1972 (8) TMI 16 - HC - Wealth-tax

First case is with reference to an assessment made under the Wealth-tax Act while the other is with reference to an assessment made under the Estate Duty Act held that property constructed out of the joint family funds which was used by the pilgrims and not by the members of the family is the trust property, It cannot be subjected to Estate Duty or wealth-tax - building Nataraja Nilayam is a trust property and that neither the deceased nor the assessee has any proprietary interest therein. Therefore, the inclusion of the half share of the value of Nataraja Nilayam in the net wealth of the assessee for the years 1961-62 and 1962-63 cannot be justified.

Issues Involved:
1. Inclusion of the value of the building "Nataraja Nilayam" in the estate of the deceased.
2. Inclusion of the value of the deceased's share in the goodwill of the managing agency firm in the estate of the deceased.
3. Inclusion of the half share of the value of the building "Nataraja Nilayam" in the net wealth of the assessee for the assessment years 1961-62 and 1962-63.

Detailed Analysis:

Issue 1: Inclusion of the value of the building "Nataraja Nilayam" in the estate of the deceased

The primary question is whether "Nataraja Nilayam" is a trust property endowed for religious and charitable purposes. The Tribunal's reasons for holding that there is no trust created in respect of the said property include:
1. The building was constructed with joint Hindu family funds and not separate funds.
2. The building was included in the joint family properties divided under the partition deed dated March 1, 1950.
3. Absence of a trust deed specific to the building.
4. The partition deed did not specifically state that the building was set apart as a trust for religious and charitable purposes.
5. Mere provision for maintenance of the building does not amount to creation of a trust.
6. The settlement deed dated October 10, 1958, allowed Rajasekaran and Devarajan to divide and enjoy the building equally.
7. Exclusive use of the building for religious and charitable purposes from 1942 to 1958 did not equate to permanent dedication.
8. Neither the stone slab nor the notice board established a valid dedication for religious and charitable purposes.

Upon reviewing the partition and settlement deeds, the court found that the Tribunal misunderstood the true nature and character of the building. The court noted that the building had been specifically set apart and used for religious and charitable objects since its construction in 1942. The court emphasized that no express words of gift are required to create a dedication; the donor's intention and the setting apart of the property for religious purposes are sufficient. The court also referenced the Supreme Court's observation in a related litigation that "Nataraja Nilayam" was considered a trust property. Thus, the court disagreed with the Tribunal and held that "Nataraja Nilayam" is a trust property, and its value should not be included in the estate of the deceased.

Issue 2: Inclusion of the value of the deceased's share in the goodwill of the managing agency firm in the estate of the deceased

The Tribunal held that the managing agency business could not have goodwill and that no share in the goodwill was paid to the accountable persons. The court disagreed, citing the Supreme Court's decision in J.K. Trust v. Commissioner of Income-tax, which affirmed that managing agency businesses do have goodwill. The court referenced another decision, T.C. No. 275 of 1967, which held that the deceased's share in the goodwill of a managing agency firm could be included in the estate as property passing on death.

The court further noted that the accountable persons' entitlement to the deceased's share in the goodwill is not negated by the fact that they did not receive any actual payment. The court cited the Supreme Court's decision in Khushal Khemgar Shah v. Khorshed Banu, which established that the goodwill of a business is a firm's property and passes to the legal representatives of a deceased partner. The court concluded that the deceased's share in the goodwill passed to the accountable persons on his death, and section 53 of the Estate Duty Act applies, making them liable for the estate duty on the goodwill.

Issue 3: Inclusion of the half share of the value of the building "Nataraja Nilayam" in the net wealth of the assessee for the assessment years 1961-62 and 1962-63

The court held that since "Nataraja Nilayam" is a trust property, neither the deceased nor the assessee has any proprietary interest in it. Therefore, the inclusion of the half share of the value of "Nataraja Nilayam" in the net wealth of the assessee for the years 1961-62 and 1962-63 is not justified. The court answered this question in the negative and in favor of the assessee.

Conclusion

The court concluded that "Nataraja Nilayam" is a trust property and its value should not be included in the estate of the deceased. The deceased's share in the goodwill of the managing agency firm passes to the accountable persons and is includible in the estate. The half share of the value of "Nataraja Nilayam" should not be included in the net wealth of the assessee for the assessment years 1961-62 and 1962-63. The court ruled in favor of the accountable persons on the first issue and in favor of the revenue on the second issue. The first question in T.C. No. 31 of 1967 was answered in favor of the assessee, and the second question was not pressed by the assessee.

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