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PETITIONER: CONTROLLER OF ESTATE DUTY, WEST BENGAL

       Vs.

RESPONDENT: USHA KUMAR & ORS.

DATE OF JUDGMENT20/11/1979

BENCH: VENKATARAMIAH, E.S. (J) BENCH: VENKATARAMIAH, E.S. (J) TULZAPURKAR, V.D.

CITATION:  1980 AIR  312            1980 SCR  (2) 241  1980 SCC  (1) 315

ACT:      Estate  Duty   Act  1953,   S5-Estate  Duty-Trust  deed providing property to belong to and remain with trust-Income from trust  property-utilization for  religious,  charitable purposes and benefit of descendants of settlor-Whether valid trust-whether property  devolved on settlor’s son and passed on his death-liability to estate duty.

HEADNOTE:      One ’W’  executed a  deed of  trust transferred all his properties to  the said  trust and  appointed himself as the first managing trustee for a period of one year and directed that after he ceased to be the trustee, his son the deceased should act  as the  managing trustee of the Trust and on his death, the  deed directed  that his  sons,  grand-sons  etc. should be  appointed as trustees. The deed provided that the properties should belong to the trust and continue to remain with the  trust and  that none of the heirs of the author of the trust  could have  the power  to deal with them as their own or to alienate them. The trust deed provided that out of the income from the trust properties in any year, one-fourth thereof  should  be  utilized  for  the  payment  of  taxes, expenses of  the repairs,  alterations, reconstructions etc. Of the  trust properties. One-half of the balance, i.e. one- half of  three-fourths of the income should be spent for the sevas  of   the  family   deities,  performance  of  certain specified  pujas,   sradhas  and   certain  other  religious purposes. The  remaining income  i.e.  three-eights  of  the total income  was permitted  to be  used by the trustees and other members of the family.      After the  death of  the author  of the trust, his son, the deceased, became the trustee. On his death, the question whether the  properties which were the subject matter of the trust should  be included in the estate passing on his death arose for consideration in the estate duty proceedings.      The accountable  persons contended before the assessing authority, the  Deputy Controller  of Estate  Duty, that  no estate  duty  was  payable  in  respect  of  the  properties comprised in  the trust, as the said properties did not pass on the  death of  the deceased.  The Deputy  Controller held that the  provisions of  the  trust were such as to keep the properties tied  up  in  perpetuity  without  any  power  of

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alicnation and  since the  purpose for  which the  trust was created was  not a  public or charitable one, the trust as a whole was  void, and  held that the properties passed on the death of the deceased under section 5 of the Act.      In appeal,  the Central Board of Revenue held that even though the  purpose of  the trust was said to be for certain religious purposes,  the further directions contained in the deed providing  for certain  personal expenses of the author of the  trust, his  heirs to  succeed him  as trustees,  and stipulating that the trustees were not competent to alienate the trust properties led to the inference that the intention of the  author executing the deed of the trust was "not only to provide  for the  worship of deities but also for meeting the secular expenses of the family 242 members and  future heirs"  and since the trust offended the rule against  perpetuities it  was void  in law  and all the properties comprised  in the  said trust  should be  held to pass under section 5 of the Act.      The High  Court in the reference under section 64(1) of the Act  at the  instance of  the accountable  persons, held that the  properties comprised  in the  deed which created a Hindu religious trust could not be included in the estate of the deceased as properties passing on his death.      In the appeal to this court on the question whether all or any  part of the properties which were the subject matter of the trust could be treated as passing on the death of the deceased for  purposes of  levy of  estate  duty  under  the Estate Duty Act, 1953. ^      HELD :  1. Only  one-half of  the properties which were the subject  matter of the trust deed passed on the death of the deceased  under section  5 of  the Act and the remaining one-half did not. [248 D]      2. The  High Court  was in  error in  holding that  the whole  of  the  trust  properties  constituted  a  religious endowment and  did not  pass on  the death  of the deceased. [248 C]      3. If  the  terms  of  the  document  under  which  the properties or  their income  are  gifted  or  bequesthed  or settled amount to their complete dedication for religious or charitable purposes,  then any  part thereof  which is given away by  way of  gift or bequest or settlement to any person contrary to  the  rule  against  perpetuities  or  the  rule against the  accumulations enures  to  the  benefit  of  the endowment and  becomes a  part of the properties endowed. On the other hand, if the dedication is partial such part which is hit  by the rule against perpetuities or the rule against accumulations reverts  to the  executant of  the document or his heirs. [247 F-G]      In the  instant case,  under the  trust one-half of the total income  from  the  properties  in  question  had  been directed to  be used  for religious  purposes. The remaining one-half of  the income  was permitted  to be  used  by  the trustees for the purpose of defraying joint family expenses, to engage servants, maintain a conveyance, meet the expenses of the  marriage of the daughters of the trustees etc. There was no  transfer of the properties to any idol or deity, the title to  the properties  remaining only  with the trustees, who were  allowed to  enjoy one-half  of the  net income not because they  were shebaits but because they were members of the family. [246 F-G, 247 B]      4. The  dominant intention in creating the trust was to benefit the members of the family of the author of the trust and to  see that  the properties  were not alienated by them

