Satyanarayana Rao, J.
1. This is a consolidated reference under Section 66(1), Income tax Act, by the Appellate Tribunal relating to the relevant assessment years 1942-1943 and 1948-1944; and also to the chargeable accounting period, 29th January 1941 to 18th January 1942 under the Excess Profits Tax Act.
2. The questions referred to us are:
(1) Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the executors did not cease to be executors, and, therefore, Section. 41, Income-tax Act, had no application?
(2) Whether on the facts of the case the Tribunal was right in upholding the decision of the department that the maintenance paid to the widow and the mother of the testator under the will was not an allowable deduction under the Income-tax Act?
3. The assessee is V. M. Raghavalu Naidu and Sons (by executors C. G. Krishnaswami Naidu and M. R Krishnaswami Naidu). They were assessed to income-tax during the assessment years as an association of persons. The executors were appointed under the will of one V.M.R. Seshachalam Naidu who died in 1936 leaving behind him a will dated 20th April 1936. At the time of the death of the testator, he was carrying on a lucrative timber business in Madras and had also agencies at Karachi, Calcutta and branches at Negapatam, Cocanada and Bombay. He also owned saw mills at Rangoon. He left behind him at the time of his death his mother and his widow besides three daughters and three sons. By Clause (3) of the will he appointed his son-in-law C.G. Krishnaswami Naidu and his manager whom he described as Basin Bridge Depot Manager, M.R. Krishnaswami Naidu, as executors and trustees of the will. The same clause also provided that his daughter Jumna Bai and his sons Badri Narayan alias S. Badrinath and Sampath Kumaran shall as soon as each of them attain the age of majority, i.e., age of 18, also became executors and trustees in addition to the two named persons and carry out the provisions of the will. C.G. Krishnaswami Naidu was appointed executive trustee Under Clause 6 of the will he directed that the business should be continued after his death so long as the business is running at a profit and should not be wound up even after the sons attained the age of majority and assume the management. Among the properties left by him this business was the most important asset and he had also other moveable and immoveable properties. Under Clause (8), there was a provision to purchase immoveable properties, after the total capital of the business reached Rs. 10,00,000, i.e., five lakhs for the business in India and five lakhs for the business in Burma. The executors under this clause should set apart immoveable properties of the value of Rupees 50,000 every year which they should acquire out of the profits of the business. Under Clause (9), the executors were empowered to convert the business of India into a limited concern soon after the capital of the business in India reaches five lakhs of rupees. Clauses 10 and 11 provide for payment of an amount to the mother and also some amounts to his widow for the maintenance of herself and the children. By Clause 12 he made provision for certain pecuniary legacies most of which are payable at a future date on the happening of the events mentioned therein. This clause also directs that the mortgage deed executed by the testator's wife's sister's son in his favour should be cancelled and delivered to him. Clause 13 provides for the setting apart of half anna per rupee of the net profits of the business every year and also half anna per rupee from the interest on capital, and for payment of the said sum to V.M.R. and Son Trust, which was established by the testator's mother so long as the charity continues to be carried on. Under Clause 17 the testator expressed his desire that his three sons-in-law should be trained in the business and that they should be taken as partners in the business and given a share of one and half annaa in the rupee for the first ten years and two annas in the rupee thereafter till their 65th year. There is also a provision for a monthly payment for their remuneration and maintenance from the time of their joining the service and working in the business. Clause 18 provides for the disposal of the residue. Under it the three sons are entitled to take the estate as tenants-in-common subject to the legacies and dispositions contained in the will but they would be entitled to enjoy the income and profits of the estate without any power of alienation during their lives and after their death the estate should be taken by the grandsons, by the sons, natural or adopted. The grandsons, it is provided, should be entitled to take the estate per stirpes provided, however, that their right to partition and possession of the estate shall be postponed until the majority of such of the grandsons as may be alive at the death of the last of the sons of the testator.
4. After the death of the testator, the two executors applied for and obtained probate in O. P. No. 164 of 1936 on the file of the High Court on 1st August 1936. The usual accounts, it is stated, were also submitted by the executors in due course. The business was continued by the executors. The major part of the income which was assessed by the income-tax officer, consists of the profits of the timber trade, the rest of it being income from business in paints and cocoanuts, rents and profits or property and interests on securities.
