CONTROLLER OF ESTATE DUTY Vs. H N MARKANDAN

JUDGEMENT

(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 Ammal, 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 sonsThe 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").

(2.) 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 deceasedTHE 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 ?" *THE reference, therefore, involves the interpretation of the true scope of section 22 of the Act. Section 2, 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 ........" *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 5Section 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.

(3.) 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 :