Truestees
of H.E.H. Nizam's Pilgrimage Money Trust, Hyderab Vs. The Collector of Estate
Duty, Hyderabad [1998] INSC 342 (21 July 1998)
Sujata
V. Manohar, K. Venkataswami Mrs. Sujata V. Manohar, J.
ACT:
HEAD NOTE:
J U DG
M E N T
The
appellants are the trustees of H.E.H. Nizam Pilgrimage Money Trust, Hyderabad. On 2.11.1950, H.E.H. Nizam of the
erstwhile State of Hyderabad created a trust under which the settlor set apart
Government of India Loan Securities of the face value of Rs.22.20 lakhs
yielding an annual income of Rs. 66,600/- for certain charitable and religious
purposes. The relevant clause of this settlement is Clause 3(c). The relevant
provisions of Clause 3 are as under:
"3.
The Trustees shall hold and stand possessed of the Trut Fund UPON TRUST :-
(a) To
manage the Trust Fund and to recover the interest and other income thereof;
(b) To
pay and discharge out of the income of the Trust Fund all expenses and charges
for collecting and recovering the income of the Trust Fund and all other costs,
Charges, incidental to the trusts of these presents and the administration
thereof;
(c)
During the lifetime of the Settlor to defray the expenses of Haj of the Settlor
and of such of the members of his family as he may take with him and of their
visit and pilgrimage to various Mohmmedan Shrines and holy places in Hedjaz and
Iraq and for making religious offerings and expending moneys for charitable
purposes at such places and for such other religious or charitable purposes as
the Settlor in his absolute discretion may from time to time think fit and
require out of the income as well as the corpus of the Trust Fund in such
manner and to such extent as the Settlor may from time to time direct and for
all or nay of such purposes as aforesaid to pay such moneys out of the income
or the corpus of the Trust Fund as the Settlor may from time to time
require." The settlor appointed himself as one of the trustees along with
other trustees. The settlor died on 24.2.1967.
The
Assistant controller of Estate Duty held that the settlor was not completely
excluded from enjoying the benefit of the corpus of the trust and hence under
Section 10 of the Estate Duty Act, 1953 the property which was the subject
matter of the settlement was includible in the estate of the deceased. On
appeal, the Appellate Controller of Estate Duty also held Section 10 to be
applicable. In second appeal before the Tribunal, three contentions were raised
on behalf of the revenue invoking Section 12 as a more relevant section, and
submitting that under Section 12 also the property which was the subject matter
of the settlement was includible in the estate of the deceased.
This
contention was upheld by the Tribunal.
From
the decision of the Tribunal, the following question was referred to the High
Court under Section 64(1) of the Estate Duty Act, 1953:
"Whether
on the facts and in the circumstances of the case, the trust property of the
value of Rs.13,57,205/- is liable to be included in the estate duty assessment
of the deceased as property deemed to pass –
(a) either
under Section 12 of the Estate Duty Act,
(b) or
under section 10 of the Estate Duty Act?" The High Court held that Section
10 of the Estate Duty Act, 1953 was not attracted but Section 12 was attracted.
Therefore,
the subject matter of the settlement had been rightly included in the estate of
the deceased. The present appeal has been preferred before us under a
certificate granted by the High court.
Considerable
arguments were advanced before the High Court on the question whether a
property settled on trust, as in the present case comes within the definition
of "settled property" under Section 2(19) of the Estate Duty Act,
1953. The High Court has held in the affirmative. There is no dispute before us
that the property which is the subject matter of the trust in the present case
can be considered as settled property as defined in Section 2(19).
The
first question is, whether Section 10 of the Estate Duty Act, 1953 is attracted
in the present case. Section 10 is as follows:
"10.
Gifts whenever made where donor not entirely excluded - Property taken under
any gift, whenever made, shall be deemed to pass on the donor's death to the
extent that bona fide possession and enjoyment of it was not immediately
assumed by the done and thenceforward retained to the entire exclusion of the
donor or of any benefit to him by contract or otherwise:
Provided
that the property shall not be deemed to pass by reason only that it was not,
as from the date of the gift, exclusively retained as aforesaid, if, by means of
the surrender of the reserved benefit or otherwise, it is subsequently enjoyed
to the entire exclusion of the donor or of any benefit to him for at least two
years before the death:
Provided
further............" This section, as its marginal note suggests, deals
with gifts whenever made where the donor is not entirely excluded. Under the
main part of the section, any property taken under any gift, if bona fide
possession and enjoyment is not immediately assumed by the done and retained by
him to the exclusion of the donor, would be property deemed to pass on the
donor's death to the extent of such retention of benefit. This section also
provides that if any benefit in the property given as a gift is retained by the
donor by contract or otherwise, that benefit shall be deemed to pass on the
donor's death. The proviso lays down that if after the date of the gift, either
by means of an express surrender of the retained benefit by the donor or
otherwise, the property is enjoyed to the exclusion of the donor for at least
two years before his death, such property shall not be deemed to pass on the
death of the donor. In the present case, the settlor, H.E.H. Nizam of Hyderabad, never, in fact, enjoyed any
benefit under the said trust at any time.
