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Navnitlal Sakarlal Vs. Commissioner of Wealth-tax, Gujarat I - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberWealth-tax Reference No. 19 of 1970
Judge
Reported in[1977]106ITR512(Guj)
ActsWealth Tax Act, 1957
AppellantNavnitlal Sakarlal
RespondentCommissioner of Wealth-tax, Gujarat I
Appellant Advocate J.M. Thakore, Adv.
Respondent Advocate K.H. Kaji, Adv.
Cases ReferredPurshottam N. Amarsay v. Commissioner of Wealth
Excerpt:
(i) direct taxation - will - nature and character of interest on properties acquired by assessee under will in question - under relevant terms of will on death of testator legatees were to get interest in his separate properties as well as in his share in hindu undivided family properties - legatees entitled to use and enjoy same after making provisions for discharging debts and liabilities and payment of certain expenses out of self acquired properties of testator. (ii) disposition of will - section 30 of hindu succession act - under section 30 it is competent for male hindu to dispose of by will or other testamentary disposition his interest in 'mitakshara coparcenary property' in accordance with provisions of act of 1925 or any other law for time being in force and applicable to.....p.d. desai j.1. this reference, made at the instance of the assessee under section 27(1) of the wealth-tax act, 1957 (hereinafter referred to as 'the act'), relates to the assessment to wealth-tax made on the assessee for the assessment years 1963-64 and 1964-65, in respect of certain properties which devolved upon him under a will and the principal considerations is : 'whether, on the facts and in the circumstances of the case, the said properties could be said to be assets belonging to the assessee on the relevant valuation dates, namely, december 31, 1962, and december 31, 1963, and therefore, liable to be taken into account in determining the net wealth of the assessee ?' 2. it is necessary to state a few facts in order to appreciate the points raised for our determination and they.....
Judgment:

P.D. Desai J.

1. This reference, made at the instance of the assessee under section 27(1) of the Wealth-tax Act, 1957 (hereinafter referred to as 'the Act'), relates to the assessment to wealth-tax made on the assessee for the assessment years 1963-64 and 1964-65, in respect of certain properties which devolved upon him under a will and the principal considerations is :

'Whether, on the facts and in the circumstances of the case, the said properties could be said to be assets belonging to the assessee on the relevant valuation dates, namely, December 31, 1962, and December 31, 1963, and therefore, liable to be taken into account in determining the net wealth of the assessee ?'

2. It is necessary to state a few facts in order to appreciate the points raised for our determination and they may be first set out.

3. One Balabhai Damodardas was the grand-father of the assessee. He was possessed of considerable movable properties acquired by his personal skill and labour and held in his individual capacity. Besides, Balabhai had one-half share in the coparcenary properties belonging to the Hindu undivided family of which he was the Karta. The remaining one-half share in the said coparcenary properties belonged to one Sakarlal Balabhai, father of the assessee and son of Balabhai. On October 6, 1956, Balabhai executed a will which in substances provided that after discharging all debts, liabilities and obligations and after meeting expenses of illness, obsequial ceremonies and disbursing charities out of his self-acquired properties, the said properties as also his right, title and interest in the coparcenary properties would on his death devolve upon his two grandsons (the assessee and his brother) and that they would become entitled to use and enjoy the same. It may be stated that no person was named as administrator or executor in the will and that the provision in the will was that the legatees themselves should take possession of the properties of the testator on his death.

4. Balabhai died on December 31, 1957, leaving behind as his next-of-kin a son (Sakarlal), three daughters and a number of grand-children including the assessee and his brother. This fact, which was not on record of the case before the Tribunal, emerges from a chart or table which was produced by the assessee at the hearing of this references and which was taken on record with the consent of the revenue and marked exhibit I. On the death of Balabhai, his son, Sakarlal, 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. 1,04,619.95 was determined as the estate duty payable on the properties passing on the death of Balabhai. It is not in dispute that on the relevant valuation dates with which we are concerned in the present reference, the estate duty liability was not fully discharge since a sum of Rs. 53,444.63 only was paid towards the estate duty and the balance of Rs. 51,175.32 still remained to be paid out of the estate of the deceased. To that extent, there was a first charge on the immovable properties left behind by the deceased under section 74 of the Estate Duty Act, 1953.

