Judgment:
M.N. Rao, J.
1. At the instance of the Revenue, the following question of law was referred to this court under section 64(1) of the Estate Duty Act, 1953 :
'Whether, on the facts and in the circumstances of the case, the value of the corpus of the trust or any part thereof under the Supplemental Family Trust dated February 28, 1952, passed on the death of the settlor under section 5 of the Estate Duty Act and exigible to levy of estate duty ?'
2. The former ruler of Hyderabad, the late Nizam VII, Nawab Sir Mir Osman Ali Khan by and under an instrument of trust dated February 28, 1952, settled shares of the face value of Rs. 6 lakhs for the benefit of his grandson, Mir Nusrath Ali Khan, and two grand-daughters, Batool Begum and Mahboob Begum. The deed contemplated that the trustees were to hold the property in trust for the benefit of the beneficiaries, to manage the trust funds, collect and recover the interest and other income of the funds and discharge from out of the income all expenses and charges for collecting and recovering the income. The trustees were also empowered to take remuneration. The trust deed also contemplated that after the death of the settlor, the unspent accumulation of the income of the trust fund along with the corpus should be divided into 25 equal units and the same allocated in the following manner :
Eleven units to the grandson, six each to the two grand-daughters and the balance of two units to an account called 'the expenses account fund'. The trustees were required to hold the units of the corpus of the trust fund allocated to each of the beneficiaries upon trust for each of them. It was also provided that the trustees should hold the units of the trust allocated to the grandson, Mir Nusrath Ali Khan, to pay the net income thereof to the said Mir Nusrath Ali Khan absolutely for and during the term of his natural life and after his death the payment should be made to the child or children or remoter issues surviving him according to his personal law. Similar provision was made in respect of each of the two grand-daughters.
3. The settlor, viz., the former Nizam of Hyderabad, expired on February 24, 1967. In computing the estate liable to estate duty on his death, the Assistant Controller of Estate Duty held, on an interpretation of the trust deed that the beneficiaries mentioned in the trust deed did not acquire any right to enjoy the income from the corpus during the lifetime of the settlor and that the income from the trust properties was to be accumulated during the lifetime of the settlor and thereafter the income was to be distributed amongst a set of immediate beneficiaries. He was, therefore, of the view that there was a change in the rights of the beneficiaries inter se before and after the death of the settlor and, consequently, the property passed on to them on the death of the settlor. In that view, the corpus of the trust valued at Rs. 1,79,514 was brought to estate duty under section 5 of the Estate Duty Act.
4. On appeal, the Appellate Controller agreed with the view taken by the assessing officer. The trustees appealed to the Income-tax Appellate Tribunal contending that the beneficiaries had a vested interest in the corpus of the trust. The death of the settlor did not affect the rights of the beneficiaries in so far as their interest in the property was concerned and that the Appellate Controller had misinterpreted the rule. The Tribunal, relying upon the judgment of a Division Bench of this court in CWT v. Trustees of H. E. H. Nizam's Suppl. Family Trust : [1968]68ITR508(AP) , in which the very trust deed was interpreted, held that the beneficiaries had a vested interest in the corpus of the trust. The Tribunal also held that after the death of the settlor the only change brought about was that during his lifetime, the beneficiaries could not ask the trustees to pay the income to them very year; but they could do so only after the death of the settlor. The Tribunal also found, after referring to the accounts maintained by the trust, that the beneficiaries were subjected to income-tax and also wealth-tax in respect of their beneficial interest flowing from the trust in question.
5. Sir Suryanarayana Murthy, learned standing counsel for the Department, contends that only after the death of the settlor, the allotment of the interest of the beneficiaries in the ratio of 11 : 6 : 6 took place and this was indicative of the fact that the beneficiaries had no vested interest in the property. The beneficiaries had absolutely no interest till the death of the Nizam, the settlor, since the settlor was empowered to effect changes in the trust and therefore the interest of the beneficiaries in the trust was only contingent but not vested. Sir Ratnakar, learned counsel for the assessee, counters the contentions raised for the Revenue by submitting that the beneficiaries even during the lifetime of the settlor had a vested interest in the corpus was acquiring interest for the benefit of the beneficiaries. The right of enjoyment of the income was postponed that after the death of the settlor, the right of the beneficiaries was enlarged, in that they became entitled to receive income from the corpus of the trust. There was no change whatsoever in the beneficiaries either before or after the death of the settlor. Payment of income to the beneficiaries after the death of the settlor did not amount to passing of property within the meaning of section 5 of the Estate Duty Act.
