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Trustees of H.E.H. the Nizam's Pilgrimage Money Trust Vs. Controller of Estate Duty, Hyderabad (02.12.1983 - APHC) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberReferred Case No. 100 of 1978
Judge
Reported in[1985]153ITR496(AP)
ActsIncome Tax Act, 1961 - Sections 60, 61, 62 and 63
AppellantTrustees of H.E.H. the Nizam's Pilgrimage Money Trust
RespondentController of Estate Duty, Hyderabad
Excerpt:
direct taxation - trust property - sections 10 and 12 of estate duty act, 1953 - trust created reserving right of expense of haj of settlor - whether to be treated 'settlement' under section 12 and liable to estate duty - section 12 applicable to settlement where settlor reserved an interest to him for life or for any period - reserving rights of expense of haj to be treated as interest for life - held, creation of trust reserving rights therein by settlor to be treated as settlement and subject to estate duty. - motor vehicles act (59 of 1988)section 149 (2): [v. gopala gowda & jawad rahim, jj] insurers entitlement to defend the action joint appeal by insured and insurer - held, the language employed in enacting sub-section (2) of section 149 appears to be plain and simple and there.....seetharam reddy, j. 1. the question, which is rather important, referred under s. 64(1) of the e.d. act, 1953 (for short 'the act'), for our answer is : 'whether, on the facts and in the circumstances of the case, the trust property of the value of rs. 13,57,205 is liable to be included in the estate duty assessment of the deceased as property deemed to pass (a) either under section 12 of the estate duty act, (b) or under section 10 of the estate duty act ?' 2. the relevant facts gathered from the statement of case may now be set out. 3. nawab sir mir osman ali khan bahadur, h.e.h., the nizam of the erstwhile hyderabad state (hereinafter referred to as 'the settlor'), wealthiest person on the planet at one time, created a trust on november 2, 1950, called 'h.e.h. the nizam's pilgrimage.....
Judgment:

Seetharam Reddy, J.

1. The question, which is rather important, referred under s. 64(1) of the E.D. Act, 1953 (for short 'the Act'), for our answer is :

'Whether, on the facts and in the circumstances of the case, the trust property of the value of Rs. 13,57,205 is liable to be included in the estate duty assessment of the deceased as property deemed to pass (a) either under section 12 of the Estate Duty Act, (b) or under section 10 of the Estate Duty Act ?'

2. The relevant facts gathered from the statement of case may now be set out.

3. Nawab Sir Mir Osman Ali Khan Bahadur, H.E.H., the Nizam of the erstwhile Hyderabad State (hereinafter referred to as 'the settlor'), wealthiest person on the planet at one time, created a trust on November 2, 1950, called 'H.E.H. the Nizam's Pilgrimage Money Trust'. The settlor died on February 24, 1967. Under the trust, the settlor set apart Government of India Loan Securities of the face value of Rs. 22.20 lakhs yielding an annual income of Rs. 66,600. The settlor appointed himself as one of the trustees and clause 3(c) provided in clear terms the purpose and object of the trust (see p. 515 infra) :

'During the lifetime of the settlor of defray the expenses of Haj of the settlor and of such of the members of his family as he may take with him and of their visit and pilgrimage to various Mahomedan shrines and holy places in Hedjaz and Iraq and for making religious offerings and expending monies for charitable purposes at such places and for such other religious or charitable purposes as the settlor in his absolute discretion may, from time to time, think fit and require out of the income as well as the corpus of the trust fund in such manner and to such extent as the settlor may from time to time direct and for all or any of such purposes as aforesaid to pay such monies out of the income of the corpus of the trust fund as the settlor may from time to time require.'

4. The other clauses are not relevant for the purpose of the case.

5. The Assistant Controller of Estate Duty was of the view that according to clause (3)(c) of the trust deed, the settlor was entitled during his family members as he may take with him for pilgrimage, suggesting thereby that the settlor was not completely excluded from enjoying the benefit of the corpus of the trust. Therefore, by invoking the provisions of s. 10 of The E.D. Act, he treated the market value of the corpus of the trust at Rs. 13,57,205 as property passing on the death of the deceased-settlor.

6. On appeal, the Appellate Controller of Estate Duty, while agreeing with the view of the Assistant Controller, held that the second limb of s. 10 was clearly attracted because the power of the settlor to get the pilgrimage expenses reimbursed was a benefit which could be enforced in law and also in equity. Though this reservation of benefit could not be considered as a benefit reserved under a contract, but the reservation of the benefit had been covered by the word 'otherwise' used in s. 10 of the Act.

