee and the facts in the Madras case are dissimilar to the assessee and the facts before us. The Madras judgment mentions an earlier decision of the Madras High Court in Raghavalu Naidu & Sons v. CIT : 18ITR787(Mad) , where it was held that in the case of the residuary bequest, until the residue is ascertained and the assent of the executor is either expressly given or is inferred from his conduct, the administration of the estate by the executor cannot be taken to have been completed; some executorial duties remain to be performed and the residue to be ascertained. The facts of this matter are more akin to the facts before us and the view expressed supports the view that we take.
12. In the result, we answer the three questions framed for our consideration thus :
1. K. R. Patel and B. G. Amin did not hold the properties as trustees either from the time of the death of Bhikhubai or from the date on which probate of the will was obtained.
2. During the assessment year 1964-65, K. R. Patel and B. G. Amin received no income as trustees.
3. During the assessment year 1964-65, K. R. Patel and B. G. Amin were not liable to be assessed as trustees.
13. The answer being in favour of the Revenue, the assessees shall pay to the Revenue the costs of the reference.