6. In the light of the contentions raised and submissions made by counsel for the Departmental and counsel for the assessee, we have to decide the question whether the estate in question was exigible to tax under section 5 of the Estate Duty Act. In the first instance, it is necessary to notice the relevant recitals in the trust deed in order to appreciate the contentions raised before us.
'Clause 3 : The trustees shall hold and stand possessed of the trust fund upon trust.
(a) To manage the trust fund and collect and recover the interest and other income (if any) of the funds and securities for the time being comprised in or representing the investment of, the trust fund or any part thereof.
(b) To pay and discharge out of the income of the shares specified in the schedule here under written all expenses and charges for collecting and recovering the income of the trust fund and the remuneration of the trustees payable under these presents and all other costs, charges, expenses and outgoings relating to the safe custody, preservation and expenses and outgoing relating to the safe custody preservation and upkeep of the trust fund and relating to the trust and the administration thereof provided, however, that if and so far as the income of the shares specified in the schedule hereunder written be at any time not sufficient to meet any of the said costs, charges, expenses and outgoings and the remuneration of the trustees payable under these presents, then the trustees shall be at liberty to meet the same out of the corpus of the said shares and if and when the corpus of the said shares shall be exhausted to meet any of the said costs, charges, expenses and outgoings and the remuneration of the trustees out of the income of the remaining trust fund comprised in this trust.
(c) During the lifetime of the settler, to accumulate the balance of the income of the trust fund.
(d) On and after the death of the settlor to add the unspentn accu-mulations of the income of the trust fund and to amalgamate the same with the corpus of the trust fund and to divide the corpus of the trust fund (which term shall include the accumulations of the unspent income thereof added thereto as aforesaid) or to that the same as notionally divided into 25 (twenty-five) equal units and to allocate 11 (eleven) such units to the said Mir, Nusrath Ali Khan, 6 (six) such units to the said Batool Begum, 6 (six) such units to the said Mahoob Begum and 2 (two) such units to a fund or account called 'the Expenses account fund' and to hold the said 11 (eleven) equal units of the corpus of the trust fund allocated to the said Mir, Nusrath Ali Khan (hereinafter called 'Mrs. Nusrath Ali Khan's Fund') upon trusts hereinafter declared and contained of and contained of and concerning the same in the following clause 4 hereof AND to hold the said 6 (six) equal units of the corpus of the trust fund allocated to the said Batool Begum (hereinafter called 'Batool Begum's Fund') upon the trusts hereinafter declared and contained of and concerning the same in the following clause 5 hereof AND to hold the said 6 (six) equal units of the corpus of the trust fund allocated to the said Mahboob Begum (hereinafter called 'Mahboob Begum's Fund) upon the trusts hereinafter declared and contained of the concerning the same in the following clause 6 hereof AND to hold the said 2(two) equal units of the corpus of the trust fund allocated to the expenses account (hereinafter called 'the Expenses Account Fund') upon the trusts hereinafter declared and contained of and concerning the same in the following clause 7 thereof.
Clause 4 : The trustees shall hold and stand possessed of Mir Nursath Ali Khan's Fund trust to pay the net income thereof to the said Mir Nusrath Ali khan absolutely for and during the term of his natural life and on and after the death of the said Mir Nusrath Ali Khan leaving a child or children or remoter issue surviving him to divide and distribute Mir Nusrath Ali Khan's Fund amongst such child or children or remoter issue of his per stripes in the proportion of two shares for every made child and one share for every female child standing in the same degree of relationship and so that no person shall take whose parent entitled to a share under this clause shall be living and further so that persons standing in the same degree of relationship shall take between themselves in the same proposition as above the share which their parent would have taken if living provided, however, that if the said Mir Nusrath Ali khan shall die without leaving any child or remoter issue surviving him then, the trustees shall on his death hold Mir Nusrath Ali Khan's Fund upon trust to divide the same into such parts and in such manner that they shall allocate two such equal parts to each of the then surviving brother of the said Mir Nusrath Ali Khan, two such equal parts to the issues then surviving of each of the brothers of the said Mir Nusrath Ali Khan who may have died before then, one such equal part to each of the then surviving sisters of the said Mir Nusrath Ali Khan who may have died before then and upon such division to transfer and hand over the respective equal sub-parts allocated as aforesaid to the respective persons to whom the same shall have been allocated as aforesaid absolutely....
