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TMI Blog1983 (12) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... Under the trust, the settlor set apart Government of India Loan Securities of the face value of Rs. 22.20 lakhs yielding an annual income of Rs. 66,600. The settlor appointed himself as one of the trustees and clause 3(c) provided in clear terms the purpose and object of the trust : "During the lifetime of the settlor to defray the expenses of Haj of the settlor and of such of the members of his family as he may take with him and of their visit and pilgrimage to various Mahomedan shrines and holy places in Hedjaz and Iraq and for making religious offerings and expending monies for charitable purposes at such places and for such other religious or charitable purposes as the settlor in his absolute discretion may, from time to time, think fit and require out of the income as well as the corpus of the trust fund in such manner and to such extent as the settlor may from time to time direct and for all or any of such purposes as aforesaid to pay such monies out of the income of the corpus of the trust fund as the settlor may from time to time require." The other clauses are not relevant for the purpose of the case. The Assistant Controller of Estate Duty was of the view that ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficult to agree that a gift made to a non-relative is not covered by section 10. This is our tentative view. " Hence, this reference. The question to be determined in short is: Whether s. 12 and/or s. 10 is applicable in the circumstances of the case. The three-fold contention raised by the learned counsel for the accountable person is: (i) the expression " settlement " occurring in s. 12 of the Act refers, by necessary implication, to a disposition inter vivos and not to a disposition by way of trust; (ii) there is no reservation of interest by the deceased-settlor and, even assuming there is one, it is not for life and so the section is not attracted; and (iii) since the settlor has not exercised his right said to be reserved, it must be held that the said right has been surrendered by implication and, therefore, the trust property is not exigible to duty. The relevant statutory provisions may first be noticed before seeking to adjudicate the contentions raised. Section 2(15) of the E.D. Act, 1953, defines " property " as under: " 2. (15) 'property' includes any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eserved benefit or otherwise, it is subsequently enjoyed to the entire exclusion of the donor or of any benefit to him for at least two years before the death : Provided further that a house or part thereof taken under any gift made to the spouse, son, daughter, brother or sister, shall not be deemed to pass on the donor's death by reason only of the residence therein of the donor except where a right of residence therein is reserved or secured directly or indirectly to the donor under the relevant disposition or under any collateral disposition. " Section 12 of the Act runs as under: " 12. Settlements with reservation.-(1) Property passing under any settlement made by the deceased by deed or any other instrument not taking effect as a will whereby an interest in such property for life or any other period determinable by reference to death is reserved either expressly or by implication to the settlor or whereby the settlor may have reserved to himself the right, by the exercise of any power, to restore to himself or to reclaim the absolute interest in such property shall be deemed to pass on the settlor's death: Provided that the property shall not be deemed to pass on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent; then under s. 9, the property taken under a disposition made by the deceased whether by way of transfer, delivery, declaration of trust, settlement upon persons in succession, or otherwise, shall be deemed to pass on the death ; but under s. 12, property passing under any settlement made by the deceased shall be deemed to pass on the settlor's death. Therefore, wherever the Legislature intended that the settlement should include not only disposition but also trust, covenant and so on, it made it explicit. Inasmuch as s. 12 did not make any express provision stating that the settlement referred to therein will also take in a trust, it must, therefore, be attributed to the Legislature that the word " settlement " used therein must be referable to dedication, as it did not include " trust " by virtue of the definition given under s. 2(19). Secondly, it was urged, with equal vehemence, that most of the provisions and in particular the provisions enacted in s. 12 are in pari materia with the provisions enacted in the Customs and Inland Revenue Act of 1881 passed by the Parliament of the United Kingdom. In particular s. 38(2)(c) of the Customs and Inland Revenue Act, 1881, as ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly include the wide gamut of arrangements whether by way of any dedication, trust, agreement, transfer and so forth. This, in our judgment, will be the proper reading of the word " settlement " as used in s. 12 of the Act. Courts of judicature while faced with fiscal enactments, will have to no doubt bear in mind the oft-quoted observations of Rowlatt J. (see [1921] 1 KB 64, 71): " In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. We apprehend, the terms used by Parliament in this Act, in particular the terms "settlement" and "disposition", if used independently without any further elucidation, shall include in case of settlement-" any disposition, trust, covenant, agreement, arrangement or otherwise " ; and in case of " disposition "- " any settlement, trust, covenant, agreement, arrangement or otherwise unless the disposition or the settlement wherever employed are further amplified, in which case they should be restricted to that amplification only. Read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from assets remaining the property of the settlor or disponer, shall be deemed to be income of the settlor or disponer, and all income arising to any person by virtue of a revocable transfer of assets shall be deemed to be income of the transferor: Provided that for the purposes of this clause a settlement, disposition or transfer shall be deemed to be revocable if it contains any provision for the retransfer directly or indirectly of the income or assets to the settlor, disponer or transferor, or in any way gives the settlor, disponer or transferor a right to reassume power directly or indirectly over the income or assets: Provided further that the expression ' settlement or disposition ' shall for the purpose of this clause include any disposition, trust, covenant, agreement or arrangement, and the expression ' settlor or disponer ' in relation to a settlement or disposition shall include any person by whom the settlement or disposition was made: Provided further that this clause shall not apply to any income arising to any person by virtue of a settlement or disposition which is not revocable for a period exceeding six years or during the lifetime of the person and from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e former Act. Had the E.D. Act been later in point of time to the I.T. Act of 1961, even then what would have been the position is rather