5. For the two assessment years in question, Sakarlal Balabhai, describing himself as the legal representative of Balabhai Damodardas furnished returns of wealth-tax in respect of the net wealth of deceased Balabhai to the Wealth-tax Officer having jurisdiction in the matter. The return showed the net wealth of deceased Balabhai held by him in his individuals capacity as well as his one-half share in the coparcenary properties of the Hindu undivided family. The Wealth-tax Officer was of the view that the properties left behind by deceased Balabhai were required to be assessed to wealth-tax in the hands of the assessee and his brother who were the legatees under the will of Balabhai inasmuch as the said properties had vested in them in defined shares and there was no good reason why the administration, if any, of the estate of the deceased could not have been completed on or before the relevant valuation dates. Still, however, the Wealth-tax Officer made protective assessments on the returns filed by the legal representative computing the net wealth of the deceased in the hands of the legal representative as under :

Assessment Individual Share in the TotalYear Properties H. U. F. WealthRs. Rs. Rs.1963-64 3,68,852 6,97,236 10,66,0881964-65 3,55,603 6,36,195 9,91,798

6. The assessee is individually also liable to be assessed to wealth-tax and in the course of proceedings for assessment to wealth-tax for the two assessment years in question the Wealth-tax Officer computed the net wealth of the assessee by including therein the assessee's one-half share in the estate of deceased Balabhai to which he became entitled under the will. The net wealth of the assessee for the two assessment years in question was accordingly determined after adding amounts of Rs. 5,33,044 and Rs. 4,95,899 respectively, being one-half of the value of the net wealth of deceased Balabai as determined in the protective assessment proceedings for the said two years, and wealth-tax was levied accordingly. It may be stated that the Wealth-tax Officer took the above mentioned step on the view that one-half share of the assessee in the estate left behind Balabhai passed to him immediately on the death Balabhai and that merely because there was no physical division of the properties between the assessee and his brother and the estate was being administered by the father of the assessee it could not be said that the assessee had not acquired any right, title or interest to the extent of his share in the properties left behind by deceased Balabhai. In the opinion of the Wealth-tax Officer, the father of the assessee was 'at the most' holding the estate as a trustee and the share of the beneficiaries being certain and definite, one-half share of the assessee in the estate of the deceased was liable to be subjected to wealth-tax in the hands of the assessee.

7. The assessee carried the matter in appeal to the Appellate Assistant Commissioner of Wealth-tax who allowed the appeals. The Appellate Assistant Commissioner was of the view that the estate of the deceased having not been fully administered and having been brought to tax in the protective assessment proceedings against the legal representative of the deceased, the assessee could not have been made liable to pay wealth-tax on his one-half share in the said estate. The Wealth-tax Officer was, therefore, directed to modify the assessments accordingly.

8. The Wealth-tax Officer, feeling aggrieved by the order made by the Appellate Assistant Commissioner, carried the matter in further appeal to the Income-tax Appellate Tribunal. The Tribunal, after analysing the provisions of the will and discussing the relevant provisions of the Indian Succession Act, 1925, and the Act, held that the estate of deceased Balabhai vested absolutely in specified shares in the two legatees upon his death. This conclusion was arrived at on the basis that Balabhai, not having appointed any administrator or executor under the will, the question of administration of the estate did not arise and the vesting of the properties which were the subject-matter of the legacy could not be postponed to any further date. According to the Tribunal, the legacy in the present case having been given in general terms without specifying the time when it was to be paid, the legatees acquired vested interest in it immediately on the death of the testator and they became absolute owners of the properties which were the subject-matter of the legacy on the testator's death. The Tribunal further found that the assessee and his brother were not residuary legatees but were absolute legatees and took the estate of the deceased subject to all rights and liabilities of the deceased. The Tribunal was of the view that though the father of the assessee was actually administering the estate of the deceased, he was doing so for and on behalf of the assessee and his brother and by reason of that circumstances alone the vesting of the properties could not be deemed to have been postponed till the administration was completed and the liability of the assessee to pay wealth-tax could not be said not to arise till such time as the debts and liabilities of the deceased were discharge. In view of these findings, the Tribunal allowed the appeal and set aside the order passed by the Appellate Assistant Commissioner and resorted that passed by the Wealth-tax Officer.

9. The assessee was obviously aggrieved by the decision of the Tribunal and at his instance the Tribunal has stated a case in respect of the following three questions :

'(1) Whether, on the facts and circumstances of the case, the Tribunal was correct in holding that the assessee has become the absolute owner of the legacy left by Shri Balabhai Damodardas in accordance with his will and hence the wealth of the assessee should be computed after adding the said legacy

(2) Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the question of administration of the estate of late Shri Balabhai Damodardas did not arise, irrespective of the fact that Shri Sakarlal Balabhai, father of the assessee, administers the said estate, and is being assessed as legal representative of Balabhai Damodardas

(3) Whether the Tribunal was correct in holding that administration of the said legacy by the assessee's father, Sakarlal, was on behalf of the assessee and did not prevent the vesting of the legacy in the assessee and computation thereof in the net wealth of the assessee for the purpose of the Wealth-tax Act ?'

10. These three questions referred by the Tribunal do not, in our opinion, succinctly and precisely bring out the real controversy between the parties in the present case, namely, whether the one-half share in the estate of deceased Balabhai to which the assessee was entitled under the will could be said to be an asset belonging to the assessee on the relevant valuation dates so that it could be taken into account in computing the net wealth of the assessee. We have, therefore, having taken the sense of the counsel appearing on both the sides, framed only one question with the end in view of focusing attention on the real issue in controversy and the said question, which is in the following terms, will be answered in the present reference :

'Whether, in the facts and circumstances of the case, the Tribunal was right in law in holding that the properties bequeathed to the assessee under the will dated October 6, 1956, executed by his grand-father are includible in the net wealth of the assessee under the Wealth-tax Act, 1957 ?'

