S. B. CAPOOR J. - This is a reference under section 64 of the Estate Duty Act, 1953 (Act No. 34 of 1953), hereinafter referred to as the 'Act', made by the Central Board of Direct Taxes. It arises from the assessment of estate duty payable on the estate of Dr. Achhru Ram, who died at Ludhiana on the 26th November, 1955. The Assistant Controller of Estate Duty by his order (annexure 'B' to the statement of the case) determined the principal value of the estate at Rs. 3,20,973 and the duty payable thereon at Rs. 20,400.04. Against this order, Lilawati, widow of the deceased, and the State Bank of India, as the executor of the will of the deceased, filed appeals to the Central Board of Revenue which upheld the order of the Assistant Controller with the minor modification that rebate under section 33(1)(k) of the Act was allowed at Rs. 10,000. It is out of the appellate order of the Board (annexure 'A' to the statement of the case), dated the 15th December, 1961, that this reference arises. The questions of law stated by the Board are as follows :
'(1) Whether, on the facts and in the circumstances of the case, the property comprised in the trust created by the deceased by the deed dated the 3rd July, 1936, was correctly included in the estate of the deceased as property deemed to pass on his death under section 12 of the Act ?
(2) Whether, on the facts and in the circumstances of the case, the amount of Rs. 8,291, which was the credit balance at the date of death in the account with the State Bank of India in the joint names of the deceased and his wife, was correctly included in the estate of the deceased as property deemed to pass on his death under section 13 of the Act ?'
The deceased had, on the 3rd July, 1936, created a trust for the maintenance of his second wife, Lilawati, and for the education of his children by that wife. The deed of trust is reproduced at annexure 'E' to the statement of the case and the trustee was to be the Official Trustee, Punjab. He also had executed a will (annexure 'F' to the statement of the case) on the 6th December, 1950, and had appointed the Imperial Bank of India (now the State Bank of India) to be the sole executor and trustee of the will. It may be noted here that by that will he had excluded his first wife Nanti and his son by that wife, Bal Bhadar, or the latters descendants. In this will be had mentioned that he had created a trust with the Official Trustee, Punjab, for the maintenance of Lilawati and his children by that wife.
It will be convenient to deal with the second point first. The current account with the State Bank of India was originally in the name of the deceased alone but some time in August, 1954, he converted it into a joint account in the name of himself and his wife, Lilawati. The submission made by Mr. Partap Singh before us was that by converting his individual account into a joint account, the deceased virtually made a gift to his wife of any credit balance which might be standing in the account at the time of the death of Dr. Achhru Ram. Now, the very nature of a current account assumes that the balance in it is varying from time to time and on occasions it might be a debit account. It is, therefore, impossible to postulate that any gift as such was made by the deceased to his wife when he converted his individual current account into a joint account. The Board, to which a similar submission was made, repelled it in view of the provisions of section 13 of the Act which are as follows :
'13. Where a person, having been absolutely entitled to any property or to the funds with which any property was purchased, has caused it to be transferred to or vested in himself and any other person jointly, whether by disposition or otherwise, either by himself alone, or in concert, or by arrangement, with any other person so that the beneficial interest in some part of that property passes or accrues by survivorship on his death to the other person, the whole of that property shall be deemed to pass on the death.'
We are of the view that the item in question comes fairly and squarely within section 13 and no question of any gift arises. Accordingly, no rebate is climbable under section 33(1)(b) of the Act which is concerned with gift as such. This disposes of the second question.
As regards the first question the relevant statutory provision is sub-section (1) of section 12 of the Act which is as follows :
'12. (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 settlors death :
Provided that the property shall not be deemed to pass on the settlors 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.
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.'
The deceased had put a clause in the trust deed to the following effect :
'I reserve all the rights of cancelling or varying the trust during my lifetime.'
It may be mentioned here that the word 'in' as occurring in this clause as reproduced at page 41, is a misprint as will be clear from the reproduction of this clause given in the appellate order. As the clause stands, the plain interpretation appears to be that the settlor had reserved to himself the right to restore to himself or to re-claim the absolute interest in the property and if he had exercised the right of cancelling the trust, nothing would have passed on to the beneficiaries. Mr. Partap Singh has argued that this particular clause should be read along with the second paragraph of the trust deed which is as follows :
'During my life, the income of the trust should be added to the trust or handed over to me if I consider it to be needed for the maintenance of my wife, Lilawati, and the education of her children.'
