1983 (12) TMI 39 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 12 of the Estate Duty Act, 1953.
2. Applicability of Section 10 of the Estate Duty Act, 1953.
3. Interpretation of "settlement" under Section 12.
4. Reservation of interest by the settlor.
5. Surrender of the reserved interest.

Detailed Analysis:

1. Applicability of Section 12 of the Estate Duty Act, 1953:
The court examined whether the trust property of Rs. 13,57,205 should be included in the estate duty assessment under Section 12 of the Estate Duty Act, 1953. The court concluded that the term "settlement" in Section 12 includes trusts. The court stated, "the words 'any settlement' used in s. 12, without further elucidation, will be comprehensive enough to take in a 'trust' as well." The court rejected the argument that the term "settlement" should exclude trusts, noting that the statutory language and context support a broader interpretation.

2. Applicability of Section 10 of the Estate Duty Act, 1953:
The court also considered whether Section 10 of the Act was applicable. The Assistant Controller and the Appellate Controller had invoked Section 10, arguing that the settlor was not entirely excluded from the trust's benefits. However, the court found it unnecessary to address this aspect in detail, as it had already determined that Section 12 was applicable. The court stated, "it is unnecessary to address ourselves on this aspect in view of our adjudication that the case is covered by s. 12 of the Act."

3. Interpretation of "settlement" under Section 12:
The court analyzed the definition of "settlement" and concluded that it includes trusts. The court noted that terms like "settlement," "disposition," "trust," and "dedication" are used interchangeably in the Act. The court stated, "the words settlement, disposition, trust, dedication and arrangement, employed at various places in the Act, have been used very loosely and not with any amount of deliberateness as to their scope, meaning and effect." The court emphasized that the term "settlement" should be interpreted broadly to include trusts.

4. Reservation of interest by the settlor:
The court examined whether the settlor had reserved any interest in the trust property. The court found that the settlor had reserved an interest for life, as he had the right to require the trustees to defray his expenses for pilgrimage and other purposes from both the income and corpus of the trust. The court stated, "the settlor, in his absolute discretion, may from time to time require 'out of the income as well as the corpus of the trust fund' in such manner and to such extent as the settlor may from time to time direct." This reservation of interest was deemed sufficient to attract Section 12.

5. Surrender of the reserved interest:
The court considered whether the settlor had surrendered the reserved interest two years before his death, as required by the first proviso to Section 12(1). The court found no evidence of such surrender and rejected the argument of implied surrender. The court stated, "the proviso positively contemplates that the reservation so made must by certain means be surrendered two years before his death. Admittedly, there is no such surrender by any instrument, much less two years before the settlor's death." The court concluded that the property should be deemed to pass on the settlor's death.

Conclusion:
The court answered the question in the affirmative and against the assessee, concluding that the trust property should be included in the estate duty assessment under Section 12 of the Estate Duty Act, 1953. The court's key findings were:
(i) The term "settlement" in Section 12 includes trusts.
(ii) The settlor reserved an interest in the trust property for life.
(iii) "Life interest in property" is not synonymous with "interest in property for life."
(iv) The settlor did not surrender the reserved interest two years before his death, and thus the property should be deemed to pass on his death.