1998 (7) TMI 89 - SC - Income Tax

Whether the settlor had retained in the property gifted any benefit to himself by contract or otherwise? Held that - In the present case the settlor does not appear to have reserved for himself any interest which would be sufficient to bring his case within section 12(1). All the cases which have been cited before us are cases in which the settlor had in some form or the other reserved the right to receive income or part of it from the settled property during his lifetime either by way of maintenance or in a similar form. Such is not the case here. The provisions of section 12(1) would not therefore be attracted to the present trust created by the settlor during his lifetime. This will be more so since in fact the settlor did not receive any amount from the said trust during his lifetime. Nor did he undertake any pilgrimage. Looking however to the language of section 12(1) the facts in the present case do not indicate that any interest within the meaning of section 12 was retained by the settlor in the settled property for life or any other period determinable by reference to his death. Hence section 12(1) is not attracted. In favour of appellant

Summary

Issues Involved:
1. Applicability of Section 10 of the Estate Duty Act, 1953.
2. Applicability of Section 12 of the Estate Duty Act, 1953.
3. Definition of "settled property" under Section 2(19) of the Estate Duty Act, 1953.

Detailed Analysis:

1. Applicability of Section 10 of the Estate Duty Act, 1953:
The first issue is whether Section 10 of the Estate Duty Act, 1953, is attracted in the present case. Section 10 deals with gifts where the donor is not entirely excluded. The section states that property taken under any gift shall be deemed to pass on the donor's death if bona fide possession and enjoyment of it was not immediately assumed by the donee and retained to the entire exclusion of the donor or any benefit to him by contract or otherwise. The court noted that the settlor, H. E. H. Nizam of Hyderabad, never enjoyed any benefit under the trust at any time. Therefore, Section 10 is not applicable in this case.

2. Applicability of Section 12 of the Estate Duty Act, 1953:
The primary focus of the arguments was on Section 12 of the Estate Duty Act, 1953. Section 12 pertains to settlements with reservation, stating that property passing under any settlement made by the deceased, whereby an interest in such property for life or any other period determinable by reference to death is reserved to the settlor, shall be deemed to pass on the settlor's death. The court examined whether the settlor retained an interest in the property for life or any other period determinable by reference to his death. It was found that the settlor did not reserve any right to receive maintenance for himself or any of his relatives. The court concluded that the direction in the trust deed for defraying Haj expenses and for religious and charitable purposes did not constitute a reservation of interest by the settlor in the property for life. Hence, Section 12(1) was not attracted in this case.

3. Definition of "Settled Property" under Section 2(19) of the Estate Duty Act, 1953:
Considerable arguments were advanced on whether the property settled on trust comes within the definition of "settled property" under Section 2(19) of the Estate Duty Act, 1953. The High Court held in the affirmative, and there was no dispute before the Supreme Court that the property in question could be considered as settled property as defined in Section 2(19).

Conclusion:
The Supreme Court allowed the appeal, setting aside the impugned order of the High Court. The court answered the referred question in the negative and in favor of the appellants, concluding that neither Section 10 nor Section 12 of the Estate Duty Act, 1953, was applicable in this case. There was no order as to costs.