TMI Blog1974 (3) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... and Shri J. K. Munshi. The trustees were charged with the obligation of paying taxes and other dues, etc., out of the trust assets and to pay the balance of the income of the trust assets to the said Maharani Raj Lakshmi for and during her lifetime. After her death the assets of the trust were to revert to the Maharaja if he was alive or to the charitable trust mentioned in the document. The properties and securities mentioned in the trust deed were valued at Rs. 20,31,500. In proceedings under the Gift-tax Act for the assessment year 1958-59, the Gift-tax Officer valued the properties involved in the trust at Rs. 22,52,553. He granted an exemption of Rs. 10,000 under section 5(2) of the Act and brought the value of the remaining propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng section, thus, gifts made after the 1st April, 1957, are chargeable to tax under section 3 subject to the other provisions contained in the Act. The charge is on the person making the gift in respect of the gifts made by him. Section 5 provides that gift-tax shall not be charged under this Act in respect of certain gifts described in clauses (i) to (xvi) of sub-section (1) thereof. The material clause, viz, clause (viii), as it stood at the material time, reads : '(viii) to his or her spouse, subject to a maximum of rupees one lakh in value in the aggregate in one or more previous years........' The question to be considered is whether, by settling the interest and income of the trust fund of Rs. 1 lakh on his wife, Indumati, durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p or interest in property. . . . ' It is not necessary to read the other sub-clauses of clause (xxiv) Reading these three clauses-(xii), (xxii) and (xxiv)-together, it is clear that interest in property is itself property, and grant of interest in property by one to another would be a transfer of property within the meaning of the Act. On reading these three clauses together, it would necessarily follow that when a person voluntarily grants interest in property to another without consideration in money or money's worth, it would amount to a gift within the meaning of the Act. Mr. Joshi also referred us to the definition of 'donee' which provides: ' "Donee" means any person who acquires any property under a gift, and, where a gift is made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the trust is called 'trust property'. The nature of the beneficial interest or the interest of the beneficiary has been described in section 3 as "his (beneficiary's) right against the trustee as owner of the trust property". The argument of Mr. Joshi is that what a beneficiary gets under the settlement is only a right against the trustee and not any interest in the trust fund. Now, reading section 3 as a whole, it is clear that the right which the beneficiary gets against the trustee is not a right in air. It is a right in respect of the property which is called the trust property. The right of the beneficiary against the trustee in respect of trust property is called beneficial interest. It is in law termed as equitable title to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Joshi would lead to unforeseen results. It would virtually amount to denial of the benefit which the legislature by enacting section 5 have conferred on a donor. It would mean that the gifts, which fall within section 5, would fall out of section 5 if made through the instrumentality of a trust. Various types of gifts are, to the extent stated therein, exempted from tax. To illustrate, clause (vii) provides: 'any relative dependent upon him for support and maintenance...' The section contemplates that a person, who by making a gift of his property makes a provision for support and maintenance of a relative dependent on him, should get certain exemptions from liability to pay tax. A person, who has to provide for maintenance of his minor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argument is placed on sub-section (3) of section 5. Sub-section (3) provides that: 'Notwithstanding anything contained in sub-section (1) or sub-section (2), where either spouse makes any gifts out of any such gifts received by that spouse as fall within clause (viii) of sub-section (1), the gifts so made shall be deemed to be taxable gifts, made by that spouse and nothing contained in sub-section (1) or sub-section (2) shall apply in relation to any such gifts.' It is difficult to read the said sub-section as limiting the operation of clause (viii) of section 5(1), or as a proviso to clause (viii) taking out of it certain gifts which fairly fall under clause (viii). Sub-section (3) is an independent provision. All that has been stated in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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