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Controller of Estate Duty Vs. Jameela Begum - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 93 of 1968 (Reference No. 24 of 1968)
Judge
Reported in[1975]101ITR165(Mad)
ActsEstate Duty Act, 1953 - Sections 7; Transfer of Property Act, 1882 - Sections 11 and 127
AppellantController of Estate Duty
RespondentJameela Begum
Appellant AdvocateV. Balasubrahmanyan and ;J. Jayaraman, Advs.
Respondent AdvocateP.M. Jummakhan, Adv.
Cases ReferredVide Tavakalbhai Sultanbhai v. Imtiyajbegum
Excerpt:
direct taxation - estate duty - section 7 of estate duty act, 1953 and sections 11 and 127 of transfer of property act, 1882 - property gifted to assessee - donor's wife given right to receive income from such property during her life time - such right creates charge on property - on donor's wife death her right transferred to assessee - property liable for estate duty. - - 5. on a further appeal to the appellate tribunal, it held that the settlement deed dated may 15, 1950, conveyed absolute rights both in respect of the corpus as well as the usufructs to the accountable person, that, therefore, the condition regarding the payment of income from the property to the settler and his wife was invalid, that even if it is assumed that the settlement deed conferred title only to the.....ramanujam, j.1. the point involved in this reference relates to the inclusion of a sum of rs. 4,07,300, representing the value of the property known as 'albany' in the estate of the deceased, mrs. fathima bi. the said property originally belonged to one amirunnissa begum, wife of shamsudeeri sahib. by a deed of settlement dated august 21, 1947, she settled the property absolutely in favour of her husband, shamsudeen sahib. he, in turn, executed a settlement deed dated may 15, 1950,, under which he conveyed the same to his daughter, jameela begum, with absolute rights subject to a condition that the settler during his lifetime, and, after his death, his second wife, fathima bi, during her lifetime, shall be entitled to the income realised from the property. on the death of shamsudeen sahib.....
Judgment:

Ramanujam, J.

1. The point involved in this reference relates to the inclusion of a sum of Rs. 4,07,300, representing the value of the property known as 'Albany' in the estate of the deceased, Mrs. Fathima Bi. The said property originally belonged to one Amirunnissa Begum, wife of Shamsudeeri Sahib. By a deed of settlement dated August 21, 1947, she settled the property absolutely in favour of her husband, Shamsudeen Sahib. He, in turn, executed a settlement deed dated May 15, 1950,, under which he conveyed the same to his daughter, Jameela Begum, with absolute rights subject to a condition that the settler during his lifetime, and, after his death, his second wife, Fathima Bi, during her lifetime, shall be entitled to the income realised from the property. On the death of Shamsudeen Sahib in October, 1950, the legal heirs of his pre-deceased wife, Amirunnissa Begum, challenged the validity of the settlement deed dated August 21, 1947, in C. S. No. 38 of 1956 before the High Court. In the said suit, Fathima Bi was appointed by court as receiver in respect of the property. Later, there was a compromise between Jameela Begum, the settlee, under the settlement deed dated May 15, 1950, and the legal heirs of Amirunnissa Beguta, the result of which was that Jameela Begum's title to the property was recognised. Even during the pendency of the said litigation, Fathima Bi died on January 24, 1957.

2. Jameela Begum, the accountable person, filed a statement of accounts in respect of the properties that passed on the death of Fathima Bi In this statement she included a sum of Rs. 4,07,778, representing the value of the said property. On the basis of the said statement, the original assessment was completed on March 29, 1962, on a principal value of Rs. 4,31,548. The accountable person, however, preferred an appeal to the Appellate Controller against the said assessment for the first time contending that the value of the property 'Albany' has been wrongly included in the estate of the deceased. As this objection was not. raised before the Assistant Controller, the Appellate Controller set aside the assessment with a direction that a fresh assessment be made according to law.