11. In order to appreciate the various contentions urged before us it would be convenient at this stage to refer to some of the relevant provisions of the Act. Section 3, which is the charging section, in so far as it is relevant for the purposes of the present case, provides that there shall be charged for every assessment year a tax called wealth-tax in respect of the net wealth, on the corresponding valuation date, of every individual, Hindu undivided family and company at the rate specified in the Schedule. The charge, it is apparent, is on the net wealth and the expression 'net wealth' has been defined in section 2(m) of the Act as under :

'(m) 'net wealth' means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than -

(i) debts which under section 6 are not to be taken into account;

(ii) debts which are secured on, or which have been incurred in relation to, any property in respect of which wealth-tax is not chargeable under this Act; and

(iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the Estate Duty Act, 1953 (34 of 1953), the Expenditure-tax Act 1957 (29 of 1957), or Gift-tax Act, 1958 (18 of 1958), -

(a) which is outstanding on the valuation date and is claimed by the assessee in appeal, revision or other proceeding as not being payable by him, or

(b) which, although not claimed by the assessee as not being payable by him, is nevertheless outstanding for a period of more than twelve months on the valuation date.'

12. The definition in simple words and in substances provides that net wealth is that wealth which is arrived at by deducting from the aggregate value (computed in accordance with the provisions of the Act) of all the assets belonging to the assessee on the valuation date, the aggregate value of all the debts (other than those excepted) owed by the assessee on the said date. For the purposes of the present reference it would be material to bear in mind that only such assets as belong to the assessee can be taken into account in determining the net wealth of the assessee. Section 2(e) defines the word 'assets' in very broad terms and provides that it includes 'property of every description', movable or immovable, but does not include certain properties therein specified. The word 'property', as is well known, is a term of widest import and, subject to any limitation or qualification which the context might require, it signifies 'every possible interest which a person can acquire, hold and enjoy'. See J. K. Trust v. Commissioner of Income-tax : [1957]32ITR535(Bom) . The contest here, far from imposing any limitation or qualification, suggests that the widest possible meaning should be assigned to the word 'property' since property of every description is said to be comprehended within the inclusive definition of the word 'assets'. It would thus appear that the legislature has cast its net very wide and under the charging section read with the relevant definition clauses, property of every description which is shown to belong to the assessee on the relevant valuation date (including every possible interest acquired, held or enjoyed by him in any property but excluding exception s stated in section 2(e) and other provisions of the Act) is required to be taken into account in determining the net wealth of an assessee for the purposes of wealth-tax.

13. In the light of the aforesaid legal provisions, the question which requires consideration in the present references is as to what was the nature and character of the interest which the assessee acquired under the will in the properties which could be said to belong to him on the relevant valuation dates. Now, in order to determine these points, reference will have to be made first to the will executed by deceased Balabhai. A copy of this will which is in the Gujarat languages is annexed to the statement of case as annexure 'G' and an English translation thereof is annexed as annexure 'H'. We, however, found, that the hearing of the reference, that the English translation was not accurate and at our suggestion the revenue produced a fresh English translation of the will which has been taken on record of the reference with the consent of the assessee and marked exhibit II. In the said will, after mentioning that the testator was possessed of separate movable and immovable properties and that he also had 'right, title and interest' in the movable and immovable properties of the joint family, the testator proceeded to make disposition of his properties in the followings words :

'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 personal 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 my two grandsons, Navnitlal Sakarlal and Nandkishore alias Shamubhai Sakarlal, and they shall use and enjoy the same as they desire.'

14. The testator did not appoint executor or administrator and it would appear from the foregoing provisions made in the will that the intention of the testator was that, on his death, the assessee and his brother should take possession of his entire properties and discharge out of his self-acquired properties his debts, obligations and liabilities and meet the expenses incurred during his illness and for his obsequial ceremonies and make provisions for charity and then 'use and enjoy' the properties. Under the relevant terms of the will, therefore, on the death of the testator the legatees were to get an interest in his separate properties as well as in his share in the Hindu undivided family properties and they were become entitled to use and enjoy the same after making provisions for discharging debts and liabilities and payment of certain expenses out of the self-acquired properties of the testator. The question then is : could this interest in these different properties which the legatees derived under the will be termed as an asset within the meaning of the Wealth-tax Act

