TMI Blog1979 (8) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... disposed and he was rendering help to the poor and indigent school children even prior to 1943. On April 1, 1943, he executed a document styled as " gift settlement deed " under which he created a trust known as " Madurai E. M. Gopalakrishna Kone Trust " and dedicated to it 36 acres and 32 cents of agricultural lands in a village in Madurai Taluk, and his entire interest in his business, printing press, publication, copyright, etc. The object of the trust was to establish and maintain an educational institution for girls. He contemplated also another institution for imparting training in handicrafts to poor boys, who were also to be given free food. The trust envisaged the granting of scholarships and free, supply of books to deserving students. He constituted himself as the sole trustee for his life and provided in the trust deed that he could take Rs. 4,000 per annum from and out of the income of the trust properties as " remuneration ". After this document, he kept separate accounts for the income and expenses of the trust., A school was established only in 1957. Till then, scholarships to the poor children were being granted. On 30th May, 1947, he purchased from the Govt. of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 or under s. 10 of the E.D. Act. According to the Asst. Controller, the provisions in the two trust deeds enabling him to fake certain sums from out of the income from the trust properties was a reservation of interest in those properties under the trust deeds. The deceased had not drawn any remuneration during all these years. The contention for the accountable person was that there was a surrender of the benefit of the remuneration. This contention was rejected. In support of the application of s. 10, the withdrawal of large sums of money from the trust at concessional rate of interest was considered to be a benefit, which had attracted the operation of that provision. The value of the trust properties was assessed at Rs. 11,05,387. The liability of Rs. 7,00,644 was not also deducted on the ground that s. 46(1) of the Act stood in the way of its deduction. The accountable person appealed to the Appellate Controller, who held that the right of remuneration reserved to the deceased under the trust deeds did not amount to a reservation of interest in the properties held under the trust and that, therefore, s. 12 was not applicable. He further held that the value of the trust pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent case, it is unnecessary to refer to the second proviso. As pointed out by the Supreme Court in George Da Costa v. CED [1967] 63 ITR 497, the crux of s. 10 lies in the following: (i) the donee must bona fide have assumed possession and enjoyment of the property which is the subject-matter of the gift to the exclusion of the donor, immediately upon the gift, and (ii) the donee must have retained such possession and enjoyment of the property to the entire exclusion of the donor or of any benefit to him by contract or otherwise. If the possession of the gifted property continued with the donor, then without any further investigation of what happened subsequent to the gift, the provision would have to be applied. Where possession and enjoyment were taken over by the donee immediately after the gift, then we have to see if one of the following conditions are satisfied, viz., (1) has the donee retained such possession and enjoyment of the property to the entire exclusion of the donor; or (2) has the donee retained such possession and enjoyment of the property to the entire exclusion of any benefit to the donor by contract or otherwise ? In the present case having regard to the ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been retained to the entire exclusion of the donor or whether there was any benefit to him by contract or otherwise. It is in this context that we have to clear certain misconceptions in the order of the Tribunal. This very document came up for consideration by this court in CIT v. E. M. Gopalakrishna Kone [1965] 57 ITR 569. The question that arose at that time was whether the inference of the Tribunal that the trust was genuine and not revocable within the meaning of s. 16(1)(c) was legal ? Originally, the trust deed, after some contest, was accepted as creating genuine trust. Subsequently, in 1958, the ITO thought that he had reason to suspect the reality of the trust and accordingly be issued a notice under s. 34 of the Indian I.T. Act, 1922, for the purpose of reopening the assessment for the year 1949-50. He reassessed the income in the hands of Gopalakrishna Kone. This change in the stand of the department arose by reason of Gopalakrishna Kone executing another settlement deed on 7th March, 1956, making over fresh properties to the trust already founded. It is not necessary for us to discuss more about the applicability of s. 16(1)(c), as the point is not of real relevance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be drawn by him. As far as this sum of Rs. 5,000 is concerned, it has to be pointed out that in cl. 19 of the deed dated March 7,1956, it is stated: "Out of the income from the properties given away by me, I have the right to take up to the extent of Rs. 5,000 per year for my personal expenditure. " This sum of Rs. 5,000 was only the ceiling for his withdrawals for personal purposes. The Tribunal was clearly wrong in proceeding as if he was entitled to Rs. 9,000 as remuneration. However, as the accountable person has not taken this point by raising a proper question in reference, we need not deal more about it. The loan was found to be an objectionable transaction. The Tribunal has taken the view that such a loan made by the trust to the trustee would be illegal and that such a loan could not bring the case within the second part of s. 10. The Tribunal's conclusion on this part of the case can be set out in its own words as found in para.11 of its order: "The question for consideration is whether by reason of so borrowing moneys belonging to the trust, it could be said that there was no entire exclusion of the deceased. The possession and enjoyment contemplated by the fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was one of fact, i.e., was the donor excluded and that, if he was not excluded, it was not relevant to ask why he was not excluded. Therefore, whatever be the reason for his non-exclusion, so long as he was not excluded from possession an enjoyment of the trust properties, the properties are deemed to pass on his death. Before the Tribunal the decision in George Da Costa v. CED [1967] 63 ITR 497 (SC) was cited, but it was distinguished on the ground that the distinction between the lawful nature of the occupation and the unlawful nature of the subsequent transaction did not arise for consideration