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Commissioner of Wealth Tax, Bombay City-i Vs. N.D. Petit. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberWealth-tax Reference No. 21 of 1971
Judge
Reported in[1981]128ITR650(Bom); [1981]6TAXMAN387(Bom)
ActsTransfer of Property Act, 1882 - Sections 6
AppellantCommissioner of Wealth Tax, Bombay City-i
RespondentN.D. Petit.
Excerpt:
.....first clause of the preamble clearly provides that during the lifetime of the first baronet, sir dinshaw maneckjee petit, he would hold the baronetcy and from and immediately after his decease, the baronetcy would be held by framjee dinshaw petit, the second son of sir dinshaw maneckjee petit and the heirs male of his body lawfully begotten and to be begotten and in default of such issue with remainder to the heirs male of the body of the said sir dinshaw maneckjee petit. it can hardly be disputed that it is only the person who succeeds to the baronetcy who can enjoy the income of the trust property. in other words, the right to enjoy the income of the trust property is restricted only to the person who succeed to the baronetcy. the right to enjoy the trust property is not, therefore,..........sir d. m. petit, the third baronet. the baronetcy in question is governed by sir dinshaw maneckjee petit baronetcy act (no. 6 of 1893) passed by the governor general-in-council. a trust known as sir d. m. petit baronetcy trust was created on march 9, 1893, under the said act by sir d. m. petit, the first baronet. the material provisions of the baronetcy act are to be found in s. 2 and s.3 of the act. the preamble of the act provides that the trust has been created;'to accompany and support the title and dignity of a baronet lately conferred by her majesty queen victoria on him for an during the term of his natural life, and from and immediately after his decease to hold to his second son, framjee dinshaw petit, esquire and the heirs made of his body lawfully begotten, and in default of.....
Judgment:

Chandurkar, J.

1. The assessee in this case is the eldest son of Sir D. M. Petit, the third Baronet. The Baronetcy in question is governed by Sir Dinshaw Maneckjee Petit Baronetcy Act (No. 6 of 1893) passed by the Governor General-in-Council. A trust known as Sir D. M. Petit Baronetcy Trust was created on March 9, 1893, under the said Act by Sir D. M. Petit, the first Baronet. The material provisions of the Baronetcy Act are to be found in s. 2 and s.3 of the Act. The preamble of the Act provides that the trust has been created;

'To accompany and support the title and dignity of a Baronet lately conferred by Her Majesty Queen Victoria on him for an during the term of his natural life, and from and immediately after his decease to hold to his second son, Framjee Dinshaw Petit, Esquire and the heirs made of his body lawfully begotten, and in default of such issue with remainder to the heirs made of the body of the said Sir Dinshaw Maneckjee Petit.'

2. Section 2 and 3 of the Act read as follows :

'2. The said Framjee Dinshaw Petit and the heirs male of his body and all other heirs made of the body of the said Sir Dinshaw Maneckjee Petit to whom the said title and dignity shall descend, pursuant to the limitations of the patent whereby the said dignity was granted, shall take upon themselves respectively the names of 'Dinshaw Maneckjee Petit' in lieu and in the place of any other name of names whatever, and the said Framjee Dinshaw Petit and also such heirs made of his body and all such other the heirs male of the said Sir Dinshaw Maneckjee Petit severally and successively, shall be called by the names of 'Dinshaw Maneckjee Petit.'

'3. To pay and apply the dividends, interest and annual income of the said bonds, stocks, funds and securities up to and for the benefit of the said Sir Dinshaw Maneckjee Petit during his natural life, and from and immediately after his decease for the benefit of the said Framjee Dinshaw Petit if he shall survive the said Dinshaw Maneckjee Petit during his natural life, and from the immediately after, the death of the survivor of them the said Sir Dinshaw Maneckjee Petit and Framjee Dinshaw Petit for the benefit of the person who, as heir male of the body of the said Framjee Dinshaw Petit or of the said Sir Dinshaw Maneckjee Petit as the case may be shall for the time being have succeeded to and be in the enjoyment of the title of Baronet conferred by the said letters patent as aforesaid, notwithstanding any rule of law or equity to the contrary.'

Section 6 of the said Act related to the devolution of interest where the beneficiary refuses, neglects or discontinues to use the names Dinshaw Maneckjee Petit. Under that provision, it was provided that in case any person to whom for the time being the said title of Baronet shall have descended, refuses or neglects to use the names of Dinshaw Maneckjee Petit for the space of one whole year after he attains the age of 21 years or in case any such person having used those names shall, for the space of 6 months thereafter, discontinue to use such names then the estate or interest in the trust fund are to stand suspended and during any end every such suspension, the dividends, interest and income, etc., shall devolve and belong to the person, who, as the sole heir of Framjee Dinshaw Petit or Sir Dinshaw Maneckjee Petit, as the case may be, would have succeeded to and been in the enjoyment of the title of Baronet conferred by the same Letters Patent 'in case the person so refusing or neglecting to use or discontinuing to us the said names of Dinshaw Maneckjee Petit had departed this life.'

