1968 (10) TMI 39 - HC - Income Tax

Estate Duty Act, 1953 - applicability of section 5 of the Estate Duty Act, 1933 - exigibility of estate duty on trust property

Issues Involved:
1. Applicability of Section 5 of the Estate Duty Act, 1933.
2. Inclusion of the whole or part of the trust estate in the assessment.
3. Whether the entire value of the trust estate should be included in the principal value of the estate or only a portion thereof.
4. The accountable persons in respect of the trust property and the validity of the notice of enhancement.

Detailed Analysis:

1. Applicability of Section 5 of the Estate Duty Act, 1933:
The primary issue was whether the whole of the trust estate passed on the death of the deceased within the meaning of Section 5 of the Estate Duty Act, 1933. The court examined the meaning and connotation of the expression "passes on the death" in Section 5. It was noted that the expression is used to denote an actual change in the title or possession of the property as a whole which takes place at the death. The court referred to previous judgments, including Mahendra Rambhai Patel v. Controller of Estate Duty and Attorney General v. Milne, to emphasize that the passing of property involves a change in beneficial possession or enjoyment of the property. The court concluded that only one-third of the trust estate, which was previously enjoyed by the deceased, passed on her death.

2. Inclusion of the Whole or Part of the Trust Estate in the Assessment:
The Assistant Controller initially included one-third of the trust property in the principal value of the estate of the deceased. However, the Appellate Controller later issued a notice of enhancement to include the entire value of the trust estate. The Tribunal modified this assessment, concluding that only one-third of the trust estate passed on the death of the deceased. The revenue's contention that the whole trust estate passed on the death of the deceased was rejected. The court held that only one-third of the trust estate passed and was includible in the assessment.

3. Whether the Entire Value of the Trust Estate Should be Included in the Principal Value of the Estate or Only a Portion Thereof:
The court examined whether the entire value of the trust estate should be included in the principal value of the estate or only a portion thereof, as per Section 34(3) of the Estate Duty Act. The court found that the beneficial possession or enjoyment of the trust estate did not change for the portions enjoyed by Mohamedbhai and the wives and children of Salebhai. Therefore, only the one-third portion previously enjoyed by the deceased passed on her death and should be included in the assessment. The second question did not survive for consideration due to the answer to the first question.

4. Accountable Persons in Respect of the Trust Property and Validity of the Notice of Enhancement:
The third question, whether the trustees of the deed of trust were the accountable persons under Section 53(1)(b) of the Estate Duty Act and whether the notice of enhancement given to Mohamedbhai Essofali Badri was valid, was not pressed by the accountable person's representative and thus was not addressed by the court.

Conclusion:
The court concluded that only one-third of the trust estate, which was previously enjoyed by the deceased, passed on her death under Section 5 of the Estate Duty Act, 1933. Consequently, only that portion was includible in the assessment for estate duty. The Controller was directed to pay the costs of the reference to the accountable person.

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