S. Ramachandra Iyer, C.J.
1. The following question has been referred to us under Section 66 (1) of the Income-tax Act for decision:
Whether any part of the income of the estate of the aforesaid testator (T.P. Ramaswami Pillai) is exempt under the Proviso of Section 4(3)(i) for assessment years 1950-51 to 1935-54?
2. The facts giving rise to this reference are these: One T. P. Ramaswami Pillai who was carrying on business as Abkhari Contractor died on 23rd August, 1948, leaving considerable properties valued at nearly Rs. 20,00,000. There were also liabilities for very nearly that amount. One of the principal creditors was the Income-tax Department itself, which had to be paid nearly Rs. 6,34,018. On 25th April, 1948, T.P. Ramaswami Pillai executed a will substantially devoting his properties to a number of religious charities. The will stated that it was the intention of the testator that the charities which he himself was performing during his lifetime and certain other charities should be performed after his death on a permanent basis and for that purpose he appointed two trustees, namely, his son Sivakumaran and his brother-in-law Ramaswami Pillai. The relevant clauses of the will are these:
At present many charities are being performed by me from out of the income of the aforesaid properties. I intend that even after my lifetime the said charities and some other charities besides, should be performed. Those charities are set out below. I appoint the undermentioned persons trustees so that aforesaid charities may be performed in perpetuity:
(1) My son Selvachiranjeevi Sivakumaran alias Kannappan.
(2) His maternal uncle Ramaswami Pillai, son of Ponnuswami Pillai.
The testator then proceeded to prescribe the succession to the officer of trusteeship and stated:
After my lifetime, after the 10th day funeral rites are over, the aforesaid trustees shall take possession of all my properties, cash on hand, and the account books, after taking proper accounts with the assistance of Kanakkupillais employed in my office, and do all things in accordance with this will. My son Sivakumaran shall safeguard the properties and the account books until then and hand them over to the trustees.
The trustees shall not only take possession of the properties given to me by the grace of Lord Tiruvotteeswarar and set out in Parts I and II of Schedule A below but shall also treat the properties left out by me by oversight as properties included in this will and take possession of them. In addition to this, the trustees shall take possession of them. In addition to this the trustees shall take possession of myaccounts also, ascertain the profit and loss and deducting the amounts payable according to this will and invest the remaining moneys in Government securities or in building which will yield income. From out of the income of the said properties payments shall be made as stated below for the maintenance of the respective persons and for charities, monthly, in cases in which payments are to be made annually, and with the remaining income the undermentioned charities of feeding the poor and school boys, marriage mantapam, choultry, kumbabhishekam, building of temples, nandavanam utsavam, kattalais to be done in temples, etc., shall be performed.
3. The will contains certain specific bequests of jewels and movables to the testator's wife and son and for some bonus to his clerks. There is provision for monthly-payments and educational and marriage expenses of the son and his descendants. The testator's wife and sister are given some monthly payments. Provision is also made for the residence of the wife and son as also for the funeral expense of the testator and his wife. Paragraph 20 of the will states:
The trustees shall have no power without the sanction of Court to sell or mortgage the properties covered by the will.
4. Religious services and charities to be performed are then specified. The will in form creates a trust in respect of the entire properties owned by the testator for the various purposes aforesaid, some of them for the benefit of his wife and son and his descendants and most of them for the religious and charitable purposes specified therein. Sivakumaran and Ramaswami Pillai are expressly appointed as trustees for the trust created by the will. Certain duties' of an executorial nature, for example, payment of certain specific legacies, payment for the funeral expenses of the testator are also entrusted to them. The trustees who are appointed under the will for the purpose of the trust created thereunder are also executors by implication. It was on this view that probate was applied for on the Original Side of this Court in respect of the will by Sivakumaran and Ramaswami Pillai. Probate was duly granted to them and in compliance with the terms of the Probate the executors aforesaid filed their accounts for administration from the date of death of the deceased till 23rd August, 1950, the date up to which accounts were directed to be filed. As we stated earlier, there were considerable debts due by the deceased. A portion of them however appears to have been paid. The claim in respect of specific legacies, namely, those relating to the handing over of the jewels and other movables were also discharged. But it is conceded that a substantial portion of the liabilities still exists.
5. Sivakumaran and Ramaswami Pillai filed ' Nil' returns during the four assessment years 1950-51 to 1953-54, the year of account of the assessee ending with 30th September, of the previous year. They stated that as they had become the trustees for the various purposes set out in the will and as the trust was one which was wholly for religious and charitable purposes, the income from the properties was exempt from taxation. It was also contended that the trustees had shed their character as executors which character they filed by implication and became trustees for the purposes mentioned in the will and that therefore the assessment should be made under the provisions of Section 41 of the Income-tax Act.