5. The main contention of the assessees was that they should not be assessed as an association of persons but should be assessed as trustees under Section 41, Income-tax Act. This section deals with cases of what may be described as vicarious assessments and if there are trustees constituted under a deed or a will, the measure of the liability is the actual interest of the beneficiary concerned. The trustees and other representatives contemplated by the section are in the nature of persons who merely receive the income but transmit the same to the beneficiaries. In other words, the estate of the beneficiary is what is charged to income-tax under the section. The other contention raised by the assessees was that the sum of Rs. 12,950 in the assessment year 1942-1943 and Rs. 12,900 in the subsequent year were paid by them as maintenance allowance to the widow and the mother of the deceased and that those amounts should be deducted from the income of the estate during the respective assessment years the contention being that the maintenance allowances were an allocation by the deceased of part of his income which were charged upon the estate and the executors had no right to such income. The amount actually paid during the period was not in dispute. These two contentions were rejected by the income-tax officer and by the Appellant Assistant Commissioner. On further appeal, the Appellate Tribunal confirmed the decision of the department. Hence this reference.
6. The main contention urged by the learned advocate on behalf of the assessee was that the administration of the estate was completed, the residue was ascertained, the executors assented to the legacies and thereafter there were no further duties as executors to be discharged by them and, therefore, they became trustees for the beneficiaries; and the assessment should have been made under Section. 41 of the Act. This is the contention covered by the first of the questions referred to us.
7. As Kekewich J. observed in Timmis In re, Nixon v. Smith, (1902) 1 Ch. D. 176; 71 L. J. Ch. 118 :
'There are few things more difficult than to determine when an executor ceases to have duties gua executor or virtue 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.'
This exactly describes the situation in the present case. The two persons were appointed as executors and trustees under the will and one of them is an executive trustee. Do the two persons still continue to be executors or have they become trustees? An' 'executor' is a person to whom execution of the last will of a deceased person is, by the testator's appointment, confided'. (Vide Section 2(c), Succession Act). He is the legal representative of the deceased. It, therefore, follows that he represents the estate of the deceased in the right of the testator. So long as he continues as an executor he holds the estate as a representative of the deceased and not on behalf of the beneficiaries. A trustee is a person in whom the property is vested for the benefit of the beneficiaries. Until, therefore, the title of the deceased or the representative character of the executor comes to an end he does not clothe himself even it he is described as a trustee under the will with the legal character of a trustee. If he holds the title as a trustee for the beneficiaries it is then that he acquires the status of a trustee. The point therefore for consideration is when does the executor cease to function as such? In the present case, the testator bequeathed certain pecuniary legacies and his estate consisted of a business which he expressly directed that the executors should continue even after the sons attained majority. In the residuary estate a life interest is given to the sons who are to take it as tenants in common with a remainder over to the grandsons by the sons. The sons under the will are entitled to certain pecuniary legacies and also a life interest in the residuary. For the executors to become trustees of the residue the funds which they should hold in trust for the residuary legatees must be constituted and must emerge into existence. It is settled law that until the residuary estate is ascertained the residuary legatees acquire no interest in the property and no fund in their favour comes into existence This has been settled in Sudeley (Baron) v. Attorney General, (1897) A. C. 11 : 66 L.J.Q.B. 21. The position has never been so clearly enunciated as in the speech of Lord Halsbury L. C. in that case at pp. 15 and 16. The following observations at p. 15 of the speech are apposite:
'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 legattee 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 cestuigue 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. In this-case the trustees and executors happen to be the same persons; but I think Mr. Channeli made the point clear by adopting the hypothesis that the executors and trustees had been different persons. Until the thing has been ascertained, until the trust fund has been constituted the thing of which the trustees are the trustees has not been ascertained. Whether you treat them, therefore, as trustees or executors, the name consideration arises.
Now if the only thing that the legatee is entitled to is the fourth share of an ascertained residuary estate, I gay that to my mind it is impossible to maintain that the character of any part of that estate can be ascertained so as to make it possess a specific locality until that has happened; it is a condition precedent to know what the residuary estate is and until that has been ascertained you cannot tell of what it will consist.'
To the same effect is also the decision of the House of Lords in Barnado's Homes v. Iriland Revenue Commissioners, (1921) 2 A. C. 1 : 90 L.J.K. B. 545. Referring to Lord Sudeley's case, (1897) A. C. 11: 66 L. J. Q. B. 21, Lord Atkinson at p. 11 of that case says this:
'The case of Sudeley v. Attorney-General, (1897) A. C. 11: 66 L. J. Q. B. 21 decided in this House conclusively established that until the claims against the testator's estate for debts, legacies, testamentary expenses etc., have been satisfied, the residue does not come into actual existence. It is a non-existent thing until that event has occurred. The probability that there will be a residue is not enough. It must be actually ascertained.'
After the residue is ascertained and the executor assents to the legacy either expressly or impliedly the disposition in the will becomes operative and the beneficiaries have the property vested in them. The assent of the executor before the residue is ascertained would not perfect the title of the residuary legatee as the residue until then does not come into existence. It is in this light that the observations of Viscount Haldane L. G. in Atten-Borough v. Solomon, (1918) A. C. 76 : 82 L. J. Ch. 178 have to be understood. In that case it may be observed the residue was ascertained; all the debts and legacies were paid and there was also assent of the executor. It was therefore held that the dispositions by way of trust took effect and that the executors had no interest thereafter to pledge the property which formed part of the residuary estate. No doubt as pointed out by Viscount Haldane L. C. in that case at page 85:
'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.'
