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TMI Blog1968 (10) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... or any of the surviving trustees: The net income of the said trust estate, after paying the interest on debt due by me, shall be divided at the end of every year into three (equal) shares and the said three shares shall be distributed in such manner as to give one share to my eldest son, Mohamedbhai Essoof ali, the second share to my wife Safiabai and the third share should be given for the maintenance of my younger son, Salehbhai, his wives and children and the said share shall be kept by my eldest son, Mohmedbbai, with himself and spent (by him) for the maintenance of the wives and children of Salehbhai but the said arrangement shall be subject to clauses 9 and 10 hereof.... (10) My eldest son, Mohamedbhai, has at present got four sons and one daughter, in all five children alive. Adamji is the youngest son of my eldest son Mohamedbhai. When Adamji completes the age of eighteen years and attains majority and if Safiabai had died before that time then, or, if the said Adamji attaine majority uring the lifetime of Safiabai then when Safiabai dies then the trustees shall divide the trust properties in such a manner that one-half share shall be taken by my eldest son, Mobamedbai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly issued a notice of enhancement to the accountable person calling upon him to show cause why the assessment should not be enhanced by including the entire value of the trust estate instead of merely one-third part of it. The accountable person raised a preliminary contention that the Appellate Controller had no power to enhance the assessment suo motu but this contention was rejected and the Appellate Controller taking the view that the whole of the trust estate passed on the death of the deceased, included the value of the entire trust estate in the principal value of the estate of the deceased. The accountable person thereupon carried the matter further in appeal to the Tribunal. The Tribunal took the view that the Appellate Controller was within his jurisdiction in issuing the notice for enhancement but on merits the Tribunal came to the conclusion that only one-third of the trust estate passed on the death of the deceased and not the whole of the trust estate as held by the Appellate Controller and accordingly modified the assessment. The Controller being aggrieved by the decision of the Tribunal made an application for reference of the questions of law arising out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ichever event happened later. On the arrival of the period of distribution provided in clause 10, the trustees shall divide the corpus into two equal parts: one part shall be given to Mohamedbhai and if he dies before the period of distibution then to his wife and children to be divided amongst them according to the dictates of the settlor's religion, and the other part shall be divided amongst the wives and children of Salebhai in such manner that two annas in a rupee shall be given to each of his two wives and the remaining twelve annas distributed amongst his children according to the dictates of the settlor's religion. It is clear from these two provisions, namely clauses 6 and 10, that until the period of distribution of the corpus, one-third of the income was to go to the deceased, another one-third to Mohamedbhai and the remaining one-third to the wives and children of Salebhai and at the date of distribution the corpus of the trust estate was to be divided half and half, one-half going to Mohamedbhai and in the case of his death before the date of distribution to his children and his wife, and the other one-half going to the wives and children of Salebhai. Now it was common ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing of property. This is the simplest and most indisputable case of passing of property. But the category of passing of property is not exhausted by this case. There are very many more cases in which property passes on death and estate duty accordingly becomes payable. The expression ' passes on the the death ' is not defined either in the U. K. Finance Act, 1894, or in our Act, but the classical meaning of it was given by Lord Parker of Waddingtion in Attorne General v. Milne, when he said that it is used to denote some actual change in the title or possession of the property as a whole which takes place at the death. He added that for the purpose of the secfion it is absolutely immaterial to whom or by virtue of what disposition the property passes. This statement of the meaning of the expression which has almost become sanctified into a definition has always been regarded as the starting point of the development of the law in relation to passing of property on death. A few years later, Viscount Haldane L.C. said in Nevill v. Inland Revenue Commissioners , ' passes ' may be taken as meaning ' changes hands '. This observation emphasizes by a very apt and precise use of language ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson remains in beneficial possession or enjoyment of the property both before and after death, without interruption, there is no passing of property even if there is change of source or title." This is the test we must apply for the purpose of determining whether the whole trust estate passed on the death of the deceased. We must make a comparison between the persons beneficially interested in the trust estate the moment before the death and the persons so interested the moment after the death and see whether there is any change or shifting of beneficial possession or enjoyment of the trust estate or a definable part of it as a result of the death of the deceased. Now, obviously where interest in income enjoyed as of right during; the deceaseds life is merely enlarged on his death into a corresponding interest in capital, the beneficial possession or enjoyment remains unaffected by the death and there is no passing : In re Thomas Townsend. But where, as in the present case, a beneficiary takes a larger share of the corpus on the death, of the deceased then the share of which he previously enjoyed the income, there is a change of beneficial possession or enjoyment to the extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ously entitled to its income. So also there was no change in the beneficial on or enjoyment of the one-third of the trust estate taken by the wives and children of Salebhai on the death of the as they were beneficially entitled to its income even prior to the death of the The only change in beneficial possession or enjoyment of the trust estate took place in relation to the one-third previously enjoyed by the deceased. Prior to her death the deceased was entitled to beneficial possession or enjoyment of one-third of the trust estate but on her death, the beneficial possession or enjoyment of that part passed to Mohamedbhai and the wives and children of Salebhai in equal shares: one-sixth passed in beneficial possession or enjoyment to Mohamedbhai and one-sixth passed to the wives and children of Salebhai. It is therefore evident that only one-third of the trust estate, namely, that previously enjoyed by the deceased during her lifetime passed on her death. It was that part of the trust estate which changed hands in beneficial on or enjoyment; before the death it was enjoyed by the deceased and after the death it passed in on and enjoyment as to one-half to Mohamedbhai and as to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... death it became absolute and indefeasible, section 2(1)(d) of the English Act or section 15 of our Act, as the case may be, might be attracted as held in Adamson v. Attorney General and in In re Parkes Settlement Trust case. The reasoning in such a case would be that on the death, a new beneficial interest came into being which was distinct and differrent in kind and quality from the previo us interest. This was the reasoning on which the House of Lords in Adamson's case and the Court of Appeal in In re Parkes Settlment Trust case' held that section 2(1)(d) of the English Act was attracted. The House of Lords in Adamson's case pointed out that there was a change in the interest' of the beneficiaries: " before the death they had a contingent interest which might have been divested : after it they had a vested interest ". But such an inquiry is irrelevant in a case where estate duty is sought to be charged under section 5. In such a case it is of no consequence whether a contingent interest becomes vested or an interest previously defeasible becomes indefeasible on the death. The only question relevant under section 5 is whether property has changed hands in beneficial possession or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to consider the case of the daughters and held that each of the daughters had a contingent interest, contingent upon her surviving the settlor, and this contingent interest was converted into a vested interest on the death of the deceased. But, said the learned Law Lord, SC mere turning of a contingent interest, into a vested interest or a defeasible interest into an indefeasible interest, was not a passing of property ". The death of the deceased certainly effected a considerable change in the nature and value of the beneficiary's interest: what was contingent interest became a vested interest and what was defeasible interest became an indefeasible interest but there was no shifting of right to beneficial possession or enjoyment of the property and there was therefore no passing of property within the meaning of section 1 of the English Act. So far as the claim of the revenue under section 2(1)(d) of the English Act was concerned, the House of Lords held that the change in each beneficiary's interest from a defeasible interest in expectancy to an indefeasible interest in possession was an interest accruing or arising on the death of the deceased and death duty was therefore levi ..... 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