ION Civil Appeal Nos
946 of 1975  1251 of 1975
From the Judgment and order dated 11101974 of the Calcutta High Court in Estate Duty Reference No 117 of 1971
Dr Shankar Ghosh DP Mukharji and GS Chatterjee for the Appellant in CA No 94675 and for Respondent in CA No 1251 of 1975
CM Lodha Ms A Subhashini and KC Dua for the Respondent in CA No94675 and for the Appellant in CA No 1251 of 1975
The Judgment of the Court was delivered by VENKATACHALIAH J
These appeals by certificate under Section 65 of the Estate Duty Act of 1953  Act  for Short one by the accountable person and the other by the Deputy Controller of the Estate Duty arise out of and are directed against the Judgment dated 11101974 of the High Court of Calcutta answering in a reference under Section 641 of the Act  the question of law referred for its opinion
The matter pertained to the determination of the principal value of the Estate passing on the death which occurred on 2431960 of a certain Satya Charan Srimani
Dipti Narayan Srimani appellant in CA 9461975 is the son of the deceased and is the accountable person
The said Satya Charan Srimani during his life time had executed three trust deeds dated 8121947 2191953 and 4101959 respectively
In the proceedings the nature and effect of the dispositions made under the deeds of the trust dated 2191953 and 4101959 fell for consideration
Under the deed dated 2191953 Satya Charan Srimani as settlor transferred upon trust to himself as trustee 4 items of immovable property viz 130 and 133 upper circular Road and 325 and 325 Beadon Street Calcutta
The objects and purposes of the trust broadly stated were i the conduct of the daily worship and sevas of the Deity Sree Sridhar Jiu 274 ii the carrying out of certain charitable acts deeds and things mentioned in schedule B of the deed iii the making of provision for the maintenance of himself and the persons mentioned in the said deed
The trustee was required after defraying taxes and other out goings to accumulate 14th of the net income to be set apart for purposes of effecting certain additions and alterations to the properties to make over another 14th of the net income to the shebait for the conduct of the daily and periodical pujas worship and rituals of the said deity another 14th for the charities mentioned in the deed and the remaining 14th for the personal benefit of the settlor during his life time and to his heirs thereafter
After the developmental works were completed the proportions of the shares allotted to various objects were suitably modified in that 716th share was to be made over to the shebait 416th share to be spent for charitable purposes and 516th for the benefit of the settlor and his heirs
Under the deed dated 4101959 the settlor transferred upon trust to himself and his son Dipti Narayan Srimani as Trustees six other properties one of them situate in Varanasi for the conduct of daily worship and periodical festivals rituals and ceremonies of the deity Shri Ishwar Gobinda Jiu for certain charitable purposes and also for the benefit of himself and his heirs
The settlor provided for his residence free of rent in one room on the ground floor in the Varanasi property
A 14th of the net income of the trust properties after defraying expenses and taxes was to be paid to the shebait for the conduct of the worship rituals and services of the deity Shri Ishwar Gobinda Jiu another 14th to be spent on the charitable purposes mentioned in the deed and the balance of 12 for the development additions and alterations of two of the trust properties viz No 41  42 Macleod Street Calcutta
After completion of the developments and alterations the said 12 share was stipulated to go for the benefit of the settlor during his life time and thereafter to his heirs
Under both the dispensations the settlor constituted himself the shebait
In the proceedings of assessment to estate duty the question arose whether the trust deeds attracted and fell within Section 121 of the Act 
The accountable person contended that the four trust properties under deed dated 2191953 could not be said to be Settled Property within the definition in Section 219 and that at all events what must be held to pass would only be a 14th share 275 corresponding to the benefit reserved for the settlor and his heirs
Similarly in respect of the six trust properties covered by the deed dated 4101959 it was urged that the properties were not Settled Properties and that at all events only 12 of the property so passed
The Deputy Controller of Estate Duty the Appellate Comptroller of Estate Duty in the first appeal and the Income Tax Appellate Tribunal Calcutta in the second appeal held that the entire subject matter of the two deeds must be held or deemed to pass on death
The value of the properties constituting the subject matter of deed dated 2191953 estimated at Rs469287 and those constituting the subject matter of the deed dated 5101953 at Rs127400 were accordingly included in the principal value of the estate passing on death
On 2021971 the Tribunal at the instance of the accountable person stated a case and referred under Section 64 of the Act  the following question of law for the opinion of the High Court Whether on the facts and in the circumstances of the case and on a proper interpretation of the trust deeds dated 2191953 and 4101959 the properties comprised therein are dutiable under Section 121 of the Act
