1. At the instance of the revenue the following questions have been referred to this court under Section 256(1) of the I.T. Act, 1961 :
' 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right it holding that the properties of the deceased, Shri. V. L. Ethiraj, dealt with under the will dated April 21, 1952, became vested in the official trustee of Madras as a ' trustee ' from the very inception and, therefore, the income of the estate is not assessable in his hands under the provisions of Section 168 of the Income-tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that assessments will have to be made distributively under Section 161(1) of the Income-tax Act, 1961, as respects the income from the estate without aggregation '
2. One, Shri V. L. Ethiraj, hereinafter referred to as the deceased, who was a leading criminal lawyer in Madras, died on September 8, 1960. He had endowed a large sum of money for a women's college, known as ' Ethiraj College for Women '. He had executed a settlement deed by which he settled the income from one of the properties belonging to him, namely, premises bearing door No. 26, Commander-in-Chief Road, Egmore, Madras, on his sister-in-law, Smt. Rathnavelu Govindaraju, and his niece, Smt. Lalitha Govindaraju, for a period of eight years. He had also executed a will on April 21, 1952, under which he created a trust in respect of all his properties and appointed the official trustee of Madras as the sole executor and trustee (hereinafter referred to as the assessee). Under the terms of the will, the properties covered thereby will vest in the assessee on his death, that the assessee has to sell all his properties by public auction after due publicity and invest the net realisations as well as the other cash left by the deceased in approved Government securities and that he should sell the property bearing door No. 26, Commander-in-Chief Road, Egmore, Madras, after a period of eight years referred to in the settlement deed and out of the income from such investments the assessee has to pay Rs. 5,000 per year to the deceased's wife for her life or till she got remarried, Rs. 150 per month to his niece, Lalitha Govindaraju, Rs. 50 per month to Mrs. Sulochana, Rs. 100 per month to Mrs. Jayalakshmi Ammal and Rs. 50 per month to Miss. Chandra, daughter of Jayalakshmi Ammal, Rs, 300 per year to the trustees of the Vinayagar Temple in the village of Sembakkam for the maintenance and upkeep thereof, Rs. 100 to the trustees of Tharakeswarar temple situate in Thottapalayam Village, Vellore, for the performance of the annual rathotsavam and to utilise the balance of the income in awarding scholarships for students studying in the Ethiraj College for Women in accordance with the recommendations of the managing committee of the said college.
3. The assessee applied to the High Court of Madras for the probate of the aforesaid will of the deceased under Section 222 of the Indian Succession Act, 1925, read with Section 7(6) of the Official Trustees Act, 1913, in O.P. No. 21 of 1961, and probate was granted by order dated May 3, 1961. After obtaining the probate, the assessee sold the house property known as 'Glen' and 'Glen Cottage' at Ooty on May 21, 1961, the property bearing door No. 1, Victoria Crescent Road, Madras, on October 16, 1962, the property bearing door No. 1-G, College Road, Madras, on November 15, 1962, the vacant sites bearing door Nos. 1 and 2 at Moores Road, Madras, on November 26, 1962, and the premises bearing door No. 26, Commander-in-Chief Road, Madras, on April 10, 1966.
4. For the assessment year 1961-62, the assessee was assessed under Section 168 of the I.T. Act, 1961, in his capacity as an executor and the same was not challenged by the assessee.
5. For the years 1962-63, 1963-64, 1964-65 and 1966-67, the ITO proposed to assess the income in the hands of the assessee in his capacity as executor. The assessee claimed that he should be assessed only as a trustee on the ground that he was only a trustee and as such the income derived by him from the properties held for charitable purposes could not be assessed, and reliance was placed by the assessee on the decisions in CIT v. Estate of late T.P. Ramaswami Pillai : 46ITR666(Mad) and Court Receiver v. CIT : 54ITR189(Bom) . The ITO, however, did not accept the above contention of the assessee but held that, since all the immovable properties of the deceased had not been sold during the assessment years, the assessee could not be said to have discharged the executorial functions, and that, therefore, the assessee having acted only as an executor under the will of the deceased during the years in question the income was liable to be taxed in his hands only, under Section 168 of the I.T. Act, 1961, and not as a trustee. In support of his view the ITO relied on the decision in Administrator-General of West Bengal v. CIT : 56ITR34(SC) . On this basis he determined the taxable income as Rs. 25,004 for the assessment year 1962-63, Rs. 8,17,870 for the assessment year 1963-64, Rs. 36,354 for the assessment year 1964-65 and Rs. 26,107 for the assessment year 1966-67.
6. Aggrieved against the said orders of assessment, the assessee preferred appeals before the AAC of Income-tax, reiterating the contentions that he was a trustee holding the properties in trust for the charitable purposes and hence the income arising from such properties relatable to such trust was not liable to be taxed. The AAC, however, rejected the appeals and observed that the deceased had clearly stated in the will that the assessee was to be the sole executor, that he should sell all the properties and the net realisations including the cash should be invested in Government securities and that, therefore, the assessee could not shed his character as an executor so long as he had not completed the sale of the properties.
