1967 (12) TMI 59 - HC - Income Tax

Summary

Issues Involved:
1. Liability to estate duty on the death of the testator's son.
2. Interpretation of "interest in possession" under section 43 of the Finance Act, 1940.
3. Determination of whether the discretionary objects had an "interest" within the meaning of the estate duty legislation.
4. The effect of advancements made by trustees on the liability to estate duty.

Issue-Wise Detailed Analysis:

1. Liability to Estate Duty on the Death of the Testator's Son:
The primary issue was whether estate duty became payable on the property advanced to the testator's grandsons before the death of the testator's son, John Travis Gartside. The Inland Revenue Commissioners claimed estate duty on the two funds advanced to the grandsons, amounting to about lb32,000.

2. Interpretation of "Interest in Possession" under Section 43 of the Finance Act, 1940:
The court examined whether the interests of the discretionary objects (the testator's son, his wife, and children) constituted an "interest in possession" within the meaning of section 43 of the Finance Act, 1940. The court noted that an "interest in possession" is the opposite of an "interest in expectancy" and that the discretionary objects had no immediate right to the income of the trust fund. The court concluded that the discretionary objects did not have an "interest in possession" because their interest did not confer a right of present enjoyment of the income.

3. Determination of Whether the Discretionary Objects Had an "Interest" within the Meaning of the Estate Duty Legislation:
The court considered whether the discretionary objects had an "interest" within the meaning of the estate duty legislation. The court noted that the term "interest" in estate duty legislation is not used in a technical conveyancing sense but in a popular sense. The court held that the discretionary objects had a right to be considered by the trustees for payments, which constituted an "interest" within the meaning of the estate duty legislation. However, this interest was not an "interest in possession" because it did not confer a right to immediate enjoyment of the income.

4. The Effect of Advancements Made by Trustees on the Liability to Estate Duty:
The court examined the effect of the advancements made by the trustees to the grandsons on the liability to estate duty. The court held that the advancements did not result in a passing of property on the death of the testator's son, as the interests of the discretionary objects had not become interests in possession. The court concluded that the advancements did not attract estate duty under section 43 of the Finance Act, 1940.

Conclusion:
The court allowed the appeal, holding that the discretionary objects did not have an "interest in possession" within the meaning of section 43 of the Finance Act, 1940. Consequently, the advancements made by the trustees to the grandsons did not attract estate duty. The judgment of the lower court was restored, and the Inland Revenue Commissioners' claim for estate duty on the advanced funds was dismissed.