A Division Bench of the High Court by its judgment dated 11101974 held that so far as the four properties comprised in the deed dated 2191953 were concerned they were Settled Property within the meaning of Section 219 and that Section 121 was attracted
The High Court observed  So far as the deed dated 2191953 is concerned by the said deed the property has been made debutter and there is therefore a dedication in favour of the deity and as the settlement by the said deed creates or results in a dedication or endowment the properties settled by the said deed should therefore be considered to be settled properties in view of the specific provision contained in sec
219 relating to dedication or endowment   
The provisions contained in the deed dated 2191953 which we have earlier considered clearly indicate that the settlor has reserved to himself an interest in the properties within the meaning of section 121 of the Act
He has 276 expressly reserved for himself for life one fourth share of the income of the properties before development and seven sixteenth share of the income of the properties after development
Section 121 is therefore clearly attracted to the properties mentioned in the said deed dated 2191953   However the High Court took a different view in relation to the properties covered by the deed dated 4101959 and held that they were not hit by Section 121
The High Court said 
As in our opinion the properties covered by the deed dated 41059 are not sattled properties section 121 cannot apply to the said properties   Concluding the High Court held  
We must therefore hold that section 121 of the Act applies to the trust deed dated 2191953 and the said section has no application to the trust deed dated 4101959
Accordingly we answer the question by saying that the properties comprised in the trust deed dated 2191953 are dutiable under section 121 of the Estate Duty Act and the properties comprised in the trust deed dated 4101959 are not dutiable under section 121 of the Estate Duty Act   The Division Bench however left open the question whether the properties constituting the subject matter of the trust deed dated 4101959 would attract any other provision of the Act to be decided by the appropriate authority
From this opinion expressed by the High Court both the accountable person and Deputy Controller of the Estate Duty have come up in appeal the former aggrieved by the inclusion of the whole of the properties comprised in the trust dated 2191953 in the principal value of the estate and the latter by the exclusion of the properties constituting the subject matter of the trust dated 4101959 from the principal value of the estate
We have heard Dr section Ghosh learned Senior Advocate for the accountable person and Shri CM Lodha learned Sr
Advocate for the Revenue
277 Having regard to the career of this litigation and the varying shades of the legal thought attracted by it both in the statutory appeals and before the High Court one is tempted to recall the reflections of Diplock LJ in Re Kilpatrick s at 1370
As in nearly all appeals about estate duty I reach my decision without confidence
Were I a betting man I should lay the odds on its being right at 6 to 4 ie 3 to 2 on or against
If ever a branch of law called for reform in 1966 it is the law relating to estate duty
It ought to be certain it ought to be sensible it is neither   In Re Weir s Settlement  Cross J had said The facts are simple enough but it will not surprise any one acquainted with this branch of the law to learn that the argument lasted over four days during which counsel at all events wasted no words and that some thirty authorities many of them in the House of Lords were referred to
The law of estate duty has indeed now attained a degree of refinement which would have gladdened the heart of Lort Sd
Leonards
 The legislative expediencies in the development of the law of Death Duties in England reflect an on going and no less interesting interaction between the resourceful ingenuity of the conveyancing lawyer on the one hand and the legislative vigilance to plug the susceptibilities of the law that sustain tax planning on the other
The handy tool of the conveyancing lawyer was the notion in the law of Real property that ownership was detached from land  and was attached to something called the estate  in land
The submissions of the learned counsel in the appeals are patterned substantially on the ground covered before the High Court
In support of the accountable person s appeal Dr Ghosh submitted a First that on a proper construction of the two deeds what must be held to constitute their subject matter are only the shares in the properties corresponding to the interests intended for the benefit of the deities and the charities and that the interest in the property correspond 278 ing to the benefit retained by the settlor was not the subject matter of the disposition at all b Secondly that even if both the documents might admit of being called settlements in a wider sense the properties dealt with thereunder were not Settled Property within the meaning of Section 219 as there was no in tervening limited interest before a final vestiture of the ownership and c Thirdly that at all events what must be held to attract and fall within the mischief of Section 121 and be deemed to pass on death would only be the value of such share as corresponds or referable to the quantum of interest so reserved by the settlor namely 516th share in the properties covered by the first document and 12 share in the properties comprised in the second document and not the entire value of all the properties