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for ever. There was only a partial dedication under the deed for religious purposes. The provision for the benefit of the trustees and  other heirs and relatives of the author of the trust fails  as it  is hit by the rule against perpetuities. This does  not however  affect the validity of the religious endowment. [247 C-D]      5. One-half  of the  properties covered  by  the  trust corresponding to  one-half of  the total income which had to be spent  on religious purposes considered as not passing on the death of the deceased. The religious endowment made in 243 this regard  would  not  fail  despite  the  fact  that  the remaining one-half  of the properties retained their private and  secular   character.  The  remaining  one-half  of  the properties remaining  undisposed of  and being  held by  the decased immediately  before his  death, should  be deemed to pass on his death for purposes of section 5 of the Act. [248 A-B]      S. Shanmugam  Pillai &  Ors. v.  K. Shanmugam  Pillai & Ors. (1973) 1 S.C.R. 570 ref. to.

JUDGMENT:      CIVIL. APPELLATE JURISDICTION : Civil Appeal No. 401 of 1973.      From the  Judgment and  Order dated  21-5-1971  of  the Calcutta High Court in Matter No. 95/65.      T. A.  Ramachandran and  Miss  A.  Subhashini  for  the Appellant.      V. S.  Desai, D.  N. Mukherjee  and N. R. Chaudhary for the Respondent.      The Judgment of the Court was delivered by      VENKATARAMIAH, J.  In this  appeal by  certificate, the question which  arises for  consideration is  whether all or any part  of the properties which were the subject matter of a trust  can be  treated as  passing on  the death of Panchu Gopal Banerjee  (hereinafter referred  to as ‘the deceased’) for purposes  of levy  of estate  duty under the Estate Duty Act, 1953 (hereinafter referred to as ‘the Act’).      The deceased  was the  son of Woomesh Chandra Banerjee. Woomesh Chandra  Banerjee executed  a deed  of trust on June 27, 1939  constituting a  trust  known  as  ‘Sri  Sri  Iswar Jagadhatri Sampad’  and transferred all his properties which were described  in the  Schedule attached to the deed to the said Trust  and appointed  himself  as  the  first  managing trustee for  a period of one year. He directed that after he ceased to  be the  trustee, his son, the deceased should act as the  managing trustee  of the  trust. On the death of the deceased, the  deed directed, that his sons, grand-sons etc. should be  appointed as  trustee. The deed provided that the properties should belong to the trust and continue to remain with the  trust and  that none of the heirs of the author of the trust  could have  the power  to deal with them as their own or  to alienate. The trust deed provided that out of the income from  the trust  properties in  any year,  one-fourth thereof should  be utilized  for payment of taxes in respect of the trust properties and for the expenses of the repairs, partial  constructions,   additions,  alterations   and  re- constructions of  the houses  referred to  in  the  Schedule attached to  the deed. If there was any surplus remaining in the said  one-fourth after  paying the taxes and meeting the expenses referred to 244 above, it was open to the trustees to acquire new properties