Clause 7 : The trustees shall hold and stand possessed of the Expenses Account Fund upon the trusts following viz.,
(a) To recover, receive and collect the interest and other income accruing due thereon from time to time.
(b) To pay or spend out of the net income of the Expenses Account Fund all the charges for the collection of the income of the trust fund and the remuneration of the trustees and of the members of the committee of management hereinafter referred to and payable under these presents and all other costs, charges, expenses and outgoing relating to this trust and the administration thereof.
(c) After all the aforesaid trusts relating to Mir Nusrath Ali Khan Fund Batool Begum's Fund and Mahboob Begum's Fund shall have been fully administered and carried out and the corpuses of all the said three funds shall have been handed over and transferred absolutely to the ultimate respective beneficiaries entitled thereto respectively under these presents, then the trustees hall transfer and hand over the Expenses Fund Account to the then successor-in-title of the settlor as the Nizam of Hyderabad whether then called by that title or any other title, rank or designation and if there be no such person then holding any such title, rank or designation, then the trustees shall transfer and hand over the Expenses Account Fund absolutely to the eldest make descendant in the direct male line of succession of the settlor according to the rule of primogeniture.
Clause 8 : On and after the death of the settlor, the trustees shall appoint a committee of the following two officers of the settlor, namely (a) The Financial Adviser for the time being to H. E. H. the Nizam of Hyderabad and Berar, and (b) the Sadrual Moham of the Sarf-e-Khas of H. E. H. the Nizam of Hyderabad and Berar, for the purpose of managing the day to day affairs of the trust and disbursing the moneys and expenses hereby directed to be paid to or spent on the various beneficiaries under this trust, and such committee shall be called 'the Committee of Management', and subject to the general control and supervision of the Trustees, the committee of management shall have the general management and administration of the affairs and accounts of the trust hereby created and of all ministerial work to be done in pursuance of the provisions of these presents. The members of the committee of management shall be paid such remuneration as the trustees may from time to time in their discretion think fit out of the income of the 2(two) equal units of the corpus of the trust fund allocated to the Expenses Account Fund as aforesaid and it shall employ and remunerate out of the income of the said 2(two) units such staff, clerical or otherwise, as it may think fit for the purpose of managing and administering this trust and for all other work to be done by it in connection with this trust.....
Clause 10 : AND IT IS HEREBY AGREED AND DECLARED that the trustees shall be entitled to and have the have the power to invest the trust fund in the purchase of or first mortgage of one or more immovable property or properties at any place in India or elsewhere or in any of the securities or manner either in India or in any foreign country as they may in their absolute discretion think fit with full power to sell, exchange, transfer, assign, lease or otherwise dispose of any property comprised in the trust fund and any property movable or immovable and any securities or investments of any kind whatsoever which may, for the time being, be subject to the trust hereof at such time or times as the trustees may in their absolute discretion think fit either by public auction or private contract and subject to such conditions and stipulations relative to title or otherwise as they may think proper, and to buy in, rescind, or vary any contract for sale, exchange, transfer or lease and to resell the same without being answerable for any loss occasioned thereby and for such purpose to execute all necessary conveyances, assignments, deed of exchange, leases, counterparts, transfer forms and other assurances and to pass, give and execute all necessary receipts, release and discharges for the same and to invest the sale proceed in any of the properties or securities hereby authorised with full power to sell or otherwise vary the same from time to time in such manner as they shall in their absolute discretion think proper PROVIDED HOWEVER that during the lifetime of the settlor, all the securities or properties in which the trust fund may be invested (including the securities specified in the schedule hereunder written) may be allowed to remain and stand in the single name of the settlor and none of the other trustees hereof shall be held in any way liable or responsible by any person whomsoever and in any manner whatsoever for allowing the same to so remain and stand.
