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TMI Blog1987 (2) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... e trust funds, collect and recover the interest and other income of the funds and discharge from out of the income all expenses and charges for collecting and recovering the income. The trustees were also empowered to take remuneration. The trust deed also contemplated that after the death of the settlor, the unspent accumulation of the income of the trust fund along with the corpus should be divided into 25 equal units and the same allocated in the following manner : Eleven units to the grandson, six each to the two grand-daughters and the balance of two units to an account called " the expenses account fund ". The trustees were required to hold the units of the corpus of the trust fund allocated to each of the beneficiaries upon trust for each of them. It was also provided that the trustees should hold the units of the trust allocated to the grandson, Mir Nusrath Ali Khan, to pay the net income thereof to the said Mir Nusrath Ali Khan absolutely for and during the term of his natural life and after his death the payment should be made to the child or children or remoter issues surviving him according to his personal law. Similar provision was made in respect of each of the two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aries had no vested interest in the property. The beneficiaries had absolutely no interest till the death of the Nizam, the settlor, since the settlor was empowered to effect changes in the trust and, therefore, the interest of the beneficiaries in the trust was only contingent, but not vested. Sri Ratnakar, learned counsel for the assessee, counters the contentions raised for the Revenue by submitting that the beneficiaries even during the lifetime of the settlor had a vested interest in that the corpus was acquiring interest for the benefit of the beneficiaries. The right of enjoyment of the income was postponed and after the death of the settlor, the right of the beneficiaries was enlarged, in that they became entitled to receive the income from the corpus of the trust. There was no change whatsoever in the beneficiaries either before or after the death of the settlor. Payment of income to the beneficiaries after the death of the settlor did not amount to passing of property within the meaning of section 5 of the Estate Duty Act. In the light of the contentions raised and submissions made by counsel for the Department and counsel for the assessee, we have to decide the questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llocated to the said Mir Nusrath Ali Khan (hereinafter called "Mir Nusrath Ali Khan's Fund") upon trusts hereinafter declared and contained of and concerning the same in the following clause 4 hereof AND to hold the said 6 (six) equal units of the corpus of the trust fund allocated to the said Batool Begum (hereinafter called " Batool Begum's Fund") upon the trusts hereinafter declared and contained of and concerning the same in the following clause 5 hereof AND to hold the said 6 (six) equal units of the corpus of the trust fund allocated to the said Mahboob Begum (hereinafter called " Mahboob Begum's Fund ") upon the trusts hereinafter declared and contained of and concerning the same in the following clause 6 hereof AND to hold the said 2 (two) equal units of the corpus of the trust fund allocated to the expenses account (hereinafter called " the Expenses Account Fund ") upon the trusts hereinafter declared and contained of and concerning the same in the following clause 7 thereof. Clause 4: The trustees shall hold and stand possessed of Mir Nusrath Ali Khan's Fund upon trust to pay the net income thereof to the said Mir Nusrath Ali Khan absolutely for and during the term of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solutely to the ultimate respective beneficiaries entitled thereto respectively under these presents, then the trustees shall transfer and hand over the Expenses Fund Account to the then successor-in-title of the settlor as the Nizam of Hyderabad whether then called by that title or any other title, rank or designation and if there be no such person then holding any such title, rank or designation, then the trustees shall transfer and hand over the Expenses Account Fund absolutely to the eldest male descendant in the direct male line of succession of the settlor according to the rule of primogeniture. Clause 8. On and after the death of the settlor, the trustees shall appoint a committee of the following two officers of the settlor, namely, (a) The Financial Adviser for the time being to H.E.H. the Nizam of Hyderabad and Berar, and (b) the Sadrual Moham of the Sarf-e-Khas of H.E.H. the Nizam of Hyderabad and Berar, for the purpose of managing the day to day affairs of the trust and disbursing the moneys and expenses hereby directed to be paid to or spent on the various beneficiaries under this trust, and such committee shall be called " the Committee of Management ", and subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttlor, all the securities or properties in which the trust fund may be invested (including the securities specified in the schedule hereunder written) may be allowed to remain and stand in the single name of the settlor and none of the other trustees hereof shall be held in any way liable or responsible by any person whomsoever and in any manner whatsoever for allowing the same to so remain and stand. Clause 11 : AND IT TS HEREBY FURTHER AGREED AND DECLARED that if the trustees shall so think proper they shall be at liberty to have separate trust deeds made and executed in respect of any one or more of the said twenty-five equal units of the corpus of the trust fund and/or of any fraction thereof in favour of any of the beneficiaries to whom any such unit or units and/or any fraction thereof is allocated as aforesaid and they shall be entitled to appoint not less than three and not more than five trustees of each such trust deed with liberty to trustees to appoint any one or more of themselves as trustees of any such separate trust deed or trust deeds and such trust deed or trust deeds shall contain such of the powers and provisions as are herein contained in respect of the whole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any of the securities or purchase any immovable property in their discretion. They were also entitled to sell, exchange, transfer and assign any property comprised in the trust fund. But all the securities or properties comprising the trust fund were to be allowed to remain in the single name of the settlor. Clause 11 empowers the trustees to have separate trust deeds made and executed in respect of any one or more of the said twenty-five equal units of the corpus of the trust fund. Clause 12 deals with the voting pattern. It says that in all matters wherein the trustees