1973 (4) TMI 48 - SC - Indian Laws

Whether, on the facts and in the circumstances of the case, the whole of the trust estate was to be included in the assessment or only a portion thereof and, if so, what portion? Held that - The deceased Safiabai had only one-third share in the income of the trust property. That interest undoubtedly passed on her death. In the remaining two-thirds income, she had no interest and the same did not pass on her death. Her title to the property as a trustee was purely a personal right. It had no value in terms of money. It conferred no right on her. It only imposed some duties. Such a right cannot be considered as property . Appeal dismissed.

Summary

Issues Involved:
1. Inclusion of the whole trust estate or only a portion thereof in the estate duty assessment.
2. Determination of the portion of the trust estate that "passed" on the death of the deceased.

Issue-Wise Detailed Analysis:

Issue 1: Inclusion of the Whole Trust Estate or Only a Portion Thereof in the Estate Duty Assessment

The primary issue in this case revolves around whether the entire trust estate or only a portion should be included in the estate duty assessment following the death of Bai Safiabai. The High Court of Gujarat opined that only one-third of the trust estate "passed" on her death. This conclusion was challenged by the department, which argued that the entire trust estate "passed" on her death.

The Supreme Court examined the material facts and the terms of the trust deed dated July 15, 1938. The settlor, Eusufalli Ebrahimji, had appointed three trustees: himself, his wife Bai Safiabai, and their eldest son, Mohamedbhai. Upon Eusufalli's death, the income from the trust properties was to be divided into three equal shares, with one-third going to Bai Safiabai during her lifetime. The remaining two-thirds were allocated to Mohamedbhai and for the maintenance of Salebhai's family.

The department contended that the legal title to the trust properties vested in the trustees until Bai Safiabai's death, and this title "passed" to the beneficiaries immediately upon her death. Hence, they argued that the entire trust property should be considered in computing the value of the estate that "passed."

Issue 2: Determination of the Portion of the Trust Estate that "Passed" on the Death of the Deceased

To resolve this issue, the Supreme Court analyzed the scope of section 5(1) of the Estate Duty Act, which mandates the levy of estate duty on all property that "passes" on the death of a person. The Court also referred to sections 2(15) and 2(16) of the Act, defining "property" and "property passing on the death."

The Supreme Court emphasized that the expression "property passing on the death" is not a technical term but means "changes hands." The Court cited the observations of Lord Russell in Scott and Coutts and Co. v. Inland Revenue, Commissioners, which stated that a comparison must be made between the persons beneficially interested before and after the death to determine if the property "passed."

The Court noted that since the death of the settlor, the beneficial interest in two-thirds of the income of the trust property vested in persons other than the deceased. Bai Safiabai was entitled only to a one-third share in the income. Therefore, in substance, only one-third of the trust estate "passed" on her death. The Court further stated that the change in the nature of the rights possessed by some beneficiaries did not enlarge the extent or value of the property that "passed."

The Court referred to the case of In re Thomas Townsend (Deceased), where it was held that estate duty was payable only on the portion of the trust fund that "passed" on the death of the widow, not on the entire trust fund. The Court also cited Mahendra Rambhai Patel v. Controller of Estate Duty, which reinforced that what is relevant in determining the scope of "property passing on the death" is the change in beneficial interest, not the title.

The Supreme Court concluded that Bai Safiabai had only a one-third share in the income of the trust property, which "passed" on her death. Her position as a trustee was a personal right with no monetary value and did not constitute "property" that could pass on her death.

Conclusion

The Supreme Court upheld the High Court's decision, agreeing that only one-third of the trust estate "passed" on the death of Bai Safiabai. The appeal by the department was dismissed with costs, affirming that the beneficial interest and not the title determines the scope of "property passing on the death."