7. In the second appeal before the Tribunal, two contentions were advanced on behalf of the accountable persons, viz. : (a) the settlement made by the deceased was not a gift within the meaning of s. 10; and (b) even if it were to be gift, the requirements of s. 10 were not satisfied. On behalf of the Revenue, while not jettisoning the claim that s. 10 was applicable, an alternative plea was raised contending that it was s. 12 that was most relevant and applicable to the facts of the case though it was not invoked by the two authorities below. Section 10, if at all applicable would only be secondary. The fresh contention being a question of law, there was no objection, not could there be one, on behalf of the accountable person. So, on the contention as to the applicability of s. 12 raised for the first time before the Tribunal, it came to the conclusion that in the settlement, the settlor reserved an interest to him for life and, consequently, the provisions of s. 12 are attracted. It, however, further held on the question of applicability of s. 10, as under :

'It is difficult to agree with the contention raised on behalf of the accountable person that for the purpose of finding the meaning of the word 'gift' used in s. 10, reference must be made only to section 27 to find out its meaning. To put it differently, it is perhaps difficult to agree that a gift made to a non-relative is not covered by section 10. This is our tentative view.'

8. Hence, this reference.

9. The question to be determined in short is : Whether s. 12 and/or s. 10 is applicable in the circumstances of the case.

10. The three-fold contention raised by the learned counsel for the accountable person is : (i) the expression 'settlement' occurring in s. 12 of the Act refers, by necessary implication, to a disposition inter vivos and not a disposition by way of trust; (ii) there is no reservation of interest by the deceased-settlor and, even assuming there is one, it is not for life and so the section is not attracted; and (iii) since the settlor has not exercised his right said to be reserved, it must be held that the said right has been surrendered by implication and, therefore, the trust property is not exigible to duty.

11. The relevant statutory provisions may first be notice before seeking to adjudicate the contention raised.

12. Section 2(15) of the E.D. Act, 1953, defines 'property' as under :

'2. (15) 'property' includes any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale and also includes any property converted from one species into another by any method....

Explanation 2. - The extinguishment at the expense of the deceased of a debt or other right shall deemed to have been a disposition made by the deceased in favour of the person for whose benefit the debt or right was extinguished, and in relation to such a disposition, the expression 'property' shall include the benefit conferred by the extinguishment of the debt or right.'

13. Section 2(19) defines 'settled property' as :

'2. (19) 'settle property' means property which stands limited to, or in trust for, any persons, natural or juridical, by way of succession, whether the settlement took effect before or after the commencement of this Act; and 'settlement' means any disposition, including a dedication or endowment, whereby property is settled.'

14. Section 9 of the Act reads :

'9. Gifts within a certain period before death. - (1) Property taken under a disposition made by the deceased purporting to operate as an immediate gift inter vivos whether by way of transfer, delivery, declaration of trust, settlement upon person in succession, or otherwise, which shall not have been bona fide made two years or more before the death of the deceased shall be deemed to pass on the death :

Provided that in the case of gifts made for public charitable purposes, the period shall be six months.

(2) The provision of sub-section (1) shall not apply to -

(a) gifts made in consideration of marriage, subject to a maximum of rupees ten thousand in value;

(b) gifts which are proved to the satisfaction of the Controller to have been part of the normal expenditure of the deceased, subject to a maximum of rupees ten thousand in value.'

15. Section 10 of the Act reads as under :

'10. Gifts whenever made where donor not entirely excluded. - Property taken under any gift, whenever made, shall be deemed to pass on the donor's death to the extend that bona fide possession and enjoyment of it was not immediately assumed by the donee and thenceforward retained to the entire exclusion of the donor or of any benefit to him by contract or otherwise :

Provided that the property shall not be deemed to pass by reason only that it was not, as from the date of the gift, exclusively retained as aforesaid, if by means of the surrender of the reserved benefit or otherwise, it is subsequently enjoyed to the entire exclusion of the donor or of any benefit to him for at least two years before the death :

Provided further that a house or part thereof taken under any gift made to the spouse, son daughter, brother or sister, shall not be deemed to pass on the donor's death by reason only of the residence therein of the donor except where a right of residence therein is reserved or secured directly or indirectly to the donor under the relevant disposition or under any collateral disposition.'