15. It would be convenient to examine first the consequences which in law ensued as a result of the aforesaid disposition so far as it concerns the share of the testator in the coparcenary properties. Under the orthodox Hindu law, the testator could not have disposed of his interest in the properties of the Hindu undivided family by a will. However, the Hindu Succession Act, 1956, which came into force on and with effect from June 17, 1956, made a radical departure in this behalf and since Balabhai, the testator in the present case, died after the enactment of the said Act, succession to his estate would be governed by the provisions of the said Act. Now, under section 30 of the Hindu Succession Act, it is competent for a male Hindu to dispose of by will or other testamentary disposition his interest in the Mitakshara coparcenary property in accordance with the provisions of the Indian Succession Act, 1925, or any other law for the time being in force and applicable to Hindus. As we shall presently show, the devolution of the interest in coparcenary properties in this case would be governed by the provisions of section 6 of the Hindu Succession Act and reference may, therefore, be made to the provisions of the said section. The main part of the said section provides that when a male Hindu dies after the commencement of the Act, having at the time of his death an interest in a Mitakshara coparcenary property, his interest in the said property shall devolve by survivorship upon the surviving members of the coparcenary and not in accordance with the Act. The proviso to the said section, however, carves out an exception and provides that if the deceased had left him surviving a female relatives specified in class I of the Schedule or a male relative specified in that class, who claims through such female relative, the interest of the deceased in the Mitakshara coparcenary property shall devolve by testamentary or intestate successions, as the case may be, under the Act and not by survivorship. As already stated, the testator in the present case left him surviving three daughters who fall within the class of female relatives specified in class I of the Schedule and, therefore, his interest in the coparcenary properties would devolve by testamentary succession under the Act since he had executed a will. The assessee and his brother, therefore, became entitled under the will to inherit the one-half share of the deceased in the coparcenary properties.

16. The next question which must of necessity be considered is as to what was the nature and quality of the interest which devolved on the assessee and his brother. In other words, the question is : did the heirs for all practical purposes step into the shoes of the coparcener so far as his interests in the coparcenary properties was concerned and was their interest as fluctuating as that of the deceased coparcenar To answer that question, reference must be made to Explanation I to section 6 which provides that for the purposes of section 6, the interest of the coparcener shall be deemed to be the share in the property that would have been allotted to him if a partition of the property had taken place immediately before his death, irrespective of whether he was entitled to claim partition or not. It would thus appear that the interest of the deceased coparcener in the joint family properties which devolves on his heirs, whether by testamentary or intestate succession, under section 6 would be the share in the coparcenary properties which would have been allotted to him on partition, if a partition had taken place immediately before his death. The concept of a notional partition is brought in for the purpose of defining the nature and quality of the interest which devolves by succession and by a fiction the quantum of share is fixed and the proportion in which the share is to be computed is also determined. The share which has thus crystallized in definite ascertained coparcenary properties, subject, of course, to the payment of proportionate share of debts and liabilities. devolves on the heirs by succession. The said share, as it were, goes out of the Hindu undivided family and the Hindu undivided family continues to hold only the remaining share in the coparcenary properties. It would appear that from that point onwards the Hindu undivided family and the heirs of the deceased coparcener would hold the coparcenary properties as tenants-in-common each having defined share in the properties which belonged to the Hindu undivided family at the date of the death of the coparcener. The heirs of the deceased coparcener would also take the share of the deceased coparcener in the properties of the Hindu undivided family between themselves as tenants-in-common because as pointed out by the Privy Council in Jogeswar Narain Deo v. Ram Chandra Dutt ILR [1896] Cal 670 . 'the principle of joint tenancy appears to be unknown to Hindu law, except in the case of coparcenary between the members of an undivided family'. This conclusion is fortified by the provisions of section 19 of the Hindu Succession Act, 1956, which provides that if two or more heirs succeed together to the property of a intestate, which would include the interest of a deceased coparcener in coparcenary properties, then, they shall take the properties as tenants-in-common and not as joint tenants. It is true that the reference there is to the property of an intestate but the principle underlying the same can be invoked also in the case of heirs taking together under a will. The result, therefore, is that each of the heirs on the one hand and the Hindu undivided family on the other will have, until partition by metes and bound takes place, an undivided share in specified proportion in each and every one of the properties of the coparcenary.

17. This view, which we are taking, finds support in two decisions of this court. In Commissioner of Wealth-tax v. Kantilal Manilal : [1973]90ITR289(Guj) a Division Bench of this court had an occasion to consider a similar question in the context of the share of a deceased coparcener in the joint family properties which devolved by intestate succession and having examined the question in all its material aspects including the effect of section 6 of the Hindu Succession Act, 1956, it arrived at the same conclusion which we have reached earlier. The question in that case was whether after the death intestate of a coparcener, who left him surviving female relatives specified in class I of the Schedule, his one-third share in an item of the joint family property, namely, jewellery, had ceased to belong to the assessee-family so that it could not be taken into account in computing the net wealth of the undivided family. The Division Bench held that on the death of the coparcener, section 6 of the Hindu Succession Act, 1956, came into play and the interest of the deceased coparcener in the family properties devolved on his heirs. His interest in such properties was crystallized by ascertainment if his share as on the date of his death and such share went out of the family and the heirs of the deceased and the remaining members of the coparcenary thenceforward held the property as tenants-in-common. Each one of them had an undivided share in specified proportion in every item of the erstwhile family property. This decision was followed and applied in the case of testate succession in Commissioner of Income-tax v. Shri Shantikumar Jagabhai : [1976]105ITR795(SC) , which was decided on October 1, 1973, by a Division Bench of this court. It would thus appear that the conclusion arrived at arrived at earlier is fully supported by two decisions of this court.

