1. These two estate duty appeals, one by the accountable person and the other by the department are in respect of the estate duty matter in the case of the same deceased, namely, Shri Ashok Kumar Ramanlal Shah, and have arisen from the same appellate order of the Appellate Controller.
It was, therefore, considered expedient to consolidate these two appeals and to hear them together. They were, accordingly, heard and are now disposed of by this common order for the sake of convenience.
2. In her memo of grounds of appeal, the accountable person, namely, Smt. Anjana Ashok Shah, has drawn up four grounds of appeal. However, these boil down to only the following effective grounds: 1. That the Appellate Controller erred in confirming the order of the Assistant Controller (ACED) whereby the latter had included in the estate of the deceased the value of the assets of Trust Nos. II and III. 2. That, without prejudice to the contention stated above, even assuming that; the value of the assets of the aforesaid trusts was includible in the estate, the value of the interest of the deceased in the said trust funds at the time of his death would be, zero.
3. That the Appellate Controller erred in confirming the order of the ACED denying the accountable person's claim for deduction from the principal value of the estate, of the amount of estate duty payable.
3. So far as the department's appeal is concerned, the grounds raised are as follows: 1. On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in directing the ACED to adopt the value of the immovable property known as 'Petit Hall' at Rs. 2,76,880 as against the value of Rs. 4,74,000 adopted by the Assistant Controller in the assessment on a valid basis.
2. On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in directing the ACED to value the shares of the private limited companies as per rule1Dof the Wealth-tax Rules, 1957, instead of upholding the valuation adopted by the ACED in the assessment as per Section 37 of the Estate Duty Act, 1953, ('the Act').
3. On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in holding that the value of the share in the insurance policies taken out by the HUF should be adopted on the basis of their surrender value and not on the basis of the actual amount receivable.
4. Shri Ashok Kumar Ramanlal Shah died on 3-3-1974. An estate duty account was filed by his widow/accountable person, Smt. Anjana Ashok on 3-5-1975, declaring an estate of Rs. 4,14,535 as personal and of Rs. 3,71,700 as the value of the coparcenary interest ceasing on death.
Besides, three separate returns were also filed by the executors and trustees in respect of three trusts of which the deceased was a beneficiary. These returns were filed on 11-4-1975 declaring the value of the interest of the deceased at Rs. 60,000 in each of the two returns relating to Trust Nos. II and III and Rs. 3,00,000 in respect of Trust No. I. Subsequently, on 6-5-1977 revised returns were filed along with a written submission that the separate returns initially filed were under the impression that the corpus of the trust passed as a separate estate under Section 34(3) of the Act, and that, however, having now been advised that nothing passed on the death of Ashok Kumar Ramanlal Shah in respect of these trusts in view of exemption available under Section 23 of the Act, revised returns are filed showing the 'trust-estate' at nil.
5. The ACED accepted the claim of the accountable person in respect of Trust No. I on finding that the deceased had no interest in the corpus of the trust as his son had already acquired a vested interest in the said corpus. However, in respect of Trust Nos. II and III created on 29-3-1957 by Ramanlal Damodardas Shah, father of the deceased, and by Smt. Taramati Ramanlal Shah, mother of the deceased, respectively, the ACED did not accept the contention of the accountable person in view of the fact that in the assessments to wealth-tax in the case of the deceased Ashok Kumar Ramanlal Shah, the question of inclusion of his interest in the corpus of the said trusts had been the subject-matter of reference to the Gujarat High Court and the latter has held that the interest of Ashok Kumar Ramanlal Shah in the corpus 'is neither spes successionis nor a contingent interest depending on the assessee being alive on 31-3-1987 but a vested interest and, therefore, capable of valuation and should be valued as such'--CWT v. Ashokkumar Ramanlal [1967] 63 ITR 133 (Guj.). The ACED observed that the aforesaid judgment of the Gujarat High Court has been accepted by the accountable person inasmuch as no appeal to the Supreme Court has been preferred.
Accordingly, the ACED included the value of the corpus and accumulations of the aforesaid Trust Nos. II and III in the principal value of the estate of the deceased for the purpose of estate duty assessment. The accountable person challenged this decision before the Appellate Controller with arguments which may be summarised as under: 1. That the interest of the deceased was purely a contingent interest and not a vested interest (according to the relevant clauses of the trust deeds) for, if he died before 31-3-1987, he would have no right to the corpus or the accumulated incomes of these trusts.
