Bhagwati, C.J.
1. This reference raises a question relating to the applicability of section 5 of the Estate Duty Act, 1953, in relation to the settlement made by on Essoofalli Ebrahimji. The settlement was made on 15th July, 1938, and the subject-matter of the settlement consisted of several freehold and leasehold immovable properties. The settlor had a wife by the name of Safiabai and two sons, namely, Mohmedbhai and Salabhai. The settlor appointed Bai Safiabai, Mohmedbhi and himself as the trustees of the settlement and settled the immovable properties described in the Schedule on certain trust, which, so far as material for the purpose of the present reference, were as follows :
'6. After my death, whatever income may be realised shall be used and appropriated as follows by the trustees hereby appointed or any of the surviving trustees :
The net income of the said trust estate, after paying the interest on debt due by me, shall be divided at the end of every year into three (equal) shares and the said three shares shall be distributed in such manner as to give one share to my eldest son, Mohamedbhai Essoofalli, the second share to my wife Safiabai and the third share should be given for the maintenance of my younger son, Salehbhai, his wives and children and the said share shall be kept by my eldest son, Mohmedbhai, with himself and spent (by him) for the maintenance of the wives and children of Salehbhai but the said arrangement shall be subject to clauses 9 and 10 hereof....
(10) My eldest son, Mohamedbhai, has at present got four sons and one daughter, in all five children alive. Adamji is the youngest son of my eldest son Mohamedbhai. When Adamji completes the age of eighteen years and attains majority and if Safiabai had died before that time then, or if the said Adamji attained majority during the lifetime of Safiabai then when Safiabai dies then the trustees shall divide the trust properties in such a manner that one-half share shall be taken by my eldest son, Mohamedbhai, and if he had died before that then, that, share shall be given to his children and his wife and that shall be divided according to the dictates of my religion and the other half shall be divided according to the dictates of my religion and the other half shall be divided between wife and children of Salehbhai in such a manner that the two annas in a rupee share shall be given to each of his two wives and the remaining twelve annas shall be distributed amongst his (Salehbhai's) children according to the dictates of my religion and after doing so this trust shall be ended and in making division in this manner if disputes arose then none of the parties should go to court of law but if such an occasion arises then I appoint my trusted friends and advisers, Mr. Rangildas Ghelabhai Gandhi, Vakil, and Mr. Vithalbhai Lalbhai Hajari, for making such distribution and they shall intervene and distribute the trust property as arbitrators according to this trust. If, at that time both these arbitrators be not alive then the surviving arbitrator shall make the distribution but if both of them were not alive then each party shall get the distribution made by entrusting the matter to two arbitrators, one to be appointed by each party.'
2. The settlor died thereafter leaving his window, Bai Safiabai, and his two sons, Mohamedbhai and Salebhai, but we are not concerned with his death for the claim to estate duty in the present reference arises on the death of Safiabai and not on the death of the settlor. Bai Safiabai (hereinafter referred to as the deceased) died on 6th October, 1955, and on her death a question arose as to whether estate duty was exigible on the whole of the trust property or on any part of it and if so on what part. The Assistant Controller took the view that one-third of the trust property passed on the death of the deceased and was therefore includible in the principal value of the estate of the deceased. The contention of the accountable person was that no part of the trust estate could be said to have passed on the death of the deceased and he therefore preferred an appeal to the Appellate Controller. Subsequently, however, realising that the stand adopted by him was incorrect, he sought permission to withdraw the appeal but the Appellate Controller did not grant such permission as in his view the whole of the trust estate and not merely one-third part of it was includible as property passing on the death of the deceased. He accordingly issued a notice of enhancement to the accountable person calling upon him to show cause why the assessment should not be enhanced by including the entire value of the trust estate instead of merely one-third part of it. The accountable person raised a preliminary contention that the Appellate Controller had no power to enhance the assessment suo motu but this contention was rejected and the Appellate Controller taking the view that the whole of the trust estate passed on the death of the deceased, included the value of the entire trust estate in the principal valued of the estate of the deceased. The accountable person thereupon carried the matter further in appeal to the Tribunal. The Tribunal took the view that Appellate Controller was within his jurisdiction in issuing the notice for enhacement but on merits the Tribunal came to the conclusion that only one-third of the trust estate passed on the death of the deceased and not the whole of the trust estate as held by the Appellate Controller and accordingly modified the assessment. The Controller being aggrieved by the decision of the Tribunal made an application for reference of the questions of law arising out of the order of the Tribunal and, on the application of the Controller, the Tribunal referred the following two questions for the opinion of this court :
'(1) Whether, on the facts and in the circumstances of the case, the whole of the trust estate was to be included in the assessment or only a portion thereof and, if so, what portion
(2) If the entire value of the trust estate should be deemed to have passed on the death of the deceased, whether the whole of it should be included in the principal value of the estate or only a portion thereof, the balance being treated as forming a separate estate by itself in accordance with section 34(3) of the Estate Duty ct and if so what portion should be included in the principal value of the estate ?'