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and the  properties so  acquired should  be deemed to be the trust properties. The deed further directed that one-half of the balance  i.e. one-half  of three-fourths  of the  income should be  spent  for  the  sevas  of  the  family  deities, performance of  certain  specified  pujas  and  sradhas  and certain other  religious  purposes.  There  was  a  specific direction that  the said  portion of  the income  should  be spent entirely  on religious  work and  that at  no point of time there  should be  any  departure  therefrom.  In  other words, the  trust deed  directed that  three-eights  of  the total  income   should  be   spent  towards   religious  and charitable works. The remaining income i.e. three-eighths of the total  income was  permitted to  be used by the trustees and other  members of  the family.  Since one-fourth  of the total income  which was  ear-marked for  payment of taxes in respect of all the properties and for their repairs etc. and any surplus  remaining out  of it  was to  be  utilized  for acquiring new  properties for  the trust, the only inference which could  be drawn from the reading of the entire deed is that in  all one-half  of the total income was earmarked for religious  purposes  and  the  remaining  one-half  for  the benefit of the trustees and the members of their family.      Woomesh Chandra  Banerjee, the author of the trust deed died in  or about  the year  1941 and his son, the deceased, became the  trustee under  the deed  of trust.  The deceased died on  April 17,  1955 and  on  his  death,  the  question whether the  properties which were the subject matter of the trust should  be included in the estate passing on his death arose for  consideration in the estate duty proceedings. The accountable persons  contended before  the Deputy Controller of Estate  Duty who  was the  assessing  authority  that  no estate  duty  was  payable  in  respect  of  the  properties comprised in  the trust  (valued by the Deputy Controller at Rs. 2,89,000)  as the  said properties  did not  pass on the death of  the deceased.  The Deputy Controller held that the provisions of  the trust were such as to keep the properties tied up  in perpetuity  without any  power of alienation and that since  the purpose  for which the trust was created was not a  public or  charitable one,  the trust  as a whole was void. He accordingly held that the said properties passed on the death  of the deceased under sections 5 of the Act. This part of  the order  of the Deputy Controller was affirmed in appeal by the Central Board of Revenue in Estate Duty Appeal No. Cal./134  by its  order dated  April 3,  1961. The Board held that  even though  the purpose of the trust was said to be for  certain religious  purposes, the  further directions contained  in   the  deed  providing  for  certain  personal expenses of  the author  of the  trust, his  heirs who would succeed him  as trustees  and the  members of his family and stipulating that the trustees were not 245 competent to  alienate  the  trust  properties  led  to  the inference that  the intention  of the  author executing  the deed of  trust was  "not only  to provide for the worship of deities but  also for  meeting the  secular expenses  of the family members  and future  heirs" and  that since the trust offended the  rule against  perpetuities, it was void in law and all the properties comprised in the said trust should be held to pass under section 5 of the Act.      On a  reference under  section 64(1)  of the Act at the instance of  the accountable  persons,  the  High  Court  of Calcutta held  that the  properties comprised  in  the  deed which created  a Hindu religious trust could not be included in the  estate of  the deceased as properties passing on his death. Aggrieved  by the  decision of  the High  Court,  the

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Controller of Estate Duty has filed the above appeal.      The learned  counsel for  the  parties  cited  a  large number of  decisions  before  us  bearing  on  the  question whether the  properties which  were the  subject  matter  of trust had  been absolutely  dedicated for religious purposes or whether they retained their private and secular character but subject  only to  a charge in favour of religious trust. It is  enough for  the purpose of this case to refer to only one of  them i.e. S. Shanmugam Pillai & Ors. v. K. Shanmugam Pillai &  Ors.(1) in  which it  is observed by this Court as follows :-           "As   observed   by   this   Court   in   Menakuru      Dasaratharami Reddi  & Anr.  v. Duddukuru  Subba Rao  &      Ors. (AIR  1957 S.C. 797) that dedication of a property      to religious  or  charitable  purposes  may  be  either      complete or  partial. If  the dedication  is complete a      trust in  favour  of  a  charity  is  created.  If  the      dedication is  partial, a  trust in favour of a charity      is not created but a charge in favour of the charity is      attached to,  and follows,  the property  which retains      its original  private and secular character. Whether or      not a  dedication is  complete  would  naturally  be  a      question of  fact to  be determined in each case on the      terms of  the relevant  document if  the dedication  in      question was  made under  a document. In such n case it      is always  a matter  of ascertaining the true intention      of the  parties, it  is obvious  that such an intention      must be  gathered on a fair and reasonable construction      of the document considered as a whole. If the income of      the property  is substantially  intended to be used for      the purpose  of a charity and only an insignificant and      minor portion of it is 246      allowed  to   be  used   for  the  maintenance  of  the      worshipper or  the manager,  it may be possible to take      the view  that dedication is complete. If, on the other      hand, for the maintenance of charity a minor portion of      the income  is expected  or required  to be  used and a      substantial surplus is left in the hands of the manager      or worshipper for his own private purposes, it would be      difficult to accept the theory of complete dedication".      In that  case, the  document under which it was claimed that a complete dedication of certain property had been made for religious  purposes contained  a recital  which read  as follows :-           "If, after conducting the said charities properly,      there be any surplus, the same shall be utilized by the      said  Shanmugam   Pillai  and   his  heirs  for  family      expenses.  They   should  also   look  after  the  same      carefully and properly."      On the  basis of the evidence available in the case and the recitals  in the  document including  the one  extracted above, the  Court concluded  : "This  shows that  the entire income of  the properties  set apart  for charities  was not thought to be necessary for conducting the charities. It was for the  plaintiffs to  establish that  the  dedication  was complete and  consequently there  was a  resulting trust. As they have  failed to  establish the same, for the purpose of this case,  we  have  to  proceed  on  the  basis  that  the dedication was  only partial and the properties retained the character of private properties."      In  this  case  the  only  question  which  arises  for consideration is  whether the  trust properties  or any part thereof  has   ben  endowed  for  religious  and  charitable purposes or  not. Even  according to  the Central  Board  of

