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PETITIONER: TRUESTEES OF H.E.H. NIZAM’S PILGRIMAGE MONEY TRUST, HYDERABA

       Vs.

RESPONDENT: THE COLLECTOR OF ESTATE DUTY, HYDERABAD

DATE OF JUDGMENT:       21/07/1998

BENCH: SUJATA V. MANOHAR, K. VENKATASWAMI

ACT:

HEADNOTE:

JUDGMENT:                        J U DG M E N T Mrs. Sujata V. Manohar, J.      The  appellants   are  the  trustees  of  H.E.H.  Nizam Pilgrimage Money  Trust,  Hyderabad.  On  2.11.1950,  H.E.H. Nizam of  the erstwhile  State of  Hyderabad created a trust under which  the settlor  set apart Government of India Loan Securities of  the face  value of Rs.22.20 lakhs yielding an annual income  of Rs.  66,600/- for  certain charitable  and religious purposes.  The relevant  clause of this settlement is Clause  3(c). The  relevant provisions of Clause 3 are as under:      "3. The  Trustees  shall  hold  and      stand possessed  of the  Trut  Fund      UPON TRUST :-           (a) To  manage the  Trust Fund                and   to    recover   the                interest and other income                thereof;           (b) To  pay and  discharge out                of  the   income  of  the                Trust Fund  all  expenses                and      charges      for                collecting and recovering                the income  of the  Trust                Fund and all other costs,                Charges,  incidental   to                the   trusts   of   these                presents     and      the                administration thereof;           (c) During the lifetime of the                Settlor  to   defray  the                expenses of  Haj  of  the                Settlor and  of  such  of                the members of his family                as he  may take  with him                and of  their  visit  and                pilgrimage   to   various                Mohmmedan   Shrines   and                holy places in Hedjaz and                Iraq   and   for   making

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              religious  offerings  and                expending   moneys    for                charitable  purposes   at                such places  and for such                other    religious     or                charitable  purposes   as                the   Settlor    in   his                absolute  discretion  may                from time  to time  think                fit and  require  out  of                the income as well as the                corpus of  the Trust Fund                in  such  manner  and  to                such   extent    as   the                Settlor may  from time to                time direct  and for  all                or nay  of such  purposes                as aforesaid  to pay such                moneys out  of the income                or  the   corpus  of  the                Trust Fund as the Settlor                may  from  time  to  time                require."      The settlor  appointed himself  as one  of the trustees along with  other trustees.  The settlor  died on 24.2.1967. The Assistant  controller  of  Estate  Duty  held  that  the settlor  was  not  completely  excluded  from  enjoying  the benefit of  the corpus  of the trust and hence under Section 10 of  the Estate  Duty Act, 1953 the property which was the subject matter  of the  settlement  was  includible  in  the estate of  the deceased. On appeal, the Appellate Controller of Estate  Duty also  held Section  10 to  be applicable. In second appeal  before the  Tribunal, three  contentions were raised on  behalf of  the revenue  invoking Section  12 as a more relevant  section, and submitting that under Section 12 also the  property which  was the   subject  matter  of  the settlement was  includible in  the estate  of the  deceased. This contention was upheld by the Tribunal.      From  the  decision  of  the  Tribunal,  the  following question was  referred to the High Court under Section 64(1) of the Estate Duty Act, 1953:      "Whether on  the facts  and in  the      circumstances  of   the  case,  the      trust  property  of  the  value  of      Rs.13,57,205/-  is   liable  to  be      included   in   the   estate   duty      assessment  of   the  deceased   as      property  deemed   to  pass  -  (a)      either  under  Section  12  of  the      Estate  Duty   Act,  (b)  or  under      section 10 of the Estate Duty Act?"      The High  Court held that Section 10 of the Estate Duty Act, 1953  was not  attracted but  Section 12 was attracted. Therefore, the  subject matter  of the  settlement had  been rightly included  in the estate of the deceased. The present appeal has  been preferred  before us  under  a  certificate granted by the High court.      Considerable arguments  were advanced  before the  High Court on  the question  whether a property settled on trust, as in  the present  case  comes  within  the  definition  of "settled property"  under Section  2(19) of  the Estate Duty Act, 1953. The High Court has held in the affirmative. There is no  dispute before  us that  the property  which  is  the subject matter  of the  trust in  the present  case  can  be considered as  settled property as defined in Section 2(19).

