1987 (4) TMI 28 - HC - Income Tax

Summary

Issues:
1. Inclusion of trust property in the principal value of the deceased's estate for estate duty calculation.

Analysis:
The case involved a deed of settlement where properties were settled on trust with temporary and permanent objects. The Assistant Controller of Estate Duty and the Appellate Controller included the value of the trust property in the deceased's estate, while the Income-tax Appellate Tribunal sided with the accountable person. The Tribunal referred a question to the High Court regarding the inclusion of the trust property in the estate for estate duty calculation.

The Revenue argued that the trust property should be included in the deceased's estate under section 12(1) of the Estate Duty Act, 1953, based on the reservation of interest for the maintenance of the deceased's relatives. The key contention was whether the reservation of interest fell within the scope of the Explanation to section 12(1), which deemed property passing under a settlement to include cases where interest was reserved for the settlor and his relatives.

The High Court analyzed the conditions of section 12(1) and found that neither condition was satisfied in this case. The power reserved by the deceased to make changes in the temporary objects did not amount to reservation of interest in the settled property. The Court also examined the Explanation to section 12(1 and rejected the argument to read "and" as "or" based on precedents from the Gujarat and Madras High Courts. The Court held that the Explanation was enacted to cover situations where interest was reserved for both the settlor and his relatives.

Ultimately, the High Court answered the question in favor of the accountable person, ruling that the trust property's value was not includible in the principal value of the deceased's estate for estate duty calculation. The decision was based on the interpretation of section 12(1) and the Explanation, emphasizing that the reservation of interest did not meet the criteria outlined in the law.

This judgment clarifies the interpretation of the Estate Duty Act regarding the inclusion of trust property in the estate for estate duty calculation, providing guidance on the conditions under which property passing under a settlement is deemed to include reserved interests for the settlor or his relatives.