3. Sir Dinshaw Maneckjee Petit, the third Baronet, transferred for value one-half share of the life interest of the trust created under the Baronetcy Act in favour of the assessee on 2nd March, 1960. In the assessment year 1961-62, the assessee had received Rs. 27,266 as his one-half share of the income of the trust. The WTO computed the value of the assigned one-half share in the life interest at Rs. 5,58,124 on the basis of 5% yield. The assessee challenged this valuation of the life time interest by an appeal before the AAC. He reduced the valuation made by the WTO taking the view that the WTO was not justified in finding out the present value of the assessee's possibility of becoming a future baronet to enjoy the income from the Baronetcy trust property. It appears that it was the contention of the life interest in question, the assessee had contingent interest in the trust property arising out of his right to succeed to the Baronetcy after the Baronet's death. With regard to his contention, the AAC took the view that the assessee had a chance of an heir apparent and this expectancy could not be treated as an enforceable right in the court of law and as such was not transferable within the meaning of the provisions of s. 6(a) of the Transfer of Property Act. The value of the life interest under the assignment dated March 2, 1960, was held to be Rs. 27,266 instead of Rs. 5,58,124.

4. The revenue challenged this order of the AAC. One of the grounds raised in appeal before the Tribunal on behalf of the revenue was that the AAC was in error in holding that the assessee's life interest in the Baronetcy itself was only a spes successionis and that the said life interest had no value. The Tribunal in a very well considered order took the view that the prospects of the assessee becoming a Baronet on the death of the present Baronet wholly depended upon his chance of surviving the present Baronet and even if he survived the present Baronet, he could not acquire the dignity and title of Baronet or could not retain it if he was not agreeable to adopt the names of D. M. Petit. The Tribunal took the view that the Act of 1893 did not refer to the assessee by name as a successor to derive income of the trust and the assessee could only hope to acquire the right to the income of the trust only if he happens to be heir of the present Baronet at the time of his death. The Tribunal, therefore, took the view that the Act chalked out a line of succession to the income of the trust and this was a case of spes successionis and not a contingent interest, much less, a vested interest. Therefore, the Tribunal took the view that the question of including the value of the so-called future right to the whole of the income of the trust did not arise in the present case. Arising out of this order of the Tribunal, the following question has been refereed to this court under s. 27(1) of the W.T. Act at the instance of the revenue :

'Whether the assessee's prospect of becoming a Baronet on the death of the present Baronet was a spes successionis ?'

5. Mr. Joshi appearing in support of the reference has contended that the nature of the interest which the assessee had in the matter of succession to the income of the trust was clearly in the nature of a contingent interest because the assessee was in the male line of succession and in course of time he would succeed to the Baronetcy and the interest in the trust would devolve on him after the death of the present Baronet. On the other hand, Mr. Dastur appearing for the assessee has supported the view taken by the Tribunal because, according to him, this is a clear case of spes successionis, as succeeding to the title of Baronetcy was dependent upon the assessee agreeing to take the name of D. M. Petit which, according to the learned counsel, was extremely uncertain because if the assessee did not choose to take that name there was not the slightest chance of his stepping into the footsteps of the present Baronet. It is also contended that succeeding to the Baronetcy would also be dependent upon the chance of the assessee surviving at the time of the present holder of the title.

6. It is no doubt true that provisions have been made in the Act which enable the made heir to succeed to the Baronetcy. In the preamble to the Act, the letters patent granted by Queen Victoria has been referred to. The first clause of the preamble clearly provides that during the lifetime of the first Baronet, Sir Dinshaw Maneckjee Petit, he would hold the Baronetcy and from and immediately after his decease, the Baronetcy would be held by Framjee Dinshaw Petit, the second son of Sir Dinshaw Maneckjee Petit and the heirs male of his body lawfully begotten and to be begotten and in default of such issue with remainder to the heirs male of the body of the said Sir Dinshaw Maneckjee Petit. It can hardly be disputed that it is only the person who succeeds to the Baronetcy who can enjoy the income of the trust property. In other words, the right to enjoy the income of the trust property is restricted only to the person who succeed to the Baronetcy. The right to enjoy the trust property is not, therefore, independently created in favour of any particular individual. It is strictly an incident of the right the office of Baronetcy. Unless, therefore, the right to succeed to the Baronetcy can be classified as a contingent interest, the right to enjoy the trust property could not itself be classified as contingent interest. As observed by Justice Kay in Parsons Stockley v. Parsons [1890] 45 Ch D 51 :

'It is indisputable law that no one can have any estate or interest, at law or in equity, contingent or other, in the property of a living person to which he hopes to succeed as heir at law or next of kin of such living person. During the life of such person no one can have more than a spes successionis, an expectation or hope of succeeding to his property.'

7. These observations apply with full force to the case before us. The assessee does not automatically succeed to the Baronetcy and, as pointed out by the learned judge, the expectancy or hope of succeeding to the Baronetcy is nothing more than spes successionis as understood in s. 6(a) of the Transfer of property Act. On a consideration of the provisions of the Act which created the Baronetcy, it is obvious to us that the contention advanced on behalf of the revenue before the Tribunal and on this court that the assessee had any contingent interest in the trust property, held for the behalf of the Baronet for the time being, is in nature of any contingent interest was wholly misconceived and unwarranted. Consequently, the question referred will have to be answered against the revenue.

8. The question referred is, therefore, answered in the affirmative and against the revenue.

9. The revenue to pay the costs of this reference.


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