CONTROLLER OF ESTATE DUTY Vs. RATANLAL ROY

JUDGEMENT

(1.) : The facts on record found or admitted in the above references under ss. 64(1) and 64(3) of the ED Act, 1953, are, inter alia, that one Nundalal Roy, since deceased, executed a deed of settlement on 12th Sept., 1929, whereby he created a trust in respect of various movable and immovable properties mentioned in the deed. The properties were conveyed to himself and his wife, Shyamrangini Roy Chowdhurani, for the use of himself for and during the term of his natural life and his wife, Shyamrangini Roy Chowdhurani. It was further provided that after the death of the settlor, the surviving trustee, Shyamrangini Roy Chowdhurani, would stand possessed of the said properties upon the trusts mentioned in the said deed subject to the powers and provisions contained therein, as follows : (a) The surviving trustee would pay out of the rents, issues and profits of the immovable properties and out of the income of the existing investments after meeting all outgoings including taxes, the expenses for maintenance of the family of the settlor, viz., the surviving trustee, the four sons of the settlor, viz., Nanilal Roy, Rangalal Roy, Kshirode Lal Roy and Jaladhilal Roy, and their wives and children and the grand-children and the great grandchildren and the grandsons in the male line; b. The surviving trustee would spend amounts in her discretion to carry on the seba of a Deity Sri Sri Lachminarayan Thakur installed at Bhagyakul; (c) The surviving trustee was empowered to spend amounts for the marriage expenses of the members of the family of the settlor including daughters and grand-daughters in the male line ; (d) All expenses of the children and grandchildren in the male line were directed to be borne by the surviving trustee from the income of the trust including expenses for education abroad; (e) The surviving trustee was directed to bear the expenses of the education of Jaladhilal Roy, the youngest son of the settlor, abroad to the extent of Rs. 600 per month ; (f) The surviving trustee was directed to satisfy and settle the legitimate debts and dues of Rangalal Roy, the second son of the settlor, to the Co-operative Hindusthan Bank Ltd. (g) The surviving trustee was directed to pay to Nalini Sundari, the married daughter of the settlor, Rs. 50 per month for her pocket expenses and to provide for clothing of the latter's husband and children to the extent the surviving trustee would think fit and proper. The surviving trustee was also directed to pay to the said daughter a sum of Rs. 15,000 for her absolute benefit. The other material clauses in the said deed were as follows: Clause 11 : "The surviving trustee would be entitled to appropriate for her own benefit and use a sum of Rs. 10,000 (Rupees ten thousand) out of the trust estate and to spend the same in any way she likes. Besides the above sum, she would during the term of her natural life get from the trust estate interest at the rate of Rs. 6per cent per annum on a sum of rupees one lakh to be invested for that purpose in good securities. She will also be entitled to spend from the trust estate any amount of money she might think fit and proper for the purpose of purchasing clothing for herself, for the spiritual benefit of the settlor and for going to holy places of pilgrimage and also for going to and residing in health stations or health resorts for her health or peace of mind according to her absolute discretion." Clause 14 : "The surviving trustee would have no power to make any gift or gratuitous transfer whatever but subject to the said restriction would be entitled to sell, transfer, exchange, lease out or otherwise alienate absolutely or conditionally or for any period however long any movable or immovable property or properties belonging to the trust estate provided, however, that before doing so she would consult and take the opinion of the said four sons of the settlor or the survivor or survivors of them or so many of them whose opinion would be available on proper notice to them. If the opinion of the majority of the said four sons of the settlor or survivors of them or of such of them whose opinion would be available in the manner hereinbefore stated, is against such sale, transfer, exchange, alienation or lease, the surviving trustee would not be entitled to make such transfer, sale, exchange, alienation or lease." Clause 16 : "After the death of the surviving trustee, Sreemati Shyamrangini Roy Chowdhurani, the trust hereby created would cease and determine save and except that out of the properties both movable and immovable then existing, the said Rangalal Roy would upon her death be paid a sum of Rs. 50,000. Clause 17 : "Subject to the aforesaid trusts, all the unexhausted residue of the trust estate both movable and immovable and the equitable and beneficial interest therein would vest in equal shares in the settlor's said four sons, Nanilal Roy, Rangalal Roy, Kshirode Lal Roy and Jaladhilal Roy, absolutely and for ever and be their absolute property for ever." Nundalal Roy, the settlor, died on 5th Aug., 1930. After the death of Nundalal, Shyamrangini Roy Chowdhurani continued as the surviving trustee. During her period of trusteeship, Jaladhilal Roy, the youngest son of the settlor, died. On 19th Sept., 1940, Shyamrangini Roy Chowdhurani, the surviving trustee, executed two deeds. By the first deed, Shyamrangini Roy Chowdhurani, the surviving trustee, relinquished her share in the estate of Jaladhilal which devolved on her, in favour of her three remaining sons including the beneficial interest under the said deed dt. 12th Sept., 1929. On the same day, another deed was executed by Shyamrangini Roy Chowdhurani and the