*1* kps IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ESTATE DUTY TAX REFERENCE NO.05 OF 1984 Sir Dinshaw M. Petit and others. ..Applicants. -Versus- The Controller of Estate Duty. ..Respondent. ........... Mr.S.E.Dastoor, Senior Counsel a/w Mr.Nitesh Joshi, Mr.H.D.Patil and Mr.M.A.Saldanha, Advocates i/b Vigil Juris, for the Applicants. Mr.D.K.Kamwal a/w Mr.H.D.Pandey, for the Respondent. .......... CORAM : V.C.DAGA & K.K.TATED, JJ. Date : 25th January, 2010. P.C. 1 This is a reference made under Section 64(1) of the Estate Duty Act, 1953 by the Income Tax Appellate Tribunal, Bombay Bench “C” at the instance of accountable persons. The question referred, in the condensed form, reads as under:- Whether, the Assistant Controller of Estate Duty was right in holding that on the death of the deceased, estate duty was payable in respect of the property called “Mon Repos” and the amount includable in the estate was Rs.14,09,000/-? *2* The factual matrix: 2 Factual matrix reveal that one Lady Dinbai D. Petit left for heavenly abode on 29.08.1965. The accountable persons filed four separate estate duty accounts and claimed exemption of the property “Mon Repos” located in Pune relying on the terms and conditions of the Trust Deed dated 17.01.1931 executed by Late Sir Dinshaw M. Petit (husband of Lady Dinbai D. Petit). 3 The Assistant Controller was pleased to reject the claim, as also contentions leading to the valuation of the property and deductibility of municipal taxes and liability in respect thereof. Not satisfied with the said order, the accountable persons appealed to the Appellate Controller of Estate Duty without any success. Aggrieved by this order, the accountable persons appealed to the Appellate Tribunal of Income Tax, again without much success. The Tribunal reduced the value of land and also allowed deduction of the municipal tax liability. The Tribunal, thus, partly allowed the appeal. 4 Not being satisfied with the order of the Tribunal, the accountable persons, prayed for referring substantial question of law for the opinion of this Court. That is how the matter is referred to this Court. The questions of law framed by the Tribunal are reproduced in the condensed form in the opening part of this order. *3* Submissions:- 5 Mr.Dastoor, the learned senior counsel appearing for the Applicants urged that the question which needs adjudication at the hands of this Court is no more res-integra. In his submission, the very same question, on more or less identical set of facts, was considered and decided by the Division Bench of this Court in case of D.J.Gazdar Vs. Controller of Estate Duty, 1982-(138)-ITR-0607- Bombay, followed in subsequent judgment in case of Miss A. N. Khan vs. First Assistant Controller of Estate Duty, 1983(140) ITR 293 (Bombay). In his submission even though there was a cesser of interest and a benefit accruing or arising from such cesser, cannot be valued in terms of money, then the cesser of interest will be irrelevant for the purposes of determining liability under the Estate Duty Act. 6 It was contended on behalf of the accountable persons that the provisions of Sections 7 and 40 are not applicable in the instant case. Having regard to the relevant provisions of the Trust Deed, even if the deceased had the sole right to live and reside in that property and if the property had been sold, the sale proceeds had to remain with the trustees and 1/4th income therefrom could only be claimed by the deceased as provided under Clause-14 of the Trust Deed, and at the most, 1/4th of income could be included *4* in the dutiable estate. Even if Section 40(a) of the Estate Duty Act, 1953 is held applicable, as applied by the Assistant Controller of Estate Duty, the same will apply only to the building and not to the land as the same was not occupied by her. It was also urged that reliance placed by the authorities on the Madras High Court’s judgment in case of Manion Natesan vs. Controller of Estate Duty, 1956 ITR ED 5 was misplaced. 7 Mr.Kamwal, learned counsel appearing for the Respondent/Revenue tried to support the impugned orders. In his submission, once a person allowed to use and occupy the premises then he is liable to pay the estate duty. He vehemently urged that in the present case the property was exclusively transferred to Lady Dinbai Petit in her lifetime and thereafter, to her children. He submitted that just because of the terms and conditions of the Trust Deed dated 17.01.1931 the property is reverted back to the trust, the Applicants cannot be treated as exempted from payment of estate duty. 8 In rejoinder, Mr.Dastoor submits that as per the terms and conditions of the Trust Deed, once it is clear that Lady Dinbai Petit did not have disposable interest in the subject property, then it could not be held that the said property passed on her death as