To the same effect ig also the view of Kekewich J., in Timmis, In re; Nixon v. Smith, (1902) 1 Ch. D. 176 : 71 L. J. Ch. 118 where the learned Judge pointed out the ordinary duty of executors to pay the debts, funeral and testamentary expenses and when that is done he has done all that was necessary and though he still remains executor he has done his duty and is functus officio. In that case there were no legacies in the ordinary sense but if there were legacies the executor must pay them after the debts, funeral charges and testamentary expenses. After such payment as (sic) the residue may be ascertained and paid off to the residuary legatee. The fact that there was an outstanding mortgage on the property would not prevent the ascertainment of the residue. In Inland Revenue Commissioners v. Smith, (1930) 1 K. B. 713:99 L.J.K B. 361 Lord Hansworth M. R. referred to the decisions of the House of Lorda already referred to and applied the principles of those decisions to the case before him.
8. The learned Advocate General drew our attention to three other decisions of the Courts in England which also throw light on the point now under consideration, In In re Moore; Mc Alpine v. Moore, (1882) 21 Ch. D. 778 : 30 W. R. 839, which arose under the Trustee Act, 1850, Kay J. observed that, 'although the Court cannot remove an executor it can appoint a trustee or trustees to perform the duties of an executor, which in this ease means to pay the legacies when they became payable.'
This observation evoked comment in later case as it seemed to imply that a trustee could also perform the duties of an executor such as payment of legacies which is inconsistent with the functions of the office of a trustee who holds the property for the benefit of the beneficiaries. Kay J. thought in that case that the definition of the words 'trust' and 'trustee' in the Trustee Act, 1850, as extending to and including the duties incident to the office of personal representatives of a deceased person, justified the course indicated by the learned Judge in that judgment. The Court of appeal had occasion to consider this case in In re J. R Willey, (1890) Eng. Weekly Notes 1, where the Court adjourned the petition to ascertain whether the debts and funeral and testamentary expenses had been paid or not before taking action under the Trustee Act, 1850 by appointing a trustee. Cotton L. J. is reported to have intimated an inclination of opinion that In re Moore, (1882) 21 Ch. D. 778 : 30 W. R. 839 went too far, and that a Court acting under the Trustee Act, 1860, could not appoint a person as trustee to discharge the duties which legitimately belonged only to the office of an executor and not to that of trustee. Kekewich J. pointed out in a later case in Eaton v. Daines, (1894) Eng. Weekly Notes 32, that there was some misapprehension regarding the decision of Kay J. in In re Moore; Mc Alpine v. Moore, (1882) 21 Ch. D. 778 ; 30 W. R. 839 as the case before Kay J. must have bean a case where there was no existing trustee of the trust property remaining in the possession of the executor after it has passed from the office of executor to that of trustee which, implies that the administration of the estate by the executor was completed by payment of debts, legacies, funeral and testamentary expenses. Of course, Kekewich J. in that case agreed with Cotton L. J. that without payment of debts, legacies, funeral and testamentary expenses, the Court had no jurisdiction either under the Act or otherwise to appoint trustees. The executor represents the testator and is his legal representative. He has duties laid down by the will and by the statute which he alone should perform and could not be taken away out of his hand. These decisions in my opinion do not at all conflict with What was decided by the House of Lords in the cases already examined. On the other hand, they clearly draw the line of demarcation when the property legally passes from the possession of the executor to that of the trustee. The administration by the executor must be completed and the statutory duties must be discharged before the estate could pass to the trustee. These decisions in my opinion give clear guidance to determine the difficult question when the office of executor terminates and that of the office of the trustee commences.