Clause 11 : AND IT IS HEREBY FURTHER AGREED AND DECLARED that if the trustees shall so think proper they shall be at liberty to have separate trust deeds made and executed in respect of any one or more of the said twenty-five equal units of the corpus of the trust fund and /or of any fraction thereof in favour of any of the beneficiaries to whom any such unit or units and/or any fraction thereof is allocated as aforesaid and they shall be entitled to appoint not less then three and not more than five trustees of each such trust deed with liberty to trustees to appoint any one or more of themselves as trustees of any such seperate trust deed or trust deeds and such trust deed or trust deeds shall contain such of the powers and provisions as are herein contained in respect of the whole of the trust fund with each suitable modification as may be applicable to the unit or units and/or any fraction thereof in respect of which any such separate trust deed or trust deeds shall be made.
Clause 12. - AND IT IS HEREBY FURTHER AGREED AND DECLARED that in all matters wherein the trustees have a discretionary power, the votes of the majority of the trustees for the time being voting in the mater shall prevail and be binding on the minority as well as on those trustees who may not have voted and if the trustees shall be equally divided in opinion, the matter shall, during the lifetime of the settlor, be decided according to the opinion of the settlor and after his death, according to the opinion of the trustees most senior in age for the time being.....
Clause 17. - IT IS HEREBY FURTHER EXPRESSLY AGREED AND DECLARED that each of the trustees shall be entitled to charge remuneration and be remunerated for rendering service as a trustees of these presents out of the income of the trust fund and the trustees shall pay such remuneration to each of the trustees as may be fixed by them by an unanimous resolution is that behalf from time to time PROVIDED THAT the amount of such remuneration payable to any one trustee for services rendered during any one year shall not exceed the sum of Rs. 2,000 (Rupees two thousand)....'
7. Clause 3(a) of the trust deed obligates the trustees to manage the trust and collect and recover the interest and other income. Clause 3(b) says that the trustees should discharge all expenses from out of the income of the shares. If the income is not sufficient to meet the expenses, the trustees were given liberty to meet the expenses from out of the corpus. After the death of the settlor, sub-clause (d) of clause 3 says that the trustees should add the unspent accumulation and amalgamate the same with the corpus and divide the same into 25 equal units and allocate 11 to the grandson and 6 each to the two grand-daughters and keep two units in a separate account called 'the expenses account fund'. In respect of the units allocated to the grandson and the grand-daughters, the net income after meeting the expenses should be given to each of them and in case any of them died, his or her interest should devolve on his/her heirs as per the Mohammadan law.
8. Under clause 10, the trustees were entitled to invest the corpus of the trust fund in any of the securities or purchase any immovable property in their discretion. They were also entitled to sell, exchange, transfer and assign any property comprised in the trust fund. But all the securities or properties comprising the trust fund were to be allowed to remain in the single name of the settlor. Clause 11 empower the trustees to have separate trust deeds made and executed in respect of any one or more of the said twenty-five equal units of the corpus of the trust fund. Clause 12 deals with the voting pattern. It says that in all matters wherein the trustees have a discretionary power, the decision shall be taken by a majority of the trustees for the time being and if the trustees are equally divided, the matter shall be referred to the settlor during his lifetime and after his death, to the seniormost trustee in age. Clause 17 says that each of the trustees shall be entitled to charge remuneration for rendering service as a trustee and the remuneration shall not exceed Rs. 2,000 during any one year. The settlor himself was one of the trustees.
