1981 (1) TMI 9 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of the trust deed regarding reserved interest.
2. Binding nature of the Assistant Charity Commissioner's finding on the irrevocability of the trust.
3. Inclusion of the value of Kale Bhawan in the dutiable estate under Section 12 of the Estate Duty Act, 1953.

Issue-Wise Detailed Analysis:

1. Interpretation of the Trust Deed Regarding Reserved Interest:
The primary issue revolves around whether the trust deed dated June 30, 1950, reserved any interest in the property for the settlor, which would make the property passable upon the settlor's death under Section 12(1) of the Estate Duty Act, 1953. The Assistant Controller of Estate Duty argued that the trust deed implied a reservation of interest, particularly through clauses 6 and 19, which provided remuneration to the managing trustee and allowed the settlor to act as a trustee for life. However, the court held that the mere provision of remuneration for managing trusteeship does not constitute a reservation of interest as contemplated by Section 12(1). The court referenced CED v. Sultan Alam Khan, where it was established that occupation of trust property by a trustee for management purposes does not amount to a reservation of interest. Therefore, the Department's reliance on clauses 6 and 19 was unfounded.

2. Binding Nature of the Assistant Charity Commissioner's Finding on the Irrevocability of the Trust:
The second issue examined whether the finding by the Assistant Charity Commissioner, declaring the trust irrevocable, was binding on the authorities under the Estate Duty Act and the Tribunal. The court noted that the Assistant Charity Commissioner had determined that the trust could not be dissolved merely based on the trustees' wishes, as the trust was a public charitable trust with specific purposes. The court emphasized that once a public charitable trust is created, it cannot be revoked by the settlor, even if the trust deed reserves such a power. This principle is supported by legal precedents and the provisions of the Bombay Public Trusts Act, which ensure that the trust's objectives are fulfilled, even if the original objects fail. Consequently, the Assistant Charity Commissioner's finding was deemed final and binding.

3. Inclusion of the Value of Kale Bhawan in the Dutiable Estate Under Section 12:
The third issue was whether the value of Kale Bhawan should be included in the dutiable estate under Section 12 of the Estate Duty Act. The Assistant Controller had added Rs. 3,50,000 to the dutiable estate, arguing that the trust deed implied a reservation of interest. However, the court found that the trust was a public charitable trust and that the property did not pass on the settlor's death. Clause 23 of the trust deed, which allowed for the trust's dissolution under certain conditions, was scrutinized. The court held that the reservation of a power to revoke a public charitable trust is invalid and ineffective, as the trust, once created, cannot be undone by the settlor. The court also highlighted that the Bombay Public Trusts Act provides mechanisms to ensure the trust's purposes are achieved, even if the original objectives fail. Therefore, the value of Kale Bhawan was not includible in the dutiable estate.

Conclusion:
The court answered the questions referred to it as follows:
1. In the affirmative and against the Revenue.
2. Need not be answered.
3. In the negative and against the Revenue.

The Revenue was ordered to pay the costs of the reference.