have a discretionary power, the decision shall be taken by a majority of the trustees for the time being and if the trustees are equally divided, the matter shall be referred to the settlor during his lifetime and after his death, to the senior most trustee in age. Clause 17 says that each of the trustees shall be entitled to charge remuneration for rendering service as a trustee and the remuneration shall not exceed Rs. 2,000 during any one year. The settlor himself was one of the trustees. From the aforesaid summary of the relevant clauses in the trust deed, it will be seen that the trustees were not empowere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit the accumulation took place obtains the actual enjoyment of the capital and accumulation even if the interest which was formerly defeasible becomes at the same time indefeasible, Learned counsel for the Department relied upon an English case, In re Hodson's Settlement, Brookes v. Attorney-General [1939] 1 All ER 196 ; [1939] 1 Ch 343 (CA), for the proposition that where beneficiaries are given absolute rights, the property passed on to them after the death of the settlor and until then their interest was only contingent. The aforesaid ruling is of no assistance to the Department. The facts are entirely different and the ratio laid down therein does not support the stand of the Department. In that case, one Mr. Hodson, by a settlement deed dated May 20, 1925, set apart a fund of 20,000 shares in the names of trustees upon trust to pay to a lady, out of the income, 1,200 pounds per annum during her life, and any residue to be accumulated during the joint lives of the lady and himself and invest and accumulate the surplus income of the fund to the same joint lives. The accumulations were to be held in trust to supplement any deficiency of the income of the said fund. After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th" in section 2(16), held (p. 152): " To ascertain whether property has passed, a comparison must be made between the persons beneficially interested the moment before the death and the persons so interested the moment after the death. " The Supreme Court referred (p. 152) to the observations of Lord Russell of Killowen in Scott and Coutts and Co. v. Inland Revenue Commissioners [1937] AC 174, 183 (HL) and also to the following passage in Green's Death Duties . " If, after such a comparison, it appears that the beneficial enjoyment of the property (or a definable part thereof) was, in substance and in events, unaffected by the death, the property (or that part thereof) did not pass on the death merely because, as a matter of terminology, one set of limitations then ceased to have effect and another became operative. It is further observed therein: ` ...... to the extent that there is no change or beneficial enjoyment de facto, property does not pass merely because the exact nature or extent of the beneficial interests after the death was not ascertainable until that event occurred; or because the beneficiary was entitled to income only before the death and to capital the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come absolute owner. But before that event, the beneficiary died and the settlement deed contemplated that the shares settled on the beneficiary were to devolve on certain persons. On the death of one of the beneficiaries before attaining the age of 25 years, in terms of the settlement deed, the property devolved on his heirs and, therefore, the Supreme Court held that there was passing of property on the death of the beneficiary to the heirs specified in the settlement deed. The question to be considered in the present case is, when did the property pass under section 5 of the Estate Duty Act ? In the case of every person dying after the commencement of the Act, except as otherwise provided expressly, there shall be levied and paid upon the principal value ascertained of all property, settled or not settled, which passes on the death of such a person, a duty called " estate duty " at the rates fixed in accordance with section 35. The expression "property" is defined in section 2(15) as inclusive of " any interest in property, movable or immovable, the proceeds of sale thereof and money or investment for the time being representing the proceeds of sale and also includes any prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pened and, in particular, the property did not pass within the meaning of section 1 of the Finance Act, 1894. In the present case, the beneficial interest in the property did not pass on the death of the settlor for the obvious reason that even assuming that there were various possibilities of defeasance, but since those possibilities of defeasance ceased with the death of the settlor-the death rendered impossible the happening of the events which would have deprived the successors of their interest-there was no passing of property within the meaning of section 5 of the Estate Duty Act. In CED v. Trustees of H. E. H. The Nizam's Family Pocket Money Trust [1973] 87 ITR 33 (AP), one of the public trusts created by the late Nizam, where certain securities were allotted for the benefit of one of his granddaughters but the beneficial interest was linked with the life of one of the wives of the settlor came up for consideration before this court. The trust deed provided that during the lifetime of Dulhan Pasha Begum, one of the wives of the settlor, the trustees were to administer the income for Amina Marzia's (grand-daughter of the settlor) benefit for certain specified purposes, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no beneficial interest for the settlor in the trust property and, therefore, there was no passing of any interest to the beneficiaries on the death of the settlor. The very same trust deed which is the subject-matter of the present reference was considered by a Division Bench of this court comprising P. Jaganmohan Reddy C. J. (as he then was) and Krishna Rao J. in CWT v. Trustees of H. E. H. Nizam's Supplemental Family Trust [1968] 68 ITR 508 (AP), wherein the question was whether section 21(4) of the Wealth-tax Act was applicable for the purpose of assessment of wealth-tax. If the beneficiaries were not specified or indeterminate, the Wealth-tax Officer may levy and recover tax from the trustees under section 21(5). That would result in the whole of the wealth being made liable for assessment. Otherwise, if section 21(2) is to be applied, each of the beneficiaries would be liable to the extent of his share in the wealth of the trust. While answering the question in favour of the assessee, the Division Bench held (p. 510) "The only point that is canvassed before us is that the shares are not determinate, inasmuch as there is a term in the trust deed by and under which the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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