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TMI Blog1973 (2) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... his sons without power of alienation during his lifetime ; (ii) that he should receive only Rs. 125 per month from out of the income of the properties for the expenses of maintaining himself and his children ; (iii) that he should pay a sum of Rs. 20 per month to the settlor's daughter, Kamakshi Ammal, during her lifetime ; (iv) that he should spend certain specified amounts out of the income from the properties for the marriage of his daughters ; and (v) that on the death of Neelakantan, the properties were to be distributed among his legitimate sons. The settlor died in the year 1950 and his son, Neelakantan, died on November 15, 1961. The second son of Neelakantan filed an account of the estate of the deceased Neelakantan. In that account he did not include the value of the properties covered by the settlement deed dated October 6, 1941. It was contended by him that the deceased was the trustee of the properties settled on his sons and that, therefore, the value of such properties was exempt from assessment under section 22 of the Estate Duty Act, 1953 (hereinafter referred to as "the Act"). The Assistant Controller did not accept this contention on the ground that tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed happens to be a trustee for another, under section 5 read with section 7 of the Act, and that, therefore, the Tribunal in this case is not justified in excluding the settled properties under section 22 of the Act on the ground that the deceased has acted as a trustee for his sons and other beneficiaries in relation to the same. The learned counsel refers to the various provisions of the Act to show that the intention of the legislature is to charge an interest ceasing on the death of the deceased, that under the settlement deed the deceased was entitled to receive a sum of Rs. 125 per month and that interest ceasing on his death went to augment the interest of his sons and other beneficiaries, and, therefore, such interest could be brought to charge under section 5. Section 2(15) defines "property" as including any interest in property, movable or immovable, and section 2(19) defines "settled property as meaning property which stands limited to, or in trust for, any persons, natural or juridical, by way of succession, whether the settlement took effect before or after the commencement of the Act. Section 5, which is the charging section, provides that in the case of every pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of section 5 can be invoked to bring to charge a property or interest passing on the death of the deceased. Therefore, it is only that property or interest which passed on the death of the deceased which could be the subject-matter of a charge under that section. In this case, it cannot be said that the entire settled properties passed on the death of the deceased to his sons, for there has been a vested interest in favour of the sons even on the date of the settlement deed and the only interest that can be said to pass by virtue of section 7(1) is the beneficial interest which the deceased was entitled to under the terms of the settlement deed which had ceased on his death. We are inclined to agree with the learned counsel for the revenue that the beneficial interest which the deceased was entitled to during his lifetime under the terms of the settlement deed will be "property" as defined in the Act, and that beneficial interest having ceased on the death of the deceased and a benefit having accrued or arisen by cesser of such interest, such interest could be brought to charge under section 5 read with section 7(1), and it cannot be said to have been exempted under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not apply to the facts of the case, still the charge under section 5 can relate only to the property or interest that passes on the death of the deceased and it cannot relate to properties or interest that did not pass on the death of the deceased. The only property that passes on the death of the deceased is the beneficial interest which he was entitled to under the settlement deed. Mr. Jayaraman submits that the question referred to us is only as regards the availability of the exemption under section 22 and once it is held that section 22 does not apply, this court has to answer the reference in favour of the revenue. It is said that the accountable person, only claimed exemption under section 22 and did not at any earlier stage contend that the settled properties could not be brought to charge under section 5, and therefore, this court cannot further go into the question as to whether the entire value of the settled properties could be charged under section 5 or not. We are not impressed by this submission. The question before the Tribunal was whether the value of the settled properties could be included in the estate of the deceased, and the Tribunal said that it could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e change which took place on the settlor's death was not merely a change of source of title, but also a change of possession or enjoyment and, being a change from the possibility of interest under a discretionary trust to an entitlement to a definite portion of income, constituted a passing within section 1 of the Finance Act of 1894 ; and (2) the replacement of one set of trusts by another set of trusts and the determination of one set of interests and the commencement of another set of interests constituted a passing within section 2(1)(b) of the said Act, We are of the view that the decision in that case was based on the special terms of the settlement deed which treated the interest of the two grand-children as of a contingent nature in the income of the fund, and the actual interest that vests in the grand-children had to be ascertained on the date of the death of the deceased. It is only that circumstance which enabled the court to conclude that the entire settled properties passed on the death of the settlor. In that case the court also considered the scope of the exemption provision in sub-section (3) of section 2 which is similar to section 22 of our Act and expressed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The decision of the House of Lords in Public Trustee v. Inland Revenue Commissioners also is relied on by the revenue. In that case section 2 of the Finance Act, 1894, as amended by the Finance Act of 1946, came up again for consideration. There a testator had given to one of the trustees of his will the income of his shares in the residuary estate "during his life so long as he shall act as executor and trustee of this my will by way of remuneration for doing so". On the death of the trustee estate duty was claimed under section 1 of the Act as property passing on death on the share of the capital corresponding to the share of income to which the trustee was entitled immediately before his death. The claim was resisted on the ground that the interest was enjoyed by the trustee only as a holder of an office and that, therefore, came within the exemption from duty under section 2(1)(b). It was held that the property in question should not be charged to estate duty, that the section imposed a charge in general terms and section 2 by exclusion and inclusion defined the precise area of the charge, that the two sections are not mutually exclusive and the excepting words of section 2(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Inland Revenue Commissioners approving the decision referred to above. On analysing the decisions referred to above, it is seen that they do not help the revenue to sustain the levy on the value of the entirety of the settled properties which had vested in trust on the deceased under the settlement deed in question though they threw light on the interpretation of section 22. They clearly support the view we have expressed above that the beneficial interest of the deceased in the settled properties which has ceased on his death alone is chargeable. It cannot be disputed that there is a cesser of the beneficial interest on the death of the deceased and the benefit of that cesser of interest goes to the sons of the deceased. The benefit arising out of the cesser of interest is specially brought within the Act though in the ordinary sense that kind of property cannot be said to pass on death. The learned counsel for the assessee, as already said, does not dispute the position that the beneficial interest of the deceased which ceases on his death is the property passing on his death and it can be brought to charge under section 5. He points out that the legislature's intention in in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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