6. The Income-tax Officer rejected their contention. He held that as a substantial portion of the debts left by the deceased remained undischarged, till the last day of the previous year relevant to the last of the assessment years, namely, 1953-54, the executorial functions imposed on Sivakumaran and Ramaswami Pillai had not been complete'd and that therefore the estate of the deceased was liable to be assessed in their hands. The Income-tax Officer further held that the trust envisaged in the will had not come into existence, although payments to the various charities mentioned under the will might have been made in accordance therewith. He accordingly levied an assessment on the estate of the deceased T. P. Ramaswami Pillai for the four years aforesaid. An appeal to the Appellate Assistant Commissioner me with no success. On further appeal, the Tribunal took a different view. The Tribunal held that in the circumstances of the case Sivakumaran and Ramaswami Pillai should be held to have taken charge of the properties as trustees immediately-after they obtained probate, in view of the fact that the entire corpus of the estate was bequeathed in favour of the trust. The Tribunal was however of the opinion that the entire income from the estate could not be regarded as wholly devoted to charities. It therefore directed the Income-tax Officer to investigate further into the matter and ascertain how much of the income was devoted to religious or charitable purposes within the meaning of Section 4 (3)(i) of the Act and how much of it was outside the exemption granted by that section. The Income-tax Officer submitted a report allocating separately the payments made for the charities as well as to the other beneficiaries. After a consideration of the report the Tribunal held that the whole of the property in question could not be regarded as held in trust as that portion of the income from the properties that had been applied for payments of monthly allowances to the various relations of the deceased would be outside the provisons of Section 4(3)(i) of the Act. To the extent of such allowances the income was held assessable. Exemption was granted in respect of the other income which was devoted to the charities. The Income-tax Officer was directed to amend the assessment accordingly.
7. The conclusion of the Tribunal is challenged in this reference by the Department on the ground that the estate of the deceased still continues with Sivakumaran and Ramaswami Pillai in their capacity as executors and that the same has not yet vested in the trustees for the purposes designated under the will.
8. A reading of the will would show that the entire properties have been given to the two trustees in trust for the various purposes set out therein, some of them being for the benefit of the wife and son of the deceased and some of them for religious and charitable purposes. The only function which the trustees had to do in their capacity as representatives of the deceased was to pay the funeral expenses of the deceased, hand over the jewels and movables and monies in respect of the specific legacies and to discharge the debts of the deceased. The debts no doubt have not been discharged in their entirety but the other duties have been duly performed by the executors. They have categorically stated, at any rate, at the time of the submission of their returns that they were holding possession of the properties as trustees and not as executors. Thus, there are two circumstances which are of great importance in this case. Firstly, a bequest of the entirety of the estate (excluding specific legacies re. jewels and movables, monies, etc., which have been handed over to the respective legatees) to the trustees for the purposes designated under the will, who are only executors by implications. Secondly, even in regard to their character as executors by implication, the trustees have expressly assented to the vesting of the property in themselves as trustees and shedding of their character as executors at the time of submission of their returns to the Income-tax authorities if not earlier.
9. It is contended on behalf of the Department that although the executors might have expressly declared that they had ceased to be the executors and became trustees, they had not really become trustees for the legatees as their duties as executors still remained to be performed. Mr. Ranganathan appearing for the Department submits that so long as the executors have not fulfilled their statutory obligations, they could not be held to have shed their character as executors. The argument may be put thus: The monthly payments, etc., directed under the will to the relations of the deceased should be regarded as specific recurring monetary legacies; the surplus alone is to be devoted to the charities. Sivakumaran and Ramaswami Pillai being trustees for the charities, should be regarded as residuary legatees. Before such legacy can vest in them, there should be an ascertainment of what is to be their property. That cannot be done unless the debts are paid and provision is made for the periodical payments to the relations of the deceased in conformity with Section 343 of the Indian Succession Act. The default in respect of the first, would render the ascertainment of the residue impossible and that in regard to the second would show that the administration by the executors was not yet complete. Any assent of the executors for the residuary estate taking effect would therefore be inoperative as the same has not yet been ascertained.
10. Before we deal with the arguments it is necessary to point out that on a construction of the document, Sivakumaran and Ramaswami Pillai, though designated as trustees of the charities, will be trustees as well for making the montly payments to the relations, etc. The property is given to them with a burden, namely, of making the payments for the maintenance, etc. That being a specific duty cast on them, the property of the testator should be held to vest in them for the purposes of payment to the relations as also for the performance of charities. The trust is one and single. It cannot be held that a portion of it, namely, the monthly payments to the relations, are specific legacies, while the one for the charities alone is a residuary legacy. In this view, no question of establishing a fund for payment of the maintenance, etc., can arise. We shall however.deal with the contention regarding the obligation of the executors to establish a fund therefor on the footing that the recurring payment to the relations are specific legacies. But before we do so, it is necessary to state the general principles as to the vesting of the property from the executors, in the legatees.