18. The question then is whether the assessee's one-half interest in the share of the deceased testator in the coparcenary properties could be said to be an asset belonging to the assessee on the relevant dates so that it could be taken into account for the purposes of computing the net wealth of the assessee. As stated earlier, section 2(e) of the Act defines 'assets' to include property of every description, movable or immovable, does not include certain categories of properties with which we are not concerned. This definition, which is not exhaustive, is of wide amplitude and there is no cogent reason as to why the interest which the assessee acquired in the coparcenary properties under the will cannot be included amongst the assets of the assessee. The assessee became entitled to a specified undivided share in watch and every item of property held by the Hindu undivided family at the time of the death of the testator. He could have alienated his interest in the said properties and such interest could also have been attached and sold in execution of a decree against him. The legacy vested in him not only in interest but also in possession and he became a tenant-in-common in respect of the coparcenary properties along with his co-heir and the surviving members of the Hindu undivided family with all the rights and liabilities flowing from such status. We are of the opinion, therefore, that the interest which devolved upon the assessee under the will in the coparcenary properties was an asset which can be legitimately taken into account in computing his net wealth.

19. That takes us to the examination of the nature and quality of interest which devolved on the assessee under the will so far as the separate properties of the testator were concerned. Counsel for the assessee contended that the interest, if any, which the assessee acquired under the will in the separate properties of the testator could not be said to be an asset belonging to the assessee which could be taken into account for the purpose of computing his net wealth on the relevant valuation dates. The argument ran on the following lines : Under the terms of the will, the debts, liabilities and obligations of the testator were to be first discharged and likewise medical expenses as well as expenses for obsequial ceremonies and payments towards charity were also to be made out of the separate properties of the deceased. The legatees were to become entitled to use and enjoy only the surplus or residue of the separate property of the testator after the payments of dues and expenses aforementioned. The assessee was, therefore, a merely a legatee of a share in the residue and as such he was no more that a residuary legatee. Consequently, the assessee, acquired no interest in any of the separate properties of the testator until the administration of the estate was completed by such payments and the residue was ascertained. In the present case, the administration was not completed since the entire estate duty which was payable out of the separate properties of the testator was not paid and the father of the assessee, who was administering the estate of the testator, had not put the assessee in possession of his share of the surplus of the separate properties. In these circumstances, the only right which the assessee had was to have the administration completed and the residuary estate ascertained and realised and to have the surplus handed over to him in such share as was due to him. It is only after this right is exercised and granted that any of the separate properties of the testator would become the properties of the assessee. The share of the assessee in the separate properties of the testator could not, therefore, be said to be an asset belonging to the assessee on the relevant valuation dates. In support of this arguments reliance was placed on the decision of the House of Lords in Lord Sudeley v. Attorney-General [1897] AC 11; 1 EDC 73 (HL) and in R v. Income-tax Special Commissioner : Ex parte Dr. Barnado's Homes [1921] 7 TC 646, and on the decision of the Supreme Court in Administrator-General of West Bengal v. Commissioner of Income-tax : [1965]56ITR34(SC) .

20. The argument urged on behalf of the assessee, attractive though it might appear at first sight, is not well-founded and though some of the premises on which it is founded cannot be disputed, the ultimate conclusion sought to be drawn therefrom is not supportable. In order to examine the validity of the argument and determine the nature and the character of the interest which the assessee acquired under the will in the separate properties of the testator, reference will have to be made to some of the provisions of the Indian Successions Act, 1925. Before we do so, however, it may be stated that it is not in dispute that the only administration, if any of the estate left by deceased Balabhai which remains to be done or, to put it differently, the only payment to be made or liability to be discharge out of the separate properties of the deceased, was the payment of the balance amount of the estate duty for which installments were granted by the competent authority. This important fact will have to be borne in mind in considering the question raised for our decision.

21. Section 102 provides that a residuary legatee may be constituted by any words that show an intention on the part of the testator that the person designated shall take the surplus or residue of his property. Illustrations (i) and (ii) under the said section show that the person to whom the residue of the property of the testator after paying expenses or defraying and discharging debts is bequeathed would be constituted a residuary legatee. It would thus appear that no particular words are necessary to designate a residuary legatee and that if the intention of the testator was that the surplus of his estate, after payments of debts and other expenses, shall be taken by the named legatee, such legatee would be constituted a residuary legatee.