9. Under the Succession Act the position is the same. The powers and duties of an executor are enumerated in Chap. 7 of the Act beginning with Section 316. The funeral charges have precedence over the debts and the debts have precedence over the legacies. The effect of assent of the executor or administrator is stated in Chap. 7 Under Section 332 the assent of the executor or administrator is necessary to complete a legatee's title to his legacy. It may be noted that the assent is required only to complete the title and not for the acquisition of the title. The title of the legatee is the title under the will and the assent is only to perfect the title and to complete it. Before such assent, however, the legatee's right is only an inchoate one which is transmissible to his personal representatives. Section 333 states that when there is assent of the executor, then the executor is divested of his interest and the assent transfers the subject of the bequest to the legatee. Of course, the assent when once it is given operates retrospectively to the date of the death of the testator. But there is one distinction between a specific legacy and a residuary bequest. The doctrine of relation back does not apply to the bequest of residue, as residue only comes into existence when the administration is completed. This follows on the principles relating to the residuary legacies which have been enunciated by the House of Lords in Lord Sudeley's case, (1897) A. c. 11 : 66 L. J. Q. B. 21 and Barnardo's Homes v. Special Income-tax Commissioners, (1921) 2 A. C. 1 : 90 L. j. K. B. 545. This distinction between specific legacies and residuary legacies was adverted to by Viscount Finlay in Barnardo's Homes Case, (1921) 2 A. c. 1 : 90 L. J. K. B. 545 where it is observed :
'The doctrine of relation, however, which applies to specific legacies, is not applicable to the bequest of a residue as the residue only comes into existence when the administration is completed.'
Section 342, Succession Act enjoins that the executor, when there is a general legacy to be paid at a future time should invest sum sufficient to meet it in securities of the kind mentioned in Section 341; and the intermediate interest forms part of the residue of the testator's estate. Under Section 318 where an annuity is given and no fund is charged with its payment or appropriated by the will to answer it, a Government annuity of the specified amount shall be purchased, or if no such annuity can be obtained, then a sum sufficient to produce the annuity shall be invested for that purpose in securities of the kind mentioned in Section 341. It is after all this that S 366 of the Act provides that the surplus or residue of the deceased's property, after payment of debts and legacies, shall be paid to the residuary legatee when any has been appointed under the will. It would be seen from this summary of the relevant sections of the Indian Succession Act that the principles embodied in the Act are not at variance with the principles which have been enunciated and applied in England.
10. Before dealing with the facts of the case, it may be useful to advert to the duties of an executor when one of the assets of the testator's estate consists of a business. The law on the subject is clearly summarised in 14 Halsbury (Hailsham's Edn.) at pp. 386 and 387 part V, Section 1; in Williams on Executors, Vol. II, 1930 Edn., p. 1171 and Godfrey on Trusts, pp. 268 and 270 Edn. 5. In order to enable an executor to continue the business of the testator, there should be a direction in the will either express or necessarily implied from the terms of the will. If there is no such direction the executor, however, may carry on the business for a reasonable time with a view to wind up the business. The executor is generally liable for the debts incurred during the course of the business which was continued by him but has a right of indemnity against the estate. It is unnecessary to deal with all the principles relating to the rights of creditors and of the executor regarding the payment of the debts as they have been discussed fully in the authorities referred to above, and they are not very relevant for purposes of this case. In the present case, under the will, the executors had an undoubted right to continue the business and the business forms part of the residue of the estate. It is also unnecessary for us in this case to determine finally what exactly are the rights in the business of the sons who take for life and the remaindermen i. e., the grandson by the sons. It will be sufficient to hold that residue includes the business, the profits of which have been included in the assessments now under consideration
11. In the light of these principles discussed above, I may now examine the facts in order to see whether the executors have become trustees under the will. The learned Advocate-General during the course of the arguments referred to some of the accounts which have been maintained by the executors to show that the residue was ascertained and the executors assented to the residue. Mr. Rama Rao Sahib, the learned advocate for the Income-tax Commissioner, objected to the production of the accounts at this stage as they were not available and were not produced before the Appellate Tribunal. Apart from this objection, we are not satisfied on a perusal of the accounts that the accounts indicate that the executors had discharged their duties as executors and that the residue was ascertained. It is admitted by the executors themselves that most of the duties enjoined upon them under the will and under the law have not been carried out. Of the pecuniary legacies, the eldest son alone received some amounts under Clauses (a) and (b) of para, 12 of the will. The legacies contemplated by Clauses (a) to (g) of that paragraph have not become payable and those legacies are to be paid in future. It was the plain duty of the executors to have followed the provisions of Section 842, Succession Act, and should have provided a fund sufficient to meet the legacies which, are payable at a future time. They have not done that. Regarding the maintenance allowances also the situation stands in the same position. Under Section 348 of the Act as the annuities have not been charged and no fund has been appropriated by the will to answer the annuity, the executors should have taken steps to invest a sufficient sum to produce the annuity and invest for that purpose in securities as contemplated by Section 341 of the Act. This also was not done. As regards the cancellation of the deed of mortgage, it may be that they have decided not to enforce it and they have produced the original deed of mortgage with the word 'cancelled' endorsed over it but not signed by the executors. However that may be, the provision for payment of future legacies has not been made. The executors have also not carried out the directions contained in Clause 13 of the will. No steps have been taken to pay or set apart the fund to the trust specified in that clause. It is therefore unthinkable that the residue should have been ascertained without provisions for payment of the legacies, the amount of which is not insignificant As the duties therefore of the executors as such have not yet been discharged they do not cease to be executors and the trust fund namely one residue has not come into existence. They do not therefore hold the property, particularly the business, which forms part of the residue as trustees for the beneficiaries. Without the coming into existence of the property which has co be held in trust, there could be no trust and without the termination of the duties of executor there could be no trustee. The conclusion is therefore irresistible that they continued to be executors and had not become trustee; an the assessment as an association of person by the income-tax authorities is perfectly justified.