Therefore,
there can be no application of Section 10 in the present case, in any event.
The
parties before us have, therefore, focused their arguments on Section 12 of the
Estate Duty Act, 1953. The relevant Provisions of Section 12 are as follows:
"12.
Settlements with reservation.- (1) Property passing under any settlement made
by the deceased by deed or any other instrument not taking effect as a will
whereby an interest in such property for life or any other period determinable
by reference to death is reserved either expressly or by implication to the settlor
or whereby the settlor may have reserved to himself the right by the exercise
of any power, to restore to himself or to reclaim the absolute interest in such
property shall be deemed to pass on the settlor's death:
provided
that the property shall not be deemed to pass on the settlor's death by reason
only that any such interest or right was so reserved if by means of the
surrender of such interest or right the property is subsequently enjoyed to the
entire exclusion of the settlor and of any benefit to him by contract or
otherwise, for at least two years before his death:
Provided
further..........
Explanation - A settlor reserving an interest
in the settled property for the maintenance of himself and any of his relatives
(as defined in section 27) shall be deemed to reserve an interest for himself
within the meaning of this section.
(2)..................."
In the present case under the settlement the property has been transferred
absolutely to the trustees. However, under Clauses 3 of the settlement, the
trustees are directed, during the lifetime of the settlor, to defray the
expenses of Haj of the settlor and all such members of his family who may
accompany him on pilgrimage to various Mohammaden Shrines and holy places in Hedjaz
and Iraq and for making religious offerings and expending money for charitable
purposes. The said clause also provides for expending income as well as part of
the corpus of the trust fund for religious and charitable purposes as the settlor
may direct.
Can
this be considered as the settlor retaining interest in the settled property
for life or any other period determinable by reference to his death? The
Explanation to Section 12 expressly provides that where a settlor reserves an
interest in the settled property for the maintenance of himself or any of his
relatives, he shall be deemed to reserve an interest in the settled property
for himself within the meaning of Section 12(1). In the present case, however,
the settlor has not reserved any right to receive maintenance either for
himself or for any of his relatives.
Hence
the Explanation is not relevant here. However, the settlor is entitled to have Haj
expenses of himself and any accompanying family members paid out of the trust
fund. The settlor has also reserved the right to direct the religious and
charitable purposes on which the trust fund may be spent. These are not
benefits which accrue directly to the settlor himself, as in the case of his
own maintenance. The pilgrimage expenses, however, of the deceased and any
accompanying family members are to be defrayed out of the trust fund if an when
the settlor goes on such a pilgrimage.
As a
matter of fact the deceased never went on any pilgrimage as specified in Clause
3(c) and did not receive any benefit directly or indirectly under the said
trust. In our view, the direction in the trust deed that the expenses of the settlor
for pilgrimage performed for religious purposes, be paid out of the trust fund,
will not be equivalent to reserving an interest in the property for life. Nor
will payment towards religious and charitable purposes at the direction of the settlor
constitute a reservation of any interest by the settlor for himself in such
property for life.
Our
attention in this connection has been drawn to a decision of this Court in the
case of Controller of Estate Duty V. R. Kanakasabai and Ors. (89 ITR 251). In
that case, the deceased had executed separate deeds of settlement in favour of
his sons, grandsons, daughter and wife, settling properties severally in favour
of the respective beneficiaries absolutely and with full power of alienation.
The
deeds in favour of the sons and grandsons, however provided for payment of Rs.1,000/-
per annum to the settlor; and the deed in favour of the Daughter provided for
the maintenance of the settlor and his wife during their lifetime. It was held
by this Court that Section 12 was wholly inapplicable to the facts of the case.
On the question of applicability of Section 12, the Court observed as follows:
"So
far as the applicability of section 12(1) is concerned, it is nobody's case
that the beneficiaries became entitled to the properties settled on them after
the death of the deceased.
There
is no support for the contention of the revenue that an interest in the
properties settled was reserved to the deceased during his lifetime or for any
period after the properties were settled; nor is there any provision in the
deeds enabling the deceased to reclaim the property or its possession under any
circumstance.
None
of the conditions laid down in section 12(1) are attracted to the provisions
contained in the deeds of settlement." On the applicability of Section 10,
the Court considered whether the donor had retained in the property gifted, any
benefit to himself by contract or otherwise. The Court said that the deceased
should be entirely excluded from the property or from any benefit by contract
or otherwise. Provisions for annual payments and maintenance made in the deeds
were not charged on the properties settled. Hence, the deceased could not be
said to have retained any interest in the properties settled. Therefore,
Section 10 was not applicable. In the present case, the deceased has not
retained any benefit to himself. As we have set out already, Section 10 in any
case, will not be attracted in the present case.