22. Section 104 and 119 provide respectively for the vesting of legacy when it is in general terms and when the payments or possession thereof is postponed. In the first case, that is, when the legacy is given in general terms without specifying the time when it is to be paid, the legacy vests in possession in the legatee from the day of the death of the testator and if the legatee dies without having received it, it passes to his representatives. In such a case, the legatee would be entitled to demand possession immediately and if the assets are sufficient for the payment of debts and for meeting other expenses designated by the testator, the executor might pay or deliver the legacy although he is not bound to do so until the expiration of one year from the testator's death (vide section 337). In the other case, that is where by the terms of a bequest the legatee is not entitled to immediate possession, a right to receive it at the proper time, unless a contrary intention appears by the will, becomes vested in the legatee on the testator's death and it passes to the legatee's representatives if he dies before such time the testator death, is said to be vested in interest and the legatees has no immediate right possession or payment of his legacy until the time fixed by the will has arrived.

23. Section 232, inter alia, provides that when the deceased has made a will, but has not appointed an executor, the universal or residuary legatee may be admitted to prove the will and letters of administration with the will annexed may be granted to him of the whole estate or so much thereof as may be unadministered. Section 233 provides that when a residuary legatee who has a beneficial interest survives the testator but dies before the estate has been fully administered, his representatives has the same right to administration with the will annexed a such residuary legatee.

24. Section 332 provides that the assent of the executor or administrator is necessary to complete a legatee's title to his legacy. Section 336 provides that when the executor or administrator is a legatee, his assent to his own legacy is necessary to complete his title to it in the same way as it is required when the bequest is to another person and his assent may, in the like manner, be express or implied. Assent may be implied if in his manner of administering the property he does any act which is referable to his character of the legatee and is not referable to his character of executor of administrator. Section 336 says that the assent of the executor or administrator to a legacy gives effect to it from the death of the testator.

25. Section 366 provides that the surplus or residue of the deceased's property after payment of debts and legacies, shall be paid to the residuary legatees when any has been appointed by the will.

26. Now, the first question which arises for consideration against the back-ground of these provisions is as to the nature and character of the legacy in favour of the assessee. As stated earlier on a true construction of the relevant terms of the will the assessee and his brothers were to use and enjoy as owners the separate properties of their deceased grand-father after first paying the debts and meeting other expenses and making provisions for charity. It would appear that the intention of the testator was that the surplus of his separate estate, after payment of debts and other expenses, should be take by the legatees and enjoyed as owners. The assessee and his brother can, therefore, properly be called residuary legatees. We have said earlier that the principle of joint tendency is well unknown to Hindu law except in the case of a coparcenary and, therefore, it would follow that the assessee and his brother would take the residue of the separate properties of the testator as tenants-in-common and not as joint tenants. The true character or status of the assessee, therefore, is that of a legatee of an equal share in the clear residue.

27. The next question which must be considered is as to the quality of the interest, if any, acquired by the assessee on the death of the testator in the separate property of the testator that might be available for distribution after satisfaction of debts and legacy. Now, it cannot be possibly be disputed that the right of residuary legatee, until the estate is fully administered, does not extend to vesting in him of the entire estate or any portion of the estate of the testator in specie so that he could point and say : 'this is a part of my estate'. The residuary legatee would not in law be entitled to immediate possession of the estate and his only right would be to require the executors or administrators to administer the estate completely and having ascertained the residue to put him in possession of the same and to complete his title to the legacy. It is only then that the legatee would be entitled to say for the first time as regards the property distributed :' this now belongs to me' and thenceforward such property would vest in him in possession as owner. If the residuary legatee is himself the executor or administrator, he may take possession of the estate but such possession would not be referable to his character of legatee and his assent, express or implied, in his capacity as executor or administrator would be necessary on completion of the administration to invest him with title to his own legacy. This, however, does not mean that pending final administration or a partial distribution no interest whatever vests in the residuary legatee so far as the residue of the estate of the testator is concerned. Though the residuary legatee is not entitled to immediate possession of the testator's estate or any part thereof and has no right to claim any interest, whether legal or equitable, in any specific asset or each and every asset of which the estate consists, the right to receive the clear residue, that is, what remains of the estate after satisfying debts and legacies, becomes vested in the legatee on the testator's death unless a contrary intention appears by the will and the said right even passes to the legatee's representatives if he dies before the distribution and without receiving the legacy. In other words, the residuary legacy is vested in interest in the legatee right from the day of the death of the testator and it would be transmissible, on his death, to his representatives. It would thus appear that the right to the surplus of the estate, which comes into being from the testator's death, remains the same both before and after the completion of administration notwithstanding that it is not until the administration is complete that the residuary legatee can say that any particular asset or any particular income is his and not a part of the general estate of the testator.