11. Under Section 211 of the Indian Succession Act an executor under the will of a deceased person will be his legal representative for all purposes and the property of the deceased would vest in him as such executor. The executor derives his title from the will and he is therefore the legal representative of the deceased person representing him from the date of his death. He will be in possession of the properties covered by the will in his own right as the representative of the deceased and not on behalf of or as a trustee for the legatees. As an executor, he will be responsible for the payment of the funeral expenses of the testator and for the satisfaction of the debts left by him; his liability however will extend only to the extent of the estate left by the deceased. Till the estate is administered by paying the funeral expenses, debts, etc., the legacies could not normally be distributed. But this rule cannot be regarded as an inflexible one. For example, there may be cases where the debts themselves are disputed; or it may become expedient to vest the property in the legatee even before the debts are discharged. It will be a very inconvenient state of things if one were to hold that till the last pie of the debts left by the deceased is paid, the executor could not pay over the legacies to the legatees. An executor can certainly insist that till the administration of the estate is complete, the residuary legatee should not call upon him to pay the legacies. But it will always be open to the executor himself to pay or deliver possession of the properties to the legatee in accordance with the terms of the will. Even without so doing he can by an act of his, vest the legal or beneficial interest in the property in the legatee. For example, he can convey the properties, in accordance with the terms of the will to the legatee. Even apart from conveyance,, he can by assent vest the beneficial interest in the property in the legatee. By assent it is meant, not an assent to the testator's disposition but an assent to such disposition taking effect, i.e., for vesting the property from the executor in the legatee. It is. therefore implicit in the term assent that the executor is willing to vest the property in the legatee. Normally, an executor being liable to pay the debts of the deceased,, might not be willing to vest the property in the legatee till the debts are paid and the administration is complete. But nothing prevents him in law from so vesting the property even before the debts are paid. But there will however be a difference between a specific legacy and the residuary legacy in the matter of assent. The residuary legacy could be ascertained only after payment of the debts, specific legacies, charges, etc. But in any case an assent on the part of the executors to the taking effect of the legacy will vest title in the legatee. If after such assent the executor continues in possession of the property bequeathed, he could cease to be an executor and become the trustee for the legatee concerned. In a case where an executor himself gets a legacy under the will, his assent will ipso facto make him the owner of the thing bequeathed to him. We shall consider presently whether there are any impediments to the executor assenting to a residuary legacy after paying of specific legacies but before paying off the debts of the deceased.
12. An assent may be either express or implied. No formality is required for giving an assent to a legacy. Where the assent is express, there will be no difficulty in regard to the vesting of the property. Whenever an implied assent is pleaded, the question will always arise whether from the facts and circumstances, e.g., conduct, an implied assent can be inferred.
13. The next question is, when can an assent be made so as to vest the property in the legatee. In the case of a specific legacy, there would be little difficulty; the executor's assent can take place at any time. In the case of legacy of the residue, there should be an ascertainment of the residue before assent can be given so as to effectuate a vesting in the legatee. In V. M. Raghavalu Naidu & Sons v. Commissioner of Income-tax (1950) 2 M.L.J. 300 : I.T.R. 787, Satyanarayana Rao and Viswanatha Sastri, JJ., elaborately considered the question when executors under a will of a deceased person could be said to become trustees for the legatees. The learned Judges held that executors would not become trustees for the beneficiaries under the will in respect of specific bequests until there is an assent on their part; in the case of residuary legacy until the residue was ascertained and such assent is given. The position is stated thus by Rowlatt, J., in Commissioners of Inland Revenue v. Smith L.R. (1930) 1 K.B. 713 :
The assent of the executor, it is important to add, may be inferred, when there is clearly nothing to be done by way of administration. It only remains to observe chat it makes no difference if the principal representing residue, the subject-matter of the executor's assent, remains in the possession of the executor after the administration, and with it his functions as executor, have terminated. I think all this is quite clear; and the question is whether in fact that position has been reached as regards the principal which has produced the income under discussion in this case.
14. The question in this case is, has that stage been reached? Before answering that question, we have to deal with the two matters in respect of which it is contended the administration is not complete.
