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Controller Of Estate Duty, Calcutta v. Sri Nirmal Kumar Roy
Structured Summary of the Court's Opinion (Reference under S.64(3) of the Estate Duty Act, 1953)
Factual and Procedural Background
This reference arose after the death of Rishikesh Roy on 29 July 1962. During his lifetime he executed a deed of trust dated 10 February 1954 which settled properties described in the Third and Fourth Schedules on trustees. Because the first deed was considered unclear as to the settlor's intention, a subsequent deed of rectification was executed on 26 November 1954. The rectifying deed confirmed that the trustees named would hold the trust properties during the lifetime of the settlor and his wife upon the trusts set out, and provided that rents, issues and profits (including half share in a business) would be collected by the trustees who, after paying outgoings and charges, would distribute the balance at their discretion equally among the settlor's five sons.
The specific property under scrutiny in this reference was premises No. 23/2, Shib Sankar Mallik Lane (item No. 1 of the Third Schedule). After the lifetimes of the settlor and his wife the property was to be absolutely taken by the sons.
The Assistant Controller of Estate Duty held that the property was deemed to pass under section 12 of the Estate Duty Act, 1953, on the ground that the settlor had reserved an interest. The Appellate Controller agreed that the trust was for the maintenance of relatives and so fell within S.12. On further appeal, the Tribunal held that reading the two deeds together showed a present transfer and an effective disposition of income during the lifetime of the settlor and his wife, and that no interest had been reserved by the settlor; it accepted the assessee's contention that S.12 did not apply to the property. The High Court was asked to answer five specific questions in reference under S.64(3).
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Trust came into effect during the lifetime of the deceased?
- Whether, on the facts and in the circumstances of the case, and having regard to the fact that the deceased resided in one of the Trust properties before his death, the Tribunal was right in holding that there was no reservation of interest by the deceased in the property within the meaning of S.12(1) of the Estate Duty Act, 1953?
- Whether, on the facts and in the circumstances of the case, and on a correct interpretation of the Deed of Trust, the Tribunal was correct in holding that the Trust did not have amongst its purposes the maintenance of the sons of the deceased?
- Whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in holding that the word ‘and’ appearing in the Explanation to S.12(1) of the Estate Duty Act, 1953, was not used in a disjunctive sense and that the reservation of interest for the maintenance must be both for the settlor and his relatives?
- Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the word ‘children’ appearing in S.27(7) of the Estate Duty Act, 1953 would not include adults?
Arguments of the Parties
Revenue's Position (Assistant Controller and Appellate Controller)
- The Assistant Controller considered that the property was deemed to pass under section 12 because the settlor had reserved an interest as contemplated by that provision.
- The Appellate Controller held that the trust was for the maintenance of the relatives of the deceased and therefore came within the scope of S.12; he agreed with the Assistant Controller's reasons.
Accountable Person / Assessee's Position
- The assessee (accountable person) contended that, when the two deeds are read together, there was a present transfer of the properties to the trustees and an effective disposition of income during the lifetime of the settlor and his wife.
- On that basis the assessee argued there was no reservation of any right of residence or right to revoke the trust; hence S.12 was not attracted to the property in question. The Tribunal accepted this contention.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Controller of Estate Duty v. R. Kanakasabai, 89 ITR 251 (Supreme Court) | The opinion states that this decision reiterates the principle concerning the construction of the Explanation to S.12 that a settlor reserving an interest for maintenance must have reserved an interest both for himself and for his relatives to be deemed to have reserved an interest within S.12. | The Court relied on the principle as supportive authority for its conclusion that, because there was no reservation of any interest in favour of the settlor, S.12 did not apply to the property; this precedent was cited to show the principle was well-settled. |
| Kikabhai Samsuddin v. Controller of Estate Duty, Gujarat, 73 ITR 241 (Gujarat High Court) | The opinion cites this decision as being in consonance with the same principle about reservation of interest under the Explanation to S.12 (i.e., that maintenance reservation must be both for the settlor and his relatives to attract S.12). | The Court referred to this decision as confirming the settled principle which supported answering Question No. 1 in favour of the accountable person and against the Revenue. |
Court's Reasoning and Analysis
The Court proceeded by analysing the effect of both trust instruments together and the statutory language of section 12 (including its proviso and Explanation).
- Construction of the deeds: The Court reviewed the terms of the original 10 February 1954 deed and the 26 November 1954 rectifying deed. The rectifying deed confirmed that the trustees were to hold the Third and Fourth Schedule properties during the lifetime of the settlor and his wife and authorised the trustees to collect rents and profits and (after deductions) to distribute the balance at their discretion equally among the settlor's five sons. The Court agreed with the Tribunal that read together the two deeds effected a present transfer of the property and an effective disposition of income during the lifetime of the settlor and his wife.
- Reservation of interest under S.12: The Court noted that section 12(1) deems property to pass on the settlor's death where an interest for life or a period determinable by reference to death is reserved to the settlor, or where the settlor has reserved power to restore or reclaim absolute interest. The Court observed that, in the present case, there was no reservation of any right of residence nor any reservation of any right to revoke the trust.