2. That in any case, the Gujarat High Court decision was delivered in the context of wealth-tax assessment and it would not apply in the estate duty matters.
3. That since the deceased had already brought into existence children, the power of appointment which was vested in him under the trust in case he did not have any children, became dead and inoperative and, thus, he was not competent to dispose of the said interest, which, consequently, could not be added to his estate.
It was finally urged on behalf of the accountable person that in case it is held that the deceased did have a vested interest in the said trust, it must be noted that such interest did not become interest in possession because Ashok Kumar Ramanlal Shah died before 31-3-1987 and, therefore, the exemption envisaged in Section 23 would apply.
6. The Appellate Controller considered these arguments but rejected them by pointing out that in the first place, what is to be taxed is the estate passing on death and, therefore, any interest contemplated is that which existed before death and did not exist after death and that, in this context, the Gujarat High Court in Ashok Kumar Ramanlas case (supra) having held that the deceased had a vested interest in the two trusts even in the past, the said interest continued to exist even up to the point of time of death of said Ashok Kumar Ramanlal Shah. He expressed the view that the expressions 'time of his death' and the 'value at the time of death' on which emphasi s was placed on behalf of the accountable person to say that the value of the vested interest was nil, had no practical relevance. As for the alternate ground, i.e., concerning the applicability of Section 23 to the interest of the deceased in the trusts, the Appellate Controller was of the view that though the interest had failed or determined before it became an interest in possession, Section 23 did not confer a blanket exemption on all interests which so fail; for, it further qualifies that 'one or more subsequent limitation should continue to subsist' It was, however, contended before him that in fact such a subsequent limitation continued to exist inasmuch as the corpus and accumulated income of the trust in question continued to be vested in the trustees since the children of the deceased to whom they were to be handed over were minors at the time of death and this was the 'limitation' within the meaning of Section 23. The Appellate Controller did not accept this argument because, in his view, the subsequent limitation mentioned in Section 23 cannot refer to a limitation of this kind which was imposed by statute regarding minors. He pointed out that the limitation has to be one attributable to the volition of the settlor and must be one actually forming part of the settlement or disposition. Since no such subsequent limitation subsisted in the present case, the Appellate Controller held that Section 23 was also not applicable. He added that since the Gujarat High Court had held that the interest of the wife and that of the husband were the same, there was no question of interest in Trust Nos. II and III forming a separate estate. Accordingly, he upheld the action of the ACED in including in the estate of the deceased the interest of the deceased in the corpus and accumulated incomes of both Trust Nos. II and III.6.1. It is this decision of the Appellate Controller that is now being challenged before the Tribunal.
7. Shri H.D. Nanavati, the learned Counsel for the accountable person, after reiterating the arguments which were advanced by him before the Appellate Controller, laid great stress on the following argument: That the corpus of the two Trust Nos. II and III by virtue of Clause 3(c) of the relevant trust deeds was to go to Ashok Kumar Ramanlal Shah absolutely only if he were alive on 31-3-1987 and that Ashok Kumar Ramanlal Shah having died on 3-3-1974, i.e., well before the aforesaid date, his interest had failed before becoming interest in possession and that the two trusts continued to subsist after the death of Ashok Kumar Ramanlal Shah and are subsisting even to this day and are being assessed separately as such trusts. It was urged that, therefore, the 'subsequent limitation under the settlement' within the meaning of Section 23 continued to subsist and, therefore, the property in question shall not be deemed to pass on the death of Ashok Kumar Ramanlal Shah.
7.1. Proceeding further, Shri Nanavati tried to explain the purport of 'vested interest' in the light of Section 19 of the Transfer of Property Act, 1882, and pleaded that so far as the interest of the deceased, namely, Ashok Kumar Ramanlal Shah, in the corpus of the two trusts was concerned, it was only a 'contingent interest' within the meaning of Section 21 of the Transfer of Property Act and did not come within the pale of the 'Exception' contemplated in the said Section 21.