such, it was not liable to estate duty. *5* Consideration: 9 Having heard rival contentions, in order to decide the question referred for our opinion, some of the relevant clauses of the Trust Deed dated 17.01.1931, reproduced herein below. need to be considered:- “4. As to the land hereditaments and premises more particularly fifthly described in the first schedule hereto (hereinafter referred to as “Mon Repos”) the trustee or trustees shall permit the settler’s wife: (a) To reside rent free therein or such part or parts thereof with such person or persons for such periods (continuous or interrupted) as she may think fit with liberty to her to allow at her option to reside therein or in such part thereof as she may think fit such of the settler’s three sons viz. Framji Dinshow Petit who was born on 24th June 1901, Maneckji Dinshow Petit who was born on 30th April 1904 and Jamshedji Dinshaw Petit who was born on 14th December, 1911 with or without their respective families (if any) for such time as she may in her absolute discretion think fit; and (b) to use and enjoy the furniture fittings and other movable property contained in the said Mon Repos without being liable for any deterioration, depreciation, wastage, loss or breakage that may occur in the course of such residence and use as aforesaid but she shall not be entitled to part with or remove or sell any of the said furniture or other moveable property. (c) subject to the foregoing sub- clauses (a) the trustee or trustees shall until the death of the last survivor of the said three sons of the settler permit them or such of them as may be willing to do so to reside rent free with their respective families (if any) in Mon Repos or such part or parts thereof as they respectively may think fit and in case of any difference of opinion as the *6* trustee or trustees may allocate for the purpose and to use and enjoy the said furniture and other moveable property in Mon Repos aforesaid in the same manner as the settler’s wife may be entitled to use the same. (d) subject to the foregoing sub- clauses the trustee or trustees may let out Mon Repos at such rent or such terms for such period (not being however longer than three years at a time) as the trustee or trustees may think fit and shall in that case during the remainder of the life of the last survivor of the settler’s wife and his said three sons divide the net returns thereof amongst such persons as may be entitled to the interest and income of the rest of the settled premises in the shares and proportions to which they may be entitled thereto. 5. Subject to the foregoing clause four the trustee or trustees shall after the settler’s death pay a fourth of the said net income to the settler’s wife and if she shall survive the settler during the remainder of her life and down to her death. 6. Subject to the foregoing clauses as to Mon Repos and subject to the last clause five the trustee or trustees shall after the settler’s death divide or treat the said settled premises as divided without however actually dividing the same so long as such divisions may be impracticable inexpedient or not beneficial into three unequal parts so that the income of one of them (hereinafter referred to as “the said Framji’s share”) shall be less than the income of each of the other two by the sum of Rupees Five Thousand a month or Rupees Sixty Thousand a year the said Framji Dinshaw Petit being the heir apparent to the Baronet now enjoyed by the settler and to the benefits and emolument thereof after the settler’s death and shall treat the appropriate the first of them (hereinafter called “the said Framji’s share”) as the share of the said Framji Dinshaw Petit (hereinafter called “the said Framji”) and shall treat and appropriate the second of them (hereinafter called “the said Maneckji’s share”) as the share of the said Maneckji Dinshaw Petit (hereinafter called the “said Maneckji”) and shall *7* treat and appropriate the third and last of them (hereinafter called “the said Jamshedji’s share”) as the share of the said Jamshedji Dinshaw Petit (hereinafter called “the said Jamshedji”) and shall stand be possessed of the said respective shares upon the respective trusts and subject to the respective powers and provisions hereinafter declared and contained of the concerning the same respectively.” 10 Reading of the above clauses clearly demonstrate that Lady Dinbai Petit at the time of her death was not competent to dispose of the property “Mon Repos” comprised in the Trust Deed dated 17th January, 1931 made by Sir Dinshaw Petit. She had no disposable interest therein. 11 Having said so, let us turn to the relevant statutory provisions applicable to the case in hand. Sections 6 and 7(1) of the Estate Duty Act will have direct bearing on the question referred to us, which read thus:- “6. Property within disposing capacity:- Property which the deceased was at the time of his death competent to dispose of shall be deemed to pass on his death. 