Controller of Estate Duty vs Lokendra Kumar Roy Chowdhury and Others

Dipak Kumak Sen, J.—Harendra Kumar Roy Chowdhury executed a deed on Septembers, 1930, and conveyed properties mentioned in the deed including the goodwill of a running business himself to be held upon the following trusts :

(a) Out of the income of the properties, worship of the family deities of the settlor and the periodical religious festivals would be carried on by the trustee ;

(b) An educational institution at Baliati known as Iswar Chandra H. E. School and a hostel of the said school would be maintained out of such income :

(c) Rs. 500 would be spent out of such income every year on charity left to the discretion of the trustees. The settlor as long as he continued as the trustee would, however, be at liberty to spend up to Rs. 20,000 and his son, Ganendra Kumar, when he would act as the trustee would be at liberty to spend up to Rs. 1,000 per year on charity ;

(d) Expenses on pilgrimage for the members of the family of the settlor would be paid out of the income of the trust properties at the discretion of 1he trustees ;

(e) The cost of maintenance and medical attendance and treatment of the settlor, his sons, his grandsons and members of their respective families including marriage, "annaprasan", "sradh" and other social ceremonies would be paid out of the income of the trust properties in a scale as the trustee in his discretion may think proper ;

(f) Suitable accommodation for the wife and the daughters of the settlor would be provided for by the trustee;

(g) Rs. 25 per month would be paid for maintenance of Brojobala, a daughter of the settlor, and Nalini Bala, widow of a predeceased son by the trustee out of the income of the trust estate.

The deed further provided that the trust would continue for a period of twenty-five years from the date of execution and thereafter would terminate. After termination of the trust, the trust properties would devolve in the following manner :

(a) The properties would devolve on the settlor and in the event the settlor being dead, it would devolve on his sons, grandsons and great grandsons as follows:

(i) One-half share of the said property shall devolve absolutely upon Ganendra Kumar, the son of the settlor, and in the event of his death, such one-half share would devolve on the heirs of Ganendra Kumar.

The balance one-half share would devolve respectively on the two grandsons of the settlor being Purnendu Kumar and Krishna Kumar, both sons of a predeceased son of the settlor in equal shares or to their son or sons in case of their death at the relevant time. Provisions were also made in case they left no surviving son.

The deed further provided that till his death or retirement, the settlor would be the sole trustee of the trust during the term of the trust. After the death or retirement of the settlor, his son, Ganendra Kumar, would be the sole trustee till his death or retirement when the latter''s sons, Gunendra Kumar and Subodh Kumar, would become the trustees along with Krishna Kumar, another grandson of the settlor by a predeceased son, when the latter attained 25 years of age.

Harendra Kumar Roy Chowdhury, the settlor, acted as the sole trustee till August 13, 1936, when he died. After his death, Ganendra Kumar became the sole trustee of the said trust and he continued as such till August 3, 1952, when he died leaving behind him surviving four sons, the eldest being Gunendra Kumar, Gunendra Kumar died on August 7, 1955, during the currency of the trust.

After the death of Gunendra Kumar his estate was assessed to estate duty under the Estate Duty Act, 1953, In assessing the estate, the Estate Duty Officer included in the estate the shares of the trust properties which was directed by the deed to devolve on Gunendra Kumar after the termination of the trust.

Being aggrieved by the assessment, the accountable person, Sri Lokendra Kumar Roy Chowdhury, a son of Ganendra Kumar, preferred an appeal before the Appellate Controller of Estate Duty. The Appellate Controller of Estate Duty held that under the said deed of trust, Gunendra Kumar, if he was alive on September 3, 1956, when the trust came to an end, would have taken 1/8th of the trust estate absolutely. Therefore, the deceased had a vested right up to his 1/8th share of the trust properties on August 3, 1952, the date of the death of his father ,Gunendra, and and that on his death, the said 1/8th share would pass on to his heirs. The Appellate Controller did not accept the contention that u/s 23 of the Estate Duty Act, 1953, the interest under the trust deed did not become an interest in possession and did not pass on the death of the deceased.

The accountable person preferred a further appeal before the Appellate Tribunal. It was contended before the Appellate Tribunal that on a proper construction of the deed, there could be no vesting of the trust properties at the time of the death of Gunendra. The deceased died 25 days before the trust came to an end.

The Tribunal after construing Section 23 of the Estate Duty Act, 1953, came to the conclusion that the interest of the deceased in the trust estate failed or determined by reason of his death before such interest became an interest in possession. By reason of the trust having continued under the directions contained in the trust deed, limitations under the settlement continued to subsist after the death.

A decision of the Supreme Court in Mahendra Rambhai Patel v. CED [1961] 63 ITR 645 was cited before the Tribunal. The Tribunal held that the said decision was distinguishable on facts as the trust property involved in that case belonged to the beneficiary ab initio and only the delivery of such property to the beneficiary was postponed till the beneficiary attained majority. Under the trust, the beneficiary was also entitled to the entirety of the income of the trust either to be made over to him or to be accumulated, in his favour.

The Tribunal held that the share of the trust properties did not pass on the death of the deceased and allowed the appeal of the accountable person.

On an application of the Revenue u/s 64(1) of the Estate Duty Act, 1953, the following question has been referred as a question of law arising out of the order of the Tribunal for the opinion of this court:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that 1/8th share of the trust estate was not an interest in possession and accordingly it could not be included in the principal value of the estate left by the late Gunendra Kumar Roy Chowdhury ?"

On the facts as on record and noted above, we do not see any reason to differ from the conclusion of the Tribunal. The construction of Section 23 of the Estate Duty Act, 1953, by the Tribunal is, in our view, also correct. The said section reads as follows :

Section 23 : " In the case of settled property where the interest of any person under the settlement fails or determines by reason of his death before it becomes an interest in possession, and one or more subsequent limitations under the settlement continue to subsist, the property shall not be deemed to pass on his death by reason only of the failure or determination of that interest."

The language of the section is clear. On the specific terms of the trust deed, it cannot be contended that the interest of the deceased in the trust property before the trust came to an end by efflux of time would be an interest in possession as contemplated by the section. The facts in this case have been correctly distinguished from the facts which were before the Supreme Court in Mahendra Rambhai Patel Vs. Controller of Estate Duty, Gujarat, . Unlike the beneficiary before the Supreme Court, the deceased in this case is not a direct beneficiary under the trust and cannot claim the entire income of the trust. The interest being not an interest in possession but possibly an interest in expectancy, Section 23 would have no application.

We answer the question referred in the affirmative and in favour of the accountable person.

In the facts and circumstances of the case, there will be no order as to costs.

Mukul Gopal Mukherji, J. 16. I agree.