3. In the fresh assessment proceedings, the accountable person contended that under the settlement deed dated May 15, 1950, she got an absolute right to the property in question and that the condition regarding payment of the income from the property to the settler during his lifetime, and, after his death, to his wife, Fathima Bi, during her lifetime, is invalid and not binding upon her and, therefore, the deceased, Fathima Bi, did not get any interest in the property under the settelment deed. In the alternative it was contended that the accountable person got title to the property not under the settlement deed dated May 15, 1950, but only under the compromise decree in C. S. No. 38 of 1956 on the file of the High Court. The Assistant Controller rejected both these contentions and held that what was conveyed under the settlement deed dated May 15, 1950, was only the corpus of the property, that the usufruct from the property was not conveyed to the accountable person but was reserved by the settler for himself and his wife, that the latter had an interest in the property by virtue of the settlement deed and that the accountable person derived title to the property only by virtue of the said settlement and not by virtue of the compromise decree, He determined the value of the property at Rs. 4,07,000 and included the same in the principal value of the estate of Fathima Bi.

4. The accountable person preferred an appeal to the Appellate Controller contending, inter alia, that the reservation of the income from the property for the benefit of the deceased, Fathima Bi, was invalid under the Mohammedan law and did not confer any valid interest on her in respect of the income from the said property. The Appellate Controller did not accept any of the contentions of the accountable person and confirmed the assessment.

5. On a further appeal to the Appellate Tribunal, it held that the settlement deed dated May 15, 1950, conveyed absolute rights both in respect of the corpus as well as the usufructs to the accountable person, that, therefore, the condition regarding the payment of income from the property to the settler and his wife was invalid, that even if it is assumed that the settlement deed conferred title only to the corpus of the property in favour of the accountable person the right to the usufruct from the property having been reserved by the settler for himself during his lifetime, and, after his death, to his wife, during her lifetime, such reservation in favour of the settler's wife after the death of the settler was invalid under the Mohammedan law. In this view the Tribunal excluded the value of the property 'Albany' from the principal value of the estate of the deceased.

6. At the instance of the revenue the following question has been referred to this court under Section 64(1) of the Estate Duty Act, 1953 :

'Whether, on the facts and in the circumstances of the case and on a proper consideration of the settlement deed dated May 15, 1950, the value of the property by name 'Albany' is includible in the estate of the deceased ?'

7. The accountable person having given up her contention that she acquired title to the property only under the compromise decree in C. S. No. 38 of 1956, and not under the settlement deed dated May 15, 1950, even before the authorities below, it has to be taken that she is claiming title to the property only under the settlement deed dated May 15, 1950, The two reasons given by the Tribunal for holding that the deceased, Fathima Bi, had no interest in the property in question are : (1) the condition regarding the payment of the income from the property to the settler and his wife is invalid and inoperative under Section 11 of the Transfer of Property Act and, therefore, neither the settler nor Fathima Bi get any valid interest in the property under the settlement deed ; and (2) that in any event the reservation of the usufruct after the settler's death in favour of Fathima Bi for her life is invalid under the Mohammedan law as amounting to a gift in future.

8. For considering the tenability of the above reasons given by the Tribunal it is necessary to consider the terms of the settlement deed. In the preamble portion of the settlement deed it is stated that the settler was desirous of providing for his daughter's comfortable living and for avoiding disputes in future regarding this property, that the settler was desirous of settling the property in favour of his daughter absolutely with absolute powers of enjoyment, alienation, gift or otherwise and to get her name registered as owner thereof in Corporation registers, etc., and herself collecting the rents and profits from the property absolutely and for her own benefit. The operative portion of the document gives effect to the said desire of the settler and recites that his daughter, Jameela Begum, shall hold, the said properties given to her under the deed of settlement for her own benefit and enjoyment, with absolute rights of disposition by sale, gift or otherwise and her name registered as owner in the registers of the Corporation of Madras and all other public records and offices and recover and collect the rents and do all other acts in her own name and for her own benefit subject to the payment of the income from the property to the settler during his lifetime and after his death to his wife. Fathima Bi Saheba, during her lifetime shall be entitled to the income realised from the properties and the beneficiary shall pay over the same to them respectively. The document then proceeds to say that the possession of the property has been delivered to the beneficiary by the settler for her enjoyment as full owner thereafter.