16. Section 12 of the Act runs as under :

'12. Settlement with reservation. (1) Property passing under any settlement made by the deceased by deed or any other instrument not taking effect as a will whereby an interest in such property for life or any other period determinable by reference to death is reserved either expressly or by implication to the settlor or whereby the settlor may have reserved to himself the right, by the exercise of any power, to restore to himself or to reclaim the absolute interest in such property shall be deemed to pass on the settlor's death :

Provided that the property shall not be deemed to pass on the settlor's death by reason only that any such interest or right was so reserved if by means of the surrender of such interest or right the property is subsequently enjoyed to the entire exclusion of the settlor and of any benefit to him by contract or otherwise, for at least two years before his death :

Provided further that a house or part thereof comprised in such settlement made in favour of the spouse, son, daughter, brother or sister, shall not deemed to pass on the settlor's death by reason only of the residence therein of the settlor except where a right of residence is reserved or secured directly or indirectly to the settlor under the settlement or under any collateral disposition.

Explanation. - A settlor reserving an interest in the settled property for the maintenance of himself and any of his relatives (as defined in section 27) shall be deemed to reserve an interest for himself within the meaning of this section.

(2) Notwithstanding anything contained in sub-section (1), where property is settled by a person on one or more other persons for their respective lives and after their death, on the settlor for life and thereafter on other persons and the settlor dies before his interest in the property becomes an interest in possession, the property shall not be deemed to pass on the settlor's death within the meaning of this section.'

17. Section 14(3) of the Act reads as under :

'14. Policies kept up for a donee. - .....

(3) For the purposes of this section, -

(a) the expression 'settlement' includes any disposition, trust, convenant, agreement or arrangement, and......'

18. Section 16(2)(b) of the Act reads :

'16. Annuity or other interest purchase or provided out or property derived from the deceased. - ...

(2) In this section, the following expression have the meanings hereby assigned to them respectively, namely : - .....

(b) 'disposition' includes any trust, convenant, agreement or arrangement; and'

19. Now, the argument with reference to the first contention somewhat runs on these lines. The word 'settlement' as defined under s. 2(19) means any disposition, including a dedication or endowment; and the expression 'settlement' in s. 14 is said to include any disposition, trust, convenant, agreement or arrangement. So also, under s. 16(2)(b), 'disposition' is said to include any trust, convenant, agreement or arrangement; then under s. 9, the property taken under a disposition made by the deceased whether by way of transfer, delivery, declaration of trust, settlement upon persons in succession, or otherwise, shall be deemed to pass on the death; but under s. 12, property passing under any settlement made by the deceased shall be deemed to pass on the settlor's death. Therefor, wherever the Legislature intended that the settlement should include not only disposition but also trust, convenant and so on, it made it explicit. Inasmuch as s. 12 did not make any express provision stating that the settlement referred to therein will also take in a trust, it must, therefore, be attributed to the Legislature that the word 'settlement' used therein must be referable to dedication, as it did not include 'trust' by virtue of the definition given under s. 2(19).

20. Secondly, it was urged, with equal vehemence, that most of the provisions and in particular the provisions enacted in s. 12 are in pari material with the provisions enacted in the Customs and Inland Revenue Act of 1881 passed by the Parliament of the United Kingdom. In particular s. 38(2)(c) of the Customs and Inland Revenue Act, 1881, as amended by s. 11(1) of the Customs and Inland Revenue Act, 1889, read with s. 2(1)(c) of the Finance Act, 1894, has been literally borrowed, excepting the provision pertaining to 'any trust created by the deceased', which is conspicuous by its absence in the Indian enactment. Therefore, it is axiomatic that the legislature had deliberately excluded the provision with regard to the trust and, therefore, on this score also, s. 12 cannot be attracted to the cases where the settlement or dedication is made by way of a trust.

