1984 (12) TMI 54 - HC - Income Tax

Summary

Issues Involved:

1. Applicability of Section 10 of the Estate Duty Act, 1953.
2. Interpretation of the remuneration clause for trustees under the trust deed.
3. Inclusion of trust fund in the estate of the deceased for estate duty purposes.
4. Applicability of Section 7 of the Estate Duty Act, 1953.

Detailed Analysis:

1. Applicability of Section 10 of the Estate Duty Act, 1953:

The primary issue was whether the trust fund of Prince Shahmat Ali Khan should be included in the estate of the late Nizam of Hyderabad under Section 10 of the Estate Duty Act, 1953. The court examined the interpretation of Section 10, which is modeled on Section 102(2)(d) of the Stamp Duties Act, 1920-56, of Australia. The court referenced several landmark cases, including George da Costa v. CED, which established that Section 10 has two cumulative conditions: the donee must have assumed possession and enjoyment of the property to the exclusion of the donor immediately upon the gift, and the donee must retain such possession and enjoyment to the entire exclusion of the donor or any benefit to him by contract or otherwise. The court concluded that the Nizam retained a benefit under the trust deed, thus Section 10 was applicable.

2. Interpretation of the Remuneration Clause for Trustees:

Clause 18 of the trust deed directed that trustees could be remunerated up to Rs. 3,000 per annum. The accountable person argued that no resolution was passed by the trustees to enforce this remuneration, thus no legal right was created. However, the court held that the mere direction in the trust deed created a potential benefit for the trustees, including the Nizam, which falls under the scope of "benefit" as interpreted in various precedents, including John Lang v. Thomas Prout Webb and Commissioner of Stamp Duties (New South Wales) v. Owens. Therefore, the remuneration clause was considered a benefit retained by the Nizam.

3. Inclusion of Trust Fund in the Estate of the Deceased for Estate Duty Purposes:

The Tribunal initially found that the remuneration to trustees was part of "outgoings" and thus did not attract Section 10. However, the court disagreed, stating that remuneration directed to be paid to the trustees is a potential benefit. Consequently, the trust fund amounting to Rs. 12,88,169 was liable to be included in the estate of the deceased for estate duty purposes. The court referenced Parvati Ammal's case to reject the argument that only the value of the potential benefit should be included, affirming that the entirety of the trust fund should be considered.

4. Applicability of Section 7 of the Estate Duty Act, 1953:

The accountable person argued that Section 7 should apply, suggesting that with the death of the Nizam, the potential benefit ceased. The court examined Section 7, which pertains to personal laws and specific clauses related to Mitakshara, Marumakattayam, or Aliyasanthana law. The court concluded that Section 7 was not applicable to the facts of the case, as it primarily deals with incidents of Hindu personal law, which were not relevant to the trust in question.

Conclusion:

The court reversed the Appellate Tribunal's decision, holding that Section 10 of the Estate Duty Act, 1953, was applicable. The trust fund was to be included in the estate of the deceased, and the question was answered in favor of the Revenue. Costs were awarded to the Revenue, and the advocate's fee was fixed at Rs. 300. An oral application for leave to appeal to the Supreme Court was granted.