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The first question is, whether Section 10 of the Estate Duty Act, 1953 is attracted in the present case. Section 10 is as follows:      "10.  Gifts   whenever  made  where      donor  not   entirely  excluded   -      Property  taken   under  any  gift,      whenever made,  shall be  deemed to      pass on  the donor’s  death to  the      extent that  bona  fide  possession      and  enjoyment   of  it   was   not      immediately assumed by the done and      thenceforward   retained   to   the      entire exclusion of the donor or of      any benefit  to him  by contract or      otherwise:           Provided  that   the  property      shall not  be  deemed  to  pass  by      reason only  that it  was  not,  as      from  the   date   of   the   gift,      exclusively retained  as aforesaid,      if, by  means of  the surrender  of      the reserved  benefit or otherwise,      it is  subsequently enjoyed  to the      entire exclusion of the donor or of      any benefit to him for at least two      years before the death:           Provided further............"      This section, as its marginal note suggests, deals with gifts  whenever   made  where  the  donor  is  not  entirely excluded. Under  the main  part of the section, any property taken under  any gift, if bona fide possession and enjoyment is not  immediately assumed  by the done and retained by him to the  exclusion of  the donor, would be property deemed to pass on the donor’s death to the extent of such retention of benefit. This  section also  provides that if any benefit in the property  given as  a gift  is retained  by the donor by contract or  otherwise, that benefit shall be deemed to pass on the  donor’s death.  The proviso  lays down that if after the date  of  the  gift,  either  by  means  of  an  express surrender of the retained benefit by the donor or otherwise, the property is enjoyed to the exclusion of the donor for at least two years before his death, such property shall not be deemed to  pass on  the death  of the  donor. In the present case, the  settlor, H.E.H.  Nizam of  Hyderabad,  never,  in fact, enjoyed  any benefit under the said trust at any time. Therefore, there  can be no application of Section 10 in the present case, in any event.      The parties  before us  have, therefore,  focused their arguments on  Section 12  of the  Estate Duty Act, 1953. The relevant Provisions of Section 12 are as follows:      "12. Settlements with reservation.-      (1)  Property   passing  under  any      settlement made  by the deceased by      deed or  any other  instrument  not      taking effect  as a will whereby an      interest in  such property for life      or any other period determinable by      reference  to   death  is  reserved      either expressly  or by implication      to  the   settlor  or  whereby  the      settlor  may   have   reserved   to      himself the  right by  the exercise      of any power, to restore to himself      or to reclaim the absolute interest      in such property shall be deemed to

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    pass on the settlor’s death:           provided  that   the  property      shall not  be deemed to pass on the      settlor’s death by reason only that      any such  interest or  right was so      reserved  if   by  means   of   the      surrender of such interest or right      the   property    is   subsequently      enjoyed to  the entire exclusion of      the settlor  and of  any benefit to      him by  contract or  otherwise, for      at  least   two  years  before  his      death:           Provided further..........           Explanation   -    A   settlor      reserving  an   interest   in   the      settled    property     for     the      maintenance of  himself and  any of      his  relatives   (as   defined   in      section  27)  shall  be  deemed  to      reserve  an  interest  for  himself      within the meaning of this section.           (2)..................." In the  present case  under the  settlement the property has been transferred  absolutely to the trustees. However, under Clauses 3  of the  settlement, the  trustees  are  directed, during the  lifetime of  the settlor, to defray the expenses of Haj of the settlor and all such members of his family who may  accompany  him  on  pilgrimage  to  various  Mohammaden Shrines and  holy places  in Hedjaz  and Iraq and for making religious  offerings  and  expending  money  for  charitable purposes. The said clause also provides for expending income as well  as part  of  the  corpus  of  the  trust  fund  for religious and charitable purposes as the settlor may direct. Can this  be considered as the settlor retaining interest in the  settled   property  for   life  or   any  other  period determinable by  reference to  his death? The Explanation to Section 12  expressly provides that where a settlor reserves an interest  in the  settled property for the maintenance of himself or  any of  his relatives,  he shall  be  deemed  to reserve an  interest in  the settled  property  for  himself within the  meaning of  Section 12(1).  In the present case, however, the  settlor has  not reserved any right to receive maintenance either  for himself or for any of his relatives. Hence the  Explanation is  not relevant  here. However,  the settlor is  entitled to have Haj expenses of himself and any accompanying family  members paid out of the trust fund. The settlor has  also reserved the right to direct the religious and charitable  purposes on  which the  trust  fund  may  be spent. These  are not  benefits which accrue directly to the settlor himself,  as in the case of his own maintenance. The pilgrimage  expenses,  however,  of  the  deceased  and  any accompanying family  members are  to be  defrayed out of the trust fund if an when the settlor goes on such a pilgrimage. As  a  matter  of  fact  the  deceased  never  went  on  any pilgrimage as  specified in  Clause 3(c) and did not receive any benefit  directly or indirectly under the said trust. In our view,  the direction in the trust deed that the expenses of  the  settlor  for  pilgrimage  performed  for  religious purposes, be  paid out  of  the  trust  fund,  will  not  be equivalent to  reserving an  interest in  the  property  for life. Nor  will payment  towards  religious  and  charitable purposes at  the  direction  of  the  settlor  constitute  a reservation of  any interest  by the  settlor for himself in such property for life.