21. Adverting to the first limb of the argument as to whether the word 'settlement' as coined in s. 12 can be said to take in 'trust' as well, it must be stated, and to our mined it is quite apparent, that the words settlement, disposition, trust, dedication and arrangement, employed at various places in the Act, have been used very loosely and not with any amount of deliberateness as to their scope, meaning and effect. Predominantly they have been used as interchangeable words. In fact, if we carefully analyse their interaction, they not only overlap, but often confuse the reader. For instance, under s. 9, 'disposition' could be said to be by way of transfer, delivery, declaration of trust, settlement or otherwise. This contemplates the comprehensive base of the word 'disposition'. In contradistinction to that, under s. 14(3)(a), the word 'settlement' includes any disposition, trust, convenant and so on. It immediately, therefore, strikes us as to which word is genus and which is species. Under s. 9, 'disposition' becomes genus, while 'trust' becomes species; whereas under s. 14(3)(a) 'settlement' becomes genus and disposition becomes species. It is because of this inescapable inference, we are constrained to observe that these various connotations, which no doubt confused the learned counsel so also the court, have been used in a loose sense. Under these circumstances, the expression 'settlement' as defined under s. 2(19), meaning thereby any disposition, must necessarily be said to include 'trust' as well when we read s. 9; though not be the same when we read s. 14(3)(a), but it would be so again if we read s. 16(2)(b). In other words, when the word 'settlement' has been employed in s. 12 without any narration of its scope, as has been done in some other sections to which reference has already been made, it must necessarily include the wide gamut of arrangements whether by way of any dedication, trust, agreement, transfer and so forth. This, in our judgment, will be the proper reading of the word 'settlement' as used in s. 12 of the Act.

22. Courts of judicature while faced with fiscal enactments, will have to no doubt bear in mind the oft-quoted observation of Rowlatt J. (see [1921] 1 KB 64) :

'In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.'

23. We apprehend, the terms used by Parliament in this Act, in particular the terms 'settlement' and 'disposition', if used independently without any further elucidation, shall include in case of settlement - 'any disposition, trust, covenant, agreement, arrangement or otherwise'; and in case of 'disposition' - 'any settlement, trust, covenant, agreement, arrangement or otherwise', unless the disposition or the settlement wherever employed are further amplified, in which case they should be restricted to that amplification only.

24. Read in the light of the above analysis, the word 'any settlement' used in s. 12, without further elucidation, will be comprehensive enough to take in a 'trust' as well.

25. Further, in order to uncover the comprehension of word 'settlement' used in s. 12, recourse may be had not only to the definition section but s. 9 as well, which precedes s. 12. As per the definitionin s. 2(19), 'settlement' means any disposition; and as per s. 9, disposition could be by way transfer, delivery, declaration of trust, settlement upon person in succession or otherwise. Therefore, the expression 'any settlement' used in s. 12 envisages, by reference to the definition section itself, 'any disposition'. Since no restriction of any sort is postulated under s. 12, it must be concluded that the 'disposition' as envisaged under s. 9 is the comprehension of the 'settlement' under this section. Viewed from any angel, therefore, the words 'any settlement' used in s. 12 will positively take in 'trust' also.

26. It is needless to traverse beyond s. 12, either to s. 14(3)(a) or to s. 16(2)(b), in order to cull out the meaning of the word 'settlement' or 'disposition', as the scope of those words as explained in those two sections is restricted to those section alone and little or no guidance could, therefore, be found in them. Resultantly, the meaning of 'settlement' under s. 12 can only be deduced from the language in the definition section, read in the light of s. 9.

27. To buttress the argument further, the learned counsel inviting our attention to the provisions enacted both in s. 16(1)(c) (of the Indian I.T. Act, 1922), as well as the provisions enacted in ss. 60, 61, 62 and 63(b) of the I.T. Act, 1961, argued that the Central Legislature was perfectly aware of the distinction between a 'settlement' and 'trust' and, therefore, while enacting s. 12 of the Act, it necessarily excluded 'trust' from s. 12. The statutory provisions referred to above may be extracted. Section 16(1)(c) of the Indian I.T. Act, 1922, reads :

'16. Exemptions and exclusions in determining the total income. - (1) In computing the total income of an assessee - .....

(c) all income arising to any person by virtue of a settlement or disposition whether revocable or not, and whether effected before or after the commencement of the Indian Income-tax (Amendment) Act, 1939 (VII of 1939), from assets remaining the property of the settlor or disponer, shall be deemed to be income of the settlor or disponer, and all income arising to any person by virtue of a revocable transfer of assets shall be deemed to be income of the transferor :

Provided that for the purposes of this clause a settlement, disposition or transfer shall be deemed to be revocable if it contains any provision for the retransfer directly or indirectly of the income or assets to the settlor, disponer or transferor, or in any way gives the settlor, disponer or transferor a right to reassume power directly or indirectly over the income or assets :

Provided further that the expression 'settlement or disposition' shall for the purpose of this clause include any disposition, trust, covenant, agreement or arrangement, and the expression 'settlor or disponer' in relation to a settlement or disposition shall include any person by whom the settlement or disposition was made :

Provided further that this clause shall not apply to any income arising to any person by virtue of a settlement or disposition which is not revocable for a period exceeding six years or during the lifetime of the person and from which income the settlor or disponer derives no direct or indirect benefit but that the settlor shall be liable to be assessed on the said income as and when the power to revoke arises to him.'

