1978 (4) TMI 42 - HC - Income Tax

Summary

Issues:
Interpretation of Section 12 of the E.D. Act, 1953 regarding property passing under a settlement and reservation of interest by the settlor.

Analysis:
The case involved a wakf created by a deceased individual, where the revenue contended that the settled properties should attract estate duty under Section 12 of the E.D. Act, 1953. The settlor had reserved a share of surplus income for himself and family members, raising the question of whether this constituted a reservation of interest in the settled properties. The court analyzed Section 12, which deems property passing under a settlement as passing on the settlor's death if an interest is reserved for the settlor. The court emphasized that a reservation of interest must be present in the settled property for Section 12 to apply.

The court examined Clause 13 of the wakf deed, which specified the division of surplus income among family members, including the settlor. It was determined that the provision for the settlor to receive a share from the surplus income constituted a reservation of interest in the settled properties. This interpretation aligned with previous court decisions and the Explanation to Section 12, which deems a reservation for maintenance of the settlor and relatives as a reservation of interest.

Reference was made to legal precedents, such as Anantha Iyer v. Mittadar Ramaswami Iyer, to support the view that a specific provision for the settlor in the deed constitutes a reservation of interest. Distinctions were drawn from a Supreme Court decision where it was held that Section 12 did not apply due to the lack of reserved interest for the deceased during his lifetime. The court concluded that the facts of the present case warranted the application of Section 12, contrary to the accountable person's argument.

Ultimately, the court answered the referred question in favor of the revenue, affirming the validity of including the sum of Rs. 4,55,000 in the estate of the deceased. The revenue was awarded costs, including counsel's fee, in relation to the reference.