- Explanation to S.12 and its construction: The Explanation states that a settlor reserving an interest in the settled property for the maintenance of himself and any of his relatives shall be deemed to reserve an interest for himself within the meaning of S.12. The Court interpreted this to mean that, for the Explanation to operate, the maintenance reservation must be both for the settlor and for his relatives. Because the facts showed no reservation in favour of the settlor, the Explanation did not apply.
- Consideration of residence proviso and related points: The Court referred to the second proviso which provides that mere residence by the settlor in a house settled in favour of certain relatives will not cause it to be deemed to pass by reason only of that residence, unless a right of residence is reserved. The Court held there was no reservation of right of residence in the present case.
- Precedential support: The Court stated that the principle it applied was well-settled and consonant with the principles reiterated in the cited decisions (Controller of Estate Duty v. R. Kanakasabai and Kikabhai Samsuddin v. Controller of Estate Duty).
- Treatment of other questions: Having answered the central issues in favour of the accountable person, the Court regarded questions 3 and 5 as academic in the facts of this case and declined to answer them.
Holding and Implications
Core Ruling: Questions 1 and 2 were answered in favour of the accountable person and against the Revenue; Question 4 was answered in the negative and in favour of the accountable person; Questions 3 and 5 were declined as academic.
Direct consequences for the parties:
- The Court held that the trust came into effect during the lifetime of the settlor (answer to Q1 in favour of the accountable person), and that there was no reservation of interest within the meaning of S.12(1) as regards the property (answer to Q2 in the affirmative for the accountable person).
- The Court found that the Explanation to S.12 must be read to require reservation of interest both for the settlor and his relatives before it will operate; on that basis the Court answered Question 4 in the accountable person's favour (i.e., the Tribunal did not misdirect itself on that point).
- Because the Court treated Questions 3 and 5 as academic in the circumstances, it declined to decide them.
- The parties were directed to pay and bear their own costs.
Broader legal implications: The opinion states that the principle applied is well-settled and cites earlier decisions as consonant authority. The Court did not purport to create a new precedent beyond applying settled principles; its findings resolve the matter between the parties on the facts presented.
Questions answered.
Sabyasachi Mukharji, J.:— In this reference under S. 64(3) of the Estate Duty Act, 1953, the following questions have been referred to this Court—
“1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the Trust came into effect during the life time of the deceased?
2. Whether, on the facts and in the circumstances of the case, and having regard to the fact that the deceased resided in one of the Trust properties before his death, the Tribunal is right in holding that there was no reservation of interest by the deceased in the property within the meaning of S. 12(1) of Estate Duty Act, 1953?
3. Whether, on the facts and in the circumstances of the case, and on a correct interpretation of the Deed of Trust, the Tribunal is correct in holding that the Trust did not have amongst its purposes the maintenance of the sons of the deceased?
4. Whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in holding that the word ‘and’ appearing in the Explanation to S. 12(1) of the Estate Duty Act, 1953, was not used in a disjunctive sense and that the reservation of interest for the maintenance must be both for the settlor and his relatives?
5. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the word ‘children’ appearing in S. 27(7) of the Estate Duty Act, 1953 would not include adults?”
2. These questions arose on the demise of one Rishikesh Roy on the 29th July, 1962. During his life time he executed a deed of trust on the 10th February, 1954. The properties in the 3rd and 4th schedules to the said trust were settled on trust. Under the said term, during the life time of the settlor and his wife Sm. Purnasoshi Dassi, the trustees were to hold the properties in the 3rd schedule upon the trust declared under Part II, clause 6, that is, the settlor's five sons were to be the beneficiaries with reference to the said property. This document was considered not to be clear enough to bring about the settlor's intention. So soon the after on the 26th November, 1954 another deed of trust was executed which provided that the trustees shall hold the trust properties in the 3rd and 4th schedules of the deed of trust dated the 10th February, 1954 even during the life time of settlor and his wife Sm. Purnasashi Dassi upon trust therein mentioned. It would be proper, in our opinion, to set out the terms upon which the trustees were to hold the property which are as follows:
1. “I do hereby confirm that the said Trustees Nirmal Kumar Roy and Sankar Lal Roy shall hold the Trust properties described in the Third and Fourth Schedules of the said Deed of Trust dated the 10th day of February, 1954 and a list whereof is also set out in the Schedule hereunder during the lifetime of myself (settlor) and my said wife Sm. Purnasoshi Dassi upon Trust therein mentioned.
2. The rents and issues and profits arising out of the said Trust properties including half share in the business of Roy Cousin & Co. all fully described in the Third and Fourth Schedules of the said Deed of Trust dated the 10th day of February, 1954 and a list whereof is also set out in the Schedule hereunder written during the lifetime of my (settlor) and/or my wife Sm. Purnasoshi Dassi shall be collected and realised by the said Trustees Nirmal Kumar Roy and Sankar Lal Roy who after first deducting therefrom all municipal rates, taxes, rents revenues and other outgoings due and payable in respect of same and charges for repairing and reconstruction of same and all other costs and charges incurred for realisation and collection thereof will distribute and divide the balance thereof at their discretion equally among my five sons viz. Profulla Kumar Roy, Nirmal Kumar Roy, Sankar Lal Roy, Sachindra Nath Roy and Samir Kumar Roy so that each of my said sons will get an equal share thereof.
