1975 (1) TMI 4 - HC - Income Tax

Issues Involved:
1. Whether the properties settled on trust by the deceased could be deemed to have passed on her death.
2. Application of Section 22 of the Estate Duty Act, 1953.
3. Interpretation of the trust deed and its implications on estate duty.
4. Effect of reservation of maintenance on properties settled under the trust deed.

Detailed Analysis:

1. Whether the properties settled on trust by the deceased could be deemed to have passed on her death:
The primary issue was whether the properties settled on trust by Miss Oliphant in 1956 could be deemed to have passed on her death in 1962. The accountable person argued that since the trust was created and possession delivered in 1956, the properties did not pass on her death and were not dutiable. However, the Assistant Controller of Estate Duty (Asst. CED), the Zonal Appellate Controller, and the Income-tax Appellate Tribunal all concluded that the properties did pass on her death due to the benefits reserved by Miss Oliphant in the trust deed.

2. Application of Section 22 of the Estate Duty Act, 1953:
Section 22 of the Estate Duty Act provides that property held by the deceased as a trustee shall not be deemed to pass on their death if possession and enjoyment of the property was bona fide assumed by the beneficiary at least two years before the death and retained to the entire exclusion of the deceased. The court found that Miss Oliphant retained benefits under the trust deed, including a monthly payment of Rs. 1,000 and the right to reside in a cottage, which meant that the possession and enjoyment of the property were not entirely excluded from her.

3. Interpretation of the trust deed and its implications on estate duty:
The court analyzed Clauses 2 and 3 of the trust deed, which allowed Miss Oliphant to manage the school and receive a monthly payment of Rs. 1,000, and to reside in a cottage for her lifetime. The court concluded that these clauses indicated that she retained benefits and interests in the trust properties, making them dutiable under the Act. The court emphasized that the right to receive Rs. 1,000 per month and the right to reside in the cottage were reserved in her favor, thereby not excluding her from possession and enjoyment of the property.

4. Effect of reservation of maintenance on properties settled under the trust deed:
The court examined whether the reservation of maintenance (Rs. 1,000 per month) impacted the dutiability of the properties. It was argued that the maintenance was to be paid from the "funds of the school" and not specifically from the income of the trust properties. However, the court found that "funds of the school" essentially meant the income from the trust properties, thus creating a charge on the properties for the payment of maintenance. Consequently, all the properties settled under the trust were subject to estate duty as they were liable to provide for Miss Oliphant's maintenance.

Conclusion:
The court held that the properties settled on trust by Miss Oliphant were deemed to have passed on her death due to the benefits she reserved for herself in the trust deed. The court emphasized that the possession and enjoyment of the properties were not entirely excluded from her, making them dutiable under the Estate Duty Act. The court also clarified that the reservation of maintenance from the "funds of the school" constituted a charge on the trust properties, further supporting the dutiability of the properties. The question referred to the High Court was answered in favor of the revenue, and the accountable person was ordered to pay costs of Rs. 300.

← Previous Next →