He sought to support this submission by reference to the House of Lords decision in the case of Gartside v. IRC [1968] 70 ITR 663 as also the decision in the case of Attorney-General v. Power [1966] 2 IR 272. He also referred to certain observations of the Supreme Court in the case of Mahendra Rambhai Patel v. CED [1967] 63 ITR 645. Lastly, Shri Nanavati submitted that the true meaning of 'subsequent limitation' envisaged in Section 23 of the Act, which is in pari materia with Section 5(3) of the UK Finance Act, 1894, would be clear from the fact that the interest of the deceased had failed before it became interest in possession and his heirs were entitled to the corpus in their own right and the trustees continued to hold such corpus for the benefit of the said heirs. He tried to further strengthen his argument with reference to the observations of the Gujarat High Court on 'subsequent limitation' in Section 23 in the case of Mahendra Rambhai Patel v. CED [1965] 55 ITR (ED) 1, 25, 26 (Guj.) which were made in the light of the judgment in the case of Attorney-General v. Wood [1897] 2 QB 102, 109.
Shri Nanavati, therefore, urged that the claim of the accountable person under Section 23 be upheld. Shri S. Krishnan, the learned departmental representative, on his part, relied on the orders of the ACED and the Appellate Controller which were based on the judgment of the Gujarat High Court in the case of Ashok Kumar Ramanlal Shah (supra).
8. We have given careful thought to all the aforesaid submissions and arguments, vis-a-vis the facts and circumstances of the case, the relevant clauses of the trust deed in question and in the light of the several judicial decisions on the points at issue, and we have come to the following conclusion: The first and foremost argument of Shri Nanavati, on behalf of the accountable person, has throughout been that the interest of the deceased, Ashok Kumar Ramanlal Shah, was purely a contingent interest and not a vested interest because, according to him, Ashok Kumar Ramanlal Shah, having died before 31-3-1987, he could have no right to the corpus or to the accumulated income of the two trusts in question. His second and alternative argument was that, even if the interest of the deceased was taken to be a vested interest, it had failed or was determined before it became interest in possession and that in view of subsisting subsequent limitations, the provisions of Section 23 applied to the case of the deceased.
9. The answer to the first argument has been effectively given by their Lordships of the Gujarat High Court in the wealth-tax case of Ashok Kumar Ramanlal Shah (supra) and the plea of Shri Nanavati, that the said decision having been pronounced in a wealth-tax case was not applicable in the estate duty case, is untenable for the simple reason that in the said wealth-tax case, just as in the present estate duty matter, the Court was concerned with the question whether the assessee, Ashok Kumar Ramanlal Shah (the deceased in the instant case), had vested interest both in the income and in the corpus of the trust funds on the proper construction of Clause 3 of the relevant trust deed. The Gujarat High Court has, after considering and interpreting the Clauses 3(b), 3(c), 3(d) and 3(e) of the trust deeds (executed by Shri Ramanlal, father of Ashok Kumar Ramanlal Shah, and Smt. Taramati, mother of Ashok Kumar Ramanlal Shah, and now described as Trust Nos. II and III) in the light of the relevant case law, held that there is clear indication that the intention of the settlor was that Ashok Kumar Ramanlal Shah should receive a vested interest in the corpus and that the period of distribution alone should be postponed to 31-3-1987. The Court has pointed out that-- ...The trust deed recites that the trust is being made for the benefit of the assessee. Then there is the gift of the corpus to the assessee in Clause 3, Sub-clause (c), under which the corpus is to be handed over to the assessee on the 31st March, 1987, if he is then alive and in the meantime the whole of the intermediate income is given to or for the benefit of the assessee. If the assessee dies before 31st March, 1987, leaving a child or children, the corpus is to go to such child or children and if the assessee dies before 31st March, 1987, without leaving any child, the corpus is to be disposed of in accordance with the terms of any appointment which may be made by the assessee in exercise of the general power of appointment conferred upon him under Clause 3, Sub-clause (e), and failing such appointment, the corpus is given to the heirs of the assessee. The conferment of a general power of appointment on the assessee is a very important factor showing that the assessee was intended to have a vested interest. It is rather difficult to conceive that the settlor should have conferred a general power of appointment on a donee who was merely entitled to a contingent interest in the corpus. The fact that on the death of the assessee, without exercising the power of appointment, the corpus would go to his heirs according to the law of intestate succession is also a circumstance strongly indicative of the intention that the assessee should have a vested interest.... (p. 151) Their Lordships have also explained that the direction in Clause 3, Sub-clause (b) of the trust deeds, satisfied the requirement of the exception of Section 21 in the following terms: ... Clause 3, Sub-clause (b), provides that the trustees shall be under an obligation to apply the