9. Before us, Mr. V. Balasubrahmanyan for the revenue contends that both the reasons given by the Tribunal are not tenable, that the settlement deed dated May 15, 1950, should be taken to confer absolute rights to the accountable person, Jameela Begum, only in relation to the corpus, that, therefore, the reservation made as regards income in favour of the settler during his lifetime and thereafter in favour of his wife during her lifetime is valid, that such a reservation cannot be taken to be in derogation of the absolute grant made of the corpus in favour of the accountable person and that, in any event, the operative portion of the document having clearly provided that the gift of the property to the accountable person can only be subject to the right of reservation in relation to the usufructs from the property for the duration of the settler's life and also the lifetime of his wife, the gift in favour of the accountable person should be taken to be conditional on her payment of the usufructs to the settler and his wife. It is said that such a condition has been held not to be derogatory of an absolute grant in Syed Mohamed v. Kairum Bivi AIR 1954 Mad 769. In that case a Sunni Muslim by a deed of settlement in favour of two beneficiaries declared that:

' The settlees shall have absolute estate over the property... ...in equal shares each taking half, and the said estate shall be taken forthwith, the enjoyment of the income being postponed during the lifetime of the settler ......that the settlees have already taken possession of the properties, willthemselves be responsible for collecting and paying the income to the settler during his lifetime.'

10. On the question of construction of the said deed the court expressed the view that:

'All the terras of the settlement deed have to be taken together and rejection for repugnancy must be the last resort of a court of construction and, viewed in this perspective, it is clear that the intention of the settler was that the settlees should have an immediate and absolute interest in the properties.

By the use of the expression 'forthwith' and the further recital that the settlees had already taken possession of the properties and the further fact that the settlees are made responsible for collecting and paying the income to the settler during his lifetime this dominant intention is made clear. If these clauses are read along with the earlier clause relating to the creation of the estate of the settler in himself in the property, it is clear that what the settlement deed contemplated was the creation of an absolute interest in the corpus in favour of the settlees reserving merely the usufruct to himself for his lifetime.'

11. The settlement deed in that case was construed as creating an absolute interest in the corpus in favour of the settlees and the condition was construed as a mere reservation of the usufruct by the settler himself during his lifetime.

12. In Nawazish Ali Khan v. Ali Raza Khan the Judicial Committee, while recognising the peculiarities in the Muslim law in the matter of creation of life estate and a remainder, expressed :

'Muslim law does recognise and insist upon a distinction between the corpus of the property itself and the usufruct in the property. Over the corpus of property the law recognises only absolute dominion, heritable and unrestricted in point of time; and where a gift of the corpus seeks to impose a condition inconsistent with such absolute dominion, the condition is rejected as repugnant; but interests limited in point of time can be created in the usufruct of the property and the dominion over the corpus takes effect subject to any such limited interests.'

13. In Veerankutty v. Pathummakutty Umna : AIR1956Mad514 this court has again considered the validity of a clause in a gift deed reserving the right of enjoyment of the usufruct by the donor and expressed the view that a limited interest out of the usufruct can validly be created under both the schools of Shias and Sunnis. The learned judges expressed the view that the Muslim law recognises a distinction between the corpus of the property and its usufructs, that it recognises only absolute dominion, heritable and unrestricted in point of time as regards the corpus of the property, that in any gift of a corpus with a condition inconsistent with such absolute dominion, the condition is rejected as invalid but that such dominion over the corpus takes effect subject to any limited interest in the usufruct of the property and that, therefore, a gift of the corpus with a reservation to collect the accruing income during the lifetime of the donor is valid and enforceable. In paragraph 165 at page 158 of Mulla's Mohamedan Law, 17th edition, there is a discussion on the above subject thus :

'Where property is transferred by way of gift, and the donor does not reserve dominion over the corpus of the property nor any share of dominion over the corpus, but stipulates simply for and obtains a right to the recurring income during his life, the gift and the stipulation are both valid. Such a stipulation is not void, as it does not provide for a return of any part of the corpus. The stipulation may also be enforced as an agreement raising a trust and constituting a valid obligation to make a return of the proceeds during the time stipulated.'