7. Interests ceasing on death:- (1) Subject to the provisions of this section, property in which the deceased or any other person had an interest ceasing on the death of the deceased shall be deemed to pass on the deceased’s death to the extent to which a benefit accrues or arises by the cessor of such interest, including, in particular, a coparcenary interest in the joint family property of a Hindu family governed by the Mitakshara, Marumakkattayam or Aliyasanthana law.” *8* 12 On the above factual background coupled with the above quoted statutory provisions, if one turns to the law holding the field, then first we have to examine the Division Bench judgment of this Court in case of D.J.Gazdar Vs. Controller of Estate Duty (supra). 13 In the above case of D.J.Gazdar construing Section 7(1) and Section 40 together, the learned Division Bench had taken the view that if the right of free residence cannot be reated as interest in ncome of the property, then the value of the benefit accruing or arising out of the cesser of such interest cannot be computed in accordance with the manner prescribed under Section 40 of the E.D. Act. The Court pointed out in that case that:- “The will did not create any interest which extended to any income of property. The provision in the will merely provides for a right of residence which cannot be treated as a right extending to any income of the property. If the right of free residence cannot be treated as an interest which extends to any income of the property, the valuation of the benefit accruing or arising out of the cesser of such interest, namely, the right of free residence, can be computed in accordance with the manner prescribed under Section 40 of the Act. Though there was a cesser of interest and property could be said to be deemed to pass, the benefit accruing therefrom would not be liable to estate duty because the provisions in Section 40(A) of the E.D. Act did not contemplate a computation of the value of such a benefit. Even though there was a cessor of interest, the benefit arising therefrom was not *9* exigible to estate duty because the provision in Section 40 of the E.D. Act did not contemplate a computation of the value of such a benefit.” The learned Division Bench in ultimate conclusion held as under:- “The definition of property is an inclusive definition and any interest in property is to be treated as property for the purposes of Section 7(1) of the Estate Duty Act. It would, therefore, be difficult to accept the argument made on behalf of the accountable person that a right of residence is not an interest in property merely because the clauses of the will did not provide for any monetary benefit.” “Accordingly, question No.(1) referred to us is answered by holding that though there was a cesser of interest and property could be said to be deemed to pass, the benefit accruing therefrom would not be liable to estate duty. In view of our answer to question No.(1), question No.(2) does not arise and need not be answered. The costs of the reference will be paid by the Revenue.” 14 The aforesaid view was followed by the Division Bench in subsequent judgment in case of Miss A.N.Khan Vs. First Assistant Controller of Estate Duty (supra). 15 Having examined the factual matrix, statutory provisions and law laid down by this Court, if one turns to Clause 4 of the Trust Deed, it provides that the trustee or trustees shall permit the settler’s wife to reside there on the terms and conditions mentioned therein. After the death of settler, the wife of settler *10* Lady Dinbai Petit was permitted by the trustees to use and occupy the property referred to as “Mon Repos” on the terms and conditions mentioned in clause 4(a) to 4(d). Lady Dinbai Petit had no right to dispose of the said property. She had only right of free residence which cannot be treated as right extending to any income of the property. Thus, in the facts and circumstances of the case though there was a cesser of interest, property cannot be said to be deemed to pass. Therefore, benefit accruing therefrom would not be liable to estate duty because provision of Section 40(A) of the E.D. Act did not contemplate a computation of the value of such benefit. 16 In the above view of the matter, the Assistant Collector and the Appellate Controller of Estate Duty were not right in holding that the property in question on death of Lady Dinbai was liable to the levy of estate duty under the provisions of the Estate Duty Act, 1953. For the view taken, the question under reference is answered in negative i.e. in favour of the Accountable Persons and against the Revenue. Reference, accordingly, stands answered with no order as to costs. (K.K.TATED, J.) (V.C.DAGA, J.)