Shri CM Lodha learned Senior Counsel for the Revenue submitted that this case was frank case of what by definition attracted the wider net of Section 121 and that resort to the implications of Settled Property under Section 219 was unnecessary once it is clear that there is a settlement within the meaning of Section 121 coupled with the reservation of an interest however small
Learned Counsel submitted that the distinction made by the High Court between the properties covered by deed dated 2191953 on the one hand and those covered under deed dated 4101959 on the other is in the ultimate analysis a distinction without a difference
9The first contention of Dr Ghosh pertaining to what according to him should be held to be the subject matter of the trust deeds is essentially a matter of construction of the deeds
There is no doubt a discernible difference between a case of settlement of property with reservation of a benefit to the settlor on the one hand and the case where what is settled is only a share or interest or part of the property excluding the part or the share corresponding to the benefit that the settlor has chosen to retain
There is indeed no transfer at all in the latter case
Dr Ghosh says that there is really no transfer of the share corresponding to the benefit reserved in both the cases
This is the construction learned counsel wants the court to place on the two deeds
279 In St Aubyn vs Attorney General See 1951 2 All England Reports 496 Lord Radcliffe brought out this distinction between what was transferred and what was retained  it is the possession and enjoyment of the actual property given that has to be taken account of and that if that property is as it may be a limited equitable interest or an equitable interest distinct from another such interest which is not given or an interest in property subject to an interest that is retained it is of no consequence for this purpose that the retained interest remains in the beneficial enjoyment of the person who provides the gift   The distinction between the two types of dispositions is brought out in the context of Section 10 in Controller of Estate Duty AP Hyderabad vs Smt
Godavari Bai  at 635 
In other words if the deceased donor limits the interest he is parting with and possesses or enjoys some benefit in the property not on account of the interest parted with but because of the interest still retained by him the interest parted with will not be deemed to be a part of the estate of the deceased donor passing on his death for the purpose of section 10 of the Act
It is these aspects which mark the distinction between the two leading cases namely Chick s case 1959 3 ITR ED 89 and Munro s case  supra
As we shall indicate presently Chick s case falls within the first category while Munro s case falls within the other category   Again in the Controller of Estate Duty Kerala vs Ms RV Vishwanathan  Ors  at 97  99 it was observed 14
The question as to whether gifted property should be held to be a part of the estate of the deceased donor passing on his death for the purpose of Section 10 of the Act is not always free from difficulty
It would depend upon the fact as to what precisely was the subject matter of the gift and whether the gift was of an absolute nature or whether it was subject to certain rights
There is a fine but real distinction between the two types of cases    To put it in other words if the deceased owner 280 delimits the interest he is parting with and possesses and enjoys some benefit in the property not on account of the interest parted with but because of the interest still retained by him the interest parted with shall not be deemed to be part of the estate of the deceased donor passing on his death for the purpose of Section 10 of the Act
The principle is that by retaining something which he has never given a donor does not bring himself within the mischief of that section nor would the provisions of the section be attracted because of some benefit accruing to the donor on account of what was retained by him   10
In the present case any possibilities of such an argument are ruled out by the explicit terms of the deeds
The subject matter of the deeds are not respectively 1116 share and 12 share in the properties
The whole of the properties are conveyed upon trust
There is therefore no scope for this submission
The first contention of Dr Ghosh therefore fails
The second contention of Dr Ghosh is that provisions of section 121 are not attracted as the properties do not fill the bill as Settled Properties within the meaning of Section 219 of the Act
Section 219 which defines Settled Properties and settlement  respectively provides  Settled property means 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 this Act and settlement means any disposition including a dedication or endowment whereby property is settled The statutory definition of Settled Property and settlement is such that while it is possible to say that all Settled Property is the subject matter of settlement conversely however all subject matter of settlement  need not necessarily and proprio vigore become Settled Property