15. The first is that so long as the executors have not created a fund for meeting the obligations to the relatives in perpetuity, the administration is not complete. To accept this argument would be that the administration in the instant case can never be completed. The testator had specifically directed that the properties should not be sold and that the payments to his relations as well as the charities should come out of the income from the properties left by him. Such payments being intended to be made for more than one generation, the administration in the sense in which it is contended for on behalf of the Department can never be complete within a reasonable time. Realising this difficulty, Mr. Ranganathan states that the executors can create a fund for meeting the monthly payments under Section 343 of the Indian Succession Act by disposing of the property. Section 343 refers to a case of annuities under a will where no charge has been created in respect of the payments to be made. In the present case the income from the properties are charged for the payment and we cannot see how the provisions of Section 343 can at all be invoked. A similar argument was attempted in R.C. No. 36 of 1950. The learned Judges, Satyanarayana Rao and Rajagopalan, JJ., rejected it. In that case the will provided for certain charities to be carried out from and out of the income of the property and a business, disposed of under the will. It is held that having regard to the vicissitudes of business, and the uncertainty of the income, the obligation imposed on the executors could not in the nature of things permit the bringing into existence of a fund as contemplated in the case of annuities and similar bequests and that the only duty which the executor can do will be to pass on that duty to the residuary legatee after the residue is ascertained and his assent given and the estate handed over to the legatee. The present case is a much stronger one than the one before the learned Judges. Here is a charge on the income from the properties. There is also a prohibition against alienation which means that the executors are specifically prohibited from creating a fund of the kind specified under Section 343 of the Indian Succession Act by selling the properties. The only thing the executors can do, having regard to perpetual nature of the obligations, is to transmit the obligation to the legatee himself, namely,, the trustees under the will. We are therefore of opinion that it cannot be said in the circumstances of this case that the administration is incomplete, because no fund has been created for payments of the maintenance amounts to the relations of the deceased.
16. The next contention of Mr. Ranganathan which was pressed before us with great insistence is, that so long as the liabilities of the deceased were not paid, the administration could not be stated to be complete and that therefore the residue could not be ascertained to enable any assent to be given by the executors. It is no doubt true that it is a part of the executorial function to discharge the monetary obligations of the deceased. But the existence of the debts or liabilities of the deceased cannot prevent an executor from giving an assent to perfect the title of the residuary legatee. The question whether an executor can give an assent in favour of the residuary legatee in spite of the fact that there were outstanding liabilities of the deceased yet to be discharged came up for consideration in Commissioners of Inland Revenue v. Smith L.R. (1930) 1 K.B. 713, where the Court of Appeal held that there was no rule of law that the mere existence of an outstanding mortgage prevented the residue from being ascertained and the executor thereafter giving assent to the legacy in favour of the residuary legatee. In that case the testator directed a sale of his properties after payment of certain legacies and the distribution of the residue amongst his children in equal shares. The estate left by the deceased was subject to certain mortgages of considerable amount. The executors had been making payments to the children of the testator (the residuary legatees) from out of the amounts with them after crediting the share of the income relating to the residuary estate in their favour and debiting the payments made. One of the sons of the testator was assessed to super-tax in respect of the amount received from the executors. It was contended that as the mortgages had not been paid off, there was no ascertainment of the residue and what the son of the testator received from the executors was not really income from his own property, as such property could not be deemed to be vested before the residue was ascertained. This contention was negatived by the Court of Appeal. Lawrence, L.J., observed:
It has been mootod, but 1 do not think seriously contended, that the existence of a debt or debts or liabilities which are outstanding prevents the assent of the executor being inferred by his conduct. In my judgment, that is not so.
17. This view was affirmed recently in Carlish v. Commissioners of Maud Revenue 38 T.C. 37 .
18. In the present case there is no difficulty about the ascertainment of the residue. The properties have been specified in the will itself. After the payment of a few specific legacies, the trustees take the entire properties. Indeed, they are the direct legatees under the will, the executorship being mererly by way of implication. The debts are no doubt there. But apart from discharging debts, the other duties have been performed by the executors. It was open to them under those circumstances to transfer the properties or at least assent to the properties vesting in the beneficiary, leaving the debts outstanding. The assent of Sivakumaran and Ramaswami Pillai in the instant ease is in respect of a request to themselves in their capacity as trustees for the various purposes set out in the will. On such an assent, the properties bequeathed ceased to be part of the testator's assets. They shed thereby their character as executors and became trustees for those who are beneficially interested under the will. We are therefore of opinion that the assessment in the present case can be made only in accordance with Section 41 of the Income-tax Act. We answer the question referred to us in the following manner, namely that to the extent the income from the properties specified in the will had been applied towards payment of monthly allowances to the various relations of the deceased, there would be no exemption under Section 4(3)(i) and the rest of the income would be exempt under the aforesaid provision. The assessees will be entitled to their costs. Advocate's fee Rs. 250.