The
application of Section 12 was considered by this court in the case of Dipti Narayan
Srimani v. Controller of Estate Duty, West Bengal (172 ITR 477). In this case,
the settlor executed two deeds of trust. In the first deed, the settlor
transferred to himself four items of property to be held on trust:
(1) to
set apart 1/4th of the net income for effecting certain additions and
alterations to the property;
(2) to
make over another 1/4th of the net income to the shebait of a deity;
(3) to
apply 1/4th of the net income to certain charities; and
(4) to
apply the remaining 1/4th for the personal benefit of the settlor during his
lifetime and to his heirs thereafter. In the second deed, the settlor transferred
six other items of property to himself and his son as trustees:
(1) to
pay 1/4th of the net income to the shebait of another deity,
(2) to
spend 1/4th on charities, and
(3) to
utilise the balance of one-half for the development of two of the properties
and after completion of development, for the benefit of the settlor during his
lifetime and his heirs thereafter.
The settlor
provided one room in one of the properties for his residence free. The settlor
also constituted himself as shebait during his lifetime and thereafter his
heirs were to be the she baits of the two deities.
This
Court held that Section 12(1) was attracted. It, inter alia, observed that the
reservation of interest so as to attract Section 12(1), had to be in the
property comprised in the settlement as such. mere collateral benefits reserved
by the settlor emanating from some other property or from other source,
independent of the property so settle, would not attract this section. But in
the case before the Court, the benefits reserved emanated from the very
property constituting the subject matter of settlements and could not be said
to be collateral in their nature. The Court observed, (page 487,) that having
regard to the special nature of the office of a shebait and the rights and
interests that go with it, it is possible to contend that when a settlor endows
property to an idol and reserves the right of shebaitship to himself, he would
be reserving an interest in the property. distinguishing the earlier judgment
of this court in controller of Estate Duty, Bihar V, Mahant Umesh Narain Puri
(135 ITR 139), this Court said that the position of an elected Mahant in Math
properties was different. In that case, no interest passes on the death of a Mahant
duly elected, and Section 12 is not attracted. But the case of a settlor who
himself endows property to an idol and constitutes himself as shebait is
obviously different. The Court, however, did not finally pronounce on the
effect of reservation of shebaitship by a settlor in the context of Section
12(1). In the English cases which have been referred to in the said judgment,
the settlors had reserved a benefit to themselves, their wives or children in
the income of the settled property for their maintenance. The English court
observed that this amounted to an interest in the settled property.
The
Explanation to Section 12 expressly takes care of such a situation by providing
that a settlor reserving a right to receive maintenance for himself or any of
his relatives from the settled property or its income shall be deemed to
reserve an interest in the settled property for himself within the meaning of
that section. Any other kind of an indirect benefit to the settlor under the
trust in certain eventualities will not amount to reservation of an interest in
the settled property by the settlor for himself.
In the
case of Ravindra Gunvantilal v. controller of Estate Duty, Gujarat, the Gujarat High Court (P.N. Bhagwati,
CJ, as he then was and Divan, J.) considered a case where there was a joint
settlement by the deceased and his wife in respect of certain properties
belonging separately to each of them. The deceased and his wife were appointed
as trustees and the settlement deed provided that until the death of the last
survivor of the deceased and his three sons, the trustee shall apply the net
income for and towards maintenance and personal support of all or such one or
more exclusively of the other or others of the deceased, his wife, his children
and widow and issues, if any, of any of his sons. Th application was to be in
such shares and proportions as the trustee may from time to time think proper.
The trustees also had the absolute discretion to pay the whole of the net
income of the settled property to any one or more of these persons to the
exclusion of others. The Gujarat High Court held that where a settlor is one of
the objects of a discretionary trust and the trustees are given an absolute
discretion to pay the income of the settled properties to one or more of the
objects to the exclusion of others, the settlor has an interest in the settled
properties within the meaning of Section 12(1) and he must be held to have
reserved to himself an interest in the settled properties for life sufficient
to bring his case within section 12(1).
In the
present case, the settlor does not appear to have reserved for himself any
interest which would be sufficient to bring his case within Section 12(1). All
the cases which have been cited before us are cases in which the settlor had,
in some form or the other, reserved the right to receive income or part of it
from the settled property during his lifetime either by way of maintenance or
in a similar form. Such is not the case here. Provisions of section 12(1) would
not, therefore, be attracted to the present trust created by the settlor during
his lifetime.
This
will be more so since, in fact, the settlor did not receive any amount from the
said trust during his lifetime.
Nor
did he undertake any pilgrimage.
In the
order of the Appellate Commissioner, there was also a reference to a release
deed executed by the settlor relinquishing all his powers which would be
beneficial to him in the various trusts created by him. This trust was also
covered by the release deed. However, apart from this bare reference to a
Release Deed, no attempt has been made to bring the release deed on record. No
arguments have been advanced on this aspect. We are, therefore, not examining
this question from the point of view of the execution of a release deed by the settlor.
Looking, however, to the language of Section 12(1), the facts in the present
case do not indicate that any interest within the meaning of Section 12 was
retained by the settlor in the settled property for life or any other period
determinable by reference to his death. Hence Section 12(1) is not attracted.
The
appeal is, therefore, allowed and the impugned order of the High Court is set
aside. The question referred is answered in the negative and in favour of the
appellant.
There
will, however, be no order as to costs.
Back