7. Thereupon the assessee preferred appeals to the Income-tax Appellate Tribunal contending, inter alia, that the properties had vested in him to be held in trust for all time even from the inception and as such he should be assessed only as a trustee and not as an executor, that the mere fact that all the immovable properties of the deceased had not been sold during the relevant years will not postpone the vesting and that the assessee had been given only an authority by the author of the trust to convert the immovable properties into Government securities. On behalf of the revenue, it was urged before the Tribunal that the assessee was only an executor, that he could not be considered to be a trustee for the properties in question so long as the executorial functions had not come to an end, and that, since all the immovable properties of the deceased had not been sold during the relevant previous years, it could not be said that the assessee had discharged his executorial functions and had assumed the character of a trustee. The Tribunal, after examining the terms of the will and the provisions of the Official Trustees Act, 1913, allowed the assessee's appeals by common order dated August 30, 1974, holding that where the official trustee is appointed as a trustee by a testator under his will, there is no question of an executor functioning at all that even if there is any executor he has to transfer the properties subject to the trust after obtaining the probate of the will to the trustee, that the directions contained in the will regarding the sale of the properties merely amount to a direction for conversion of the properties from one kind to another, that the official trustee is bound to pay the legatees, carry out the duties such as discharge of the debt and payment of legacies, etc., as a trustee and that, therefore, there cannot be any doubt that the properties of the deceased had become vested in the assessee as trustee from the very inception and that in any event after the official trustee obtained probate of the will of the deceased on May 3, 1961, he has ceased to be an executor and had assumed the character of a trustee. The Tribunal also upheld the claim of the assessee that the income from the properties held by him in trust in so far as it related to religious and charitable purposes was exempt from tax under Section 11 of the I.T. Act, 1961. It also held that the official trustee was a representative assessee as contemplated in Sections 160(1)(iii) and 160(1)(iv) and as such he has to be assessed only in the manner indicated in Section 161(1) and that the amounts disbursed by him to the various relatives of the deceased as per the, terms of the will could not be aggregated together for the purpose of ascertaining the tax and that tax on such amounts had to be levied separately and the aggregate tax has to be recovered from the assessee. The questions referred to above arise out of the said orders of the Tribunal.
8. Before us the contention put forward by the revenue is that under the terms of the will the official trustee having been appointed both as a sole executor and as a sole trustee he has to first administer the properties of the deceased as an executor, that it is only after the sale of the properties and the creation of a fund, the executorial functions of the official trustee come to an end, and that as the last of the properties came to be sold only in the year 1966 long after the accounting years in question, the official trustee has to be assessed only as an executor in the years in question, and not as a trustee. According to the revenue under the terms of the will the official trustee has got two roles to play, one as an executor from the date of death of the deceased till all the immovable properties are sold and the sale proceeds invested in Government securities, and the second as a trustee for the purpose of distribution of the income from the fund, after its creation.
9. The learned counsel for the assessee would, however, submit that the properties of the deceased had become vested in the official trustee in trust for charitable purposes mentioned therein and consequently the income arising from the said properties relatable to such trust cannot be brought to tax, that the official trustee could not be considered as executor merely by reason of the fact that all the immovable properties of the deceased had not been sold during the relevant previous years, that under the terms of the will the official trustee has been merely authorised to convert the immovable properties into Government securities and such conversion of the properties into Government securities after obtaining the probate of the will by the official trustee will not make him an executor and that in any event his executorial functions had come to an end after he obtains the probate of the will.
10. To appreciate the rival contentions put forward by the parties, it is necessary to refer to some of the provisions of the Official Trustees Act and the Administrators-General Act under which the assessee is exercising his powers. Section 7 of the Administrators-General Act, 1963, directs that letters of administration shall be granted to the Administrator-General unless they are granted to the next-of-kin of the deceased. Section 8 says that the Administrator-General is entitled to letters of administration in preference to creditors, certain legatees or friends. Section 9 enables the Administrator-General to apply for administration of the estates, when the obtaining of probate of a will or letters of administration to the estate of the deceased is not obligatory. Section 24 contemplates the Administrator-General assuming the role of official trustee after the discharge of all the liabilities of an estate administered by him in relation to any of the assets then remaining in his hands. Section 7 of the Official Trustees Act, 1913, refers to the powers, duties and privileges of the official trustee which he has to exercise subject to the control and supervision of the court. Sub-section (6) of Section 7 of the Official Trustees Act prohibits the official trustee from administering the estate of a deceased person unless he is expressly appointed sole executor and sole trustee, under the will of such person. Section 9 provides that when an official trustee has been appointed trustee under any will the executor of the will of the testator or the administrator of his estate shall, after obtaining probate or letters of administration, notify the same to the official trustee and if such official trustee consents to accept the trust, the properties shall vest in the official trustee and shall be held by him upon trust expressed in the will. Before the enactment of Section 7(6) enabling the official trustee to function as executor in a certain contingency, the position obtaining under the Official Trustees Act, 1864, was that the official trustee is not entitled by virtue of his office and in his character as official trustee to obtain a grant of probate. (Vide decision of the Calcutta High Court in Grey v. Charusila Dasi ILR  Cal 53.
