TMI Blog1993 (1) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... ciary was taken. it was the decision of the trustees and it could not constitute a gift by the deceased once again. 3. The relevant facts are that late Shri Vithal Krishna Joshi died on 23-8-1984. The accountable person Shri Phanindra V. Joshi filed an account of the estate on 1-3-1985. The Assistant Controller of Estate Duty determined the principal value of the estate at Rs. 13,62,571. In determining the principal value of the estate, inter alia, the Asstt. Controller of Estate Duty included a sum of Rs. 55,000 under section 9 of the Estate Duty Act read with section 22 thereof being disposition of property which shall not have been made 2 years or more before the death of the deceased and hence it shall be deemed to pass on the death. 4. Late Shri Vithal Krishna Joshi created a trust known as ' Nayana Trust ' by a registered instrument dated 21-4-1974 for the sole benefit of his grand daughter Miss Nayana Prabhakar Dhekephalkar whose date of birth is 25-10-1968 by depositing a sum of Rs. 55,000 with Adarsha Shikshana Mandali, Pune. As per clause 6 of the deed the trustees shall hold the trust fund in trust for the benefit of Nayana until she completes 21 years of age subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, Nayana was to be the beneficiary for interest also if she survived the deceased, his wife and was 18 years of age at that time. If Nayana died before attaining the age of 21 years, the corpus was to be paid over to the settlor failing him to his wife Smt. Snehalata and if she was not alive then to Dr. Phanindra, Nayana's uncle, though in normal course Nayana was to be paid corpus on completing 21 years. In case of emergency or in the event of her marriage before the age of 21 years, the trustees were empowered to spend the amount of corpus for that purpose. 12. In deference to the desire and request of the settlor, the trustees passed a Resolution on 13-11-1983 agreeing to extinguish the trust and to hand over the entire corpus to the sole beneficiary Miss Nayana on 1-12-1983. The main reason for accelerating the payment to Miss Nayana was the advanced age of the settlor (84 years) and his wife Smt. Snehalata (78 years). The fixed deposit receipts were then transferred in the name of Miss Nayana who became the absolute owner thereof and was entitled to enjoy the interest also. 13. The Resolution passed on 13-11-1983 reads as under :--- " Resolution : The trustees of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Manager, Bank of India, Tilak Road Branch, Pune-411 002, and the Manager's reply to the said letter No. TLR PKK. 1565 dated 7-9-1983 agreeing to such transfer. The Trustees have noted that the interest on the Trust fund would be paid to the author of the Trust upto the end of November, 1983. The Trustees also took note of the fact that the interest on the two new Fixed deposit receipts from 1-12-1983 would be credited to NAYANA's saving bank account No. 15658 which is a joint saving bank account in the names of NAYANA and her mother SAVITA to be operated by " EITHER OR SURVIVOR ". A copy signed by all the trustees of this resolution should be sent to the Manager, Bank of India, Tilak Road Branch, Pune-411 002. " 14. The Asstt. Controller of Estate Duty inferred from the aforesaid facts and circumstances of the case that the transfer of the corpus fund by premature dissolution of the trust and handing over of the trust fund to Miss Nayana were all done at the dictates of the author of the trust, who is the Chairman of the trustees. Though the transactions were routed through the trust, nonetheless, it is a case of gift to Miss Nayana by the deceased within two years pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion. 16. The Appellate Controller of Estate Duty, relying on the relevant portion of the Resolution passed on 13-11-1983 reproduced in his order came to the conclusion that transfer of trust fund to Miss Nayana has to be viewed as gift to Nayana by the settlor because the author of the trust was not keeping good health and he has also anticipated his death 10 months prior to the date of the meeting of the trustees over whom he had complete control. Therefore, he held that the Asstt. Controller of Estate Duty was justified in including the corpus under section 9 of the Estate Duty Act read with section 22 thereof. 17. At the time of hearing, the learned counsel for the accountable person filed a paper compilation and reiterated the written submissions dated 27-1-1988 made by the accountable person before the Appellate Controller of Estate Duty which is annexed to the paper compilation filed. These contentions were also reproduced by the Appellate Controller in the impugned order. Hence they need not be stated again. He also reiterated the grounds taken by the accountable person. 18. The learned departmental representative, on the other hand, vehemently supported the reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also the Chairman and thus it was not the author of the trust alone as an individual who has extinguished the trust and made over the corpus to Nayana. According to him, the trust having been created on 21-4-1974 and extinguished on 1-12-1983 there was no gift by the deceased within the vulnerable period of 2 years prior to date of death so as to attract section 9 of the Estate Duty Act. Equally the revenue has laid great emphasis on the resolution passed by the trustees on 13-11-1983 and the minutes of meeting dated 15-11-1983 to come to the conclusion that it is at the dictates of the author of the trust the trust was wound up and the corpus was made over to the sole beneficiary so as to come to the conclusion that the gift was made by the author of the trust only and not by the trustees as contended by the accountable person so as to bring the transaction within the mischief of section 9 of the Estate Duty Act as, property deemed to pass on the death of the deceased because the relevant transaction took place within the vulnerable period of 2 years prior to the date of death of the deceased which took place on 23-8-1984. 