12. Ms. Rama Rao Sahib also raised an alternative contention that even if they are trustees as they carried on business they should be assessed under Section 10, Income-tax Act, on the total income of the business as an association of persons. In support of this argument, he relied upon the decision of this Court in Commissioner of Income-tax, Madras v. Mrs. Saldana, 55 Mad. 891 : A. I. R. 1932 Mad 378 which follows the decision of the Lahore High Court in Hots Trust v. Commissioner of Income-tax, 11 Lah. 724 : A. I. R 1930 Lah. 929. It is unnecessary to express any opinion regarding this contention though I am inclined to hold that there is considerable force in the argument advanced by Mr. Rama Rao Sahib, in view of the decisions.
13. The second of the questions remains for consideration. The argument of the learned Advocate was that this income which was paid to meat the maintenance allowance of the mother and the widow of the testator was payable under an overriding title and therefore could not be treated as income received by the executors as forming part of the estate. He also urged that the testator himself was under a personal obligation to maintain the mother and the wife and it is only that obligation that he had recognized and provided for under the will and therefore it is not income which the executors had received as forming part of the estate. If the testator had been alive be could not have claimed the amount as a deduction notwithstanding that under the Hindu law he is under a personal obligation to maintain his wife and the mother. It is not an allowance which was charged upon the estate by a decree of Court or otherwise and to which the testator himself had no right or title to receive. The income is received by the executors undoubtedly as part of the income of the testator and they applied it for discharging the obligations to pay maintenance to the mother and widow. The decision in Bejoy Sing v. Commissioner of Income-tax, Bengal, has no application and the case is clearly governed by the principles in B. C. Mallick v. Commissioner of Income-tax, Bengal . The claim of the executors was therefore rightly rejected.
14. In the result the two questions referred to us must be answered in the affirmative and in favour of the income tax Commissioner; and the Commissioner is entitled to his costs of this reference which we fix at Rs. 250.
15. Viswanatha Sastri J. -- The facts that have led to this reference and the questions referred to us have been stated in the judgment just delivered. Numerous English decisions were cited before us by the learned Advocate General on behalf of the assessees during the prolonged hearing of this case Notwithstanding the observation of Kekewich J. in Timmis In re; Nixon v. Smith, (1902) 1 Ch. D. 176: 71 L J. Ch. 118 that there are few things more difficult than to determine when an executor ceases to have duties qua executor or vtrtute offioii and becomes a trustee, and that the line is extremely difficult to draw the law on this topic is now well settled. In any case it is not difficult to decide on which side of the line the present case falls.
16. It often happens, as in this case, that the same persons are appointed executors and trustees under a will but it makes no difference in law whether the trustees are strangers or the executors themselves. It is not uncommon to find specific or pecuniary legacies in a wilt with a bequest of the residue absolutely in favour of a person. The residue might be settled, as in the present case for the life of a legatee or legatees with a remainder over to other persons. The property disposed of by a will might, as in this case, consist of movable and immovable properties of the testator as well as his business. For the purposes of this reference it is necessary to ascertain the position and right of the residuary legatees vis-a-vis the executors during the years of account 1941-42 and 1942-43. The relevant portions of the will now under consideration have been referred to by my learned brother. Shortly stated, the question is whether during the relevant period the executors were functioning merely as executors and administering the estate or whether they had become trustees for the beneficiaries under the will in respect of the residue.
17. There is an important distinction between the position and estate of executors and the position and estate of trustees. If trustees are in receipt of income which they have to pay over to beneficiaries with or without deduction of the trustees' expenses, the income is, at its very inception, the income of the beneficiaries. The income when it comes into the hands of the trustees, is the income of the beneficiaries, though it is the hand of the trustees that receives the income and though for purpose of income-tax, the trustees are assessed under Section 41 (1), Income-tax Act. The trustees may receive the income of a settled estate and distribute it among the beneficiaries but income-tax is levied not on the aggregate income of the estate in the hands of the trustees and at the rate appropriate to such total income but on the income of each of the beneficiaries at the appropriate rate of tax. Section 41 (2) permits the direct assessment of each of the beneficiaries according to his share of the income of the trust estate. Where, how-flyer, the estate is administered by executors the income received by them pending the conslusion of their administration is not, in law, the income of the legatees or beneficiaries. Where trustees are appointed under a will, whether the trustees be the executors themselves or strangers, the right and interest of the beneficiary in the income of the trust fund differs radically from the interest of the legatee in the income received by the executors during the period of their administration. During such period the income of the estate is the income of the executors and not of the beneficiaries or legatees, though the executors are bound to apply the income in due course of administration. The executora do not, during the period of their administration, become trustees of any part of the estate for the legatees, unles they have assented to the legacies and the executor are liable to be assessed to income-tax, on the entire income of the estate under their administration subject to the exemptions granted by the Income-tax Act, without regard to the rights of the legatees who may eventually be entitled to be paid out of the net assets. The incidents of tax is therefore much heavier in the case of an assessment on the executors as such than in the case of an assessment on the trustees of the estate holding it for the beneficiaries. Hence the controversy often arises as to whether and when the executors of a will have become trustees and the legatees have become beneficiaries.