9. From the aforesaid summary of the relevant clauses in the trust deed, it will be seen that the trustees were not empowered to revoke the trust. The discretion given to the trustees to invest the trust fund either in the purchase of immovable property or by way of securities or in any other manner was solely for the benefit of improving the trust properties. The interest of the beneficiaries was assured by the recitals in the trust. The only different situation brought about after the death of the settlor was that the beneficiaries got the right to receive the income whereas earlier, the corpus of the trust property was allowed to accumulate the income. The trust deed did not contemplate diversion of the income from the trust in favour of any other beneficiaries. It also did not contemplate any change in the beneficiaries after the death of the settlor. Clause 11 empowered the trustees, if they so desired, to create separate trust deeds in favour of the beneficiaries. But the creation of such separate trust deeds was not intended to bring into being new trusts unrelated to the rights which had already accrued to the beneficiaries under original trust deed. For more beneficial enjoyment of the trust property by the beneficiaries, the trustees were given the aforesaid discretion under clause 11. The property before and after the death of the settlor continued to exist and there was no change whatsoever in the beneficiaries.
10. Sir Murthy, learned counsel for the Revenue, says that the Nizam was empowered to change the trust and, therefore, it could not be said that the beneficiaries had any vested interest. It is difficult to agree with this contention for the obvious reason that there is no specific clause in the trust deed empowering the settlor to destroy the beneficial interest of the beneficiaries or to revoke the trust deed. There is no provision in the trust deed conferring right on the trustees or on the settlor to act in any manner detrimental to the interest of the beneficiaries.
11. The following passage at page 57 of Law and Practice of Estate Duty, Wealth-tax and Gift-tax, by V. Balasubramanian is apposite :
'Where a trust for accumulations is in force, the persons beneficially interested for the time being are those for whose benefit the accumulation is made. This applies both to the original fund and to the accumulation already made. There is, therefore, on passing of property when all that happens is that a period of accumulation ceases and the person for whose benefit the accumulation took place obtains the actual enjoyment of the capital and accumulation even if the interest which was formerly defeasible becomes at the same time indefeasible.'
12. Learned counsel for the Department relied upon an English case, In re Hodson's Settlement, Brookes v. Attoney-General [1939] 1 All ER 196; [1939] 1 Ch 343 (CA), for the proposition that where beneficiaries are given absolute rights, the property passed on to them after the death of the settlor and until then their interest was only contingent. The aforesaid ruling is of no assistance to the Department. The facts are entirely different and the ratio laid down therein does not support the stand of the Department. In that case, one Mr. Hodson, by a settlement deed dated May 20, 1925, set apart a fund of 20,000 shares in the names of trustees upon trust to pay to a lady, out of the income, 1,200 pounds per annum during her life, and any residue to be accumulated during the joint lives of the lady and himself and invest and accumulate the surplus income of the fund to the same joint lives. The accumulations were to be held in trust to supplement any deficiency of the income of the said fund. After the death of Mr. Hodson, the income of the accumulations was to be paid to the lady. By virtue of this settlement and a supplementary settlement, the surplus income of the settled fund during the period the lady's survivorship of the settlor was to be dealt with as specified the supplementary settlement, and on the death of the lady, the original settled fund and the accumulations fund were, by virtue of the settlement, to be held in trust for her children. On these facts, it was held by the Court of Appeal (pp. 208 and 209 of [1939] 1 All ER) :
'the accumulations fund 'passed 'within the meaning of section 1 of the Finance Act, 1894 (similar to section 5 of Estate Duty Act) on Mr. Hodson's death.... if the person beneficially interested are the same both before and after the death, and if the death merely removes the possibility of an alteration of their rights, as was, in the view of the House of Lords, the case in Attorney-General v. Lloyds Bank Ltd. [1935] AC 382, there is no passing; whereas in the present case, while the beneficiaries are, no doubt, the same before and after the death, but the death brings to an end one set of trusts of income and shifts the beneficial interest in the income to the possession of one who (though no doubt previously a contingent beneficiary) had no beneficial interest in possession before the death, there is a' passing 'within section 1 of the Act.'