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Revenue under  the trust  deed a  portion of the income from the properties  in question had been directed to be used for religious purposes.  The portion of the income so ear-marked in the  instant case  as observed  by us  earlier  could  be reasonably taken  to be  one-half of  the total  income. The remaining one-half of the income was permitted to be used by the trustees  for the  purpose of defraying the joint family expenses, to  engage servants,  to maintain a motor car or a horse and carriage and to meet the expenses of the marriages of the  daughters of  the trustees. It is also seen that the author of  the trust  directed  that  "if  any  one  of  the daughters-in-law of  my line  happens to be a child widow or without a  son and  if she  be adhering  to her  own  faith, observes purdas,  and lives  in the  joint family  and house along with  the trustees  she shall get her maintenance etc. from the joint 247 family." A  similar provision  was made  with regard  to the daughters of  the  family  who  happened  to  be  widows  in indigent circumstances.      There was  no transfer of the properties to any idol or deity. The  title to  the properties  was directed to remain only with  the trustees. The members of the family were also permitted to  reside in the joint family house. Moreover the author of the trust disposed of all his properties under the deed and  his heirs whom he did not want to disinherit could utilize one-half  of the  net income  which was  by no means insignificant for  their maintenance.  They were  allowed to enjoy such income not because they were shebaits but because they were  members of the family. In fact the trustees could draw if  they so  desired only  Rs. 25  per month  as  their remuneration. The  dominant intention  in creating the trust was to  benefit the  members of  the family of the author of the trust  and to see that the properties were not alienated by them for ever. From a fair reading of the deed, we are of opinion that  there was  only a partial dedication under the deed for  religious purposes. It follows that the properties retained their  private and  secular character and were only subject  to   a  charge   for  religious  purposes.  In  the circumstances, the provision for the benefit of the trustees and other  heirs and  relatives of  the author  of the trust fails as  it is  hit by the rule against perpetuities. This, however, does  not affect  the  validity  of  the  religious endowment. What  should happen  to the  properties which are gifted or  settled on  persons in  contravention of the rule against perpetuates in cases of this nature where properties are given  away partly  by way  of religious  endowments and partly for the benefit of certain individuals for their use, may be stated thus: If the terms of the document under which the properties  or their  income are gifted or bequeathed or settled amount to their complete dedication for religious or charitable purposes,  then any  part thereof  which is given away by  way of  gift or bequest or settlement to any person contrary to  the  rule  against  perpetuities  or  the  rule against accumulations enures to the benefit of the endowment and becomes  a part  of the  properties endowed.  But on the other hand  if the  dedication is partial such part which is hit by  the rule  against perpetuities  or the  rule against accumulations reverts  to the  executant of  the document or his heirs.  Applying  the  above  rule,  we  held  that  the transfer of one-half of the properties which were dealt with by the  deed corresponding  to one-half  of the income which was directed  to be utilized by the members of the family of the author of the trust in contravention of the rule against perpetuities was  void and  that the  said one-half  of  the

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properties continued  to be  the properties of the author of the trust notwithstanding the execution of the trust deed. 248      From the facts and in the circumstances of the case, we are of the view that only one-half of the properties covered by the  trust corresponding  to one-half of the total income which had  to be  spent  on  religious  purposes  should  be considered as not passing on the death of the deceased since the religious  endowment made  in that regard would not fail despite  the   fact  that  the  remaining  one-half  of  the properties retained  their private and secular character. We are also  of the  view that  the remaining  one-half of  the properties which  is held  to be remaining undisposed of and which was  held by the deceased immediately before his death should be  deemed to  pass on  his  death  for  purposes  of section 5  of the  Act. The  High Court  was, therefore,  in error in  holding that  the whole  of the  trust  properties constituted a  religious endowment  and did  not pass on the death of the deceased.      The appeal  is, therefore, partly allowed. We hold that only onehalf of the properties which were the subject matter of the  trust deed  dated June  27, 1939  (Jagadatri  Sampad Trust) passed  on the  death of the deceased under section 5 of the  Act and  the remaining  one-half did  not. We direct that the parties shall bear their own costs since the appeal has succeeded in part. N.V.K.                               Appeal allowed in part. 249