18. Chapter 7, 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 lagatees. 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, Succession Act or held in trust for them, if the directions in the will require the residue to be so held. Section 211 (1), Succession Act constitutes the executor of a deceased person his legal representative for all purposes and vest all the property of the deceased in the executor. Though no time limit is fixed by the section for the duration of 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 indefinitely. By his assent to the dispositions in the will they become operative, the executor is pro tanto divested of the property which was his virtute officii; and the legatees have vested in them, as owners of the property in the subject-matter of the bequests. Under Sections 332 and 333, 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 administration, if it is a residury 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 may be express or implied from his conduct--they become fully operative and the title of the legatees becomes absolute. 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 Alien Borough v. Solomon, 1913 A. C. 76: 82 L. J. Ch. 178.
19. We are concerned in this case with the rights of residuary legatees under a will which constitutes the executors, trustees of the residuary estate. The contention on behalf of the assessees is that the executors have become trustees and that the true relationship between the executor and the residuary legatees is now one of the trustees and beneficiaries. I am of opinion that this contention is untenable. The decision in Lord Sudeley v. Attorney General, 1897 A. C. 11 : 66 L. J. q. b. 21 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 testamentary expenses and the pecuniary and specific legacies have been satisfied, the residue does not come into actual existence. It is a non-existing 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 it the trustees and executors happen to be the same persons, until the estate is fully administered (italics mine) until the thing has been ascertained, until the trust has been constituted the thing of which the trustees are trustees have not been ascertained. Till then the right of the residuary legatee is to require the executors to administer the estate completely.'
There is an essential difference between the position of an executor and that of a trustee not only with reference to the chargeability to income-tax but with reference to other branches of the law as well. The powers of a trustee to alienate the trust property are strictly limited, while an executor has plenary power of disposition of the estate vested in him as such. An executor can plead the bar of limitation, while a trustee cannot. Executors do not become trustees for the beneficiary in the case of a specific bequest until assent, and in the case of residuary bequest, until the residue is ascertained and the assent of the executor is either expressly given or inferred from conduct. In Barnardo's Homes v. Commissioner of Income-tax, (1921) 2 A. C. 1 : 90 L. J. K. B. 545 the House of Lords had to deal with this question in a case arising under the English Income-tax Act. There was a bequest of the residue in trust for a charity in that case. The income of the charity was exempt from income-tax, and the question arose whether a refund of the tax paid by the executors in respect of a certain dividend, was claimable on behalf of the charity on the ground that eventually the stocks and shares as well as the dividends would come to be held in trust for the charity. The House of Lords negatived the claim holding that during the relevant period, the dividends were not the income of the charity but of the executors, and that the executors and not the charity, were the recipients of the income and administration of the estate of the executors not having been completed. When the case was before the Court of Appeal Younger L. J. (afterwards Lord Blansborough) 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 interest in any specific 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 due course.'
The House of Lords affirmed the decision of the Court of Appeal on the ground above stated. The ratio decidendi was that during the relevant period the executors held the dividends not for the charity but for the general purposes of the testator's estate, and that since the executorial duties had not been fully discharged and the residue had not been ascertained, the executors had not converted themselves into trustees. Viscount Cave dealt with the matter thus:
'When the personal estate of a testator has been fully administered by his executors and the net residue ascertained, the residuary legatee is entitled to have the residue as so ascertained, with any accrued income, transferred and paid to him; but until that time, he has no property in any specific investment forming part of the estate or in the income from any such investment, and both, corpus and income are the property of the executors and are applicable by them as a mixed fund for the purposes of administration.'