13. In CED v. Hussainbhai Mohamedbhai Badri : [1973]90ITR148(SC) , under the term of the trust deed, one Ebrahimji settled certain immovable properties. He was entitled to the net income of the properties during his lifetime and after his death, 1/3rd of the income was to be given to his wife during her lifetime, 1/3rd to his eldest son and the remaining 1/3rd to be entrusted to the eldest son to be utilised for the benefit of the family of the settlor's youngest son. After the death of the settlor's wife, the trustees were to hand over the corpus to the eldest son and the family of the settlor's youngest son in equal shares. The eldest son was also one of the trustees. The question arose whether the entire trust properties, or only 1/3rd of the same passed on the death of the settlor's wife. The Supreme Court, after noticing the provisions of section 5 and the definition of the word 'property' occurring in section 2(15) and the expression 'property passing on death' in section 2, held (p. 152) :
'To ascertain whether property has passed a comparison must be made between the persons beneficially interested the moment before the death and the persons so interested the moment after the death.'
14. The supreme Court referred (p. 152) to the observation of Lord Russell of Killowen in Scott and Coutts and Co. v. Inland Revenue Commissioners [1937] AC 174 (HL) and also to the following passage in Green's Death Duties :
'If, after such a comparison, it appears that the beneficial enjoyment of the property (or a definable part thereof) was, in substance and in events, unaffected by the death the property (or that part thereof) did not pass on the death merely because as a matter of terminology one set of limitations then ceased to have effect and another became operative.
It is further observed therein :
'...... to the extent that there is no change or beneficial enjoyment defacto, property does not pass merely because the exact nature or extent of the beneficial interests after the death was not ascertainable until that event occurred; or because the beneficiary was entitled to income only before the death and to capital thereafter.' Proceeding further, the learned author says : 'Moreover, estate duty is not payable under section I (corresponding to our section 5) by reason only of a change of title where the same person was entitled as of right to the possession or income of the property both before and after the death. without interruption. Thus is so, even if before the death he had only a defeasible right to the income and after the death he has an indefeasible right to the capital'.'
The court observed that (p. 154 of 90 ITR) :
'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.'
15. The earlier ruling in Mahendra Rambai Patel v. CED : [1967]63ITR645(SC) was followed. The finding of the Supreme Court on the facts of that case was that only 1/3rd interest of the trust properties 'passed' on the death of the deceased.
16. Sri Murthy, learned counsel for the Revenue, relies on the following observations of the Supreme Court in Mahendra Rambhai Patel v. CED : [1967]63ITR645(SC) :
'An interest in property liable to be divested on the death before the beneficiary attains a certain age, coupled with a direction to accumulate the income in the meantime so far as it is not required for maintenanceso as to make the accumulated income an accretion tohe capital is in substance a contingent interest, and the property may be exempt from estate duty, if the beneficiary dies before he attains the age specified'.
17. in support of his contention that the interest of the beneficiaries in the present cease was contingent which blossomed into a vested interest only after the death of the settlor. In our view, this contention is untenable. In the very aforesaid case itself, the Supreme Court held th at (p. 650) :
'The income of the property absolutely belongs to the beneficiary and such part of the interest as is not applied for the benefit of the beneficiary is liable to be accumulated for his benefit, and in the event of his death before he attains the age specified in the deed of trust, it is to devolve upon his heir, creates in the beneficiary an interest in possession and not an interest in expectancy.'
18. In that case the question pertained to the death of one of the beneficiaries and not the settlor. The beneficiary on completion of the age of 25 years was to become absolute owner. But before that event, the beneficiary died and the settlement deed contemplated that the shares settled on the beneficiary were to devolve on certain persons. On the death of one of the beneficiaries before attaining the age of 25 years, in terms of the settlement deed, the property devolved on his heirs an d, therefore, the supreme court held that there was passing of property on the death of the beneficiary to the heirs specified in the settlement deed.
