Case: Controller Of Estate Duty, Gujarat Vs. Hussainbhai Mohmedbhai Badri

3. The material facts of the case may now be stated. One Eusufalli Ebrahimji settled upon trust certain immovable properties and lease-hold lands by an indenture dated 15-7-l938. Under that deed three trustees were appointed. They were Eusufalli (the settlor), his wife Bai Safiabai (the deceased) and their eldest son Mohamedbhai, the accountable person. Under the terms of the trust deed, the settlor was entitled to the net income of the trust properties during his lifetime. After his death, the income of those properties was to be divided into three equal shares; 1/3rd of the income was to be appropriated by Bai Safiabai during her lifetime. Out of the remaining 2/3rds, 1/3rd was to be paid to Mohomedbhai and the remaining 1/3rd was to be entrusted to Mohomedbhai for being utilised for the maintenance of the two wives and the children of the settlors youngest son Salebhai, who had died before the trust deed was executed. The settlor prescribed in the trust deed that after the death oftrustees divide the trust properties in such a manner that one equal share i. e. half share shall be given to my eldest son, Mohomedbhai, and if he has died before that then, that share shall be given to his children and wife and that division shall be made according to the dictates of my religion and the other half share shall be given to the wife and children of Salebhai in such manner that the two anna share shall be given to each of his two wives and the remaining twelve annas shall be distributed amongst his (Salebhais) children according to the dictates of my religion and after doing so this trust shall come to anremaining clauses in the trust deed are not relevant).4. Safiabai, as mentioned earlier, died on 6-10-1955. The value of the estate left by her was determined by the Assistant Controller at Rupees 4,15,000/-. According to the Assistant Controller the estate left by the deceased consisted of two items (a) of her individual properties and (b) 1/3rd of the trust properties.5. The accountable person objected to the inclusion of the value of the 1/3rd share in the trust properties in the computation of the value of the estate that passed on the death of Safiabai. But that objection was overruled by the Assistant Controller.6. Aggrieved by that decision, the accountable person went up in appeal to the Appellate Controller. But, later on the accountable person sought to withdraw the appeal. The Appellate Controller refused to give him permission to withdraw the appeal. Further, he gave him notice requiring him to show cause why the entire value of the trust estate should not be included in the computation of the value of the estate that passed on the death of Safiabai. The accountable person contended that the trust property did not belong to the deceased and as such, the same cannot be said to have passed on her death. That contention was rejected and the entire trust property was considered as the property that passed on the death of the deceased. Consequently the valuation made by the Assistant Controller was enhanced by Rupees 5,73,000/-.7. Against the order of the Appellate Controller, the accountable person went up in appeal to the Appellate Tribunal. The Tribunal set aside the order of the Appellate Controller and restored that of the Assistant Controller. It held that only 1/3rd of the trust estate passed on the death of the deceased. Thereafter at the instance of the Department, the question set out earlier was submitted to the High Court seeking its opinion thereon. The High Court, as mentioned earlier, answered that question in favour of the assessee. The High Court opined that under Section 5 of the Act only the beneficial interest of the deceased in the trust estate passed on her death. It rejected the contention of the Department that the entire trust estate passed on her death. It further held that the circumstance that the legal title to the estate passed from the trustees to the beneficiaries after the death of the deceased was not a material circumstance. Before us it was contended on behalf of the Department that the title to the trust properties vested in the trustees till the death of the deceased. That title passed to the beneficiaries immediately the deceased died. The title that passed on the death of the deceased was the title in respect of the entire trust property and therefore we must hold that the entire trust property passed on the death of the deceased. Hence, the value of the entire trust property should be taken into consideration in computing the value of the estate that passed on the death of the deceased. On the other hand it was contended on behalf of the accountable person that the deceased had only 1/3rd interest in the trust property and that alone passed on her death. According to him, the deceaseds position as a trustee, which came to an end on her death cannot be considered as property passing on her death.

Court's reasoning:
15. From the facts mentioned earlier, it is seen that ever since the death of the settlor, beneficial interest in 2/3rds of the income of the trust property vested on persons other than the deceased. The deceased was entitled only to a 1/3rd share in the income of the trust property. In substance, only 1/3rd interest in the trust property passed on her death. It is true, that after the death of the deceased, the accountable person as well as the other heirs of the settlor who had only a beneficial interest in the income of the trust property became the legal owners of the trust property. This change in the nature of the rights possessed by some of the beneficiaries under the trust deed does not enlarge either the extent or value of the property that passed on the death of the deceased.The rule laid down in Townsends case is equally applicable to the facts of the present case. In our opinion what is relevant in determining the scope of the expression "property passing on the death of the deceased" is the change in the beneficial interest and not title. This conclusion of ours receives support from the decision of this Court in Mahendra Rambhai Patel v. Controller of Estate Duty Gujarat 63 ITR 645   - (AIR 1967 SC 578  ).There in by a deed of trust dated June 28, 194l one Rambhai settled 160 fully paid up shares in a company in trust for the benefit of his sons Manubhai and Mahendra in equal shares. The trustees were to stand possessed of the shares until each of the beneficiaries completed the age of 25 years and apply in their discretion the whole or part of the profits arising therefrom for the maintenance and advancement of the beneficiaries and to invest the surplus. If and when each of the beneficiaries completed the age of 25 years the trustees were to transfer out of the 160 shares his portion of the shares and the accumulation or any other investment in lieu thereof to him absolutely. If any of the beneficiaries should die before completing the age of 25 years, the shares settled on him (but not the accumulated surplus income) were to devolve on certain persons. The beneficiaries had no right to mortgage or create any incumbrance or sell it until each of them completed the age of 25 years. Manubhai died on June 7, 1954, a minor and unmarried; and the principal value of his interest in the settled property was brought to estate duty in the hands of his brother. The accountable person challenged the validity of the levy. He contended that no property passed on the death of his brother Manubhai. This contention was rejected both by the High Court and this Court, This Court held that though the shares were not to be delivered to Manubhai until he attained the age of 25 years, the shares belonged to him since the execution of the trust deed and he was also beneficially entitled to the income from those shares. In the course of his Judgment Shah J. (as he then was) speaking for the Court observed at p.interest of Manubhai in the shares and in the accumulated income was property within the meaning of Section 2 (15). That property did, as we have already pointed out, vest in ownership in Manubhai immediately on the execution of the deed of trust. On Manubhai dying, unmarried, the property as to the shares under clause 7 of the deed and as to the accumulated income under the law of inheritance devolved on his brother Mahender. On Manubhais death, there was under the deed of trust a change in the person who was beneficially interested in thedecision clearly lays down that in determining whether a particular property passed on the death of a deceased what has to be seen is whether that deceased had any beneficial interest in that property and whether that interest passed to someone on his death. The deceased Safiabai had only 1/3rd share in the income of the trust property. That interest undoubtedly passed on her death. In the remaining 2/3rds income, she had no interest and the same did not pass on her death. Her title to the property as a trustee was purely a personal right. It had no value in terms of money. It conferred no right on her. It only imposed some duties. Such a right cannot be considered as property,