28. Sections 60, 61, 62 and 63(b) of the I.T. Act, 1961, read as under :

'60. All income arising to any person by virtue of a transfer whether revocable or not and whether effect before or after the commencement of this Act shall, where there is no transfer of the assets from which the income arises, be chargeable to income-tax as the income of the transferor and shall be included in his total income.

61. All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income-tax as the income of the transferor and shall be included in his total income.

62. (1) The provisions of section 61 shall not apply to any income arising to any person by virtue of a transfer -

(i) by way of trust which is not revocable during the lifetime of the beneficiary, and, in the case of any other transfer, which is not revocable during the lifetime of the transferee; or

(ii) made before the first day of April, 1961, which is not revocable for a period exceeding six years :

Provided that the transferor derives no direct or indirect benefit from such income in either case.

(2) Notwithstanding anything contained in sub-section (1), all income arising to any person by virtue of any such transfer shall be chargeable to income-tax as the income of the transferor as and when the power to revoke the transfer arises, and shall then be included in his total income.

63. For the purposes of section 60, 61, and 62 and of this section, - ...

(b) 'transfer' includes any settlement, trust, covenant, agreement or arrangement.'

29. The definition of 'transfer' excluding transfer by way of trust, as used under the I.T. Act, 1961, will not be of any help in construing the provisions enacted in the E.D. Act, because those words textually as well as contextually have been used differently. Therefore, the contextual construction will also differ. In fact, the E.D. Act, in point of time, is sandwiched in between the Indian I.T. Act of 1922 and the I.T. Act, 1961. The latter Act being later in point of time to the passing of the E.D. Act, will not be of any consequence or help while interpreting the E.D. Act. May be the latter in point of time to the I.T. Act of 1961, even the what would have been the position is rather difficult to conceive of as the deductive process will again depend upon the text and context. Hence, the argument advanced on this aspect also will not be of any avail to the accountable person, nor the decision of this court in CIT v. H. E. H. Nawab Sir Mir Osman Ali Bahadur : [1985]153ITR514(AP) on which reliance has been placed.

30. Hence, there is no substance in the contention of Sri Anjaneyulu, the learned counsel for the accountable person, that the word 'settlement' used in s. 12 does not take in a 'trust' and, therefore, the provisions enacted in s. 12 cannot be made applicable to the trust created by the settlor.

31. Before analysing the second limb of the argument, viz., that the word 'trust' as occurring the British Act, from which s. 12 of the Act has been literally borrowed, is absent in s. 12, goes to show that all trusts should be excluded from the ambit of s. 12,

'According of section 38(2)(c) of According to section 12 of thethe Customs and Inland Revenue Estate Duty Act, 1953.Act, 1881, as amended by section11(1) of the Customs and InlandRevenue Act, 1889, read withsection 2(1)(c) of the FinanceAct, 1894.---------------------------------- ---------------------------------Property passing under Property passing under(a) any settlement made by the any settlement made by thedeceased by deed or any other the deceased by deed or any otherinstrument not taking effect instrument not takingas a will (whether made for effect as a willvaluable consideration or notas between the settlor and anyother person, wherebyor (1) an interest in such property forlife or any other period determinable(b) any trust created by the by reference to death is reserveddeceased, whether expressed either expressly or by implicationin writing or otherwise, to the settlor, orwhereby(1) an interest in such propertyfor life or any other perioddeterminable by reference todeath is reserved either expresslyor by implication to the settlor, or>(2) the settlor may have (2) Whereby the settlor may havereserved to himself the reserved to himself the rightright, by the exercise of by the exercise ofany power to restore to himself any power, to restore himself or toor to reclaim the absolute reclaim the absoluteinterest in such to property, interest in such property shall bedeemed to pass on the settlor's death.'shall be deemed tp pass onthe settlor's death.

