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TMI Blog1972 (12) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... of certain charitable and religious objects mentioned in Schedule A to the wakfnama, thirdly, for setting aside 25 per cent. of the surplus as a reserve fund, and fourthly, for the maintenance and support of the " family, children and descendants of the wakif ". The wakfnama also provided that the ultimate benefit shall go to the poor. By clause 19 of the wakfnama, the wakif reserved for himself the right of control and supervision over the mutawallis with a power to alter, cancel or modify any of the proposals or resolutions of the mutawallis. In the return submitted in the estate duty proceedings, the accountable person did not include the value of these trust properties in the estate of the deceased. The Deputy Controller of Estate Duty was of the view that, in view of clause 19 of the wakfnama, section 12 of the Estate Duty Act was applicable and the entire properties comprised in the wakf were liable to be included in determining the principal value of the estate of the deceased. He was also of the view that there are reasonable grounds for drawing an inference that as a matter of fact the deceased had derived benefit from the trust properties even subsequent to the creati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such settlement made in favour of the spouse, son, daughter, brother or sister, shall not be deemed to pass on the settlor's death by reason only of the residence therein of the settlor except where a right of residence is reserved or secured directly or indirectly to the settlor under the settlement or under any collateral disposition. Explanation.-A settlor reserving an interest in the settled property for the maintenance of himself and any of his relatives (as defined in section 27) shall be deemed to reserve an interest for himself within the meaning of this section. " Section 2(19) defines " settled property " as meaning " property which stands limited to, or in trust for, any person, natural or juridical, by way of succession whether the settlement took effect before or after the commencement of this Act " ; and " settlement " means " any disposition including a dedication or endowment whereby property is settled." There is no dispute in this case that the wakfnama in question is a " settlement " and the dedicated properties are " settled properties " within the meaning of this definition. The learned counsel for the revenue raised three contentions. Firstly, that clause 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he mutawallis. There is no specific power reserved under this document for alteration of the beneficiaries or the objects for which the income is to be spent or for changing personnel of the mutawallis. In the absence of such a reservation, it is settled law that the settlor cannot alter the terms of the wakfnama nor can he make a change in the personnel of the mutawallis. On a plain reading of the provisions of the wakfnama, we have no doubt that the wakfnama has not reserved any interest in the settled properties to the settlor. It only now remains to notice the two decisions relied on by the learned counsel for the revenue in support of this part of the argument, namely, in Hameed Hussain v. Controller of Estate Duty and Ravindra Gunvantlal v. Controller of Estate Duty. In Hamid Hussain v. Controller of Estate Duty, the clause in the wakfnama in question reserved to the wakif during his lifetime a right of making amendments, alterations, cancellations and additions of conditions in the wakfnama as warranted by the prevailing conditions and in particular the power to make amendments in the rights of the grantees, to include some stranger among them and to exclude anybody and to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elp the revenue. In support of the second contention that to the extent the wakfnama provided for the maintenance of the settor's family, children and descendants, the settlor is relieved of the legal obligation to maintain and that would amount to a reservation of an interest for life to the settlor within the meaning of section 12(1) of the Act, the learned counsel relied on the decisions in Kikabhai Samsuddin v. Controller of Estate Duty and In re Cochrane. In the first of these cases, the settlor had executed five gift deeds settling different immovable properties mentioned in the relevant deed to each one of his five sons with certain conditions. There was no reservation of any right for life in favour of the settlor. The Central Board of Revenue held that the deceased had continued to derive the benefits directly attributable to the five gift deeds by reason of the fact that he was relieved of his liability to bear the maintenance and other expenses because of the conditions laid down in the gift deeds and, therefore it would come under section 10 of the Act. The Board also held that in the circumstances the provisions of section 12 were also attracted. At the instance of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se being not for the life of the settlor or is not for any other period determinable by the death of the settlor and therefore, section 12(1) is not attracted, the Act itself does not contemplate any enquiry into the complex personal law of the parties and the determination of the rights and obligations of the settlor in the matter of maintenance of his wife and children. In In re Cochrane the marriage settlement in question provided that the trustees of the fund settled by the husband should hold the fund in trust to pay the income to the wife for life and after her death to the husband for life and after the death of the survivor in trust for children. It was also provided that the income so payable to the wife during her life " shall be expended by her in current household expenses and management ". It was held that the effect of the income provision was to make the wife a trustee of each sum that was paid to her by trustees and when she received it the provision imposed a trust upon her to expend the whole of such sum in current household expenses and management. This, in the view of the learned judges, had given a right to the husband to require that the wife should apply the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the revenue that since the wakfnama is a settlement and provides for maintenance of the settlor's family and children it comes within the Explanation to section 12(1) of the Act. He submitted that the words " for the maintenance of himself and any of his relatives " should be read disjunctively as if for the word " and " the word " or " is used. According to the learned counsel, normally, property escapes from the levy of estate duty through relations only. Having regard to the natural human conduct one need not expect such escapement through third parties unrelated to the deceased. It is to prevent such escapement and plug the hole, the deeming provision in the Explanation is made. If the Explanation were to be read otherwise it would cut down the operation of the main provision by introducing a further condition of a provision for maintenance of the relations also in the document. The expression " shall be deemed " in the Explanation shows that Parliament intended to include something more than what will normally come within the scope of the main provision and not to cut down its scope. Per contra, the learned counsel for the accountable person contended that the Explanation i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ohomed Ibrahim v. Controller of Estate Duty, the Bombay High Court held that in the case of settlement of property in which the settlor has reserved to himself for life any interest, however small it may be, by virtue of section 12, the whole of such property of the settlor, which was the subject-matter of the settlement and not merely the interest so reserved, shall be deemed to pass. The words " an interest " in the context of section 12 mean " any interest however small ". It may be an aliquot share in the income of the property settled. This view of the Bombay High Court was quoted with approval by the Gujarat High Court in Ravindra Gunvatlal v. Controller of Estate Duty. After quoting from Attorney-General v. Earl Grey, where Justice Channel said with reference to the corresponding provision in section 38(2)(c) of the Customs and Inland Revenue Act, 1881, that " any interest however small will do, provided it issues out of such property, that is, out of the properties sought to be taxed ", the Gujarat High Court observed : " There are no words which define or delimit the quality or quantity of 'interest' which must be reserved to the settlor. If some 'interest' is reserved to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or. But, we do not find any reason why Parliament should have excluded bona fide settlements made two years prior to the death of the settlor under section 9 and include them through the Explanation in section 12(1). The second proviso to section 12(1) also, in our opinion, goes against the construction of the word " and " as " or " in the Explanation. Under the second proviso, where the settlement related to a house or part thereof and was made in favour of the spouse, son, daughter, brother or sister, it shall not be deemed to pass on the settlor's death by reason only of the residence therein of the settlor except where a right of residence is reserved or secured directly or indirectly to the settlor under the settlement or under any collateral disposition. The relatives mentioned in this proviso come within the definition of relatives in section 27(7) of the Act. If, really, reserving an interest in the settled property for maintenance of the settlor's relatives itself is enough to bring the property comprised thereon within the scope of section 12(1), the requirement in the second proviso as to the right of residence being reserved or secured directly or indirectly to the set ..... X X X X Extracts X X X X X X X X Extracts X X X X
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