in that case. We have already pointed out that the unlawful nature of the transaction has nothing to do with the determination of the question as to whether the deceased was excluded from possession and enjoyment of the property. As pointed out at page 503 of George Da Costa v. CED [1967] 63 ITR 497 (SC): " It appears from all these cases that the first limb of the section may be infringed if the donor occupies or enjoys the property or its income, even though he has no right to do so which he could legally enforce against the donee. " This passage, in our opinion, is also a comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey neither permitted him to derive nor had any power to deny him. But in their Lordships' judgment the question is not whether the donees permitted the donor to take benefits. It is whether the donor took benefit out of that which was given. If a benefit arises by way of reservation out of interests which were given then no doubt the donees' interests are inherently insusceptible of being so possessed and enjoyed as to preclude the donor from taking that benefit, but the section applies because there is not entire exclusion of the donor or of benefit to him from the interests comprised in the gift. The contrast is between reserving a beneficial interest and only giving such interests as remain on the one hand, and on the other hand reserving power to take benefit out of, or at the expense of, interests which are given, and for reasons already stated, their Lordships are of opinion that the present case is within the latter class. " There was also another contention that two other powers had been reserved by the deceased, viz., power to appropriate and partition the trust property, and power to purchase it. It was held that it may be that the deceased could legitimately have used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income to himself without security and without interest undoubtedly leads one to the conclusion that he does derive at least an indirect benefit. It would be an absurd construction to put upon this clause to wait till the benefit is actually derived before the court would say that the trust so made is not irrevocable for a period of six years. According to Sir Jamshedji, so long as the settlor does not lend to himself, he does not derive any benefit, but as soon as he does so, then the court must hold that the third proviso does not apply and, therefore, the income is liable to tax. But the proper construction of the trust deed cannot depend upon what the settlor actually does or what he refrains from doing. It can only depend upon the court coming to the conclusion that as the trust deed stands he is entitled to certain benefits whether they are direct or indirect in nature and there can be no doubt looking at this clause that the settlor is entitled to a benefit under the provisions of the trust deed and that thereby he does derive an indirect benefit in the income of the trust. " (Underlined by us) This passage, in our opinion, is apposite to rebut the contention of the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the provision came up for consideration by this court in V. S. Mani v. CED [1966] 60 ITR 810. In that case, it was pointed out at p. 811 as follows: "The words 'to the extent' employed in section 10 are not to be found either in the English or Australian Acts relating to estate duty. Though the phraseology of section 10 in the Indian Act would appear to have been substantially borrowed from the English Act, we fail to understand why the Indian legislature introduced those words in the section unless its intention was to bring to tax only that value of property gifted which is still retained by the donor. The section, in case of partial gift, so to state, in the context of section 10, charges only the part covered by the non-exclusion and non-retention clauses in the section. To the extent to which the donor retains an interest in the entirety of the property given away by him as gift, there will be pro tanto liability to estate duty. It is strenuously urged for the revenue that if that was the meaning, the words 'entire exclusion' will have no sense or content. We are of the view that the word 'entirety ' in the context refers only to the fractional part the possession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the entire exclusion of the donor or of any benefit to him by contract or otherwise, the estate duty shall be payable not in respect of the whole of the gifted property but only in respect of that part or fraction of the gifted property of which the donee did not assume bona fide possession and enjoyment and thenceforward retain it to the entire exclusion of the donor or of any benefit to him by contract or otherwise." It is in this connection that the decision of the Calcutta High Court in Rash Mohan Chatterjee v. CED [1964] 52 ITR (ED) 1 was considered and approved. In the last-mentioned case the deceased settled on July 1, 1954, certain premises in trust in favour of his two sons in equal shares. The upper portion of the premises was leased to the deceased himself on a rent of Rs. 150 per month for a term of five years with effect from the date of settlement. The lease expired on June 30, 1959. The question was whether and to what extent estate duty was chargeable in regard to those premises under s. 10 of the Act. As, however, s. 10 provided that such property was chargeable only to the extent that the deceased was not excluded, estate duty was payable by the accountabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articular circumstances of the case, there will be no order as to costs. Mr. T. V. Ramanathan, the learned counsel for the respondent, made an oral application asking for a certificate of fitness for appeal to the Supreme Court under s. 65 of the E.D. Act. , During the hearing, the question as to the applicability of art. 134A, as introduced by the Constitution (Forty-fourth Amendment)-Act, came in for consideration. Article 134A of the Constitution runs as follows: " Every High Court passing or making a judgment, decree, final order or sentence referred to in clause (1) of article 132 or clause (1) of article 133 or clause (1) of article 134, (a) may, if it deems fit so to do, on its own motion; and (b) shall, if an oral application is made, by or on behalf of the party aggrieved immediately after the passing or making of such judgment, decree, final order or sentence, determine, as soon as may be after such passing or making, the question whether a certificate of the nature referred to in clause (1) of article 132, or clause (1) of article 133 or, as the case may be, sub-clause (c) of clause (1) of article 134, may be given in respect of that case." This article would app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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