32. It is no doubt true the contents of clause (b) of the British Act do not find their place in s. 12 of the Act, but by their mere absence, it cannot be irresistibly inferred that Parliament has deliberately intended to exclude 'trust' from the purview of s. 12. Barring the above extract, no other material, viz., the definition of 'settlement or trust or disposition' found, if any, in the British Act, and the parliamentary debates while enacting s. 12 of the Act, has been place before us. It may be, the word 'settlement' in the English Act does not include 'trust'. It may also be that the word 'settlement' in the English Act juxtaposed to the word 'dedication' would make a completely different meaning than the meaning spelt out in the Indian Act. It may also be that the various words - 'settlement, disposition, dedication, trust and so on' - used in the Indian Act thereby giving rise to certain position of overlapping, might not obtain in the English Act. Therefore, it may not be fair to conclude in the absence of the contents as occurring in clause (b) of the English Act in the Indian Act, that the Parliament intended to omit 'trusts' from the purview of s. 12. Perhaps, the parliamentary debates on this aspect of the provision would have thrown some light as to whether the word 'settlement' as used in s. 12 of the Act, has to be given a wider and liberal meaning so as to include any disposition including 'trust'. It would, therefore, be presumptuous on our part, in the absence of essential material, to hold that Parliament intended to exclude 'trusts' from s. 12. Therefore, it will not be possible for us to accede to the submissions made by the learned counsel for the accountable person. We, in fact, reiterate our analytical deduction made in regard to the first limb of the argument that the words - 'settlement, disposition, trust, dedication and so on' - variously used in the Act in different places have the sting of overlapping, each trying to elbow out the other, in particular, the words 'settlement' and 'disposition'.

33. The second contention, which is more vital, is whether the settlor has reserved any interest in the property, and if so, whether such reservation is an interest for life of the deceased. The argument of the learned counsel for the accountable person is that any reservation contemplated under s. 12 of the Act must be qua the property and not any income out of it; and, secondly, even if it is to be reckoned as proper reservation, it cannot be said to be a reservation of interest for life, which is synonymous to life interest. The settlor in this case has merely required the trustees to defray his expenses for pilgrimage, which does not amount to reservation of interest in property. For this, reliance is placed on the decision in CIT v. Nawab Sir Mir Osman Ali Bahadur : [1985]153ITR514(AP) , wherein it is held :

'Whether income derived from a trust is assessable in the hands of settlor depends upon whether the first proviso to section 16(1)(c) is attracted or not. If the terms and conditions of the trust deed are such that the settlor is placed in the position which prevailed prior to the creation of trust when he was absolutely free to deal with his property in any manner he liked, then the trust would be deemed to be revocable although ostensibly it is irrevocable. On the other hand, if the income or the assets are retransferred or power over which is reassumed but only for the purpose of discharging the obligations imposed by the trust, or to put it in another way, if the settlor is bound to deal with the income or the assets within the four corners of the trust deed, such a case would not fall within the purview of the first proviso.

The fact that clause 3(c) of the 'H.E.H. the Nizam's Pilgrimage Money Trust' entries the settlor to give some direction to the trustees and the trustees are obliged to carry out those direction although such directions relate to handing over of the income of the trust to the settlor, the trust would not be revocable as the money so transferred to the settlor is to beused by him exclusively for the pilgrimage mentioned in the trust deed.'

34. The judgment referred to above was concerned with the provisions enacted under section 16(1)(c) of the Indian Income-tax Act, 1922, and therefore, it is of little or of no assistance.

35. The language of s. 12 of the Act is explicit wherein the words used are 'whereby an interest in such property for life or any other period' meaning thereby that the reservation is with reference to an interest in such property and not necessarily reservation qua the property as such. In fact, in this case, we need not encounter any difficulty in that behalf for the simple reason that the settlor has sold away 30,000 gold sovereigns and the proceeds thereof were invested in 3% Government of India Conversion Loan, 1946, with the total face value of Rs. 22,20,000, yielding an annual income of Rs. 66,000, and created a trust in respect of these Government securities by delivering the same to the trustees. In fact, as per clause (1) of the said trust deed, the settlor transferred and assigned to the trustees the said securities which were, for the sake of brevity, referred to as 'trust fund'. Clause 3(c) of the trust deed, which is relevant, may now be read :

'3. The trustees shall hold and stand possessed of the trust fund upon trust : - ....

(c) During the lifetime of the settlor to defray the expenses of Haj of the settlor and of such of the members of his family as he may take with him and of their visit and pilgrimage to various Mahomedan shrines and holy places in Hedjaz and Iraq and for making religious offerings and expending monies for charitable purposes as the settlor in his absolute discrertion may from time to time think fit and require out of the income as well as the corpus of the trust fund in such manner and to such extent as the settlor may from time to time direct and for all or any of such purposes as aforesaid to pay such monies out of the income or the corpus of the trust fund as the settlor may from time to time require.'