three surviving sons, Nanilal, Rangalal and Kshirode Lal. It was recorded in the said deed, inter alia, as follows : (a) The said deed being executed between Nanilal, Rangalal and Kshirode Lal as settlors and Shyamrangini Roy Chowdhurani, the sole surviving trustee, under the trust created by the deed dt. 12th Sept., 1929, Shyamrangini and the said three sons were declared to be trustees of the endowment created by the said deed. (b) Jaladhilal died in London on 1st May, 1940, and before his death, he had expressed his last wish for the establishment of a charitable institution to perpetuate the memory of his father, Nundalal Roy, but failed to carry into effect the said desire by execution of a proper will or deed. (c) The settlors were desirous of carrying into effect the said wish of their deceased brother by establishing a charitable hospital in the town of Calcutta. (d) For the said purpose, the settlors were transferring on the date of the execution of the said deed a sum of Rs. 1 lakh and intended to transfer a further sum of Rs. 4 lakhs, thereafter. The payment of the balance sum of Rs. 4 lakhs would be secured by charge on specified properties of the trust estate created by the deed dt. 12th Sept., 1929, including the interest of the deceased son, Jaladhilal, which had devolved on the surviving sons. (e) Shyamrangini as the surviving trustee under the said deed dt. 12th Sept., 1929, consented to the said transfer of the said amount of Rs. 5 lakhs for the creation of the said charge. The properties mentioned in the schedule to the said deed were stated to be charged for the purpose of payment of the said amount of Rs. 4 lakhs. (f) Apart from the amount of Rs. 1 lakh, a further sum of Rs. 50,000 was to be made over to the trustees of the endowment within one year and out of the said sum of Rs. 1,50,000, a plot of land or building would be acquired for the establishment of the charitable hospital. The balance amount of Rs. 3,50,000 would be made over to the endowment trust after the charitable hospital was established. The said balance amount would carry interest at the rate of 5per cent to be paid in monthly instalments from the date of the opening of the hospital. On 29th July, 1948, Shyamrangini, the surviving trustee, died upon which the unexhausted residue of the trust estate vested in equal shares in the three surviving sons, Nanilal, Rangalal and Kshirode Lal. On 7th Sept., 1965, Rangalal Roy died. On the death of Rangalal Roy, his estate was assessed to estate duty. A claim was made by the accountable person that 1/3rd of the amount of Rs. 3,50,000 for which a charge had been created over the properties should be excluded from the estate. The Asstt. CED rejected the claim of the accountable person and held that under s. 44A of the ED Act, 1953, the claim that the said amount should not be included was not tenable. In respect of the debt created in favour of the trust fund, the deceased had made a disposition of his own interest to the extent of 1/3rd of Rs. 3,50,000, viz., Rs. 1,16,666.67. There was no consideration in money or money's worth for the debt and the debt was not wholly for the own use and benefit of the deceased. Being aggrieved, the accountable person preferred an appeal to the Appellate CED. The Appellate CED upheld the decision of the Asstt. CED. The Appellate CED held that in order to be allowed deduction in the computation of estate duty, a basic requirement was that the debt should be enforceable in a Court of law and it should have been incurred for consideration of money or money's worth. The claim made in respect of the debt in the instant case was held not to fulfil either of the two requirements. The Appellate CED found that the deed of endowment dt. 19th Sept., 1940, was nothing more than a family arrangement whereby the mother and the sons agreed to set aside a portion of the family wealth for a charitable purpose. This arrangement could not be enforced by a suit. The beneficiary was not in the picture at all and the promise to pay money in the shape of gift did not create a contract in law. In any event, there was no consideration in money or money's worth for the same. A contention made that the consideration for the said debt in favour of the charitable hospital was the relinquishment by Shyamrangini of her interest in the estate of Jaladhilal Roy, the predeceased son, was not accepted by the Appellate CED. The accountable person preferred a further appeal to the Tribunal from the order of the Appellate CED. It was contended before the Tribunal that the deceased succeeded to an estate which was subject to a charge created and that the decision of the Asstt. CED that s. 44(a) of the ED Act, 1953, was attracted to the facts was not correct. It was submitted that though in the deed dt. 19th Sept., 1940, the three surviving sons had been described as settlors, they were not owners of the estate and did not have title to the properties. Shyamrangini, the surviving trustee, being alive, they had only a beneficial interest in the trust properties. It was contended that it was Shyamrangini, the surviving trustee, who had transferred the funds in favour of the charitable hospital and had created the charge. It was also contended that in the wealth-tax assessment for 1957-58, the AAC had accepted the validity of the charge and had given relief accordingly. It was further urged that if Rangalal, as one of the settlors, had created the charge, the same was for consideration. Contentions to the contrary were made on behalf of the Revenue. It was submitted that s. 44(a) of the ED Act, 1953, was attracted to the facts of the case and as no consideration passed, the deduction claimed for the debt should not be allowed. It