19. The question to be considered in the present case is, when did the property pass under section 5 of the Estate Duty Act In the case of ever person dying after the commencement of the Act, except as otherwise provided expressly, there shall be levied and paid upon the principal value ascertained of all property, settled or not settled, which passes on the death of such a person, a duty called 'estate duty' at the rates fixed in occordance with section 35. The expression 'property' is defined in section 2(15) as inclusive of 'any interest in property, movable or immovable, the proceeds of sale thereof and money or investment for the time being representing the proceeds of sale and also includes any property converted from one species into another by any method' Section 2(16) defines 'property passing on death' as inclusive of property passing either immediately on the death or after any interval, either certainly or contingently, and either originally or by way of substitutive limitation, and, 'on the death' includes 'at a period ascertainable only by reference to the death.' Therefore, with reference to the death of the settlor, it must be ascertained whether any property passed to the beneficiaries. On the terms of the settlement deed, it cannot be said that the discretion vested in the settlor came to an end with his death and, therefore, there was any passing of property. The descretion vested in the settlor under the deed of settlement was only to administer the property in a manner conducive to improving the value of the corpus. The accumulations from the trust did not depend upon the discretion of the settlor in the sense that he could dispense with those accumulations for a purpose other than for the benefit of the trust. The settlor had no beneficial interest in the trust. It is true that by clause 17, remuneration not in excess of Rs. 2,000 per annum was contemplated for each of the trustees for the services rendered by them as trustees. But this was never given effect to. By a document dated May 18, 1956, the Nizam and other trustees relinquished their remuneration. Based on clause 17, it cannot be said that there was any beneficial interest in the trust for the settlor. Therefore, on the death of the settlor, there is no warrant for the conclusion that any property passed to the beneficiaries.
20. The rule propounded by the House of Lords in Adamson v. Attorney General [1933] AC 257, squarely applies to the facts of the present case. In Admson's case the settlor by a settlement of March 24, 1924, settled a fund in the hands of the trustees for accumulation during his life and, on his death, the fund was to be held in trust for his children. The testator reserved to himself powers of dispensation over the capital and income of the fund in favour of the children, but the dispensation was not exercised. The House of Lords held that the property had passed to the children subject to various possibilities of defeasance on the making of the settlement. On the death of the settlor, although those possiblities of defeasance ceased, nothing more happened and, in particular the property did not pass within the meaning of section 1 of the Finance Act, 1894. In the present case, the beneficial interest in the property did not pass on the death of the settlor for the obvious reason that even assuming that there were various possibilities of defeasance, but since those possibilities of defeasance ceased with the death of the settlor - the death rendered impossible the happening of the events which would have deprived the successors of their interest - there was no passing of property within meaning of section 5 of the Estate Duty Act.
21. In CED v. Trustees of H. E. H. The Nizam's Family Pocket Money Trust : [1973]87ITR33(AP) , one of the public trusts crated by the late Nizam, where certain securities were allotted for the benefit of one of his grand-daughters but the beneficial interest was linked with the life of one of the wives of the settlor came up for consideration before this court. The trust deed provided that during the lifetime of Dulhan Pasha Begum, one of the wives of the settlor the trustees were to administer the income for Amina Marzia's (grand-daughter of the settlor) benefit for certain specified purpose, and after the death of Dulhan Pasha Begum, the beneficiary was to have the income spent as she wished. When Dulhan Pasha Begum died, the accumulated income and the corpus were subjected to estate duty on the ground that the property passed to the accountable persons, namely, the trustees. The court, while answering the question in favour of the assessee, observed (p. 37) :
'Amina Marzia had at no time any interest in the corpus which was to continue to be in trust to be administered for the benefit of Amina Marzia's children or as per the other instructions given in the trust deed. Her interest was only in the income. She had beneficial interest in the income even prior to the death of Dulhan Pasha Begum. Death of Dulhan Pasha Begum did not in any way determine her interest, except that till then the trustees in their discretion had to deal with the income for her benefit, whereas after the death, she could deal with the income herself. To certain extent, there was an enlargement of her right to deal with the income, but right through even before the death of Dulhan Pasha Begum and even after, her beneficial interest in the income had continued. The beneficial interest had become vested in her the moment the trust came into existence and the beneficial interest was not affected by the death of Dulhan Pasha Begum. Therefore, there was no passing of property on the death of Dulhan Pasha Begum.'
22. In CED v. Hussainbhai Mohammedbhai Badri : [1973]90ITR148(SC) , it was held adverting to the dictum laid down by Lord Russel of Killowen in Scott & Coutts and Company v. IRC [1937] AC 174, that estate duty is not payable by reason only of change of title where the same person was entitled as of right to the possession or income of the property both before and after the death without interruption and this would be the position even if before the death, the beneficiary had only a defeasible right to the income and after the death he has an indefeasible right to the capital. This fully applies to the case on hand. In the aforesaid case, the Supreme Court also laid down that 'property' passing on the death of the deceased implies 'change in the beneficial interest and not title'. What has to be considered is whether the deceased had any beneficial interest in the property and whether that interest passed to some one on his death. As already noticed by us, there was no beneficial interest for the settlor in the trust property and, therefore, there was no passing of any interest to the beneficiaries on the death of the settlor.
