1. Under Section 64(1) of the E,D. Act, 1953, the following question has been referred for the opinion of the court :
'Whether the deceased obtained any interest in the Bangalore House under the settlement deed dated March 29, 1962, executed by his wife '
2. The estate duty assessment came to be made on the death of M. C. Chandy on 10th March, 1966. On 29th March, 1962, the deceased executed a will under which he bequeated to his wife certain legacies inclusive of an annuity of Rs. 1,000 per year for life. The State Bank of India was appointed the executor. On the same day, Mrs. Aley Chandy, his wife, executed a settlement deed, under which she constituted herself and the deceased as trustees and a house in Bangalore owned by her was transferred and conveyed to the trustees to be held by them in accordance with the provisions of that deed. Clause 5 of the settlement deed provided that the trustees should hold the property in trust for Mrs. Aley Chandy for her life, that she should be entitled to possession and enjoyment thereof throughout her lifetime, and that she should be entitled to let out the same or any part of the same and enjoy the rents and profits thereof but only with the written consent of the deceased during his lifetime. Clause 9(d) provided that she should not dispose of or sell the property except with the concurrence and consent of the deceased. Clause 6 provided that in the event of the deceased surviving his wife, the settlor, the said property should belong to him absolutely. In the event of Mrs. Chandy surviving the deceased, the provision made in Clause 6, in his favour, shall not take effect and shall stand cancelled under Clause 7.
3. The executor filed the estate duty account. The Asst. CED in making the assessment on 31st July, 1968, included Rs. 1,70,000, being, the value of the Bangalore house as passing under Section 7 of the Act. The executor appealed to the Appellate Controller, who confirmed the assessment, but directed the Asst. Controller to give the relief allowable under Section 33(1)(n) of the Act, if it was found that the deceased had occupied this house as his residence. The executor thereafter filed an appeal before the Appellate Tribunal and the Tribunal, after considering the terms of the document, came to the conclusion that the interest created in favour of the deceased was only a contingent interest and that, therefore, the deceased had not obtained any interest in the property under the aforesaid settlement deed. It, accordingly, directed deletion of the sum of Rs. 1,70,000 from the assessment. Against this order of the Tribunal, the CED has obtained the reference of the question already mentioned.
4. From the orders of the E.D. authorities and the Appellate Tribunal it is clear that the matter came to be considered only in the light of the provisions of Section 7 of the E.D. Act. Section 7, in so far it is material, runs as follows:
' 7(1). Subject to the provisions of this section, property in which the deceased.........had an interest ceasing on the death of the deceased shall be deemed to pass on the deceased's death to the extent to which a benefit accrues or arises by the cesser of such interest...... '
5. It would be useful at this stage to refer to Section 40, which runs as follows:
' 40. The value of the benefit accruing or arising from the cesser of an interest ceasing on the death of the deceased shall-
(a) if the interest extended to the whole income of the property, be the principal value of that property ; and
(b) if the interest extended to less than the whole income of the property, be the principal value of an addition to the property equal to the income to which the interest extended. '
6. Section 7, when analysed, requires the following conditions to be fulfilled.
(1) The deceased must have had an interest in the property;
(2) Such interest must have ceased on his death;
(3) A benefit must have accrued or arisen to another on the cesser of such interest; and
(4) Such benefit must be capable of being measured under Section 40.
7. We have, therefore, to find out whether the deceased had any interest in the property. In this context, it is necessary to refer to Clauses 5, 6 and 7 of the settlement deed.
' 5. The trustees shall hold the said property in trust for the said Mrs. Aley Chandy for her life. She shall be entitled to possession and enjoyment of the said property throughout her lifetime. Without prejudice to the generality of the foregoing, she shall be entitled at her pleasure to let out the same or any part of the same and enjoy the rents and profits thereof or otherwise in such manner as she may deem fit:
Provided that, during the lifetime of Mr. M.C. Chandy she shall not be entitled to let out the said premises or any part thereof except with the written consent of Mr. M.C. Chandy. During the period of enjoyment, she shall pay all public charges, including the municipal and property taxes, payable in respect of the said property. 6. In the event of Mr. M.C. Chandy surviving Mrs. Aley Chandy, the following provision shall take effect after the lifetime of Mrs. Aley Chandy. Mr. M.C. Chandy, the second beneficiary abovenamed, shall take the said property absolutely. He shall be entitled to take possessionof the property and, on his taking possession of the property, this trust shall thereupon terminate and cease and Mr. Chandy shall be the absolute owner of the said property.