was also contended that in the deed of relinquishment it was recorded that the relinquishment was made in consideration of a charitable disposition for a hospital. Relying on cl. 14 of the original deed dt. 12th Sept., 1929, it was submitted that Shyamrangini had been prohibited from making any gift or gratuitous transfer and, therefore, in any event, the trust and the charge created were invalid. It was contended in reply on behalf of the accountable person that under the deed dt. 19th Sept., 1940, no gift or gratuitous transfer was made but the said deed resulted in an alienation which was at the most an avoidable transaction at the instance of the persons affected. The Tribunal noted the contents and the clauses of the deed of settlement dt. 12th Sept., 1929, including cls. 11 and 14 thereof as also the provisions of the deed dt. 19th Sept., 1940. The Tribunal found that in the deed of endowment dt. 19th Sept., 1940, it was mentioned that the hospital was being set up for perpetuating the memory of Nundalal which was also the last wish of Jaladhilal. Under the trust deed dt. 12th Sept., 1929, Shyamrangini was entitled to spend any amount for the spiritual benefit of Nundalal, the deceased settlor, which was a purpose mentioned in cl. 11 thereof, as she thought fit and at her absolute discretion. The Tribunal also noted that after the death of Nundalal, Shyamrangini had become entitled to the entire trust estate which vested in her absolutely. No one else had any right, title or interest in the corpus. The sons, by themselves, had no right to dispose of any part of the original trust estate. The Tribunal held that cl. 14 of the deed dt. 12th Sept., 1929, had to be construed in the context of the entire provisions of the deed. The said clause did not prohibit transfer but permitted transfer with the consent of the majority of the sons. A charge over immovable property was not a transfer of property within the meaning of the Transfer of Property Act. The Tribunal thereafter construed the deed of endowment dt. 19th Sept., 1940, and found that the three surviving sons had been made parties to this deed so that they could signify their acceptance of their trusteeship in the deed itself. The said sons did not declare that they were owners of the fund or the property or that it was their money or property which was being transferred. The Tribunal noted that the mere fact that the sons were described as settlors in the deed of 1940 did not affect the transfer of funds by Shyamrangini, the surviving trustee, out of the parent trust estate and the charge created by her by the said deed did not militate against the deed of settlement of 1929. The Tribunal held that the charge was created and the transfer of funds was also made by the surviving trustee out of the parent trust. The Tribunal came to the conclusion that after the death of Shyamrangini, the sons took the estate burdened with the liability and the charge which were not created by Rangalal and s. 44(a) of the ED Act, 1953, was not attracted. The Tribunal held that disallowance of 1/3rd of the liability in respect of the said sum of Rs. 3,50,000 was untenable and allowed the appeal. The Tribunal also came to the conclusion that the transaction effected by Shyamrangini might be a voidable transaction and the same could be avoided by the persons affected. The Tribunal noted that the sons in whom the residue of the original trust estate vested had agreed to the transaction and by their conduct, they acquiesced in the same and were not in a position to avoid the transaction. The validity of the charge created by Shyamrangini was not affected by a mere possibility of an action by the sons which could not affect the validity of the transaction at the relevant time. The Tribunal also noted that it was on record in the wealth-tax assessment that under the endowment of 1940, land had been acquired for the purpose of putting up a charitable hospital. On an application by the Revenue under s. 64(1) of the ED Act, 1953, the following question has been referred by the Tribunal as question of law arising out of this order for the opinion of this Court : "Whether, on the facts and in the circumstances of the case and on a proper interpretation of the trust deed dt. 12th Sept., 1929, and the trust deed dt. 19th Sept., 1940, the Tribunal was justified in law in directing the deduction of Rs. 1,16,667 and holding that s. 44(a) was not attracted ?" This is the subject-matter of the above Reference No. 311 of 1974. On an application by the Revenue under s. 64(3) of the ED Act, 1953, this Court directed the Tribunal to refer also the following questions as questions of law arising out of the order of the Tribunal for the opinion of this Court : "1. Whether, on the facts and in the circumstances of the case and on a proper interpretation of cl. 14 of the trust deed dt. 12th Sept., 1929, the surviving trustee, Smt. Shyamrangini Roy Chowdhurani, was entitled, either independently by herself or with the consent of her sons, to transfer any amount out of the trust estate for the establishment of the charitable hospital or to create a charge on the trust properties for securing the transfer of any amount for the said purpose ?

(2.) WHETHER, on the facts and in the circumstances of the case, the disposition made by Smt. Shyamrangini Roy Chowdhurani of the sum of Rs. 5,00,000 under the indenture dt. 19th Sept., 1949, was void and, accordingly, the deduction of any part of the unpaid sum of Rs. 3,50,000 was allowable in computing the value of the estate of the deceased ?

(3.) QUESTION No. 3 is also answered in favour of the accountable person. In the facts and circumstances of the case, there will be no order as to costs.