3. These two question were referred at the instance of the Controller but, at the instance of the accountable person, a third question was also referred to us for our opinion and that was :
'(3) Whether, on the facts of the case, the accountable persons in respect of the trust property were the trustees of the deed of trust dated 15th July, 1938, under section 53(1)(b) of the Estate Duty Act and whether as the trustees were not in appeal before the Appellate Controller the notice of enhancement given by the Appellate Controller to Mohamedbhai Essoofalli Badri, the original accountable person, was bad in law ?'
4. We may mentio straightaway that the third questioin wass not pressed by Mr. Bhabha on behalf of the accountable person and we need not there fore say anything about it.
5. The main question which ariese for consideration is the first question and its proper determination involves a consideration of the relevant provisions of the settlement. Clause 6 of the settlement provided for the disposal of the income of the trust estate after the death of the settlor and it said that the net income shall be divided at the end of every year into three equal parts : one part shall be given to the deceased : another part shall be given to Mohamedbhai and the third part shall be given for the maintenance of the wives and children of Salebhai. The net income was to be distributed in this manner until the period of distribution of the corpus provided in clause 10. The period of distribution, according to clause 10, was the completion of the age of eighteen by Adamji, the youngest son of Mohamedbhai, or the death of the deceased, whichever even happened later. On the arrival of the period of distribution provided in clause 10, the trustees shall divided the corpus into two equal parts; one part shall be given to Mohamedbhai and if he dies before the period of distribution then to his wife and children to be divided amongst them according to the dictates of the settlor's religion, and the other part shall be divided amongst the wives and children of Salebhai in such manner that two annas in a rupee shall be given to each of his two wives and the remaining twelve annas distributed amongst his children according to the dictates of the settlor's religion. It is clear from these two provisions, namely, clauses 6 and 10, that until the period of distribution of the corpus, one-third of the income was to go to the deceased, another one-third to Mohamedbhai and the remaining one-third to the wives and children of Salebhai and at the date of distribution the corpus of the trust estate was to be divided half and half, one-half going to Mohamedbhai and in the case of his death before the date of distribution to his children and his wife, and the other one-half going to the wives and children of Salebhai. Now it was common ground between the parties, and that was indeed a fact found by the Tribunal, that Adamji completed the age of eighteen years before the death of the deceased and the distribution of the corpus consequently opened at the date of the death of the deceased. The position which therefore obtained prior to the death of the deceased was that the deceased, Mohamedbhai and the wives and children of Salebhai were each in beneficial possession and enjoyment of the one-third of the trust estate and on the death of the deceased, one-half of the corpus of the trust estate went to Mohamedbhai and the other one-half went to the wives and children of Salebhai.
