1. One Cundaswamy Chettiar, executed a settlement deed dated 6th October, 1941, transferring some, of his absolute properties in, favour of his son, Neelakantan, subject to the following conditions, namely :
(i) that Neelakantan should hold the properties in trust for the benefit of his sons without power of alienation during his lifetime ;
(ii) that he should receive only Rs. 125 per month from out of the income of the properties for the expenses of maintaining himself and his children ;
(iii) that he should pay a sum of Rs. 20 per month to the settlor's daughter, Kamakshi Animal, during her lifetime ;
(iv) that he should spend certain specified amounts out of the income from the properties for the marriage of his daughters ; and
(v) that on the death of Neelakantan, the properties were to be distributed among his legitimate sons.
2. The settlor died in the year 1950 and his son, Neelakantan, died on November 15,1961. The second son of Neelakantan filed an account of the estate of the deceased Neelakantan. In that account he did not Include the value of the properties covered by the settlement deed dated October 6, 1941. It was contended by him that the deceased was the trustee of the properties settled on his sons and that, therefore, the value of such properties was exempt from, assessment under Section 22 of the Estate Duty Act, 1953 (hereinafter referred to as 'the Act'). The Assistant Controller did not accept this contention on the ground that though the deceased was a trustee for his sons and other beneficiaries under the settlement deed, he was himself a beneficiary thereunder and, therefore, Section 22 of the Act was not applicable to the case. He, therefore, included the value of the properties covered by the said settlement deed in the estate of the deceased.
3. The accountable person preferred an appeal to the Appellate Controller against the order of the Assistant Controller, but the same was, however, rejected. There was a further appeal to the Tribunal, and the Tribunal, on a consideration of the relevant provisions of the settlement deed, held that, as the deceased was a trustee for his sons and the other beneficiaries mentioned in the settlement deed, the fact that the deceased was also a beneficiary under the settlement deed did not detract his position as a trustee for the others and that, therefore, the deceased being a trustee for another person within the meaning of Section 22 of the Act, the value of the said properties cannot be included in the estate of the deceased. At the instance of the revenue the following question has been referred to this court for decision :
' Whether, on the facts and in the circumstances of the case, the value of the properties settled under the deed of settlement dated 6th October, 1941, was exempt from assesment under Section 22 of the Estate Duty Act, 1953 '
4. The reference, therefore, involves the interpretation of the true scope of Section 22 of the Act. Section 22, so far as it is relevant for the present discussion, is as follows :
' Property passing on the death of the deceased shall not be deemed to include property held by the deceased as trustee for another person under a disposition not made by the deceased...... '
5. Mr. Jayaraman for the revenue, firstly, submits that, though the words of the section are somewhat wide so as to apply to all cases where the deceased was a trustee for another person, the scope of the section should be delimited with reference to the scheme and object of the Act and that the object of the Act is not to exempt property in respect of which the deceased had a beneficial interest even though the deceased happened to be a trustee for another in relation to the same property. It is urged that the beneficial interest of the deceased is intended to be charged in all cases irrespective of the fact whether the deceased happens to be a trustee for another, under Section 5 read with, Section 7 of the Act, and that, therefore, the Tribunal in this case is not justified in excluding the settled properties under Section 22 of the Act on the ground that the deceased has acted as a trustee for his sons and other beneficiaries in relation to the same. The learned counsel refers to the various provisions of the Act to show that the intention of the legislature is to charge an interest ceasing on the death of the deceased, that under the settlement deed the deceased was entitled to receive a sum of Rs. 125 per month and that interest ceasing on his death went to augment the interest of his sons and other beneficiaries, and, therefore, such interest could be brought to charge under Section 5.