net income or such portion thereof as they in their absolute discretion think fit for the benefit of the assessee and his wife. Now the assessee would certainly be bound to provide for his wife and a provision for the benefit of the assessee's wife must therefore be regarded as a provision for the benefit of the assessee. It is not as if any part of the income is directed to be applied for the benefit of a third person. The provision is for the benefit of the assessee and his wife, who together constitute a family or a unit, and a provision which requires that the net income shall be applied for the benefit of the assessee and his wife would certainly be a provision for the benefit of the assessee. Then again, it is worthy of note that if there is any surplus income, it is to be accumulated for a period of not more than 18 years and on the assessee being alive on 31st March, 1987, the accumulation of the income is to be transferred and handed over to him along with the corpus. Even if the assessee dies before 31st March, 1987, and Sub-clause (d) or (e) of Clause 3 becomes applicable, the accumulation of the income is not to be paid over to the persons specified in such sub-clause but it would go to the heirs of the assessee as property belonging to the assessee, if the assessee dies intestate or according to the terms of the will, if he dies after having made a will. The whole of the intermediate income is thus given to or for the benefit of the assessee. It is, therefore, clear that the exception to Section 21 applied and the gift made to the assessee in Clause 3, Sub-clause (c), though apparently contingent, must be held to be vested. (p. 150) 9.1 This exposition of the legal position by the Gujarat High Court disposes of the argument of Shri Nanavati that the case of Ashok Kumar Ramanlal (supra) did not come within the pale of the 'Exception' envisaged in Section 21, which defines 'contingent interest'. As for the reference by Shri Nanavati to the case of Mahendra Rambhai Patel (supra), we find that the said decision does not assist the contention of Shri Nanavati that the interest of late Ashok Kumar Ramanlal Shah was a 'contingent interest' inasmuch as in the case of Mahendra Rambhai Patel (supra) his interest in property was liable to be divested in the event of his death, i.e., the death of the beneficiary, before he attained a certain age. This event was uncertain of occurrence and, therefore, the Court had observed that such an interest was, in substance, a contingent interest. But the Supreme Court itself has held in that very case as under: ...But where, as in the present case, 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 heirs, creates in the beneficiary an interest in possession and not an interest in expectancy. (p. 650) (In coming to this decision, the Supreme Court distinguished on facts the judicial decision in the Irish case reported in Power's case (supra), cited before us by Shri Nanavati).
9.2 This, in our view, goes a step further than the decision of the Gujarat High Court in the case of Ashok Kumar Ramanlal (supra), where the Gujarat High Court had, on interpretation of the relevant clauses of the trust deeds, held that the beneficiary's interest was a vested interest. If that be so, then as decided by the Supreme Court in the case of Mahendra Rambhai Patel (supra), Section 23 shall have no application to the present case either. In this view of the matter, the question whether 'subsequent limitation 'as envisaged in Section 23 subsisted, would not arise for consideration and, consequently, the reference by Shri Nanavati, the learned Counsel, to certain observations on pages 25 and 26 of Mahendra Rambhai PateVs case (supra) would lose its relevance. On the other hand, it may be pointed out that in the said decision in the case of Mahendra Rambhai Patel's case (supra), the Gujarat High Court has explained what an 'interest in possession' within the meaning of Section 23, is in the following terms: ...The answer is not difficult to find if we bear in mind that what the Act has in view for the purpose of imposing the charge of estate duty is the change of beneficial possession or enjoyment of property on death. If the deceased is entitled to the income of settled property or to any definite and ascertained amount out of such income, his interest under the settlement would certainly be an interest in possession, for he would have present beneficial possession or enjoyment of settled property to the extent of such interest and on his death such beneficial possession or enjoyment would change resulting in passing of property... (p. 26) This view has been upheld by the Supreme Court in the case of Mahendra Rambhai Patel (supra).
10. For reasons explained above, we hold that the interest of the deceased in the corpus and accumulated income of Trust Nos II and III was a vested interest in possession and it did not come within the purview of exemption envisaged in Section 23. We also hold that as such, it is susceptible of being valued and its value was not nil at the time of its passing on the death of said Ashok Kumar Ramanlal Shah.
Thus, the first two grounds of appeal raised by the accountable person are decided against her.
11. The third ground, which relates to the claim of deduction on account of estate duty, has only to be stated to be rejected since it is a well settled point of law that such claim of deduction is not admissible.
13 to 17. [These paras are not reproduced here as they involve minor issues.)