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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 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 though the deceased was a trustee for his sons and other beneficiaries under the settlement deed, he was himself a beneficiary thereunder and, therefore, section 22 of the Act was not applicable to the case. He, therefore, included the value of the properties covered by the said settlement deed in the estate of the deceased. The accountable person preferred an appeal to the Appellate Controller against the order of the Assistant Controller, but the same was, however, rejected. There was a further appeal to the Tribunal, and the Tribunal, on a consideration of the relevant provisions of the settlement d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest 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 person dying after the commencement of the Act, a levy is to be made on the probable value of all property settled or not settled including agricultural land, which passes on the death of such person. Section 6 states that the property which the deceased was at the time of his death competent to dispose of shall be deemed to pass on the death, and section 7(1) deems any property in which the deceased or any other person had an interest ceasing on the death of the deceased to pass on the deceased's death to the extent to which a benefit accrues or arises by the cesser of such interest. Sub-section (4) of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 section 22. Section 22 has to be construed as exempting only the properties held by the deceased as a mere trustee for another person, without himself having any beneficial interest from the trust properties, as the beneficial interest held by such a trustee cannot be exempted from the charge under section 5. The fact that the aeceased has been constituted as a trustee for the benefit his sons and some other beneficiaries will not make the benefit given to him under the settlement deed in any way ineffective. During his lifetime the deceased was entitled to get the benefit referred to under the settlement de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur 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 not be done in view of the exemption under section 22. The revenue challenges the decision of the Tribunal excluding the value of the settled properties from the estate of the deceased. Thus, the controversy in the main was as to whether the value of the settled properties could be brought to charge. In that context the question referred to us has to be reframed to pinpoint the issues and the controversy between the parties. We, therefore, reframe the question as follows: "Whether, on the facts and in the circumstances of the case, the entire value of the properties settled under the deed of settlement dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 view that sub-section (3) is directed to the passing from a trustee of property held by him and which necessarily passed from him on his death because he could no longer continue to hold it as trustee and observed : " The opening words of the sub-section are property passing on the death of the deceased shall not be deemed to include .......' It is not, therefore, in its terms directed to excluding property which has already been included. It is a clarifying rather than an excepting provision and it is no objection to its interpretation that it may refer to property which in any event might be considered not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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)(b) were operative with regard to property which fall within that section even though the property might also fall within the words of section 1. Section 2(1)(b) of the English Finance Act, 1894, corresponds to section 7(4) of our Act. Viscount Simonds while meeting the contention of the revenue that the words of exclusion in section 2(1)(b) could refer not to a life interest but only to something less than a life interest stated : "It would appear to be a wholly untenable view that these words of exclusion could refer not to a life interest but only to something less than a life interest. Strange as are the concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 introducing section 22 was to prevent estate duty being charged by reference to the cesser of a fiduciary interest, consistently with the general principle that the duty is concerned with beneficial interest and not with purely legal interest. In Green's Death Duties, 6th edition, at page 248, it is pointed out that the estate duty will become payable under section 2(3) of the Finance Act of 1894, on the death of a trustee only if and so far as it would have been payable if another person had been trustee instead. This also, supports the view that section 22 refers only to the legal interest of the trustee and not the ben ..... X X X X Extracts X X X X X X X X Extracts X X X X
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