14. The above statement of the law is based on the decision of the Privy Council in Nawab Umjad Ally Khan v. Mussumat Mohumdee Begum, [1867] 11 MIA 517 , which was a Shia case and in Mohammed Abdul Ghani Khan v. Fakhr Jahan Begum, AIR 1922 PC 281, which was a Sunni case. The principle of the above decisions has been extended by the courts in India to cases where a gift is made subject to the condition that the donee shall pay the income to a person or persons nominated by the donor during the lifetime of such person or persons. In Syed Dureish Mohideen v. Madras State : AIR1957Mad577 , a Muslim gifted the corpus of the property (mitta) absolutely on his sons and directed them to pay certain sum annually and in perpetuity to his daughter and her heirs and successors out of the income from the corpus gifted to them. The property was taken over by the State Government under Madras Act 26 of 1948. The sons as well as the heirs of the daughter preferred claims for payment out of portions of the advance compensation deposited by the Government. It was contended that the gift to the daughter of an annual payment out of the usufruct of the corpus was invalid for the reason that the annual payment represented musha or undivided share in the property that had been gifted and that even otherwise a gift of the income from the property that was to come into existence in future of which immediate possession could not have been and was not given to the donee was invalid. It was held that the gift to the daughter under the deed was valid, that the right to receive annual payment and the corresponding obligation to pay it were enforceable at law, that what was gifted to the sons was the corpus, the donor himself reserving no interest in the thing gifted while what was gifted to the daughter was only part of the usufruct and that the doctrine of musha or undivided share could not be extended to the gift of usufruct and, therefore, neither the validity of the corpus nor the validity of the gift out of the usufruct could be questioned.

15. From the principles laid down in the above cases it is clear that the reservation of a right to the usufruct or creating an obligation on the part of the donee to collect and pay over the usufructs to the donor in a gift deed is valid even under the Mohammedan law. In this case, the donor has not only reserved his right to the income from the gifted property to himself during his lifetime but also conferred such a right to receive the income on his wife after his death. The question is whether the gift of the usufruct in favour of his wife after his death is invalid. We are of the view that the principle of the above decisions is that the donor is entitled to make a reservation of the right to enjoy the income or create an obligation to pay over the income from the gifted property for a limited duration either to himself or to others. The fact that the reservation has been made as regards the usufructs in favour of both the donor and his wife cannot make the reservation an invalid one. The learned counsel for the assessee seeks to support the view of the Tribunal on the basis of Section 11 of the Transfer of Property Act which is as follows :

'Where, on a transfer of property, an interest therein is created absolutely in favour of any person, but the terms of the transfer direct that such interest shall be applied or enjoyed by him in a particular manner, he shall be entitled to receive and dispose of such interest as if there were no such direction.'

16. We are of the view that the said section cannot come into play at all on the facts of this case. Here, admittedly, there is an absolute gift of the corpus of the property in favour of Jameela Begum, The fact that she has been subjected to an obligation to pay over the income to the donor during his lifetime and thereafter to his wife during her lifetime cannot be said to be in derogation of the said absolute gift of the corpus. The obligation imposed on the donee does not affect the absolute nature of the gift so far as the corpus is concerned. We are, therefore, of the view that the Tribunal is in error in relying upon the said Section 11 of the Transfer of Property Act to invalidate the condition of obligation imposed by the donor on the donee under the settlement dated May 15, 1950, as to the enjoyment of the usufructs, and in holding that the donee got absolute title not only over the corpus but also over the usufructs and that Fathima Bi did not get any valid interest in the property under the settlement deed. The true legal position according to us is that the reservation of the entire usufruct or a portion thereof in favour of the donor or someone else made while making an absolute and valid gift of the corpus constitutes a valid and enforceable obligation and that it is an exception to the general rule that a condition that derogates from the full rights of ownership in the corpus gifted by a Muslim is of no effect.