21. In our considered opinion the revenue must succeed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the trust deed. Thus, it is a settlement made with reservation and would have attracted section 12 of the Estate Duty Act and would have been included in the estate of the deceased but for dissolution of the trust prior to his death. Since the trust was extinguished prior to the date ' of death, there is no cesser of interest in terms of section 7 as contended by the accountable person. At the same time, there is no gift mortis causa as contemplated by section 8 of the Estate Duty Act, as vehemently contended by the learned departmental representative, because such gift is always conditional in nature and takes effect on death and does not take effect if the donor survives and in that event the thing gifted shall be restored to him. However, there is immediate gift inter vivos as contemplated by section 9 of the Estate Duty Act atleast with effect from 1-12-1983 when the corpus of the trust has been handed over to Nayana for absolute enjoyment and benefit including the interest income arising therefrom, because there was a gift by delivery on 1-12-1983. In order to attract the deeming provisions of section 9 of the Estate Duty Act it should be shown that such immediate gift inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rustees are empowered to obtain the corpus fund from the Bank of India, Tilak Road Branch, Pune, in case Nayana died before completion of 21 years of age (clause 9(vi)), to hand over the corpus fund to Nayana on her completing 21 years of age and to withdraw funds from the bank of Rs. 20,000 in the event of marriage of Nayana before she completed 21 years of age (clause 9(iv)), to obtain funds from the corpus fund for meeting extraordinary expenses required for education, maintenance and upbringing, advancement or well-being of Nayana and after expiry of 5 years from the date of instrument of the trust to withdraw deposits (clause 9(vii)) and pay the amount to the author of the trust or his wife if they survived, to Mrs. Savita mother of Nayana, if she survived or his wife and to Dr. Phanindra, the son of the author of the trust in the said order of preference (clause 10). The trustees were also required to pay interest accruing from the trust fund to the author of the trust during his lifetime and his wife Smt. Snehalata during her lifetime, if she survived the author of the trust (clause 11). Certain ancillary powers were also conferred on the trustees to look after the education ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to gift inter vivos immediate on that date. This date of gift falls within the vulnerable period of 2 years earlier to the date of death of the deceased and therefore, falls within the mischief of section 9 of the Estate Duty Act. 24. It is also necessary to consider the effect of resolution passed by the trustees on 13-11-1983. Although the resolution was passed on 13-11-1983, it is specifically stated that the fixed deposits standing in the names of the trustees should be transferred from the names of the trustees to the name of the beneficiary as from 1-12-1983 and Nayana Trust should be regarded as extinguished from that date. This is the catch in the resolution passed by the trustees on which the case turns. By relying on this specific statement in the resolution passed on 13-11-1983, the contention of the accountable person is that the trust was extinguished only on 1-12-1983 after handing over the corpus to the beneficiary Nayana on 1-12-1983 and therefore, the transfer was made by all the trustees taken together and not by the author of the trust individually. It is not known as to why the resolution has come to be passed on 13-11-1983, but the interest from the corpus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the corpus was handed over to Nayana. The trust created by the author of the trust on 21-4-1974 ought to have continued till the stipulated period, i.e., upto 25-10-1989 when Nayana completed her 21st year to age for which elaborate provisions have been made in the trust deed, but the trust was extinguished 5 years 11 months and 12 days before its stipulated date. Therefore, the extinguishment of trust by the trustees taken as a whole is beyond the powers of the trustees, but is in accordance with the absolute right vested with the author of the trust to revoke the trust at any time before the stipulated date. The moment the resolution was passed by the trustees agreeing to extinguish the trust, the trust has extinguished from that date only. The fact that the date of 1-12-1983 has been stipulated in the resolution for handing over the corpus to Nayana and extinguishing the trust by fulfilling the object of the trust on that date is not legally valid, because once the trust is extinguished, the corpus of the trust reverted back to the author of the trust absolutely as contemplated by clause 22 of the trust deed. Even if the corpus has been handed over to the beneficiary on he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he accountable person claimed liability of Rs. 9,000 on account of outstanding bill for repairs of car. It would appear from the order of the Asstt. Controller that the actual repair expenses amounted to Rs. 16,720. If repairs bill is insisted upon by the accountable person the repair expenses would amount to Rs. 16,720 and if bill is not insisted upon the claim could be settled for Rs. 9,000. It is for this purpose the accountable person has chosen not to produce the bills but made the claim of outstanding liability of Rs. 9,000. The Asstt. Controller, on the other hand, was of the view that the repairs which might have included re-conditioning of the car also went to add to life to the car and increase the value of the car. In these circumstances, he preferred to adopt valuation of the car at Rs. 20,000. As a consequence of non-production of bills, the claim of outstanding liability of Rs. 9,000 made by the accountable person was rejected by the Asstt. Controller of Estate Duty. 27. On appeal, the Appellate Controller observed even according to accountable person's own admission car repair expenses amounted atleast to Rs. 9,000 and the value could not be less than Rs. 16,500. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a debt owed by the deceased. 31. The third issue relates to the disallowance of miscellaneous liability of Rs. 1,000. Before the Asstt. Controller the accountable person claimed that petty bills to the extent of Rs. 1000 in respect of newspapers, grocery, household and sundry expenses as a liability. The Asstt. Controller rejected the claim for want of bills to show that they were outstanding on the date of death of the deceased. 32. On appeal, the Appellate Controller confirmed the action of the Asstt. Controller of Estate Duty. 33. At the time of hearing, no specific argument has been advanced by the learned counsel for the accountable person in this regard nor any evidence has been produced. No any further light has been thrown as to the exact nature of the liability claimed. The burden of proving the liability lies on the accountable person and inasmuch as it has not been discharged, we have no other alternative except confirming the decision of the Appellate Controller of Estate Duty on this point. Accordingly, the decision of the Appellate Controller of Estate Duty is confirmed on this point. 34. In the result, the appeal is allowed partly - - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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