7. In the event of Mrs. Aley Chandy surviving Mr. Chandy, then the aforesaid settlement in favour of Mr. Chandy shall not take effect and shall stand cancelled, and the trustee or trustees of this settlement shall, after the death of Mrs. Aley Chandy, held the property in trust for such persons, being such of the sons or the grandchildren of Mr. M.C. Chandy and Mrs. Aley Chandy may appoint, in such shares and with such rights as she may specify. The said power of appointment vested in Mrs. Aley Chandy may be exercised by her either by instrument in writing or by any testamentary disposition. In the event of Mrs. Aley Chandy failing to make such appointment, the trustees shall, after her death, hold the said property in trust for all the grandchildren of Mr. M.C. Chandy who shall be entitled to equal shares therein. The word 'grandchildren' shall mean and include any grandchild, male or female, being the child of any son of Mr. Chandy alive on the date of the death of Mrs. Aley Chandy, and in the event of any such grandchild having died before her death, the children, if any, of such deceased grandchild who shall take the 'share which their deceased parent would have taken if then alive. '
8. A perusal of these clauses goes to show that the property is held during the lifetime of Mrs. Aley Chandy in trust for her life. She would be entitled to possession and enjoyment of the property throughout her lifetime. There is a provision for her letting out the property. But in doing so, she had to take the written consent of Mr. M.C. Chandy. This condition was apparently considered necessary, because Mr. M.C. Chandy had a life interest in the property subsequent to the lifetime of Mrs. Aley Chandy. If she should enter into a long lease or make an imprudent or uneconomic bargain with reference to the rent or the period, then it is Mr. M.C. Chandy who would suffer by it. In order, therefore, to see that he did not lose the benefit created under the document by reason of any action of Mrs. Aley Chandy during her lifetime, it was provided that in letting out the property she should take his written consent. Clause 6 contemplates Mr. M.C. Chandy surviving Mrs. Aley Chandy. In that event, he takes the property absolutely. In the present case, it is necessary to look into Clause 7 as he pre-deceased his wife, and Clause 6 could not apply. Clause 7 provides that in the event of Mrs. Aley Chandy surviving Mr. Chandy, the settlement in his favour is not to take effect and will stand cancelled. Thus, at the time of Mr. Chandy's death during the lifetime of Mrs. Chandy, he had no present interest in the property. His interest arises only in the event of hissurviving. It is a contingent interest which did not take effect, because of his predeceasing Mrs. Chandy.
9. With reference to legacies contingent upon certain unspecified events, there is a provision in Section 120 of the Indian Succession Act. It provides that a legacy bequeathed in case a specified uncertain event is to happen does not vest until that event happens. Though this is a case of a settlement and not of a will, to which alone Section 120 applies, the test to determine whether an interest is contingent or net cannot differ. Section 120 embodies only a general principle and can be usefully referred to in this context. The principle is that though the death of the life-tenant is certain, still it is by no means certain that the subsequent beneficiary will survive the life-tenant. And if from the words of the gift, the intention is clear that the persons taking should be only such persons as survive or are alive on the death of the life-tenant then it follows necessarily that it is a contingent gift upon the donee surviving the life-tenant. Till such contingency is fulfilled, there can be no vesting. See Adams v. Mrs. Gray : AIR1925Mad599 .
10. It would follow that the interest obtained by Mr. Chandy was only a contingent one and it did not vest in him during his lifetime and, therefore, he did not have any interest in the property, which could be said to have ceased on his death. Section 7 cannot apply.
11. The estate duty assessment has to fail for one more reason. We have earlier pointed out that one of the conditions for the applicability of Section 7 is that the benefit must be capable of being measured as provided in Section 40. It would be seen from that provision that if the interest extended to the whole income of the property, then the value of the benefit would be the principal value of the property. If the interest extended to less than the whole income of the property, then there is to be a proportionate valuation. In the present case, the interest did not extend to any income from the property. Therefore, it is not possible to evaluate the interest. In such a case, it has been held that if the value of the benefit is not capable of measurement in accordance with the formula laid down in Section 40, no duty can be levied under Section 7. See Attorney-General v. Wood  2 QB 102; 1 EDC 107 , where Vaughan Williams J. stated thus :.
' I think that in cases where the measure (under Section 7(7) of the U.K. Act) cannot be applied, no duty can be levied. '
12. In Gartside v. IRC  AC 553 ;  70 ITR 663, the House of Lords, construing the parallel provisions of the U.K. Act, observed at p. 718 (of 70 ITR) as follows :
' This shows that for the cesser of an, interest to give rise to a charge for duty, it must be possible to say of the interest that it extended to the whole income, or to a definite part of the income. This notion of definite extension is, in my opinion, vital to the understanding and working of Section 2(1)(b) and consequently of Section 43 of the Act of 1940.'
13. This principle had been referred to and applied by this court in the case of Alladi Kuppuswami v. CED : 76ITR500(Mad) , But this decision was reversed by the Supreme Court in CED v. Alladi Kuppuswami : 108ITR439(SC) on a different point. The result is that it is not possible to evaluate the interest, if any, of the deceased in this property ; since the interest is not capable of valuation, it is not an interest contemplated by Section 7 of the Act.
14. The result is, the question referred to us be and is answered in the negative and against the revenue. The accountable person will be entitled to its costs. Counsel's fee Rs. 500.