6. On these premises the revenue contended that estate duty was exigible on the death of the deceased in respect of the whole of the trust estate. The revenue claimed that the whole of the trust estate passed on the death of the deceased within the meaning of section 5 and estate duty was therefore chargeable under that section in respect of the whole of the trust estate. The claim to estate duty was founded wholly on section 5 and though in the course of arguments some reference was made to section 15, the revenue did not seek to bring the case within that section and rightly so since the settlement being made by the settlor and not by the deceased, no annuity or other interest could be said to be purchased or provided by the deceased so as to attract the applicability of that section. The narrow question which therefore falls for determination is whether the whole of the trust estate could be said to have passed on the death of the deceased within the meaning the meaning of section 5. To determine this question, we must comprehend the true meaning and connotation of the expression 'passes on the death' in section 5. We had occasion to consider this question in Mahendra Rambhai Patel v. Controller of Estate Duty : [1965]55ITR1(Guj) and after pointing out that, since our Estate Duty Act was modelled on the lines of the U. K Finance Act, 1894, it would be a fair presumption to make that, when the legislature enacted our Act,the legislature used the expression passed on the death' in the same sense in which it has been judicially interpreted in England. We observed :
'The question as to when property can be said to pass on death must be approached as one of substance and not of technicality. Ordinarily, when a person dies and his estate devolves on his heirs, there is passing of property. This is the simplest and most indisputable case of passing of property. But the category of passing of property is not exhausted by this case. There are very many more cases in which property passes on death and estate duty accordingly becomes payable. The expression 'passes on the the death' is not defined either in the U. K. Finance Act, 1894, or in our Act, but the classical meaning of it was given by Lord Parker of Waddington in Attorney-General v. Milne [1914] A. C. 765; 2 E. D. C. 8, when he said that it is used to denote some actual change in the title or possession of the property as a whole which takes change in the title or possession of the property as a whole which takes place at the death. He added that for the purpose of the section it is absolutely immaterial to whom or by virtue of what disposition the property passes. This statement of the meaning of the expression which has almost become sanctified into a definition has always been regarded as the starting point of the development of the law in relation to passing of property on death. A few years late, Viscount Haldane L. C. said in Nevill v. Inland Revenue Commissioner [1924] A. C. 385 : 2 E. D. C. 219, 'passes' may be taken as meaning 'changes hands'. THis observation emphasizes by a very apt and precise use of language that what is material to consider in passing of property is whether there is any change in the beneficial possession or enjoyment of property. This theme was was expanded on in several subsequent decisions, but it is not necessary to refer to all of them. It will be sufficient if we refer only to one of them, namely, Scott v. Inland Revenue Commissioner [1937] A. C. 174 : 2 E. D. C. 579.
We then proceeded to summarize the facts in Scott's case [1937] A. C. 174 : 2 E. D. C. 579 and pointed out that Lord Russel of Killowen accepted the law to be : '... that in order to constitute a passing or property on death within the meaning of section 1 of the U. K. Finance Act, 1894, there must be a passing beneficially from some person or persons to another person or persons...'
7. And referring to the speech of Lord Russel of Killowen, we went on to add :
'The learned Law Lord also said in the course of his speech that to answer the question whether a fund passes on the death of a person, a comparison must be made between the persons beneficially interested in the fund the moment before the death, and the persons so interested the moment after the death. These last observations contain a practical application of the test formulated by Lord Parker of Waddington in Milne's case [1914] A. C. 765; 2 E.D.C. 8. If there is a change in the beneficial possession or enjoyment of the property as a whole, it operates as passing of property. As observed by Lord Radcliffe in Public Trustee v. Inland Revenue Commissioner [1960] 1 All E. R. 1; [1961] 43 I.T.R.(E.D.), passing of property is equivalent to changing hands in enjoyment. In order to arrive at a correct decision of the question as to when property passes, we must focus our attention on a 'comparison between the persons beneficially interested in the fund the moment before the death, and the persons so interested the moment after the death'.... If after such comparison it appears that the beneficial possession or enjoyment of the property or a definable part there of is in substance and effect unaffected by the death, the property or a definable part there of is in substance and effect unaffected by the death, the property or that part of it cannot be said to have passed on death even if, as a matter of terminology, one set of limitations has ceased to have effect and another has become operative or the beneficiary was entitled to income only before death and has become entitled to capital thereafter. What attracts the change of estate duty is not mere change of source or title but change of beneficial possession or enjoyment. If the same person remains in beneficial possession or enjoyment of the property both before and after death, without interruption, there is no passing of property even if there is change of source or title.'
8. This is the test we must apply for the purpose of determining whether the whole trust estate passed on the death of the deceased. We must make a comparison between the persons beneficially interested in the trust estate the moment before the death and the persons so interested the moment after the death and see whether there is any change or shifting of beneficial possession or enjoyment of the trust estate or a definable part of it as a result of the death of the deceased. Now, obviously where interest in income enjoyed as of right during the deceased's life is merely enlarged on his death into a corresponding interest in capital, the beneficial possession or enjoyment remains unaffected by the death and there is no passing : In re Thomas Townsend [1901] 2 K. B. 331; 1 E. D. C. 336. But where, as in the present case, a beneficiary takes a larger share of the corpus on the death of the deceased then the share of which he previously enjoyed the income, there is a change of beneficial possession or enjoyment to the extent to which the 'corpus share' exceeds the 'income share' and there is to that extent passing of property on the death. The 'income share' is in such a case marshalled to the 'corpus share' and estate duty is payable only on the excess. This proposition is illustrated in Dymonds's Death Duties, thirteenth edition, at page 79, where it is stated by the learned author :
'If, in similar circumstances, B takes a larger share of the capital on the death of A than the share of which he previously enjoyed the income, the 'income share' is 'marshalled' to the 'capital share' so as to give the minimum liability, and also to fix the extent of non-aggregation. If, for example, the property was settled to pay the income during the life of A equally to A and B, and on A's death divided the capital equally between B, C and D, then : (i) no duty is payable on the third which B takes absolutely (which is wholly attributed to the half of which he was life-tenant); and (ii) duty is payable on the remaining two-thirds-as to half of the whole funds as passing from A to C and D (this part being aggregable), and as to the remaining sixth of the funds as passing from B to C and D (this part being non-aggregable on the footing that A never had an interest in it)...'
