1973 (9) TMI 36 - HC - Income Tax

Summary

Issues Involved:
1. Inclusion of the value of the property "Albany" in the estate of the deceased.
2. Validity of the reservation of income from the property under Mohammedan law.
3. Application of Section 11 of the Transfer of Property Act.
4. Validity of the reservation of usufruct in favor of the settlor's wife after the settlor's death.
5. Whether the non-enforcement or non-enjoyment of a right affects its legal existence.
6. Whether the obligation to pay over income constitutes an interest in the property under Section 7 of the Estate Duty Act.

Detailed Analysis:

1. Inclusion of the Value of the Property "Albany" in the Estate of the Deceased:
The court examined whether the value of the property "Albany" should be included in the estate of the deceased, Fathima Bi. The accountable person argued that the deceased did not have any interest in the property under the settlement deed dated May 15, 1950, and that the property should not be included in the estate. The Assistant Controller and Appellate Controller rejected this contention, while the Tribunal excluded the value of the property from the estate. The High Court ultimately held that the property should be included in the estate.

2. Validity of the Reservation of Income from the Property under Mohammedan Law:
The accountable person contended that the reservation of income from the property for the benefit of the deceased, Fathima Bi, was invalid under Mohammedan law. The Tribunal initially agreed, stating that the reservation was invalid as it amounted to a gift in the future. However, the High Court disagreed, citing precedents that established the validity of reserving usufructs under Mohammedan law. The court concluded that the reservation of the right to the usufruct or creating an obligation on the donee to collect and pay over the usufructs to the donor is valid even under Mohammedan law.

3. Application of Section 11 of the Transfer of Property Act:
The Tribunal relied on Section 11 of the Transfer of Property Act to invalidate the condition of obligation imposed by the donor on the donee. However, the High Court found that Section 11 was not applicable in this case. The court noted that there was an absolute gift of the corpus of the property to the donee, and the obligation to pay over the income did not affect the absolute nature of the gift of the corpus. Thus, the reservation of income was not in derogation of the absolute grant of the corpus.

4. Validity of the Reservation of Usufruct in Favor of the Settlor's Wife After the Settlor's Death:
The Tribunal held that the reservation of the usufruct in favor of the settlor's wife after the settlor's death was invalid as it amounted to a gift in the future. The High Court disagreed, stating that the right to usufruct is a present right and that the gift of usufructs, even if they come into existence in the future, is valid. The court cited various legal texts and precedents to support this view, concluding that the gift of usufructs in favor of Fathima Bi was valid.

5. Whether the Non-enforcement or Non-enjoyment of a Right Affects Its Legal Existence:
The Tribunal reasoned that since Fathima Bi did not enforce her right to the income from the property, it could not be said that she had any interest in the property. The High Court rejected this reasoning, stating that the non-enforcement or non-enjoyment of a right does not extinguish the legal right unless it is shown to have been extinguished by operation of law or otherwise. Therefore, Fathima Bi's legal right to the income from the property remained intact.

6. Whether the Obligation to Pay Over Income Constitutes an Interest in the Property under Section 7 of the Estate Duty Act:
The High Court considered whether the obligation to pay over the income to Fathima Bi constituted an interest in the property. The court concluded that the obligation was a condition upon which the donee took the property, attaching to the property in her hands. This created a charge on the property for the realization of the income, thereby constituting an interest in the property. Consequently, the cesser of this interest on Fathima Bi's death resulted in a corresponding benefit to the accountable person, thereby attracting Section 7 of the Estate Duty Act.

Conclusion:
The High Court answered the question referred in the affirmative, holding that the value of the property "Albany" is includible in the estate of the deceased. The court found that the reservation of income from the property was valid under Mohammedan law, that Section 11 of the Transfer of Property Act did not apply, and that the obligation to pay over the income constituted an interest in the property. The revenue was awarded costs, and the accountable person's contentions were rejected.