difficult to conceive of as the deductive process will again depend upon the text and context. Hence, the argument advanced on this aspect also will not be of any avail to the accountable person, nor the decision of this court in CIT v. H. E. H. Nawab Sir Mir Osman Ali Bahadur [1985] 153 ITR 514, on which reliance has been placed. Hence, there is no substance in the contention of Sri Anjaneyulu, the learned counsel for the accountable person, that the word " settlement " used in s. 12 does not take in a " trust " and, therefore, the provisions enacted in s. 12 cannot be made applicable to the trust created by the settlor. Before analysing the second limb of the argument, viz., that the word trust " as occurring in the British Act, from which s. 12 of the Act has been literally borrowed, is absent in s. 12, goes to show that all trusts should be excluded from the ambit of s. 12, the contents of the two provisions may be compared: " According to section 38(2)(c) of the According to section 12 of the the Customs and Inland Revenue Act, 1881, E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition of overlapping, might not obtain in the English Act. Therefore, it may not be fair to conclude in the absence of the contents as occurring in clause (b) of the English Act in the Indian Act, that the Parliament intended to omit " trusts " from the purview of s. 12. Perhaps, the parliamentary debates on this aspect of the provision would have thrown some light as to whether the word It settlement " as used in s. 12 of the Act, has to be given a wider and liberal meaning so as to include any disposition including " trust ". It would, therefore, be presumptuous on our part, in the absence of essential material, to hold that Parliament intended to exclude " trusts " from s. 12. Therefore, it will not be possible for us to accede to the submissions made by the learned counsel for the accountable person. We, in fact, reiterate our analytical deduction made in regard to the first limb of the argument that the words-" settlement, disposition, trust, dedication and so on "variously used in the Act in different places have the sting of overlapping, each trying to elbow out the other, in particular, the words " settlement " and " disposition". The second contention, which is more vit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her period " meaning thereby that the reservation is with reference to an interest in such property and not necessarily reservation qua the property as such. In fact, in this case, we need not encounter any difficulty in that behalf for the simple reason that the settlor has sold away 30,000 gold sovereigns and the proceeds thereof were invested in 3% Government of India Conversion Loan, 1946, with the total face value of Rs. 22,20,000, yielding an annual income of Rs. 66,000, and created a trust in respect of these Government securities by delivering the same to the trustees. In fact, as per clause (1) of the said trust deed, the settlor transferred and assigned to the trustees the said securities which were, for the sake of brevity, referred to as " trust fund ". Clause 3(c) of the trust deed, which is relevant, may now be read: " 3. The trustees shall hold and stand possessed of the trust fund upon trust : . ....... (c) During the lifetime of the settlor to defray the expenses of Haj of the settlor and of such of the members of his family as he may take with him and of their visit and pilgrimage to various Mahomedan shrines and holy places in Hedjaz and Iraq and for making r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tirety, as after his death, it will revert to the vested remainder holder. So, the alience will hold it only for the lifetime of the settlor. After his death, it will devolve again on the vested remainder holder. So, the life interest holder can alienate interest, which he can otherwise enjoy during his lifetime. Now, in this case, such ingredients do not obtain. Under the trust, the settlor created a right under which he can require the trustees to defray the expenses to be incurred by him in regard to the purposes laid down therein not only out of the income, but also out of the corpus and that too in its entirety, without any limitations whatsoever. Hence, on this single ground alone, we are not persuaded to accede to the submission of the learned counsel for the accountable person that life interest could be equated with interest for life. They are two distinct connotations. One more aspect of the argument advanced in this behalf was that in case of reservation of an interest for life there should be regular payment of money in favour of the beneficiary throughout the year, otherwise it cannot be considered as reservation of interest for life. We see no warrant textually or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t create any interest therein. The position is the same in respect of the deed in favour of the daughter. So far as the wife is concerned, there is not even a provision for maintenance.... For section 12 to apply, there should be a reservation of an interest in the property settled. The reservation may be express or implied, but it should be of an interest in the property which is the subject-matter of the settlement. That is clearly not the case here in any of the deeds. " In CED v. Kanakasabai [1973] 89 ITR 251, the Supreme Court held (headnote): "Section 12 was wholly inapplicable to the facts of the case ; no interest in the properties settled was reserved to the deceased during his lifetime or for any period after the properties were settled, nor was there any provision in the deeds enabling the deceased to reclaim the property or its possession under any circumstance; (ii) that since the words contained in the deed in favour of the wife merely expressed a hope or expectation and no enforceable right was created thereby, no part of the property settled on her could be included in computing the value of the property passing on the death of the deceased; (iii) that in or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds: 12. (1)... Provided that the property shall not be deemed to pass on the settlor's death by reason only that any such interest or right was so reserved if by means of the surrender of such interest or right the property is subsequently enjoyed to the entire exclusion of the settlor and of any benefit to him by contract or otherwise, for at least two years before his death:" We apprehend, the contention is misplaced. Merely because the settlor has not, in point of fact, exercised any right so reserved, does not militate against the attraction of the proviso aforesaid. The proviso positively contemplates that the reservation so made must by certain means be surrendered two years before his death. Admittedly, there is no such surrender by any instrument, much less two years before the settlor's death. The learned counsel argued that there is implied surrender. Implied surrender, we apprehend, cannot claim any place inasmuch as till the date of his death, the settlor could have exercised his right. There was nothing to forbid him from doing so. For implication, therefore, there is no room or scope whatsoever. Hence, we are unable to agree with the contention which is devoid o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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