17. As regards the second reason given by the Tribunal that in any event the reservation of the usufruct in favour of Fathima Bi after the settler's death is invalid as being a gift in future, we are of the view that the Tribunal is in error in taking such a view. According to the Tribunal even the reservation of the usufruct in favour of the settler during his lifetime or of himself and his wife for their joint lives may amount to a gift of the usufruct in praesenti and may be taken to be valid, the reservation of the usufruct in favour of the settler's wife which is not to take effect immediately but is to take effect only after the death of the settler will amount to a gift of property in future and, therefore, such a gift is invalid under the Mohammedan law. The Tribunal is also of the opinion that even if the settlement deed is construed to be a will so far as it related to the reservation of the usufruct in favour of his wife, such a request will be invalid under the Mohammedan law, for Fathima Bi being the wife of the settler and as such a legal heir, the prior consent of the other heirs to such a bequest is necessary and that there is no evidence of such a consent in this case. The Tribunal has also taken the view that the settlement deed cannot be taken as a trust as under the Mohammedan law there could be a valid trust only when the immediate or ultimate object of the trust is for religious or charitable purpose and that there is no such purpose in this case. The further reasoning of the Tribunal is that the condition regarding the payment of income from the property to Fathima Bi was not acted upon inasmuch as immediately after the death of Shamsudeen Sahib, the property became the subject-matter of litigation which continued throughout the lifetime of Fathima Bi, that her right to receive the income from the said property was never recognised though she might have been in charge of the property as a receiver appointed by court, that as there is no evidence that Fathima Bi did enjoy the income from the property at any time during her lifetime it cannot be said that Fathima Bi did in fact possess and enjoy the income from property during her lifetime and that, therefore, there cannot be any cesser of interest on her death which has resulted in any benefit to the accountable person.

18. We are of the view that the gift of usufruct in favour of Fatamna Bi, the settler's wife, during her lifetime cannot be said to be invalid as a gift of future property. The right to usufruct is a present right and merely because the usufructs in relation to which such a right is conferred come into being at a future time, the gift cannot be said to be a gilt in future. As pointed out by Tyabji in his Treatise on Muslim Law, 4th edition, at page 453 ;

'The Muslim texts speak of the grant of the munafi or of future produce, that is, the grant of the right to take the future profits..,......whenproduced is said to be given, the transaction accurately stated in terms of the law is present grant of the rights to take in future the produce when it will come into being. The texts speak of the benefit or the use of usufruct of property being granted, in the same way as they speak of the grant of the produce.......The texts mention that usufruct may be defined orparticularised as desired by the grantor, that every kind of benefit may be so granted, limiting the use to be made, or benefit to be derived, by the transferee in any manner that the transferor may choose.'

19. It is clear, therefore, that the donor may define and particularise the usufructs referable to a particular period and treat it as a subject-matter of gift and convey the same and that such a period may be even after his lifetime. In Syed Dureish Mohideen v. Madras State, while rejecting a similar contention that the gift of the usufruct which will come into existence in future is not recognised by the Muslim law, the court pointed out that the validity of the gift of usufruct is not affected by the ban which applies to the git of the corpus, that the property gifted must be in existence at the time of the gift, and that as the Muslim law recognises gifts of incorporeal rights as also actionable claims, all that is needed in such cases to complete the gift is to divest in praesenti the right to the usufruct and to confer it upon the donee. It is well established that principles governing the gifts of usufructs are distinct from those governing the gifts of corpus. While in the gift of corpus the property gifted must be in existence at the time of the gift and the gift should be completed by delivery of possession of the property gifted to the donee, but in the case of gift of the usufruct such a condition in the nature of things cannot be insisted upon. (Vide Nawab Umjad Ally Khan v. Mussumat Mohumdee Begum). In Ameer Ali's Treatise on Muhammadan Law, volume I, at page 139, the learned author says:

'If a donor were to make a condition that the donee should give a part of the income or pay an annuity to his heirs in perpetuity, and give effect to the donation by transferring the subject thereof to the dominion of the donee, as the condition in nowise interferes with the completeness of the gift, both the gift and the condition would become operative in law. In this view the decision of their Lordships of the Privy Council seems to be in absolute accordance with the Hanafi law.

Thus even where the gift of the usufruct is to be in perpetuity, it had been taken to be a valid gift. It is true that in Amtul Nissa Begam v. Mir Nurudin Hussein Khan, ILR[1896] Bom. 489 the Bombay High Court took the view that : 'A gift cannot be made of anything to be produced in future although the means of its production may be in the possession of the donor. The subject of the gift must be actually in existence at the time of the donation.'