23. The very same trust deed which is the subject-matter of the present reference was considered by a Division Bench of this court comprising P. Jaganmohan Reddy C.J. (as he then was) and Krishna Rao J. in CWT v. Trustees of H. E. H. Nizam's Supplemental Family Trust : [1968]68ITR508(AP) , wherein the question was whether section 21(4) of the Wealth-tax Act was applicable for the purpose of assessment of wealth-tax. If the beneficiaries were not specified or indeterminate, the Wealth-tax Officer may levy and recover tax from the trustees under section 21(5). That would result in the whole of the wealth being made liable for assessment. Otherwise, if section 21(2) is to be applied, each of the beneficiaries would be liable to the extent of his share in the wealth of the trust. While answering the question in favour of the assessee, the Division Bench held (p. 510) :
'The only point that is canvassed before us is that the shares are not determinate, inasmuch as there is a term in the trust deed by and under which the income from the trust fund cannot be distributed during the lifetime of the settlor. According to the learned advocate for the Department, the term which requires accumulation of the income during the settlor's lifetime would make the shares indeterminate. But we are unable to understand how such a contention could be addressed because user the trues deed, the beneficiaries have a vested right in the accumulated income of the corpus and would be entitled to it in the event of the death of the settlor. In order words, there is a postponement of the enjoyment but it could not be contended that mere postponement of the enjoyment deprives the beneficiaries of their rights or that they have no vested rights in the income. If any of the beneficiaries do not servive the settlor, the provisions of the trust deed clearly show that the shares of each one of these persons will devolve according to their personal law so that the shares of heirs also will be determinate on the happening of the said event namely, the death of the settlor.'
24. We are in respectful agreement with the aforesaid view taken by this court.
25. Sir Murthy contends that the finding of the Division Bench of this court in CWT v. Trustees of H. E. H. Nizam's Supplemental Family Trust : [1968]68ITR508(AP) , that the beneficiaries have a vested interest in the accumulated income of the corpus is contrary to facts. We cannot agree for the reasons stated herein before by us. The view taken by the Division Bench in CWT v. Trustees of H. E. H. Nizam's Supplemental Family Trust : [1968]68ITR508(AP) , we have already noticed, was supported by the decisions of the Supreme Court in CED v. Hussainbhai Mohammedbhai Badri : [1973]90ITR148(SC) and Mahendra Rambhai Patel v. CED : [1967]63ITR645(SC) . We may also state that the rule expounded by the Court of Appeal in Inre Hodson's Settlement, Brookes v. Attorney-General [1939] 1 All ER 196, 209; 1 Ch 343, '......if the persons beneficially interested are the same both before and after the death, and the death merely removes the possibility of an alteration of their rights, as was, in the view of the House of Lords, the case in Attorney-General v. Ll Bank Lid. [1935] AC 382, there is no passing........' applies to the case on hand.
26. We must also take note of the fact that CWT v. Trustees of H. E. H. Nizam's Supplemental Family Trust : [1968]68ITR508(AP) , interpreting the very same trust deed, which is in question in the present reference, was rendered in April 1967, nearly two decades ago, and that decision with regard to the rights of the present beneficiaries and the obligations of the trustees was holding the field. We do not find any justification whatsoever to come to a different conclusion.
27. There is one more insurmountable difficulty in the way of the Revenue. The Tribunal recorded a finding that the present beneficiaries have been subjected to wealth-tax and income-tax separately even during the lifetime of the settlor. The Revenue treated them as independent owners to the extent of their beneficial interest. It is, therefore, not open to the Revenue to contend that the beneficiaries became real owners only after the death of the settlor. For the foregoing reasons, we answer the reference in favour of the assessee and against the Revenue. There shall be no order as to costs.