6. Section 2(15) defines 'property' as including any interest in property, movable or immovable, and Section 2(19) defines 'settled property' as meaning 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 the Act. Section 5, which is the charging section, provides that in the case of every person dying after the commencement of the Act, a levy is to be made on the probable value of all property settled or not settled including agricultural land, which passes on the death of such person. Section 6 states that the property which the deceased was at the time of his death competent to dispose of shall be deemed to pass on the death, and Section 7(1) deems any property in which the deceased or any other person had an interest ceasing on the death of the deceased to pass on the deceased's death to the extent to which a benefit accrues or arises by the cesser of such interest. Sub-section (4) of Section 7 states that Sub-section (1) will not apply to the property in which the deceased or any other person had an interest only as holder of an office or recipient of the benefits of a charity, or a corporation sole. The provisions referred to above indicate, according to the revenue, that only in cases where the deceased had acted as mere trustee without any beneficial interest from the trust properties, the exemption under Section 22 can be claimed and that in other cases where the trustee is also entitled to a beneficial interest from the trust, Section 22 cannot be invoked, and, therefore, the entirety of the settled properties can be brought to charge as part of the estate of the deceased.
7. We have to first consider whether the value of the entirety of the properties settled was entitled to exemption under that section as held by the Tribunal. If the exemption under Section 22 is not available, we have then to see whether the value of the entirety of the properties could be brought to charge as property passing on the death of the deceased as urged by the revenue. The terms of the settlement deed extracted above show that there is a vested interest created in favour of the sons of the deceased even on the date of the settlement deed and that their right to possession and enjoyment alone is postponed until after the death of the deceased. It cannot, therefore, be said that the interest of the sons of the deceased in the settled properties springs or arises or accrues from the death of the deceased. The sons' interest in the settled properties had accrued even on the date of the settlement deed but as the property is vested in trust in the deceased for the benefit of his sons as well as other beneficiaries, their right to possession alone is postponed. The provisions of Section 5 can be invoked to bring to charge a property or interest passing on the death of the deceased. Therefore, it is only that property or interest which passed on the death of the deceased which could be the subject-matter of a charge under that section. In this case, it cannot be said that the entire settled properties passed on the death of the deceased to his sons, for there has been a vested interest in favour of the sons even on the date of the settlement deed and the only interest that can be said to pass by virtue of Section 7(1) is the beneficial interest which the deceased was entitled to under the terms of the settlement deed which had ceased on his death. We are inclined to agree with the learned counsel for the revenue that the beneficial interest which the deceased was entitled to during his lifetime under the terms of the settlement deed will be ' property ' as defined in the Act, and that beneficial interest having ceased on the death of the deceased and a benefit having accrued or arisen by cesser of such interest, such interest could be brought to charge under Section 5 read with Section 7(1), and it cannot be said to have been exempted under Section 22. Section 22 has to be construed as exempting only the properties held by the deceased as a mere trustee for another person, without himself having any beneficial interest from the trust properties, as the beneficial interest held by such a trustee cannot be exempted from the charge under Section 5. The fact that the deceased has been constituted as a trustee for the benefit of his sons and some other, beneficiaries will not make the benefit given to him under the settlement deed in any way ineffective. During his lifetime the deceased was entitled to get the benefit referred to under the settlement deed from the settled properties and that beneficial interest has admittedly ceased on the death of the deceased resulting in the accrual of benefit to the sons of the deceased. Mr. Swaminathan, the learned counsel for the accountable person, does not dispute the legal position that the beneficial interest which the deceased had in the settled properties could be brought to charge under Section 5 read with Section 7(1), notwithstanding the exemption contained in Section 22 and that Section 22 cannot apply to those properties in which the deceased had some beneficial interest even though such property was held by him in trust for others. He only questions the stand taken by the revenue that the value of the entire settled properties could be brought to charge under the Act. Therefore, the only surviving point that has to be considered is whether the value of the entirety of the settled properties could be included in the estate of the deceased as urged by the revenue.