35. It is, therefor, quite manifest from the aforesaid clause that during his lifetime the settlor, in his absolute discretion, may from time to time require 'out of the income as well as the corpus of the trust fund' in such manner and to such extent as the settlor may from to time direct, for defraying towards pilgrimage expenses or any other charitable purposes mentioned thereof. This amply demonstrates that not only reservation has been made vis-a-vis the interest, viz., income out of the trust fund, but also qua the corpus as well. Therefore, it should not detain us long in holding that there is no substance in the contention of the learned counsel for the accountable person that there is no reservation qua the property and, hence, the same is rejected.

36. The second limb of the argument will likewise have to be rejected because the aforesaid clause makes it quite explicit and unequivocal that during the entire lifetime of the settlor, he has every right to spend the corpus as well as the income equating thereby creation or reservation of interest for life. The language employed in the aforesaid clause does not absolutely present any difficulty for considering both the aspects of the argument. It is certain, positive and clear in that it states that the settlor can require towards defrayal of entire expenses to be incurred for the purposes of pilgrimage during his lifetime out of the income as well as the corpus of the trust fund. It is indeed unnecessary for us to lay down as to whether reservation of an interest for life is synonymous with life interest. But, since the learned counsel was emphatic about it, we have no hesitation in adjudicating that they are not synonymous. The essential ingredients that flow out of these two are not the same. A person who is said to have life interest in certain property cannot dispose of the property in its entirety, as after his death, it will revert to the vested remainder holder. So, the alienee will hold it only for the lifetime of the settlor. After his death, it will devolve again on the vested remainder holder. So, the life interest holder can alienate interest, which he can otherwise enjoy during his lifetime.

37. Now, in this case, such ingredients do not obtain. Under the trust, the settlor created a right under which he can require the trustees to defray the expenses to be incurred by him in regard to the purposes laid down therein not only out of the income, but also out of the corpus and that too in its entirety, without any limitations whatsoever. Hence, on this single ground alone, we are not persuaded to acceded to the submission of the learned counsel for the accountable person that life interest could be equated with interest for life. They are two distinct connotations.

38. One more aspect of the argument advanced in this behalf was that in case of reservation of an interest for life there should be regular payment of money in favour of the beneficiary throughout the year, otherwise it cannot be considered as reservation of interest for life. We see no warrant textually or contextually from the language of s. 12, not has any authority been placed before us. There need not be a continuous flow of payment of money in the shape of the an unbroken chain as it were; it could be either sporadic or could be once or twice during the lifetime of the settlor. Therefore, this contention is rejected out of hand.

39. Yet another aspect. The argument is that unless a charge is created against the property, there cannot be any life interest. Reliance is placed on a couple of decisions. In Kanakasabai v. CED : [1969]74ITR429(Mad) , the deceased made six gifts of immovable property in favour of his sons, grandsons, daughter and wife, the value being Rs. 7,38,656. The Revenue considered that the reservation in each of the gifts towards maintenance attracted s. 12 or, in the alternative, s. 10. The question considered therein was :

'Whether, on the facts and in the circumstances of the case, properties settled by the deceased by the six deeds of settlement valued at Rs. 7,38,656 or any part thereof was not liable for inclusion in the estate of the deceased as property deemed to pass on his death ?'

40. It was held (p. 430) :

'We are of the view that there is no room whatever for the application of section 12. The gift deeds were all executed more than two years prior to the death of the deceased. The first four deeds are in favour of his sons and grandsons and are in stereotyped form. The disposition in these documents of the immovable property is of absolute ownership. On that matter there can be little doubt. But the disposition was followed by these words :

'During my lifetime, you should pay me rupees one thousand per annum for the expenses of my livelihood.'

41. The payment should be made out of the income from the properties given to the grandsons. In the case of the gift to the daughter, the words were :

'You should maintain myself and my wife, Rajambal alias Sivanandavalli Ammal, till our lifetime.'

42. In the case of the wife, the language is :

'Since I am getting sickly and I feel I may not live long from now and on the confidence that you will maintain me till my life, I hereby give by means of this settlement with immediate effect....'.'

43. The court further held (at p. 430) :

'The provision in the first four deeds for payment of a sum of Rs. 1,000 per annum, in our opinion, is not a charge on the property given as gift, not does it create any interest therein. The position is the same in respect of the deed in favour of the daughter. So far as the wife is concerned, there is not even a provision for maintenance.... For section 12 to apply, there should be reservation of an interest in the property settled. The reservation may be express or implied, but it should be of an interest in the property which is the subject-matter of the settlement. That is clearly not the case here in any of the deeds.'