In another case before the House of Lords Inland Revenue v. Wahl, (1933) 17 Tax Cal. 744: 149 L. T. 203, Lord Buckmaster referring to the previous decision of the House observed:
'Since the case of Barnardo's Homes, 1921 2 A. C. 1: 90 L. J. K. B. 545 it has been clearly established that the accumulation of income from a residuary estate before the appropriation of that estate to the residuary legatee, does not cause such income to be regarded as the income of the beneficiary on its ultimate receipt by him and, therefore, where, as in that case, the beneficiary was a charitable institution, they are not entitled to a return of the sums which have bean deducted by way of tax from the income at its source.'
20. In view of these pronouncements of the House of Lords it is unnecessary to refer to the other English decisions cited by the learned Advocate General. Reference may however be made to a decision of the Calcutta High Court in Ganoda Sundary v. Naliniranjan, 36 Cal. 28: 1 I. C. 514 where Woodroffe J. held that the residuary legatee did not become the owner until after the administration by the executors had been completed and his interest ascertained. 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 administration, is made over to him by the executors. 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 assented 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?
21. Having considered the materials placed before us, I am of opinion that the administration of the estate by the executors in the present case is far from complete, the executorial functions and duties have not been discharged, the residuary estate has not been ascertained and has not come into existence, the trust fund has not been constituted, the executors have not yet become divested of the property and the residue has not vested in them as trustees. It is common ground that some of the pecuniary legacies bequeathed under the will have not yet been paid. The suggestion that the time for payment of those legacies has not arrived is not supported by the answers given by one of the executors to the questions propounded by the revenue authority. Even if the suggestion were correct it was the duty of the executors under Section 342, Succession Act, to have invested a sum sufficient to meet the legacy when due and payable. This has not been done yet. There is also a provision in the will for the payment to the widow of the testator of a monthly allowance of Rs. 50 for her life, and of Rs. 1000 per month until the last of her children attained majority, an event which has not yet happened. No fund or property has been charged with the payment of this allow-ance or appropriated to it by the will. No provision has yet been made by the executors by way of the creation of a fund to secure the payment of this allowance as required by Section 348, Succession Act. Indeed these sums so far as they accrued, have been merely credited to the widow in the accounts and not paid over to her. Even a deed of mortgage directed by the testator to be cancelled and delivered up to the executant, a relation of the testator, has not been so delivered, though an entry in the accounts writing off the debt was shown to us. There is a direction in para. 13 of the will that the executors should set apart and pay half an anna per rupee of the net profits of a timber business carried on by the testator and directed to be continued by the executors, to a charity established by the testator and his mother. nO such payment has been made by the executors and all that is shown is an entry in the accounts crediting the charity with the sums. Lastly the festator enjoins the executors to carry on his business, which is a flourishing and lucrative business in teak wood and timber, for a period of seven years at least, to increase its capital and to convert it into a limited company in certain contingencies. The period of seven years was not over before the relevant years of account. If at the end of the period of seven years it was found that the business did not yield a profit of 3 per cent, on the outlay the executors were directed to wind up the business. The ordinary rule that an executor or trustee has no power to carry on his testator's business except so far as is necessary for winding up has no application to the present case as the will not only authorises but requires the executors to carry on the business till the event on the happening of which it has to be wound up occurs. The business is now being carried on by the executors who are empowered and directed to do so by the terms of the will. The question of the admission of a son-in-law of the testator as a partner in the business and of the formation of a limited company, both of which were directed by the testator, are stated to be still under the consideration of the executors.
22. I have said enough to show that the administration of the estate by the executor was not complete during the relevant period, that their executorial duties had not been discharged and the residue of the estate has not been ascertained so as to constitute it a trust fund. The executors have not been divested of the estate, and the residue, not having been ascertained cannot be considered to have vested in them qua trustees. The question is one of substance and the way in which the estate has been dealt with by the executors by means of entries in their accounts is not conclusive. It is not merely a question of entries in the accounts purporting o be kept by the executors. I am taking this observation, because an account has been shown to us--it was not shown to the Income-tax Officer or to the Appellate Assistant Commissioner, and it is a matter of dispute whether it was shown to the Appellate Tribunal--wherein certain figures are entered as representing the assets of the timber business carried on by the testator and continued by the executors. It is claimed that the assets of the timber business as entered in the accounts represent the residuary estate. The mere fact that certain figures are entered in the accounts as the assets of the business and these figures are represented as pertaining to the residuary estate does not mean that the residuary estate has been ascertained in the manner contemplated by law. It is no doubt true that the business forms part of the residuary estate (but ?) until all the specific legacies are paid and a provision is made for the payment of the monthly allowances of the widow and the mother and due provision is made for the remaindermen who are to take after the life tenants, it is impossible to say that the administration of the estate is over or that the residue has been ascertained. One of the two residuary legatees who has attained majority has been paid Rs. 10,000 on account, while the other residuary legatee who is still a minor has not drawn any money. Both of them have only a life estate with a remainder to their sons in the residue. I do not suggest that there is any difference in principle between a case where the residue is settled as a life estate with a remainder over and a case where the residue is given absolutely to one individual, as regards the application of the legal principles stated above. Nor does the mere existence of an encumbrance prevent the residue from being ascertained or the residuary estate being handed over to the residuary legatee. But in the present case the executorial duties have not been discharged, the administration of the estate is far from complete and the residue itself could not be said to have emerged or been ascertained for the reasons which I have endeavoured to state. It is not permissible to bring into effect by anticipation the trusts of the will relating to the income of the residuary estate by a professed assent of the executors to the residuary legacy, when, in fact, the estate has not been administered and the residuary estate has not been ascertained. Carbett v. Inland Revenue, (1938) 1 K. B. 567: 107 L. J. K. B. 276. In this view it is not necessary to express an opinion on the further contention of Mr. Rama Rao Sahib for the revenue authority that even if the assessees are deemed to be trustees, they could be assessed as an association of individuals carrying on business, on the entire profits of the business under Section 10, Income tax Act as laid down in Mrs. Saldanha's case 55 Mad. 891: A. I. R. 1932 Mad: 378 and the Hots Trust case, 11 Lah. 724: A. I. R. 1930 Lah 929.