11. In this case, admittedly, the testator had specifically appointed the official trustee as sole executor and sole trustee of the properties left by him. Therefore, the official trustee has been authorised to act both as an executor as well as a trustee. By operation of Section 9, as soon as the executor obtains the probate, the property shall vest in the official trustee as he has been constituted a trustee under the will. As the official trustee has been constituted both as sole executor and as sole trustee, the properties initially vest in him as executor and as soon as he obtains the probate of the will, they shall vest in him as a trustee. This position results from the combined operation of Sections 7(6) and 9 of the Official Trustees Act. In this case, admittedly, probate has been obtained by the official trustee on May 3, 1961, and, therefore, during the assessment years in question the official trustee should be taken to have given up his role as an executor and had assumed the role of a trustee.
12. In V. M. Raghavalu Naidu & Sons v. CIT : 18ITR787(Mad) , this court bad expressed the view that executors do not become trustees for the beneficiary in the case of a specific bequest until assent, that in the case of a residuary bequest, until the residue is ascertained and the assent of the executor is either expressly given or inferred from his conduct, the administration of the estate by the executors cannot be taken to have been completed when some of their executorial duties are yet to be performed and the residue has to be ascertained, and that until the residuary estate is ascertained the legatees acquire no interest in the property and no fund in their favour comes into existence. In CIT v. Estate of late Ramaswami Pillai : 46ITR666(Mad) , a testator bequeathed all his properties for certain charitable purposes with provision for specific legacies and maintenance allowance to relations. The trustees filed returns of income before all debts were discharged. The assessee who had been constituted as a trustee but had been given certain executorial functions under the will of the testator, claimed that he should be assessed as a trustee. But the revenue assessed him only as an executor on the ground that the debts have not been fully discharged. The court held that there is no invariable rule that an executor cannot shed his character as an executor and assume the character of a trustee under the will before all the debts are discharged and legacies are paid, that the executor can vest the property in the legatees with mutual consent and hold the legacies as a trustee even before all the debts are discharged, and that the administration could not be held to be incomplete merely because no fund had been created for payment of the maintenance allowance to the relations of the deceased. On that basis, the assessment was directed to be made under Section 41 of the Indian I.T. Act, 1922. In Court Receiver v. CIT : 54ITR189(Bom) , the Bombay High Court had also taken the view that it cannot be laid down as a general rule that so long as the debts of the testator are not paid a trust cannot come into being, that there may be cases where the indebtedness of the testator is such as would come in the way of the creation of the trust in which case the trust will not come into existence, that on the other hand the indebtedness may be such as would not in any manner come in the way of bringing into existence a trust in which case a trust can emerge notwithstanding the indebtedness, and that if the property is very large and the indebtedness is small it can hardly be said that the existence of debt would come in the way of creation of a trust. The court in that case relied on the decision of this court in CIT v. Estate of late T. P. Ramaswami Pillai : 46ITR666(Mad) .
13. In Underbill's Law of Trusts and Trustees, 9th edn., pp. 202-203, it is said :
' A person may accept the office of trustee expressly, or he may do so constructively by doing such acts as are only referable to the character of trustee or executor, or he may do so by long acquiescence. In the absence of evidence to the contrary, acceptance will be presumed.'
14. In Balsbury's Laws of England, 3rd edn., vol. 38, at page 912, para, 1546, while dealing with implied acceptance of trusteeship it is said :
' A person who is named in executor and trustee in a will is deemed, if he proves the will, to accept the trusts of the will both as to personal property and as to real properly. '
15. In M. Tirumani Mudaliar v. CWT : 96ITR152(Mad) , a Division Bench of this court of which one of us was a party, had expressed the view that the difference between an executor and a trustee is that an executor is the representative of the testator for all purposes while a trustee is arepresentative of the legatees or beneficiaries and that this was clear from Section 211 of the Indian Succession Act.
16. Having regard to the view expressed in the above authorities and in the face of Sections 7(6) and 9 of the Official Trustees Act, it appears to be quite clear that though the official trustee has been appoint both as sole executor and as sole trustee, the executorship must automatically come to an end on his obtaining the probate, that the taking out of probate by the official trustee should be taken to be an act of acceptance of the trusteeship and that on the date of the obtaining of the probate the trust had come into existence and the properties had vested in the official trustee. Though we are not inclined to agree with the view of the Tribunal that the property vests initially on the death of the deceased on the official trustee as a trustee, we are upholding the decision of the Tribunal that the official trustee has to be assessed only as a trustee during the assessment years in question as the official trustee has taken the role of the trustee sssoon as he had obtained the probate of the will. In this view, we have to answer the questions referred to us in the affirmative and against the revenue. The revenue will pay the costs of the assessee. Counsel's fee Rs. 500 (one set).