9. Hanson also gives a similar illustration at page 188 of his well-known book on Death Duties (tenth edition) :
'For example, if income is divisible during A's life equally between A and B and on A's death, capital between B, C and D, only two thirds of the property passes on A's death; B's one-third does not pass as he was previously entitled to its income It may be mentioned that the two thirds share which passes is made up of one half previously enjoyed by A and one sixth previously enjoyed by B Unless A was the settlor or had otherwise had some interest however remote in B's share of the property, the one-sixth will be exempt from aggregation as property in which A, the deceased, never had an interest'
10. Now, in the present case the moment before the death of the deceased, Mohammedbhai was beneficially entitled to the income of one-third of the trust estate and the moment after the death he was entitled to one-half of the corpus of the trust estate and to the extent of one-third, therefore, there was no change of beneficial possession or enjoyment : one third of the trust estate did not pass to Mohamedbhai on the death of the deceased as he was previously entitled to its income. So also there was no change in the beneficial possession or enjoyment of the one-third of the trust estate taken by the wives and children of Salebhai on the death of the deceased as they were beneficially entitled to its income even prior to the death of the deceased. The only change in beneficial possession or enjoyment of the trust estate took place in relation to the one-third previously enjoyed by the deceased. Prior to her death the deceased was entitled to beneficial possession or enjoyment of one-third of the trust estate but on her death, the beneficial possession or enjoyment of that part passed to Mohamedbhai and the wives and children of Salebhai in equal shares : one-sixth passed to the wives and children of Salebhai. It is therefore evident that only one-third of the trust estate, namely, that previously enjoyed by the deceased during her lifetime passed on her death. It was that part of the trust estate which changed hands in beneficial possession or enjoyment; before the death it was enjoyed by the deceased and after the death it passed in beneficial possession and enjoyment as to one-half to Mohamedbhai and as to the other one half to the wives and children of Salebhai.
11. The revenue did not seriously dispute the validity of this conclusion in so far as the one-half of the trust estate going to the wives and children of Salebhai was concerned, since they, admittedly, had a vested interest in it even prior to the death of the deceased and there was no change in the interest or the quality of the interest as a result of the death, but so far as the interest of Mahomedbhai was concerned, the contention of the revenue was that there was a change in the interest; before the death, Mohamedbhai had either a contingent interest in one-half of the corpus contingent on his being alive at the date of distribution or a vested interest liable to be defeated on his death prior to the date of distribution, while after the death he had a vested interest which was absolute and indefeasible and the latter interest being distinct and different in kind and quality from the former and arising for the first time on the death of the decease, there was passing of property within the meaning of section 5 in respect of one half of the trust estate vested in Mohamedbhai. The revenue sought to support this contention by relying on the decision of the English Court of Appeal in In re Parkes Settlement Trust [1956] 1 All E. R. 833; 3 E. D. C. 721. But we do not think this decision can be of any help to the revenue. This decision was concerned with a question arising under section 2(1)(d) of the U. K. Finance Act, 1894, corresponding to section 15 of our Act, and could not have any application in a case falling within section 5 which corresponds to section 1 of the English Act. Section 2(1) (d) of the English Act, which corresponds to the deceased shall be deemed to be included in the the expression 'property passing on the death of the deceased' to the extent of the beneficial interest accruing or arising on the death of the deceased and therefore where section 2(1)(d) of the English Act or section 15 of our Act is invoked by the revenue for attracting the charge to estate duty, it becomes necessary to inquire whether any fresh beneficial interest has accrued or arisen on the death of the deceased. If the interest of the beneficiary was contingent prior to the death and it became vested on the death or, though vested, it was defeasible on the happening of a condition prior to the death and on the death it became absolute and indefeasible, section 2(1)(d) of the English Act or section 15 of our Act, as the case may be, might be attracted as held in Adamson V. Attorney-General [1933] A. C. 257; 2 E. D. C. 419 and In re Parkes Settlement Trust case [1956] 1 All E. R. 833; 3 E.D.C. 721. The reasoning in such a case would be that on the death, a new beneficial interest came into being which was distinct and different in kind and quality from the previous interest. This was the reasoning on which the House of Lords in Adamson's case [1933] A. C. 257; 2 E. D. C. 419 and the Court of Appeal in In re Parkes Settlement Trust case [1956] 1 All E. R. 833 : 3 E.D.C. 721 held that section 2(1)(d) of the English Act was attracted. The House of Lords in Adamson's case [1933] A. C. 257; 2 E.D.C. 419 pointed out that there was a change in the interest of the beneficiaries : 'before the death they had a contingent interest which might have been divested : after it they had a vested interest'. But such an inquiry is irrelevant in a case where estate duty is sought to be charged under section 5. In such a case it is of no consequence whether a contingent interest becomes vested or an interest previously defeasible becomes indefeasible on the death. The only question relevant under section 5 is whether property has changed hands in beneficial possession or enjoyment as a result of the death, property cannot be said to have passed under section 5 merely because a contingent interest becomes vested or an interest previously defeasible becomes indefeasible on the death of the deceased, though it may be a relevant consideration in determining the applicability of section 15.