8. The learned counsel for the revenue submits that, if the provision for exemption cannot be invoked in this case, the value of the settled properties will have to be necessarily taken to have been included in the estate of the deceased as Section 22 excludes only those properties which fall under Section 5 or Section 7. We cannot, however, accept this submission. The non-availability of exemption under Section 22 cannot automatically result in the charge being imposed under Section 5. The words ' shall not be deemed to include' occurring in Section 22 cannot be construed as having a positive content so as to include the properties referred to in that section within the charge, wherever the exemption under that section is not available. As we have already stated, even if the exemption provision does not apply to the facts of the case, still the charge under Section 5 can relate only to the property or interest that passes on the death of the deceased and it cannot relate to properties or interest that did not pass on the death of the deceased. The only property that passes on the death of the deceased is the beneficial interest which he was entitled to under the settlement deed. Mr. Jayaraman submits that the question referred to us is only as regards the availability of the exemption under Section 22 and once it is held that Section 22 does not apply, this court has to answer the reference in favour of the revenue. It is said that the accountable person only claimed exemption under Section 22 and did not at any earlier stage contend that the settled properties could not be brought to charge under Section 5, and therefore, this court cannot further go into the question as to whether the entire value of the settled properties could be charged under Section 5 or not. We are not impressed by this submission. The question before the Tribunal was whether the value of the settled properties could be included in the estate of the deceased, and the Tribunal said that it could not be done in view of the exemption under Section 22. The revenue challenges the decision of the Tribunal excluding the value of the settled properties from the estate of the deceased. Thus, the controversy in the main was as to whether the value of the settled properties could be brought to charge. In that context the question referred to us has to be reframed to pinpoint the issues and the controversy between the parties. We, therefore, reframe the question as follows :
' Whether, on the facts and in the circumstances of the case, the entire value of the properties settled under the deed of settlement dated October 6, 1941, is liable to be included in the estate of the deceased and brought to charge under Section 5 of the Estate Duty Act, 1953 ?'
9. The learned counsel for the revenue refers to the decision in Doughty v. Inland Revenue Commissioners,  2 All E.R. 228,  Ch. 89 as throwing light on the proper interpretation of Section 22. In that case, in 1949, the settlor made a settlement by Clause 3 of which he directed that, during his lifetime, the income of the trust fund thereby constituted should be held on discretionary trusts for his grandchildren. By Clause 4 of the settlement the income and capital of the trust fund were to be held on trust after the settlor's death for such of his grandchildren living at the death of his son as, being male, attained the age of twenty-one or being female attained that age or married. Clause 6 provided that if, at the settlor's death, there were no grandchildren, other than the two living at the time of the settlement, two-thirds of the trust fund should be held on trust for such of them as should attain the age of twenty-five years and if both should do so in equal shares and that the other clauses should apply only to the remaining one-third of the trust fund provided that neither of the two grandchildren nor any child of either individual should take any benefit under the other clauses at the time of the son's death if at the time of the son's death there should be any other grandchildren. The question arose as to whether estate duty was exigible under Sections 1 and 2(1)(b) of the Finance Act of 1894, on the trust fund on the settlor's death. In that case the settlor was a trustee of the settlement until his death in 1958, his son surviving the testator. The Court held that estate duty was exigible for the following reasons: (1) The change which took place on the settlor's death was not merely a change of source of title, but also a change of possession or enjoyment and, being a change from the possibility of interest under a discretionary trust to an entitlement to a definite portion of income, constituted a passing within Section 1 of the Finance Act of 1894 ; and (2) the replacement of one set of trusts by another set of trusts and the determination of one set of interests and the commencement of another set of interests constituted a passing within Section 2(1)(b) of the said Act. We are of the view that the decision in that case was based on the special terms of the settlement deed which treated the interest of the two grandchildren as of a contingent nature in the income of the fund, and the actual interest that vests in the grandchildren had to be ascertained on the date of the death of the deceased. It is only that circumstance which enabled the court to conclude that the entire settled properties passed on the death of the settlor. In that case the court also considered the scope of the exemption provision in Sub-section (3) of Section 2 which is similar to Section 22 of our Act and expressed the view that Sub-section (3) is directed to the passing from a trustee of property held by him and which necessarily passed from him on his death because he could no longer continue to hold it as trustee and observed:
' The opening words of the sub-section are property passing on the death of the deceased shall not be deemed to include. .....' It is not, therefore, in its terms directed to excluding property which has already been included. It is a clarifying rather than an excepting provision and it is no objection to its interpretation that it may refer to property which in any event might be considered not to be 'property passing on the death '. It is not disputed that, on the footing of the decision that there is here a passing under Section 1 or Section 2(1)(b), the relevant 'property', which so passed on the settlor's death was the trust fund and that this trust fund the settlor held as trustee for another person. '
10. But the above decision was reversed by the Court of Appeal in Doughty v. Inland Revenue Commissioners. It was held by the Court of Appeal that the estate duty was not exigible in that case as the two-thirds of the trust funds was found to have vested on the grandchildren and the opening words of Clause 6(ii) of the settlement deed dealing with one-third of the trust fund did not effect any change of trust. Lord Denning M.R. said :
' In my opinion there was no ' passing' within either Section 1 or Section 2(1)(b). I need say nothing, therefore, about Section 2(3) except to say that the interpretation submitted by the taxpayers is quite unacceptable, seeing that it could lead to such absurd results that it cannot have been intended. I think that estate duty is not payable. '
11. On page 880 of Dymond's Death Duties, 14th edition, it is stated :
' However, although Section 2(3) may in appropriate circumstances apply to a Section 1 passing, it is not considered to be applicable where the passing has nothing to do with the deceased's having been a trustee. Presumably Section 2(3) is aimed at excluding liability to duty where the death effects a mere change of legal ownership without a change of beneficial interest, this being consistent with the whole scheme of estate duty J it would be anomalous if, in a case where there is a change of beneficial interest, the fortuitous circumstances that the deceased was a trustee can involve exemption. '
12. The decision of the House of Lords in Public Trustee v. Inland Revenue Commissioners,  A.C. 398 ;  43 I.T.R.19, also is relied on by the revenue. In that case Section 2 of the Finance Act, 1894, as amended by the Finance Act of 1946, came up again for consideration. There a testator had given to one of the trustees of his will the income of his shares in the residuary estate ' during his life so long as he shall act as executor arid trustee of this my will by way of remuneration for doing so '. On the death of the trustee estate duty was claimed under Section 1 of the Act as property passing .on death on the share of the capital corresponding to the share of income to which the trustee was entitled immediately before his death. The claim was resisted on the ground that the interest was enjoyed by the trustee only as a holder of an office and that, therefore, came within the exemption from duty under Section 2(1)(b). It was held that the property in question should not be charged to estate duty, that the section imposed a charge in general terms and Section 2 by exclusion and inclusion denned the precise area of the charge, that the two sections are not mutually exclusive and the excepting words of Section 2(1)(b) were operative with regard to property which fall within that section even though the property might also fall within the words of Section 1. Section 2(1)(b) of the English Finance Act, 1894, corresponds to Section 7(4) of our Act. Viscount Simonds while meeting the contention of the revenue that the words of exclusion in Section 2(1)(b) could refer not to a life interest but only to something less than a life interest stated :
' It would appear to be a wholly untenable view that these words of exclusion could refer not to a life interest but only to something less than a life interest. Strange as are the conclusions to which one is sometimes driven in the consideration of taxing statutes, I doubt whether in the whole realm of tax law a more fantastic result could be reached than to say that, if a person has a life interest in property as holder of an office, duty shall be leviable in respect of that property on his death, but that, if his interest is less than a life interest, then duty shall not be leviable. I should in fact find in the very words that I have cited the strongest argument against a construction of the statute for which the Crown has so far successfully contended. '
13. In Manavikraman Raja v. Controller of Estate Duty, : 32ITR1(Mad) this court had to construe Section 7(4) of the Estate Duty Act with reference to the holder of a ' sthanam '. The court expressed that the holder of a sthanam, though his powers of alien'ation are restricted in regard to sthanam properties, stands in no fiduciary position to his successor and he can in no sense be termed as trustee. The court also took note of the Explanation to Section 7(4) which declared that the holder of a sthanam is neither the holder of an office nor a corporation sole. Considering Section 22 of the Estate Duty Act, the court observed that the trust contemplated by Section 22 is an express trust of the character dealt with in the Trusts Act, 1882. In that case the court referred to the decision in Attorney-General v. Eyres,  1 K.B. 723; 1 E.D.C. 515 where it was contended that the interest of a deceased trustee in the remuneration which had ceased on his death was property which has passed to the successor on which estate duty was payable, and the court upheld the exemption claimed on the ground that the trusteeship held by the deceased was an office within Section 2(1)(b) of the Finance Act, 1894, and also the decision in Dale v. Inland Revenue Commissioners,  A.C. 11 approving the decision referred to above.