28. The next question is whether such an interest or right could be said to be 'property' within the meaning of section 2(e) of the Act and, therefore, an asset belonging to the assessee and includible in his net wealth. Now, as pointed out earlier, the word 'property' is a term of the widest import and, subject to any limitation which the context may require, it signifies every possible interest which a person can clearly hold and enjoy. Reading the definition of the word 'assets' given in section 2(e) and that of 'net wealth' as given in section 2(m) of the Act, we see no reason why the right of a residuary legatee to the surplus of the estate which arises on the death of the testator and which accrues to him even before the completion of the administration and is transmissible to his representatives if he should die before he actually comes into possessions of the estate, cannot be included amongst the assets of an assessee. It is true that the residuary legatee is not entitled to immediate possession of the clear residue and that the surplus of the testator's property would be vested in possession in him at the proper time, that is, after the payments of debts and legacies. It would not, however, detract from the proposition that the right to receive the clear residue, even though the date of actual receipt is deferred, is still property and constitutes an asset for the purpose of wealth-tax. In our opinion, therefore, the interest which devolved upon the assessee under the will in the surplus, if any, of the separate property of his grand-father was an asset belonging to the assessee on the relevant valuation dates and it could be legitimately taken into account in computing his net wealth.

29. It would not be out of place to mention in this context that in Commissioner of Wealth-tax v. Bhogilal Maganlal Shah [1968] 69 ITR 288 (Guj), a Division Bench of this court has held that a contingent interest given to the assessee in that case in the corpus of the trust property together with all accretions thereto was an asset within the meaning of section 2(e) of the Act. The cases of a residuary legatee in whom the surplus of the estate is vested in interest right from the day of the death of the testator stands on a much higher footing and on no account would it be possible to hold that his interest would not be comprehended within the meaning of the word 'assets' as given in section 2(e) of the Act. In Pandit Lakshmi Kant Jha v. Commissioner of Wealth-tax : [1973]90ITR97(SC) the Supreme Court held that the right to compensation acquired by an assessee whose estate or tenure vested in the State under the provisions of a statute was a vested right and though the amount of compensation may not have been determined before the relevant valuation date, there would be no justification for the exclusion of the compensation from his assets. This decision also support the view which we have taken since it proceeds on the footing that although compensation was not payable immediately and its payment might be spread over a period of years, it would nonetheless be an asset for the purposes of wealth-tax. This position of residuary legatee is somewhat analogous, for, though the residuary legacy is not vested in possession in him immediately and its distribution may be deferred, he nonetheless, gets a vested interest in the clear residue right from the day of the death of the testator.

30. The decisions on which reliance is placed on behalf the assessee in support of the proposition propounded before us are clearly distinguishable and not take the case of the assessee as far as he would like to carry it. In Sudeley's case [1897] AC 11; 1 EDC 73 , the question which arose for determination was whether a residuary legatee, who was entitled to a share in the testator's surplus estate and who had died before the completion of the administration of the estate, could be treated as having acquired an interest in certain specific assets forming part of the testator's estate which were situate in New Zealand (since, if that were so, those assets being foreign assets would not be completely and for all purposes within the jurisdiction and would not be subject to probate duty in England on the legatee's death) or whether the residuary legatee must be treated as having acquired an interest generally in the estate of the testator, which was being administered in England and in respect of which as an English asset, duty would be payable in England. The House of Lords approved of the latter view, the ratio of the decision being that the residuary legatee does not have any estate, right, or interest, legal or equitable, in any particular property of the testator before the completion of the administration and that his only right was to the clear residue, that is to say, what remained of the estate of the testator after paying and legacies. In Dr. Barnado's case [1921] 7 TC 646 , adopting the same reasoning the House Lords decided that income arising from investments and from which tax has been deducted and out of which executor made payments on account, pending final administration, to Dr. Barnado's Homes in pursuances of a residuary bequest in favour of the said charity could not be treated as being, or as having been the income of the charity, so as to enable the charity to claim repayment of the income-tax deducted from such income on the ground that it was paid on behalf of the charity. This decision again rests upon the view that, prior to the ascertainment of the residue, the charity could not claim title to any of the items of the testator's property out of which its legacy was ultimately payable or to the income arising therefrom. These two cases, however, do not support the proposition that pending final administration and distribution, the residuary legatee had no title or interest at all in the residue :wq Indeed, the decision in Sudeley's case [1897] AC 11; 1 EDC 73 shows that in the case of the death of a residuary legatee before he actually comes into possessions of his legacy, his estate will be liable to pay duty upon the value of his interest in the residue ascertained as best as may be in the circumstances of the case. This is how these two decision have been understood even in England as is apparent from the decision of the Court of Appeal in Cunliffe-Owen, In re : Mountain v. Inland Revenue Commissioners [1953] Ch 545; [1953] 2 All ER 196, where Lord Evershed M. R., after referring to the said two cases, observed :