According to his contention, the deceased had not retained to himself the power of revoking the trust altogether as that would have made the trust deed meaningless and the true interpretation of both these clauses read together should be that the deceased simply kept to himself the power of spending the portion of the income from the trust fund among the respective needs of the beneficiaries, that is, Lilavati and his children by her. This interpretation appears to me to be far-fetched, because if we so restrict the intention of the testator, there was no need at all for him to reserve to himself the right of cancelling the trust deed during him lifetime. The next submission by Mr. Partap Sing was that, in any event, the proviso to sub-section (1) of section 12 was attracted because there was nothing whatever on record to indicate that the settlor had at any time spent on himself the income from the trust fund though he lived for almost 20 years after executing the trust deed, i.e., subsequent to the execution of the trust deed, the income of the trust fund was enjoyed to the entire exclusion of the settlor or any benefit to him. Moreover, in his will, which was executed some 15 years after the execution of the trust deed, he had not disposed of the trust fund, but mentioned it separately from his other property which was still available to him for disposal by will. Similar arguments before the Board were met with the observation that the fact that the settlor did not exercise the power of revocation was not material so long as the power existed and was not surrendered. I have given careful thought to the language of the proviso and I am of the view that before the proviso can be attracted so as to take the trust fund out of the category of property which is deemed to pass on the settlors death, two conditions must co-exist - firstly, there must be a positive act of surrender of the power which had been reserved by the settlor to restore to himself or to re-claim the absolute interest in such property and, secondly, that at least for two years before the settlors death, the property was enjoyed to the entire exclusion of the settlor and of any benefit to him by contract or otherwise. It does not appear from the statement of the case that there was any positive act or writing by the settlor whereby he surrendered the right of revocation reserved to himself in the trust document. The only circumstance upon which reliance was placed by Mr. Partap Singh was that in the will, though the settlor had mentioned the trust which he created with the Official Trustee, Punjab, yet he had not purported to bequeath any part of the trust fund. I am, however, not satisfied that the legal effect of this circumstance was that the settlor had surrendered to the right he had under the terms of the deed to cancel the trust during his lifetime. If he was so minded, he could still, despite the execution of the will, have cancelled the trust deed under the power which had been reserved to himself and the will would not have stood in his way. As a matter of fact, he could cancel the will itself so long as he was alive. In other words, by the document which was itself revocable, he could not be deemed to have exercised the power of revocation reserved to himself, that is, the power of cancelling the trust during his lifetime.
The authorities which were cited by Mr. Partap Singh were the same which had been relied upon by him before the Board-Adamson v. Attorney-General and Attorney-General v. Lloyds Bank Ltd. In the first case, clause (3) of the trust deed (reproduced at page 259 of the report) was as follows :
'The new trustess shall pay and apply the capital of the settled funds unto all or any of the children or child of the settlor now living or hereafter to be born, in such shares and proportions and in such manner and at such time or times, as the settlor may from time to time direct in writing and in default of such direction and so far as any such direction shall not extend the capital of the settled funds not so paid and applied shall be held by the trustees upon the trust following.'
The question for determination was whether in view of clause (3) the property itself both as regards ownership and possession, passed wholly out of the hands of the settlor upon the execution of the deed and it was held (see judgment of Lord Warrington at page 276) that though the settlor had retained some control over both income and capital as to the application thereof respectively for the benefit of the children, his power was strictly limited. He could not lawfully exercise it directly or indirectly for his own benefit.
Now, in the case before us, the settlor had reserved to himself the power of absolute cancellation of the trust deed and so this case is clearly distinguishable.
In the next case, the qualifying clause in the deed of appointment was as follows :
'Provided always that the said Josephine Lawrence Butler, the deceased, may at any time or times during her life by any deed or deeds revocable or irrevocable or by will or codicil wholly or partially revoke the appointment hereinbefore contained and by the same or any other like instrument appoint and declare any new or other trusts or provisions concerning the trust fund and premises or any part thereof, which may or would have been authorised by the power by the said settlement given to her in that behalf as aforesaid.'
The power of revocation was never in fact exercised and the settlor was survived by her three children named in the settlement. It was held by the House of Lords that upon the true construction of the appointment there was an absolute initial gift to the three children of the settlor in equal shares, and that the absolute initial gift of each share was only cut down if and when and while there was in existence some person qualified to take under the trusts of such share declared in derogation of the absolute gift and to the extent necessary to give effect to the rights of such person; and hence nothing passed by reason of the settlors death.
Now, it will be seen that the settlor in the case before the House of Lords had not reserved to herself any absolute power of revocation of the trust itself, but the power reserved was to alter or revoke the appointment of the beneficiaries and not, so to say, to demolish the structure of the trust itself. The power, wholly or partially, to revoke the appointment was co-related to the appointment or declaring any new trust fund and so this case also was rightly distinguished by the board.
I am, therefore, of the view that both the questions of law must be answered in favour of the Revenue Board.
