(Judgment of the Court was delivered by the Honble the Chief Justice).
Facts which have been disclosed in this Court make it clear that the assessment in this case has proceeded on a wrong basis. The assessment was made on the assessee under the first proviso to Section 41 (1) the Income-tax Act. The account year is the year 1940-41 and the Assessment year 1941-42. The section was amended by Act XXIII of 1941 and the amendment came into force on the 26th November 1941 which was after the assessment. Consequently Section 41 did not apply which means that the Income-tax Officer had no power to levy the maximum rate.
The assessee is the executor of the will of Kannammai Achi, who died on the 5th August 1940, leaving a will dated the 25th April 1940. She was survived by her husband and her son. She had decided not to leave any part of her property to her son. Out of a sum of Rs. 1,17,700 belonging to her she left Rs. 50,000 to her husband she left the balance to her sons son, natural or adopted. At the time of her death her son had no issue and had made no adoption. It has been accepted that by reason of the Hindu Transfers and Bequests Act (Madras Act 1 of 1914) and the Hindu Disposition of Property Act (Imperial Act XV of 1916) the bequest to an unborn grandson is good and it has also been accepted that if the son adopted a son after the testators death he would be a lawful beneficiary.
Before its amendment Section 41 did not apply to a testamentary trust. The amendment was made in order to bring such trusts within the purview of the section. Before the words were 'any trustee or trustees appointed under a duly executed trust deed.' Now the words are 'any trustee or trustees appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise.' Assuming that the assessee is here to be regarded as functioning as a trustee for the unborn grandson and not merely as the executor of the will, he would still not be within the section. When the order of assessment was passed, the amendment had not come into force and the Income-tax Officer overlooked this fact as did the assessee. We are told that the mistake was discovered when the Commissioner was applying to the Income-tax Appellate Tribunal for an order of reference to this Court. There is certainly no mention of the matter in any part of the record before us.
The question referred is whether in the circumstances of this case the income received by the executor to the estate of Kannammai Achi was assessable at the maximum rate under Section 41 (1), first proviso, of the Indian Income-tax Act, 1922, and it must be answered in this way : This section does not apply to the present assessment and therefore the assessee is not liable to be assessed at the maximum rate.
We consider that both sides are to blame for the present position and consequently we make no order as to costs.
Reference answered accordingly.