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    Our attention  in this  connection has  been drawn to a decision of  this Court  in the case of Controller of Estate Duty V.  R. Kanakasabai and Ors. (89 ITR 251). In that case, the deceased  had executed  separate deeds  of settlement in favour of  his sons, grandsons, daughter and  wife, settling properties   severally   in   favour   of   the   respective beneficiaries absolutely  and with full power of alienation. The deeds  in favour  of the  sons  and  grandsons,  however provided for payment of Rs.1,000/- per annum to the settlor; and the  deed in  favour of  the Daughter  provided for  the maintenance  of  the  settlor  and  his  wife  during  their lifetime. It  was held  by this  Court that  Section 12  was wholly inapplicable  to  the  facts  of  the  case.  On  the question of  applicability of Section 12, the Court observed as follows:      "So far  as  the  applicability  of      section 12(1)  is concerned,  it is      nobody’s     case      that     the      beneficiaries  became  entitled  to      the  properties   settled  on  them      after the  death of  the  deceased.      There  is   no  support   for   the      contention of  the revenue  that an      interest in  the properties settled      was reserved to the deceased during      his  lifetime  or  for  any  period      after the  properties were settled;      nor is  there any  provision in the      deeds  enabling   the  deceased  to      reclaim   the   property   or   its      possession under  any circumstance.      None of the conditions laid down in      section 12(1)  are attracted to the      provisions contained  in the  deeds      of settlement."      On  the   applicability  of   Section  10,   the  Court considered whether  the donor  had retained  in the property gifted, any benefit to himself by contract or otherwise. The Court said  that the  deceased should  be entirely  excluded from the  property  or  from  any  benefit  by  contract  or otherwise. Provisions  for annual  payments and  maintenance made in  the  deeds  were  not  charged  on  the  properties settled. Hence,  the deceased  could not  be  said  to  have retained any  interest in the properties settled. Therefore, Section 10  was not  applicable. In  the present  case,  the deceased has not retained any benefit to himself. As we have set out  already, Section  10  in  any  case,  will  not  be attracted in the present case.      The application  of Section  12 was  considered by this court in  the case of Dipti Narayan Srimani v. Controller of Estate Duty,  West Bengal  (172 ITR  477). In this case, the settlor executed  two deeds of trust. In the first deed, the settlor transferred  to himself four items of property to be held on  trust: (1) to set apart 1/4th of the net income for effecting certain additions and alterations to the property; (2) to  make over  another 1/4th  of the  net income  to the shebait of  a deity; (3) to apply 1/4th of the net income to certain charities;  and (4) to apply the remaining 1/4th for the personal  benefit of the settlor during his lifetime and to his  heirs thereafter.  In the  second deed,  the settlor transferred six  other items  of property to himself and his son as  trustees: (1)  to pay 1/4th of the net income to the shebait of  another deity,  (2) to spend 1/4th on charities, and  (3)   to  utilise  the  balance  of  one-half  for  the development of two of the properties and after completion of