The latter concept requires for its satisfaction certain specific incidents and consequences of a settlement
Section 121 provides 281 121
Property passing under any settlement made by the deceased by deed or any other instrument not taking effect as a will whereby an interest in such property for life or any other period determinable by reference to death is reserved either expressly or by implication to the settlor or whereby the settlor may have reserved to himself the right by the exercise of any power to restore to himself or to reclaim the absolute interest in such property shall be deemed to pass on the settlor s death   Section 121 refers to and deals with a case of property passing under a settlement in which the settlor had reserved to himself an interest in such property either expressly or by implication
Apparently on its language the section does not draw upon the incidents and implications of Settled Property for the satisfaction of its requirements
The passing of property under a settlement which means any disposition including a dedication or endowment whereby property is settled coupled with a reservation of an interest in the property would suffice
The further incident that the properties covered by the settlement must in addition partake of the character of Settled Property and accordingly should stand limited in trust for any person natural or juridical by way of succession etc
are not to be held as part of the requirements of Section 121
Those incidents of Settled Property need not be imported into the ingredients of Section 121 which would be satisfied if there is a settlement as defined under the second part of Section 219 and if there is reservation of an interest by the settlor in addition
The two deeds clearly answer the description of Settlement  as defined under Section 219 viz that there is a disposition including a dedication whereby property is settled Indeed under both the deeds the reservations of the benefit of the income from the trust properties were made in favour of the settlor
These reservations by themselves in our opinion bring the properties within the net of Section 121
This should dispose of the second contention of Dr Ghosh
In addition the settlor in this case constituted himself during his life time and thereafter constituted his heirs as the shebaits of the two deities
Indeed where while endowing properties to a deity the settlor stipulates that he shall during his life time and thereafter his heirs be the shebaits of the deity the settlor can possibly be said to provide not only for certain duties to be vested in connection with the endowment 282 but also secures a beneficial interest in the property
The following observations of Mukherjea J in Angurbala Mullick vs Debabrata Mullick at 1132 as to the nature of the office of a shebait may be recalled 
The exact legal position of a shebait may not be capable of precise definition but its implications are fairly well established
It is settled by the pronouncement of the Judicial Committee in Vidya Varuti vs Balusami that the relation of a shebait in regard to debutter property is not that of a trustee to trust property under the English Law
In English Law the legal estate in the trust property vests in the trustee who holds it for the benefit of cestui gue trust
In a Hindu religious endowment on the other hand the entire ownership of the dedicated property is transferred to the deity or the institution itself as a juristic person and the shebait or mahant is a mere manager
But though a shebait is a manager and not a trustee in the technical sense it would not be correct to describe the shebaitship as a mere office
The shebait has not only duties to discharge in connection with the endowment but he has a beneficial interest in the debutter property   Again in Kalipada Chakraborti  Anr
vs Palani Bala Devi  Ors at 516  517 it was held 
Whatever might be said about the office of a trustee which carries no beneficial interest with it a shebaitship as is now well settled combines in it both the elements of officer and property   
There could be no doubt that there is an element in the shebaiti right which has the legal characteristics of property but shebaitship is property of a peculiar and anomalous character and it is difficult to say that it comes under the category of immovable property as it is known in law   13
It is true that the reservation of interest so as to attract Section 121 must be in the property as such and that mere collateral benefits reserved by the settlor emanating from some other property or some other source independent of the property so settled will not 283 attract the section
In Controller of Estate Duty vs R Kanakasabai  Ors at 257 this Court in the context of Section 10 observed 
The provisions for annual payments and maintenance made in the deeds as seen earlier are not charged on the properties settled
Hence the deceased cannot be said to have retained and interest in the properties settled
Therefore it cannot be said that he retained any benefit either in the properties settled or in respect of their possession   But in the present case benefits reserved emanate from the very properties constituting the subject matter of the settlements and cannot be said to be collateral in their nature
