1990 (6) TMI 56 - HC - Income Tax

Issues Involved:
1. Whether the corpus of the Sir Jamsetjee Jejeebhoy Baronetcy Fund passes on the death of the deceased baronet under the Estate Duty Act, 1953.
2. Whether the property that passed on the death of the deceased baronet is the actuarial value of the income from the baronetcy fund and the actuarial value of his wife's interest.
3. Whether the actuarial value of the Dowager Lady Jejeebhoy's income constitutes a separate estate under section 34(3) of the Estate Duty Act, 1953.
4. Whether, by virtue of section 7(4) of the Estate Duty Act, 1953, no property chargeable to duty passed on the death of the sixth baronet.

Detailed Analysis:

Issue 1: Corpus of the Sir Jamsetjee Jejeebhoy Baronetcy Fund Passing on Death
The court examined whether the corpus of the Sir Jamsetjee Jejeebhoy Baronetcy Fund passes on the death of the sixth baronet under section 5 or section 7 of the Estate Duty Act, 1953. Section 5(1) of the Estate Duty Act mentions that estate duty is levied on all property passing on death. The court clarified that the phrase "property which passes" generally means property changing hands on death. The court rejected the argument that the entire corpus of the baronetcy fund passes on death under section 12(1), which deals with property passing under a settlement made by the deceased. The court noted that the deceased baronet did not execute any deed or instrument settling any property on trust. The baronetcy fund was vested in trustees in perpetuity by an Act of Parliament, not by any deed or instrument executed by the deceased. Thus, section 12(1) does not apply. The court also rejected the alternative argument under section 7(1) read with section 40, which deals with property in which the deceased had an interest ceasing on death. The court held that section 7(1) requires a benefit to accrue to the estate upon the cesser of an interest, and in this case, no such benefit accrued as the baronetcy fund retained the burden of providing its income to the next baronet. Therefore, the corpus of the baronetcy fund does not pass on the death of the sixth baronet.

Issue 2: Actuarial Value of Income and Wife's Interest
The court addressed whether the property passing on the death of the deceased baronet is the actuarial value of the income from the baronetcy fund and the actuarial value of his wife's interest. The court agreed with the Tribunal's finding that the property passing on the death of the baronet is the actuarial value of his beneficial interest and his wife's interest. The court held that only the provisions of section 5 are attracted in this case, and the property passing on death is the actuarial value of the beneficial interests, not the corpus of the baronetcy trust fund.

Issue 3: Separate Estate Under Section 34(3)
The court did not address the question of whether the actuarial value of the Dowager Lady Jejeebhoy's income constitutes a separate estate under section 34(3) of the Estate Duty Act, 1953. The court noted that questions raised by the accountable person in a reference made at the instance of the Controller of Estate Duty are void, as per the Supreme Court's decision in CIT v. V. Damodaran. Therefore, the court declined to answer this question.

Issue 4: Applicability of Section 7(4)
The court considered the argument that, even if section 7(1) applies, the provisions of section 7(4) would exclude the corpus of the trust fund from estate duty because the baronet had an interest in the trust property only as a holder of an office. The court examined whether a baronetcy constitutes an office and concluded that it does. The court held that the baronetcy is a subsisting, permanent position held in succession by a number of persons, and thus qualifies as an office under section 7(4). Consequently, the benefit enjoyed by the sixth baronet in the baronetcy fund was by virtue of holding the office of the baronet, and section 7(1) is not applicable. Therefore, the corpus of the trust fund is not chargeable to estate duty.

Conclusion:
1. The court answered question No. 1 in the negative, holding that the corpus of the baronetcy fund does not pass on the death of the sixth baronet.
2. The court answered question No. 2 in the affirmative, holding that the property passing on death is the actuarial value of the beneficial interests.
3. The court declined to answer questions Nos. 3 and 4, as they were void due to the Supreme Court's decision in CIT v. V. Damodaran.
4. There was no order as to costs.

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