- (1.)The executors of a testator (one Akshoy Kumar Ghose, deceased) appeal from a judgment of the High Court of Judicature at Fort William in Bengal delivered on a reference by the Commissioner of Income Tax under Section 66, Sub-sections 1 and 2, Income Tax Act. The testator died in October 1931. By his will he appointed the appellants (and another) his executors. He directed them to pay his debts out of the income of his property, and to pay Rs. 10,000 out of the income of his property on the occasion of his ''Addya Shradh'' for expenses in connexion therewith to the person entitled to perform the Shradh. He also directed his executors to pay out of the income of his property the costs of taking out probate of his will. Alter conferring out of income benefits on his second wife and his daughter and (out of the estate) benefits on the eons, if any, of his daughter, and after providing for the payment out of income ''gradually'' of diverse sums to some persons and certain annuities to others, he bequeathed all his remaining property (in the events which happened) to a son taken in adoption after his death by his wife, viz. one Ajit Kumar Ghosh who is still a minor. The title of the son is defeasible in the event of his dying childless during lifetime of the testator's wife, and until he attains the age of 25 years the property has to remain in the possession of the executors who are to defray the expenses of education, maintenance and other necessary expenses out of the income of they estate. By an assessment order dated 26th October 1933, the executors were assessed to Income Tax for the year 1933-34 in respect of their income of the previous year. During that year (viz. 1932-33) the executors had expended a sum of Rs. 5537 for expenses in connexion with the ''Addya Shradh'' and a sum of Rs. 1,25,000 for probate duty. They had also during the same period made certain payments to the persons entitled under the will to ''gradual'' payments and annuities. The Income Tax Officer assessed the income of the appellants of the year 1932-33, liable to tax for the year 1933-34, at Rs. 81,078.
(2.)He arrived at this figure by the following Procedure : He ascertained the total taxable income received during the relevant year as amounting to Rs. 1,89,901, and the agricultural income (within the meaning of Section 4(3)(viii) of the Act) so received at Rs. 90,015. He next ascertained the obligations which fell to be discharged by the executors during the year out of the income of the testator's estate. These obligations (which he termed ''charges'') were of different kinds. Some arose under the will of the testator's father; others consisted of the annuities payable under the testator's will and of the payments actually made during the year in respect of the sums thereby directed to be paid ''gradually''. These ''charges'' he treated (being, as he thought, bound to do so by the decision in Bejoy Singh Dudhuria v. Commr. Income Tax, Calcutta, 1933 AIR(PC) 145 as of such a nature that the moneys required to meet them could not be regarded as income of the appellants. But, since the ''charges'' were payable out of the whole income whether taxable or not, he apportioned the ''charges'' between the taxable income and the agricultural income, allocating the sum of Rs. 35,520 to the taxable income with the result that of the said sum of Rs. 1,89,901 he treated only the sum of Rs. 1,54,381 as income of the appellants. This amount he further reduced by making deductions in respect of the Rs. 5537 expended during the year in respect of the testator's ''Addya Shradh''. Certain other adjustments had to be made (chiefly concerned with outgoings in respect of house property) which further reduced the sum of Rs. 1,54,381 to a sum of Rs. 1,22,396. This he fixed as the ''total income'' of the executors. Ha then deducted from that total income so much thereof as was represented by interest on securities and dividends taxed at the source and assessed the executors as liable to pay tax on the balance. He refused to treat the expenses of probate as one of the ''charges'', the amount of which could not be regarded as income of the executors, and accordingly made no allowance or reduction in respect thereof. On appeal to the Assistant Commissioner the total income liable to tax was reduced to a sum of Rs. 69,344. The reasons for this reduction are immaterial, because upon all the points involved in the present appeal the Assistant Commissioner agreed with the course adopted by the Income Tax Officer.
(3.)The executors then applied to the respondent to refer five questions of law to the High Court under Section 66(2) of the Act. The respondent, for reasons which need not be specified, only referred three of the questions, but added an additional one on his own motion under Section 66(1).
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