1968 (9) TMI 40 - HC - Income Tax

Issues Involved:
1. Applicability of section 5 and section 12 of the Estate Duty Act, 1953, to the trust properties.
2. Determination of the proportion of trust properties chargeable to estate duty.
3. Effect of the deed of renunciation and modification dated November 24, 1954, on the estate duty assessment.

Detailed Analysis:

1. Applicability of section 5 and section 12 of the Estate Duty Act, 1953, to the trust properties:

The primary issue in this case was whether the entire value of the trust properties amounting to Rs. 4,50,660 was chargeable to estate duty under section 5 or section 12 of the Estate Duty Act, 1953, or only a portion thereof. The Assistant Controller initially held that the entire value was chargeable under section 12, which was upheld by the Central Board of Direct Taxes. Section 12 specifies that property passing under any settlement made by the deceased, where an interest for life is reserved to the settlor, shall be deemed to pass on the settlor's death. The court referred to the precedent set in Khatizabai Mohomed Ibrahim v. Controller of Estate Duty, which interpreted that if the settlor reserved any life interest, the whole property would be deemed to pass on their death, not just the reserved interest.

2. Determination of the proportion of trust properties chargeable to estate duty:

The court examined the facts and determined that 50% of the trust corpus was brought in by Mary, the deceased, and the remaining 50% by her sister Jarbanoo. According to the court, under section 12, 50% of the corpus attributable to Mary must be deemed to have passed on her death because she had a life interest in the income from that portion. For the remaining 50% attributable to Jarbanoo, the court observed that Mary was entitled to the entire income after Jarbanoo's death. However, due to the deed of renunciation and modification dated November 24, 1954, Mary relinquished 35% of her interest in the income, making only 65% of the income attributable to Jarbanoo's share chargeable under section 5.

3. Effect of the deed of renunciation and modification dated November 24, 1954, on the estate duty assessment:

The deed of November 24, 1954, played a crucial role in determining the chargeable estate duty. Mary and her brother Prof. Nariman renounced their respective interests, accelerating the succession to the Parsi Panchayat. Mary relinquished 35% of her interest in the trust income, directing that it be paid to the Parsi Panchayat. The court applied the principles from Attorney-General v. Beech and other cases, concluding that the 35% share passed by the deed inter vivos and not on Mary's death. Consequently, only 65% of the income from Jarbanoo's share passed on Mary's death under section 5.

Conclusion:

The court concluded that the entire value of the trust properties was not chargeable to estate duty. Instead, only 82.5% of the trust properties were chargeable. This comprised 50% of the corpus attributable to Mary under section 12 and 32.5% (65% of 50%) of the corpus attributable to Jarbanoo under section 5. The final judgment stated: "The entire value of the trust properties is not chargeable to estate duty but only 82 1/2% thereof is chargeable to estate duty."

In the special circumstances of this case, there was no order as to costs.

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