3. I do hereby otherwise confirm the said Deed of Trust dated the 10th day of February, 1954 in all other respects and as regards all its provisions and implications therefrom.”
3. The trustees appointed under the deed were the first two sons of the settlor. The effect of the trust deed was that the income derived from the said properties should be collected by the trustees and after meeting the charges, the balance should be applied at the direction of the trustees amongst the five sons of the settlor so that each of them would get equal share thereof. The result of the two documents was to allow the trustees to distribute the income at their discretion to the sons of the settlor during his lifetime and during the lifetime of his wife.
4. In this reference we are mainly concerned with premises No. 23/2, Shib Sankar Mallik Lane being items No. 1 of the Third Schedule to the said trust deed. After the lifetime of the settlor and his wife this property was to be absolutely taken by the sons of the settlor. The Assistant Controller of Estate Duty considered that the property was deemed to pass under section 12 of the Estate Duty Act, 1953 as in his view the settlor, had reserved to himself an interest as contemplated by that provision.
5. The accountable per on appealed to the Appellate Controller, who held that the trust was for the maintenance of the relatives of the deceased and it came within the scope of S. 12. He agreed also with the other reasons given by the Assistant Controller.
6. There was a further appeal to the Tribunal. The Tribunal held that if the first document alone was there, there was same possibility of accepting the stand of the Revenue that the trust came into existence after the lifetime of the settlor and his wife as there was no disposition made as regards the income during the lifetime of the settlor. But the Deed of rectification altered the position. The Tribunal was of the view that the two deeds read together resulted in the transfer of the properties to the trustees and the payment of the income at the direction of the trustees to the sons of the settlor equally and there was no scope for the contention that the trust came into existence only after the lifetime of the settlor and his wife. We agree with this finding of the Tribunal on the reading of the two trust deeds. In view of the recital of the trust deed it appears to us that there was a present transfer of the property and an effective disposition of the income of the trust during the lifetime of the settlor and his wife and they had not reserved any interest in the property. The Tribunal also considered the implication of Explanation to S. 12(1) of the Act. It held that from the recitals it was clear that there was no reservation of any benefit for the maintenance of hims. If by the settlor. It was also held that there was no reservation of any interest in the property for the maintenance of his relatives. The Tribunal also was of the view that the expression ‘children’ in clause 27 would not include adult sons of the settlor. Upon this, the Tribunal accepted the assessee's contention that S. 12 was not attracted and as such this property did not pass on the death of the settlor.
7. section 12 of the Estate Duty Act, 1953, so far as it is material for our present purpose, provides as follows:
“12(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:”
8. The second proviso to the said section is also relevant which provides as follows:
“Provided further that a house or a part thereof comprised in such settlement made in favour of the spouse, son, daughter, brother or sister, shall not be deemed to pass on the settlor's death by reason only of the residence therein of the settlor except where a right of residence is reserved or secured directly or indirectly to the settlor under the settlement or under any collateral disposition.”
9. The Explanation to S. 12 is in the following effect:
“Explanation: A settlor reserving an interest in the settled property for the maintenance of himself and any of his relatives (as defined in S. 27) shall be deemed to reserve an interest for himself within the meaning of this section.”
10. In the instant case there was no reservation of any interest by the settlor in the property in the sense—no reservation of any right of residence nor any reservation of any right to revoke the deed of trust. Even if it be held that the expression ‘children’ included adult since there was a reservation of interest in the settled properly for the maintenance of such relatives, as defined under S. 27 of the Estate Duty Act, such maintenance, in our opinion, must be both for the settlor and his relatives. In this case there was no such reservation because there was no reservation in favour of the settlor. This principle of the section, in our opinion, is well-settled and is in consonance with the principles reiterated by the Supreme Court in the case of Controller of Estate Duty v. R. Kanakasabai 89 ITR 251 and the decision of the Gujrat High Court in the case of Kikabhai Samsuddin v. Controller of Estate Duty, Gujrat 73 ITR 241. In that view of the matter, in our opinion, the question No. 1 should be answered in favour of the accountable person and against the Revenue, in the facts and circumstances of this case.
11. For the reasons aforesaid the question No. 2 must also be answered in the affirmative and in favour of the accountable person. In view of the reasons mentioned before, the question No. 4 must be answered in the negative and in favour of the accountable person. In that view of the matter questions Nos. 3 and 5 are of academic interest in this case and it is not necessary for us to enter into these controversies and we decline to answer them. We, therefore answer the questions in the manner indicated above. In the facts and circumstances of this case parties will pay and bear their own costs.
12. Sudhindra Mohan Guha, J.:— I agree.
Questions answered.
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