The distinction between a case of a benefit arising collaterally and a case of the benefit being reserved by implication would require to be kept clearly distinguished
Having regard to the special nature of the office of a shebait and the rights and interests that to with it it is possible to contend that when a settlor endows the property to an idol and reserves the right of shebaitship to himself he would be reserving an interest in the property
It is no doubt true that while dealing with a case of cessor of interest under section 7 of the Act of an elected Mahant in Math properties it was held by this court that no interest passes on the death of Mahant duly elected and that the provisions of the Act are not attracted See Controller of Estate Duty Bihar vs Mahant Umesh Narain Puri But the case of a settlor who himself endows property to an idol and constitutes himself a shebait is obviously different
But we need not in this case finally pronounce on the effect of reservation of shebaitship by a settlor in the context of Section 121
But even to the extent the argument that for purpose of Section 121 the property must answer the description of settled property goes the expression by way of succession import of the words were stated in Attorney General vs Owen See 1899 2 Queen s Bench Division 253 at 266 by Kennedy J  By way of succession seems to me to be a phrase to which one ought in dealing with this Act not to assign a narrow or strictly technical meaning but to treat it as equivalent to successively upon death and substantially un 284 der the present will the property out of which the annuities are paid is property to which so far as benefit is concerned the annuitants are entitled during life and which so far as benefit is concerned passes to the residuary devisees upon the deaths of the annuitants
There is a succession in a popular but correct sense in the enjoyment of this portion of the testatrix s residuary estate which comes to them upon the decease of the annuitants   Following this view the Allahabad High Court in Hamid Hussain vs Controller of Estate Duty held See at 315 
The settlor clearly contemplated that successive generations would enjoy the benefit of the wakf and thereafter it would pass to the persons covered by the charitable purposes
It seems to us that upon these considerations the property must be considered to be settled property and the wakf being a dedication of endowment must be considered to be a settlement within the meaning of section 219
Inasmuch as the property comprised in the wakf passes under a settlement it is property which falls within the scope of section 12   The terms of the two documents in our opinion satisfy even this extended requirement of the case
What remains to be considered is the third contention of Dr Ghosh
Learned Counsel says that at all events all the properties covered by the two settlements cannot be held to pass under Section 121 but only the value of the share of the properties corresponding to the benefit reserved must be held to pass
There are again certain fallacies in some of the assumptions basic to this contention
The quantum of the interest reserved does not determine the extent of the property passing under Section 121
This is not a case where several distinct properties or parcels are settled and a beneficial interest is reserved out of one alone when it might be possible to predicate that all properties comprised in such settlement which must be held to be a composite deed dealing with several items do not attract Section 121 but only the parcel out of which an interest is carved out and reserved for the settlor s benefit
Under Section 121 if the deceased makes a settlement and reserves for himself an interest therein for life or for 285 any period determinable with reference to death the whole of the property so settled would be deemed to pass
The interest reserved might be very small indeed but however small the interest when by virtue of such a reservation a settlement falls within the purview of Section 12 the whole property would be deemed to pass
This is what was clarified in Attorney General vs Earl Grey at 32 
But it is to be observed that the words are an interest in such property Any interest however small will do provided it issues out of such property that is out of the property sought to be taxed
I agree that if several parcels of land be given by one and the same deed of gift and an interest be reserved to the donor out of one of those parcels only estate duty would not be payable upon the whole subject matter of the gift but only out of that specific portion in which the interest is expressed to be reserved
But that is not the case here   The expression interest  in Section 121 is also not used in a restrictive sense
Wills J in Attorney General vs Heywood said 
This application of the word interest  is not confined to a vested or a necessarily contingent interest
The Act was meant to cast a wider net than such a construction would imply   
The Act of Parliament was meant to meet cases in which an interest of some sort was conferred and which were not already provided for and I think the language used is sufficiently comprehensive to include the present case   This colloquial and somewhat liberal connotion of interest  was adopted and followed in Attorney General vs Farrel Greer LJ said In that case the only interest which the settlor retained in the sum of money settled by him was the expectation well founded or ill founded that the trustees would exercise their discretion in his favour but the trustees might quite lawfully have refused to give him anything and have distributed the income among his wife and children