12. The decision in Adamson's case is clear authority for this proposition. In that case property was settled by the deceased upon trust to apply the capital and income for the settlor's children then living or thereafter to be born as the settlor should appoint, and, subject thereto, the income was to be accumulated. On the settlor's death the trust funds and accumulations were to be held for the settlor's children living at his death as he should, and, in default, two-fifth for his son if living at his death, and if not, as to the other three-fifths, for his other children living at his death. If no child of the settlor survived him, there was a gift over to the settlor's statutory next-of-kin at his death. The settlor died without having made any appointment either of income or of capital, leaving a son and three daughters who were also his only children living at the date of the settlement. The question arose whether the trust funds and accumulations passed on the death of the deceased. The revenue claimed that the trust funds and accumulations did pass and the claim was founded both on section 1 and section 2 (1) (d) of the English Act. The House of Lords by a majority held that the trust fund accumulations did not pass on the settlor's death under section 1. Lord Russell of Killowen pointed out that '(the son) was given an immediate vested interest in two-fifth of that property, but his interest was defeasible (a) if his father exercised, and to the extent to which he exercised, the special power of appointment... and (b) if he died in the lifetime of his father...' but '... property did not, in my opinion, pass either from the settlor or to John. It did not change hands. The effect of the death was not to pass it to John but to render impossible the happening of any of the events which would deprive him of his interest and make the property pass from him' so that on the death his vested interest became absolute and indefeasible. The learned Law Lord then proceeded to consider the case of the daughters and held that each of the daughters had a contingent upon her surviving the settlor, and this contingent interest was converted into a vested interest on the death of the deceased. But, said the learned Law Lord, 'mere turning of a contingent interest, into a vested interest or a defeasible interest into and indefeasible interest, was not a passing of property'. The death of the deceased certainly effected a considerable change in the nature and value of the beneficiary's interest : what was contingent interest became an indefeasible interest but there was no shifting of right to beneficial possession or enjoyment of the property and there was therefore no passing of property within the meaning of section 1 of the English Act was concerned, the House of Lords held that the change in each beneficiary's interest from a defeasible interest in expectancy to an indefeasible interest in possession was an interest accruing or arising on the death of the deceased and death duty was therefore leviable upon it under section 2 (1) (d). But we are not concerned with this latter part of the decision, for the revenue in the present case did not and could not invoke section 15 for the purpose of bringing the trust estate to charge of estate duty. The claim to charge estate duty was founded upon section 5 and, so far as that claim is concerned, the first part of the decision clearly shows that merely because a contingent interest becomes a vested interest or an interest previously defeasible becomes indefeasible on the death and therefore more valuable, property cannot be said to have passed within the meaning of section 5.
13. We are, therefore, of the view that, on the death of the deceased, only one third of the trust estate, namely, that previously enjoyed by the deceased, passed under section 5 and estate duty was exigible only in respect of that part of the trust estate. Our answer to the first question, therefore, is that only one-third and not the whole of the trust estate was liable to be included in the assessment. In view of this answer to the first question, as we have already pointed out above, was not pressed on behalf of the accountable person and does not therefore have to be answered. The Controller will pay the costs of the reference to the accountable person.