'Those two cases, as it seems to me, taken by themselves, do not carry the executors the distance which they seek to be carried. It is one thing to say that, pending final administration, a residuary legatee is not entitled to any estate, right, or interest, whether legal or equitable, in any specific item of property, but it is another thing to say (and it does not follow from the first proposition, in my opinion) that pending administration the residuary legatee has no interest in the estate at all or is enjoying a mere expectancy...... I cannot, therefore, accept the proposition that either on the authority of the cases referred to or otherwise, pending final administration, or pending a partial distribution, the residuary legatee has no interest in residue beyond what Mr. Pennycuick has called a mere expectancy. I think his title to the residue is there from the start and, indeed, the Lord Sudeley's case [1897] AC 11, 1 EDC 73 shows that if he should die before he actually comes into possession of it, his estate will be liable to pay duty on the value of that interest in residue ascertained as best may be in the circumstances. The effect, undoubtedly, of the conclusion is to be enable the legatee to say, and to say for the first time as regards the subject-matter distributed; 'This particular property is now mine'.'

31. We need say no more with reference to the two English decision relied upon by the assessee, for the aforesaid passage from the judgment of the Master of Rolls eloquently summarises their true effect and appropriately explains the ratio thereof.

32. The decision in the case of the Administrator-General of West Bengal v. Commissioner of Income-tax : [1965]56ITR34(SC) also does not take the case of the assessee further and proceeds on an analogous view. In that case, under the will of the testator, who died in 1938, the residuary estate was bequeathed to his five sons. The executors and trustees were required to manage the estate for a period of fifteen years before the end of which numerous specific legacies were to be paid out of the savings from the income of the estate. In May, 1948, the Administrator-General of the West Bengal was appointed administrator and letters of the administration de bonis non of the estate were granted to him. He submitted returns of income in respect of the assessment years 1950-51 and 1951-52 and claimed (though the administration of the estate was not completed in the relevant accounting periods) that the income was specifically receivable on behalf of the five sons of the testator, that their shares in the said income were definite and determinate and that the assessment was, therefore, required to be made under section 41 of the Indian Income-tax Act, 1922. The Supreme Court held that, as the administration of the estate was not completed, the Administrator-General received income of the estate on his behalf and not on behalf of the sons who were residuary beneficiaries. A share of the residue does not belong to the beneficiary until it is ascertained either in whole or in the part by transfer or assent to him or by appropriation and that, therefore, section 41 did not apply. It would appear from the foregoing that the case was similar to that of Dr. Barnado's Homes [1921] 7 TC 646 and the true ratio of the decision is that until the estate is fully administered and net residue is ascertained, the residuary legatee has no property in any specific investments forming part of the estate or in the income from any such investment and both the corpus and income are the property of the executors. The decision is no authority for the proposition that the residuary legatee acquires no interest whatever in the residue, that is, the surplus which might be ultimately left after the estate is fully administered.

33. From the foregoing discussion it would appear that the Tribunal was right in taking the view that it did, namely, that a share in the residue of the separate property of the deceased grand-father of the assessee bequeathed upon the assessee under the will executed by the grand-father was an asset belonging to the assessee on the relevant valuation dates and was includible in the net wealth of the assessee under the Wealth-tax Act. We may hasten to add, however, that in reaching this conclusion we have adopted a process of reasoning different from that which appealed to the Tribunal and that we do not concur in all the grounds upon which the decision of the Tribunal is founded.

34. We may mention that on behalf of the assessee it was urged in passing that the interest, if any, acquired by the assessee in the separate properties of his deceased grand-father was not capable of valuation under the provisions of the Act and that the price which it would fetch, if sold in the open market, could not possibly be ascertained. We are unable to uphold the contention. The provisions of section 7(1) of the Act lay down the mode of determination of the value of any asset other than cash for the purposes of the Act and it is provided that such value shall be estimated to be the price which, in the opinion of the Wealth-tax Officer, it would fetch if sold in the open market on the valuation date. As pointed out by the Supreme Court in Purshottam N. Amarsay v. Commissioner of Wealth-tax : [1973]88ITR417(SC) , the statute does not contemplate actual sale or actual state on the market but only enjoins that it should be assumed that there is an open market and the property can be sold in such a market and, on that basis the value has to be found out. It is hypothetical case which is contemplated and the existence of an open market in which the asset can be sold must be assumed. That apart, in the present case, the value of the entire separate estate of the testator is known and the only debt which is an ascertained debt, being the balance of the estate duty payable, is also known. The ascertainment of the value of the clear residue is to all intents and the purposes a matter of calculation and the determination of the assessee's share therein is a matter of logical sequel therefrom. It can hardly be said, therefore, that the assessee's interest in the residue is incapable of valuation.

35. In the result, we hold that the properties bequeathed to the assessee under the will executed by his grand-father are includible in the net wealth of the assessee under the Wealth-tax Act and accordingly answer the question reframed by us in the affirmative. The assessee will pay the costs of the reference to the Commissioner and bear his own.

36. Question answered in the affirmative.


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