20. Referring to the said view of the Bombay High Court in Ameer Ali's Muhammadan Law, volume I, page 75, it is observed;

'Where, however, a person has a subsisting recurring right in something which is neither variable nor uncertain, there is no reason in principle why its gift should not be valid. Thus an assignment of the ascertained rents and issues of any particular property movable or immovable may validly be effected. The Bombay High Court in the case of Amtul Nissa Begam v. Mir Nurudin Hussein Khan seems to have missed, it is submitted, the real principle under which a gift of something not in existence at the time is invalid, viz., the uncertainty relating to the subject-matter of the gift, not merely the inability to give possession.'

21. Tyabji also takes the same view and points out that the said case was decided erroneously and that when annuities are recognised subjects for bequest there is no reason why such bequests should be recognised and allowed and not gifts during one's lifetime. We are, therefore, of the view that the gift of the usufruct in favour of Fathima Bi cannot be said to be invalid under the Mohammedan law merely because the usufructs will come into existence in future. The right to receive the usufructs from the corpus for a stated period is an enforceable right and it has been granted to Fathima Bi in praesenti.

22. The learned counsel for the assessee then contends that the donee under the settlement deed was a minor at the relevant time and there is no question of her being bound by the obligation created under the document of making over the usufructs to the donor during his lifetime or to Fathima Bi during her lifetime, and that the obligation imposed under the document cannot bind her. Reference is also made to Section 127 of the Transfer of Property Act, But in our opinion Section 127 cannot come into play at all as under the settlement deed there is an absolute gift of only the corpus of the property to the donee and there has been no absolute gift of the usufructs in her favour. Her right to get the usufructs will arise under the document only after the lifetime of Fathima Bi. Therefore, the question of obligation not binding on the minor will arise only if there is a gift of the usufruct in her favour with an obligation to pay over. As will be seen from the foregoing, we have construed the gift as an absolute gift of the corpus in favour of the donee and a gift of the usufructs only after the lifetime of Fathima Bi and that, during the lifetime of the donor and Fathima Bi, the donee is constituted as a trustee for collecting the usufructs and paying over the same to the donor during his lifetime, and thereafter to his wife, Fathima Bi. We are, therefore, not inclined to accept the contention of the accountable person that she is not bound by the obligation to pay over the income. We are not also inclined to agree with the view of the Tribunal that as the condition to pay over the income to Fathima Bi during her lifetime was not given effect to and as in fact Fathima Bi did not enjoy that right, it could not be said that there was a cesser of that right on her death. It is very difficult to understand this reasoning of the Tribunal. The fact that Fathima Bi did not enforce the obligation against the accountable person or that she did not in fact enjoy the usufructs from the property will not deprive her of the legal right, unless it is shown that such a right has been extinguished either by operation of law or otherwise. The non-enforcement or non-enjoyment of a right cannot be a ground for holding that Fathima Bi did not have any interest in the property under the settlement deed which could cease on her death. The said ground, therefore, is untenable.

23. The learned counsel for the accountable person then contended that even assuming that Fathima Bi had a right to recover from the donee the income from the property, the right cannot be taken to be an interest in property, that the obligation on the part of the donee to pay over the income cannot be straightaway enforced against the property nor can it be taken that Fathima Bi had a charge in the property for realising the income and that, therefore, Section 7 of the Estate Duty Act does not stand attracted in this case. What in substance the learned counsel contends is that it is only a personal obligation imposed on the donee to make over the income and that will not create an interest in the property so as to attract Section 7. In this case under the settlement deed Fathima Bi is entitled to be paid the income from the property during her lifetime and there is a corresponding obligation on the part of the donee. We are not inclined to agree with the learned counsel for the accountable person that this obligation to pay over the income to Fathima Bi is not an interest in the property gifted to the accountable person. The obligation being a condition upon which the donee took the property, attaches to the property in her hands or in the hands of those claiming under her with notice: Vide Tavakalbhai Sultanbhai v. Imtiyajbegum, ILR [1917] Bom. 372, 39 IC 96. Therefore, Fathima Bi should be taken to have a charge on the property for realisation of the income. It is well established that wherever an amount is to come from a specified property that amount should be taken to have been charged on the property so that the amount could be realised by proceeding against the property. In this view, we must hold that Fathima Bi should be taken to have an interest in the property which ceased on her death and a corresponding benefit created to the accountable person on the cesser of such interest. We, therefore, answer the question referred in the affirmative and against the accountable person. The revenue will have its costs. Counsel's fee Rs. 250.


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