14. On analysing the decisions referred to above, it is seen that they do not help the revenue to sustain the levy on the value of the entirety of the settled properties which had vested in trust on the deceased under the settlement deed in question though they threw light on the interpretation of Section 22. They clearly support the view we have expressed above that the beneficial interest of the deceased in the settled properties which has ceased on his death alone is chargeable. It cannot be disputed that there is a cesser of the beneficial interest on the death of the deceased and the benefit of that cesser of interest goes to the sons of the deceased. The benefit arising out of the cesser of interest is specially brought within the Act though in the ordinary sense that kind of property cannot be said to pass on death.
15. The learned counsel for the assessee, as already said, does not dispute the position that the beneficial interest of the deceased which ceases on his death is the property passing on his death and it can be brought to charge under Section 5. He points out that the legislature's intention in introducing Section 22 was to prevent estate duty being charged by reference to the cesser of a fiduciary interest, consistently with the general principle that the duty is concerned with beneficial interest and not with purely legal interest. In Green's Death Duties, 6th edition, at page 248, it is pointed out that the estate duty will become payable under Section 2(3) of the Finance Act of 1894, on the death of a trustee only if and so far as it would have been payable if another person had been trustee instead. This also supports the view that Section 22 refers only to the legal interest of the trustee and not the beneficial interest which has vested in him. Mahanth Umesh Narain Puri v. Controller of Estate Duty, : 75ITR310(Patna) also throws some light. In that case it was held that where the property is not within the disposing capacity of the deceased holder of an estate, no estate duty can be levied upon such property in the hands of any one who succeeds to such property and, therefore, the properties of a math which are vested in and managed by a mahanth are in the nature of a private trust to which Section 22 of the Estate Duty Act was applicable and that the properties cannot be said to pass to the successor under Section 6 of the Act. It appears to be clear that the Estate Duty Act contemplates a charge of estate duty only in respect of beneficial ownership. If the deceased was merely a trustee, though the property would pass on his death to the other trustees or if he was a sole trustee to his legal representatives, no duty would be leviable in respect of such passing. This would essentially be so if the deceased was the trustee under a deed of settlement created by another, but if the deceased created the settlement himself, there will be no charge of estate duty if he retained no beneficial interest in the trust fund. Having regard to the above position that the Act brings to charge only the beneficial interest that passes and not the legal estate that had vested in a trustee for the benefit of another, it has to be held that the value of the entire settled properties cannot be brought to charge under Section 5 but only the beneficial interest of the deceased that has ceased on his death could be brought to charge. In that view we have to answer the question as reframed technically in the negative and in favour of the accountable person.
16. The result is that the Tribunal has to calculate the value of the beneficial interest the deceased had in the settled properties under the settlement deed and bring the same to charge. The reference is answered accordingly. The accountable person will be entitled to the costs from the revenue. Counsel's fee Rs. 250.