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development, for  the benefit  of  the  settlor  during  his lifetime and  his heirs thereafter. The settlor provided one room in  one of  the properties  for his residence free. The settlor also  constituted  himself  as  shebait  during  his lifetime and  thereafter his  heirs were to be the she baits of the  two deities.  This Court held that Section 12(1) was attracted. It,  inter alia, observed that the reservation of interest so  as to  attract Section  12(1), had to be in the property  comprised   in  the   settlement  as   such.  mere collateral benefits  reserved by  the settlor emanating from some other property or from other source, independent of the property so  settle, would  not attract this section. But in the case  before the  Court, the  benefits reserved emanated from the  very property  constituting the  subject matter of settlements and  could not be said to be collateral in their nature. The  Court observed,  (page 487,) that having regard to the  special nature  of the  office of  a shebait and the rights and  interests that  go with  it, it  is possible  to contend that  when a  settlor endows property to an idol and reserves the  right of  shebaitship to  himself, he would be reserving an  interest in  the property.  distinguishing the earlier judgment of this court in controller of Estate Duty, Bihar V,  Mahant Umesh Narain Puri (135 ITR 139), this Court said  that  the  position  of  an  elected  Mahant  in  Math properties was  different. In  that case, no interest passes on the death of a Mahant duly elected, and Section 12 is not attracted. But  the case  of a  settlor who  himself  endows property to  an idol  and constitutes  himself as shebait is obviously different.  The Court,  however, did  not  finally pronounce on  the effect  of reservation of shebaitship by a settlor in  the context  of Section  12(1). In  the  English cases which  have been referred to in the said judgment, the settlors had  reserved a  benefit to themselves, their wives or children  in the income of the settled property for their maintenance. The  English court  observed that this amounted to an interest in the settled property.      The Explanation  to Section  12 expressly takes care of such a  situation by  providing that  a settlor  reserving a right to  receive maintenance  for himself  or  any  of  his relatives from  the settled  property or its income shall be deemed to  reserve an  interest in  the settled property for himself within  the meaning  of that section. Any other kind of an  indirect benefit  to the  settlor under  the trust in certain eventualities  will not  amount to reservation of an interest in the settled property by the settlor for himself.      In the  case of  Ravindra Gunvantilal  v. controller of Estate Duty, Gujarat, the Gujarat High Court (P.N. Bhagwati, CJ, as  he then  was and  Divan, J.) considered a case where there was a joint settlement by the deceased and his wife in respect of  certain properties  belonging separately to each of them.  The  deceased  and  his  wife  were  appointed  as trustees and  the settlement  deed provided  that until  the death of  the last  survivor of  the deceased  and his three sons, the trustee shall apply the net income for and towards maintenance and  personal support of all or such one or more exclusively of  the other  or others  of the  deceased,  his wife, his  children and  widow and issues, if any, of any of his sons.  Th application  was to  be  in  such  shares  and proportions as  the trustee  may from  time  to  time  think proper. The trustees also had the absolute discretion to pay the whole  of the  net income of the settled property to any one or more of these persons to the exclusion of others. The Gujarat High  Court held  that where a settlor is one of the objects of  a discretionary trust and the trustees are given an absolute  discretion to  pay the  income of  the  settled

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properties to one or more of the objects to the exclusion of others,  the   settlor  has   an  interest  in  the  settled properties within  the meaning  of Section 12(1) and he must be held  to have  reserved to  himself an  interest  in  the settled properties  for life  sufficient to  bring his  case within section 12(1).      In the  present case,  the settlor  does not  appear to have reserved  for  himself  any  interest  which  would  be sufficient to  bring his  case within Section 12(1). All the cases which have been cited before us are cases in which the settlor had,  in some  form or the other, reserved the right to receive  income or  part of  it from the settled property during his  lifetime either  by way  of maintenance  or in a similar form.  Such is  not the  case  here.  Provisions  of section 12(1)  would not,  therefore, be  attracted  to  the present trust  created by  the settlor  during his lifetime. This will  be more  so since,  in fact,  the settlor did not receive any  amount from the said trust during his lifetime. Nor did he undertake any pilgrimage.      In the  order of  the Appellate Commissioner, there was also a  reference to  a release deed executed by the settlor relinquishing all  his powers  which would  be beneficial to him in  the various  trusts created  by him.  This trust was also covered  by the  release deed. However, apart from this bare reference  to a  Release Deed, no attempt has been made to bring  the release deed on record. No arguments have been advanced on  this aspect.  We are,  therefore, not examining this question  from the  point of view of the execution of a release deed  by  the  settlor.  Looking,  however,  to  the language of  Section 12(1), the facts in the present case do not indicate that any interest within the meaning of Section 12 was  retained by  the settlor in the settled property for life or  any other  period determinable  by reference to his death. Hence Section 12(1) is not attracted.      The appeal  is, therefore,  allowed  and  the  impugned order of  the High Court is set aside. The question referred is answered  in the negative and in favour of the appellant. There will, however, be no order as to costs.