He had a mere expectation that the discretion which was vested in 286 the trustees might be exercised in his favour either partly or entirely and that in my judgment is exactly the position that Major Alfred Stourton was in this case
He had no legal right to force the trustees to give him anything at the same time he had in a colloquial sense an interest in the estate because it was an estate out of which something might be allotted to him in the discretion of the trustees
Whether that is an interest within the meaning of the Act of 1881 has I think been determined by Attorney General vs Heywood and the decision has stood since the year 1887 a period of forty three years
 There is thus no substance in the third contention either
In the result for the foregoing reasons Civil Appeal 1251 of 1975 of the Deputy Controller of the Estate Duty is allowed and the question referred for the opinion is answered in the affirmative and against the assessee
We hold that while the High Court was right in its view that the properties covered by the deed dated 2191953 were required to be brought to charge under Section 121 we are unable to agree with the reasoning of and the conclusion reached by the High Court in regard to the properties covered by the deed dated 4101959
Accordingly while CA No 946 NT of 1975 brought by the accountable person is dismissed CA 1251 of 1975 by the revenue succeeds and is allowed and the judgment of the High Court to the extent it pertains to the properties covered by deed dated 4101959 is set aside
In the circumstances there will be no order as to costs in these appeals


Summary:
The respondent dealer registered under the UP Sales Tax Act 1948 was carrying on the business of manufacture of oils from groundnuts and other oil seeds and was under section 3 D of the Act liable to purchase tax on oil seeds at 3 ad valorem on the turnover of its purchases from the cultivators or other unregistered dealers
Section 4 B of the Act contemplated special reliefs in purchase tax to certain manufacturers of notified goods  if the dealer holds a recognitioncertificate issued under sub section 2 in respect thereof
Sub rule 5 of Rule 25 A of the UP Sales Tax Rules 1948 however stipulated that a recognition certificate  issued for purposes of Section 4 B of the Act shall take effect from the date of its issue
 On 1021969 the State Government notified oils of all kinds to be notified goods for purposes of section 4 B entitling the dealer to a concessional rate of purchase tax at 2 on the raw material required for the manufacture of the notified goods
On 2131969 respondent applied under section 4 B2 for the grant of a recognition certificate which was granted only on 5121969
The relief to the respondent in the form of concessional rate of purchase tax was accordingly confined and limited to the turnover of such first purchases made only after 5121969 the date of issue of the recognition certificate
In the writ petition filed by the respondent the Full Bench of the Allahabad High Court by majority accepted its contention that the clause in sub rule 5 of Rule 25 A regarding the effective date of the recognition certificate was at cross purposes with and did not carry out the objects of Section 4 B and was therefore ultra vires section 4 B
The High Court held that the requirements of section 4 B were substantially complied with if the dealer at the time of assessment held a recognition certificate subject to the requirement that the turnover was after the date of the application
262 Before this Court the Revenue contended that the interpretation placed by the High Court runs in the teeth of the express statutory language and the clear intendment of the provision that the dealer should hold the recognition certificate  at the time of the purchases
Dismissing the appeal it was  HELD 1 There is nothing basically wrong in the approach of the High Court that the statutory language does not insist upon the contemporaneity of the holding of the certificate with the purchases and that it was suffcient if the dealer subsequently came to hold a certificate in respect thereof
267D E 2 To insist upon a contemporaneity would amount to qualifying the word holds  in section 4 B by adding the words at the time of the purchases
267E 3 The words in respect thereof are colourless words but in section 4 B they are in their reference to the certificate suffciently though non specifically wide enough to include a certificate obtained later but pertaining to the turnover in question
267F G 4 The rule which compels only its prospective operation might not unreasonably be held to be inconsistent with the ultra vires of section 4 B There is nothing unreasonable in this construction of section 4 B Indeed by the 1978 Amendment this position has been made clear in the rule itself which after the amendment expressly provides that the certificate will take effect from the date of the application made by the dealer and not merely from the date of the issue
267G H 268A Trustees vs IRC
  referred to