44. In CED v. Kanakasabai : [1973]89ITR251(SC) the Supreme Court held (headnote) :

'Section 12 was wholly inapplicable to the facts of the case; no interest in the properties settled was reserved to the deceased during his lifetime or for any period after the properties were settled, nor was there any provision in the deeds enabling the deceased to reclaim the property or its possession under any circumstances;

(ii) that since the words contained in the deed in favour of the wife merely expressed a hope or expectation and no enforceable right was created thereby, no part of the property settled on her could be included in computing the value of the property passing on the death of the deceased;

(iii) that in order to attract section 10, the benefit to the donor by contract or otherwise must be referable to the property gifted and it was not sufficient that the donor derived a benefit arising from the transaction resulting in the gift. As the provisions for annual payments and maintenance made in the deeds in favour of the sons, grandsons and daughter were not charged on the properties settled, the donor could not be said to have retained any interest or any benefit either in the properties settled or in respect of their possession. Neither the whole nor any part of the properties comprised in those deeds was liable to be included in computing the value of the estate that passed on the death of the deceased.'

45. The ratio in the aforesaid decisions cannot guide the adjudication in the case on hand. Here the income as well as the property settled could be utilised straightaway without any restrictions; whereas in the cases cited, immovable property was settled, while passing ownership completely, in favour of the donees and what was expected from the donees was to make certain payments to the settlor, which cannot for sure be reckoned as reservation of an interest in the property and, therefore, cannot be exigible under s. 12. The monies in those cases were to be paid not directly out of any income arising from the property settled and, therefore, the question of reservation of an interest for life in the subject-matter cannot arise. Therefore, they do not bear any analogy to the case on hand.

46. The alternative or additional contention is that a gift constituted by way of trust cannot fall within the meaning of s. 10 of the Act. Since the requirements of s. 10 are not satisfied and inasmuch as the right to defrayal expenses to be incurred on pilgrimage was in actual practicality never exercised, s. 10, therefore, cannot be attracted, an so the property cannot be deemed to pass on the donor's death so as to make the accountable person liable for the same. In our view, it is unnecessary to address ourselves on this aspect in view of our adjudication that the case is covered by s. 12 of the Act. Even the Tribunal's decision in this behalf is held to be 'tentative'.

47. The third contention is that in any case the first proviso to s. 12(1) is applicable and, therefore, the property should not be deemed to pass on the settlor's death. First proviso to s. 12(1) reads :

'12. (1)....

Provided that the property shall not be deemed to pass on the settlor's death by reason only that any such interest or right was so reserved if by means of the surrender of such interest of right the property is subsequently enjoyed to the entire exclusion of the settlor and of any benefit to him by contract or otherwise, for at least two years before his death :'

48. We apprehend, the contention is misplaced. Merely because the settlor has not, in point of fact, exercise any right so reserved, does not militate against the attraction of the proviso aforesaid. The proviso positively contemplates that the reservation so made must by certain means be surrendered two years before his death. Admittedly, there is no such surrender by any instrument, much less two years before the settlor's death. The learned counsel argued that there is implied surrender. Implied surrender, we apprehend, cannot claim any place inasmuch as till the date of his death, the settlor could have exercise his right. There was nothing to forbid him from doing so. For implication, therefore, there is no room or scope whatsoever. Hence, we are unable to agree with the contention which is devoid of merit and substance and, therefore, the same is reject.

49. In the result, we conclude :

(i) The expression 'any settlement' used in s. 12 of the E.D. Act, will positively take in 'trusts' also.

(ii) The settlor in this case has undoubtedly reserved an interest in the trust property for life by which he can require the trustees to defray the expenses to be incurred by him in regard to the purposes laid down therein not only out of the income but also out of the corpus, in its entirely, without any limitation whatsoever in which event the said property shall be deemed to pass on the settlor's death.

(iii) 'life interest in property' cannot be reckoned as synonymous with 'interest in property for life'.

(iv) Though the settlor in this case has not exercise the right so reserved, yet it cannot by implication be held that the reservation must be deemed to have been surrendered two years before his death. In order to attract the benefit of the first proviso to s. 12(1) of the Act, on surrender of the interest or right postulate therein, the property must have been subsequently enjoyed to the entire exclusion of the settlor for at least two years before his death. This act must be positive, certain and unequivocal.

50. The question referred in answered in the affirmative and against the assessee.


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