The minor point which was raised by Mr. Partap Singh was that according to the recitals in the will there were two daughters of the testator - Prem Devi and Kailash Wati. In the trust deed, there was a stipulation that Rs. 10,000 out of the trust money was to be allowed for the marriage of each daughter of the settlor. Section 33(1)(k) of the Act exempts from the levy of estate duty moneys earmarked under policies of insurance or declarations of trust or settlements effected or made by a deceased parent or natural guardian for the marriage of any of his female relatives dependent upon him to the extent of Rs. 10,000 in respect of the marriage of each of such relatives. Though no rebate under this item was allowed by the Assistant Controller, the Board allowed a rebate on Rs. 10,000. It was pointed out to us on behalf of the assessees that as there were two daughters surviving the settlor, rebate on Rs. 10,000 should have been allowed for each of the daughters. So far as the question of fact is concerned, this argument proceeds on the assumption that both the minor daughters survived the deceased and there is nothing on record to warrant such an assumption. In fact, in ground 1 of the grounds of appeal, the claim in this connection was that the Assistant Controller failed in construing the section 33(1)(k) of the Act and had erred in not allowing rebate of Rs. 10,000 under the said section for the marriage expenses of the minor daughter of the deceased. As rebate on only Rs. 10,000 was claimed in appeal that was allowed by the Board without further investigation on the point and there is nothing in the statement of the case to indicate that the learned advocate for the applicant wanted a reference on the point that rebate should have been allowed of Rs. 20,000 and not Rs. 10,000. So, in exercise of the limited jurisdiction under section 64 of the Act, we are precluded from going into that matter.
In the result, I would answer both the questions referred in the affirmative, that is, in favour of the Board of Revenue, but as there was no direct authority under the Act, on the principal question, viz., question No. 2, there will be no order as to costs.
SHAMSHER BAHADUR J. - While agreeing with the conclusion reached by my learned brother, I must confess to feelings of sympathy for the beneficiaries of the trust and regret at the drafting of the document, annexure 'E', in which the following clause is inserted towards the end :
'I reserve all the rights of cancelling or varying the trust during my lifetime'.
It seems to me that the conduct of the settlor evinced a clear intention of excluding himself from the benefit of the trust created by him on 3rd of July, 1936, for his second wife and her children. In the subsequent will executed by the settlor (annexure 'F') on 6th of December, 1950, it is expressly stated that the trust was for the benefit of the five sons and two daughters of his second wife, Lilawati, and the property covered by it was not bequeathed. Right till the time of his death on 26th November, 1955, the settlor, Dr. Achhru Ram, took no step to change or alter the course of the trust. In such circumstances, it has been contended by Mr. Partap Singh that the principle and underlying purpose of the trust is to be gathered from the following clause occurring earlier in the trust deed, namely :
'During my lifetime the income of the trust should be added to the trust or handed over to me if I consider it to be needed for the maintenance of my wife, Lilawati, and education of her children.'
The power of revocation, according to the submission of the learned counsel, has resulted from an inadvertent omission of the word 'in' between the words 'varying' and 'the trust' in the later clause. The conduct of the settlor has been consistent with this submission but the position must be faced that the clause found in the trust deed indubitably conveys powers of reservation and cancelling the trust 'during my lifetime'.
The charging provision of the Act is sub-section (1) of section 5 whereby :
'In the case of every person dying after the commencement of this Act, there shall... be levied and paid upon the principal value ascertained as hereinafter provided of all property, settled or not settled, including agricultural land... which passes on the death of such person, a duty called estate duty at the rates fixed in accordance with section 35.'
The crucial words 'property... which passes on the death' are the same which are employed in the corresponding English statute and which Lord Warrington in Adamson v. Attorney-General, at page 276, approving the dictum of Lord Parker in Milnes case, thus construed :
'passing on the death is... used to denote some actual change in the title or possession of the property as a whole which takes place at the death. For the purpose of this section it is absolutely immaterial to whom or by virtue of what disposition the property passes.'
If the property subject to the transfer had thus been irrevocably transferred to the beneficiaries it could not pass on the settlors death. The proviso to section 12, which has been discussed in considerable detail by my learned brother, shows that if the power reserved to the settlor has been surrendered and the settlor has derived no benefit out of the trust for a period of two years before his death, the property shall not be deemed to have passed on the settlors death. That the settlor derived no benefit out of the trust for himself for any period after the execution of the trust deed and certainly within two years of his death is not disputed. It has never been argued either before us or at any stage of the assessment proceedings that the reservation made by the settlor had been surrendered by implication, nor is it clear whether implied surrender is in contemplation of one of the two contingencies envisaged in the proviso. The settlor did not intend to use the power of reservation and perhaps what he meant to keep with himself was the power to change the framework of the trust. We have, however, to go by the express words which have been used in the document and which to the knowledge of the settlor were allowed to remain there for many years. A surrender by implication cannot be spelled out from the statute and indeed, as I have said, the matter has not been argued in this way by Mr. Partap Singh before us. In the two English decisions, on which reliance has been placed, the settlors powers of reservation had been confined only to changes in the appointment of beneficiaries and trustees and would not save the situation for the assessee as observed by Capoor J.
In the circumstances, I feel bound to say that the answers to the two questions should be returned in the manner proposed by my learned brother. I also agree that there should be no order as to costs.