23. The answer to the first question referred to us is therefore in the affirmative and against the assessees.
24. The second question is comparatively easy of answer. It is admitted that the sum of Rs. 1050 a month directed to be paid to the widow of the testator has not been paid to the widow but has been merely credited to her in the accounts and debited to the estate, The sum of Rs. 25 per month payable to the mother of the testator is stated to have been partly paid in cash and partly credited to her in the accounts. But it is admitted that the sums credited to her include the income of her own individual property and it is not possible to say whether the drawings are attributable to the payments directed to be made to her under the will of the testator or to her own private income. Even if all the sums had been paid by the executors to the widow and the mother of the testator, during the course of their administration it would not make any difference in the answer to the question propounded. I have already reached the conclusion that the executors received the income of the estate of the testator qua executors and not as trutees during the relevant period. In this view, it would merely be a case of executors applying the income that comes into their hands in the course of the administration of the estate. Both the corpus and the income of the estate are the property of the executors and are applicable by them as a mixed fund for the purposes of administration. The outgoings may come put of the corpus of the estate or out of its income. It has been held that where a testator by his will directed his executors to pay out of the income of the estate sums of money for his annual ceremonies and for obtaining probate or by way of an allowance to certain beneficiaries, payments made by the executors for those purposes in the course of administration could not be deducted in computing their income for purposes of liability to tax. The executors merely stand in the shoes of the testator, and having received the income of the estate and applied it according to the directions in the will, they cannot deduct such expenses in computing their income for such expenses represent merely the application or distribution of income after it has been realised; P. C. Mallick v. Commissioner of Income-tax, Bengal, , Mallick and D. C. Aich, In re, : AIR1940Cal520 Ramaswami Aiyangar v. Commissioner of Income-tax, : 11ITR597(Mad) . The testator was under a personal obligation under the Hindu law to maintain his wife and mother, and if he spent a portion of his income on such maintenance, he could not have deducted the expenses from his income any more than he could have deducted his own personal expenses. The position of the executor is much the same. The case of Bijai Singh v. Commissioner of Income-tax, cited by the Advocate General is distinguishable for, in that case, a portion of the income had been diverted by an overriding title i. e., by a decree of Court creating a charge on the estate and its income. The assessee merely acted as an intermediary who was in physical receipt of the income of the estate but bound by the decree passed against the estate, to pass it on to the decree-holder. It was not a case where the assessee was under a personal obligation to maintain the decree-holder but the estate in his hands was alone liable. It is a well settled principle of income-tax law that the destination of income, profits and gains realised by an assessee or the manner of their application by the assessee is immaterial in determining the liability of the income, profits and gains to tax. There is here no charge created by the testator or the executors for the maintenance allowances which have been treated merely as current outgoings of the estate. It may be observed that the English Courts have always held that the executor was assessable on the whole of his income from the estate till the administration was over, Barnardo's Homes v. Commissioner of Income-tax, 1921 2 A.C. 1; 90 L. J. k. B. 545, Inland Revenue v. Smith, (1930) 1 K. B. 713 : 99 L. J. K. B. 361, Carbett v. Inland Revenue, (1988) 1 K. B. 567: 107 L. J. K. B. 276. The question now under consideration arose for the decision of the Bombay High Court in the Executors of J. K. Dubash v. Commissioner of Income-tax, : 16ITR90(Bom) and it was answered against the assessee.
25. For these reasons I would answer the second question referred to us in the affirmative and against the assessees.
26. I concur in the direction for costs contained in the judgment of my learned brother.