Trustees of Prince Shahmat Ali Khan Trust vs Controller of Estate Duty, Hyderabad

1. The following question was referred to the High Court under Section 64(1) of the Indian Estate Duty Act, 1953:

"Whether on the facts and in the circumstances of the case, the Trust Fund Prince Shahmat Ali Khan is liable to be included in the estate of late Mir Osman Ali Khan Bahadur under Section 10 of the Estate Duty Act?"

2. The High Court has answered the question in the affirmative and in favour of the Revenue. The present appeal is from this judgment and order of the High Court.

3. The facts broadly stated are as follows:

"H.E.H. the Nizam Sir Mir Osman Ali Khan Bahadur died on 24-2-1967. Under an indenture made at Hyderabad on 21-3-1957 he created a trust known as Prince Shahmat Ali Khan Trust settling certain shares specified therein for the benefit of his grandson. Clause 18 of the Trust Deed provides as follows:

18. It is hereby further expressly agreed and declared that each of the trustees shall be entitled to charge remuneration and be remunerated for rendering service as trustee of these presents out of the income of the trust property and the trustees shall pay such remuneration to each of the trustees as may be fixed by them by a unanimous resolution in that behalf from time to time PROVIDED THAT the amount of such remuneration payable to any one trustee for services rendered during any one year shall not exceed the sum of Rs 3000 (Rupees three thousand)."

4. In making the estate duty assessment the Additional Assistant Controller of Estate Duty, A Ward, Special Circle I, by his order dated 25-1-1973 included in the dutiable estate of the Nizam, the sum of Rs 12,88,169 representing the corpus of the said Trust at the time of death of the deceased under Section 10 of the Estate Duty Act, 1953. This view was upheld by the Appellate Controller. In appeal, however, the Tribunal held that Section 10 of the Estate Duty Act will not apply in the present case. It, therefore, allowed the appeal filed by the accountable person. In reference, however, the High Court has answered the question in favour of the Revenue holding that Section 10 of the Estate Duty Act is attracted and the entire corpus of the Trust Fund is includible in the estate of the deceased.

5. Section 10 of the Estate Duty Act, 1953 was recently examined by this Court in the case of Sarojini Ammal v. CCE, . This Court held, after examining a number of English decisions, that the rigour with which Section 102 of the English Act corresponding to Section 10 of our Act was applied, has been mellowed down and a certain amount of leniency has definitely been shown in favour of the accountable persons. In that case, the donor had given a gift of certain amounts to the donees. A week later, the donees requested that a partnership be formed. The amounts gifted were retained and returned as share capital of the donees in the partnership firm. The Court held that when the gift was made and accepted, it was unconditional. In the light of the letter which was written by the donees, the Court was of the view that there was nothing to suggest that parting with the enjoyment or benefit by the donee or permitting the donor to share them out of the bundle of rights gifted in the property, was referable to the gift. The two were independent transactions and hence the gift cannot be subjected to the provision of Section 10.

6. The wording of Section 10 also makes it quite clear that when the property is taken under any gift, to the extent that bona fide possession and enjoyment of it is not immediately assumed by the donee but is retained to some extent by the donor, the benefits so retained will form part of the estate of the donee. In the present case, the indenture of the Trust quite clearly provides that the shares have been transferred unconditionally under the Deed of Trust to the trustees for the benefit of the grandson of the donor. The gift under the Trust Deed of the shares is absolute. The donor has not reserved any right or interest to himself in the gifted property under the Deed of Trust. The only clause on which the Revenue has relied is a clause which provides that the trustees may, by unanimous resolution, provide for any remuneration to themselves subject to a maximum of Rs 3000 per annum. This refers to a subsequent act of the trustees. It does not, in any manner, make the settlement of shares conditional. Moreover, in the present case, we have been informed that no such resolution was ever passed, nor was any remuneration received by any of the trustees including the donor who was one of the trustees. In these circumstances, we fail to see how the provisions of Section 10 are attracted.

7. Learned counsel for the respondents strongly relied upon a decision of the Privy Council in the case of Norman Clyde Oakes v. Commr. of Stamp Duties of New South Wales, (1954) 26 ITR Supp 1 (PC). The facts of that case are very different from the facts of the present case. In the case of Oakes (Supra) the testator who owned a grazing property in New South Wales, Australia, executed a Deed Poll under which he created a Trust in respect of his grazing property for himself and his four children as tenants-in-common in equal shares. The Deed gave him wide powers of management. In particular, it provided that in addition to reimbursing to himself all expenses incurred in the administration of the Trust, he was entitled to remuneration for all work done by him in managing the trust property on which he resided with his family in his capacity as trustee and manager, in the same manner and as fully in all respects, as if he was not a trustee thereof. The testator continued to manage the property until his death and had received varying sums annually as remuneration. After deducting those and other outgoings, he had divided the profits into 5 equal shares. He had also applied the shares given to his children during their minority. In these circumstances, the Court came to the conclusion that Section 102(2)(W) of the New South Wales Stamp Duties Act, 1920-40 became applicable. We fail to see how the ratio of this judgment can apply in the present case,

8. In the premises, we allow the appeal, answer the question in favour of the accountable person and hold that the corpus of the Trust Fund is not liable to be included in the estate of the deceased. The respondents will pay to the appellant the costs of the appeal.