AI Structured Summary
Not yet generated for this judgment
Judgment
V.V. Kamat, J.—The Controller of Estate Duty, Ernakulam, wants answer to the following three questions :
" (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in finding that Section 10 of the Estate Duty Act, 1953, is not attracted ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in finding that ''it is not possible on an interpretation of the gift deed in the present case to come to a conclusion that in the absence of a fresh agreement after the expiry of the period of two years a benefit had been reserved in favour of the donor ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal is right in finding that exemption u/s 33(1)(o) is available in this case ?"
The problem of levy of estate duty occurred on the, death on November 25, 1967, of one Sri Haji Abdul Latiff Haji Essa Salt. This was particularly with reference to a document dated September 30, 1962, in favour of his daughter, Khadija Bai, in respect of nine items of house property. We will have to understand the document, it being a gift deed, in order to know the intentions of the donor. We will also have to bear in mind that the donor expired on November 25, 1967, and as such the document is found to have been executed on September 30, 1962, beyond the statutory period of five years as provided for by Section 33(1)(o)of the Estate Duty Act, 1953. The document is at annexure "G". We have carefully gone through the contents of the document and found some of the features to enable us to know the intention of the donor. The document is in favour of the daughter of the donor, named, Khadija Bai.
The donor had no male children and had only one female child--his daughter named above. We further find a statement that under the Shariat law the said Khadija Bai would have the right to hold all the properties, both movable and immovable, and to collect all the amounts due to the donor and divide it and give to the other heirs. The donor had also executed a will registered at the Kochi Sub-Registry expressing the desire that the settlor No. 2 -- daughter, Khadija -- should entrust the property to the charitable institutions and also for the management in regard thereto all the affairs of the donor after his death. It is then found that this part of the condition of the said will came to be revoked by a codicil in regard thereto.
With regard to the part of the properties of the donor, a charitable trust came to be established and registered at the Cochin Registry, whereby the settlor No. 2 -- daughter, Khadija - came to be entrusted with the part of the properties of the donor for the purpose of dividing and allotting it to the grandchildren of settlor No. 2 on her attainment of the age of 60 years.
It is then specified that the donor had purchased some more properties in Ernakulam and Cochin and he was in possession and management of the said properties purchased. This was with the intention of adding to the assets of the charitable institutions registered as a trust referred to above. It is in this background, it is specifically recited in paragraph 4 of the document, that for avoiding any dispute in future between the settlor No. 2 -- daughter, Khadija, and other relatives of the donor entitled to the properties after the death of the donor, with respect to the remaining properties, two settlement deeds came into existence in relation to the properties described in item No. 10 of the schedule to the document. It is necessary to specify that the document covers items Nos. 1 to 9 of the said schedule.
What appears in the recitals of paragraph 5 of the document under consideration is important in the context. It is recited that the properties are in the possession and enjoyment of settlor No. 2--daughter, Khadija, and she is collecting all the rents and profits therefrom and she developed and improved the buildings described in the settlement deed and got mutation of the deed with respect to item No. 2 in the schedule hereunder.
In paragraph 6, it is further averred in the context that the net income of the properties for every year should be given to settlor No. 1 during his lifetime and this settlor No. 1 has the right to reside with the family in the two-storeyed building in item No. 1 and shall hold the remaining properties as power-of-attorney of settlor No. 2--daughter, Khadija. It is then recited in regard to the said properties that they were managed up to the end of Karkidakam 1136 and the income was utilised up to the end of the year 1137.
In paragraph 7, it is found that Income Tax, wealth-tax, etc., with regard to the said properties were paid in the name of settlor No. 1, the donor. After stating these with reference to the properties covered by the settlement deeds in the nature of trust, the important aspects are to be found in paragraph 8 of the document. It is averred that as settlor No. 1, the donor, is getting old and unwell and as the husband of settlor No. 2, daughter, Khadija, has agreed to manage the properties of settlor No. 2 as the power-of-attorney-holder and as it is felt that it is better to give the management to the husband for the development and improvement of the properties and as settlor No. 1 will get rest and in the above circumstances, it was decided that settlor No. 2--daughter, Khadija, shall give a specific amount to settlor No. 1, the donor, and all the rights of No. 1 in the aforesaid properties were released to settlor No. 2. It is then seen that for reasons specified in the paragraph under consideration, the donor divested himself of everything in favour of his daughter, settlor No. 2.
This particular intention gets clearly spelt out further in Clause 9 of the document to state that settlor No. 2--daughter, Khadija, shall pay to settlor No. 1 all the income of the properties up to the end of Karkidakam 1137 as and when she realises it and No. 1 shall pay all Income Tax and wealth-tax up to that date.
It is thereafter in clause 10 of the document a mutual agreement is spelt out with regard to the properties settled by settlor No. 1, the donor, in favour of the children of settlor No. 2, daughter, Khadija, entrusting the same in her favour in her capacity as a trustee with a direction that the properties be partitioned and given to the grandchildren of the donor. It is in this background, it is stated that the donor has executed the release deed in the name of settlor No. 2 giving the daughter the right to take all income from the aforesaid properties and pay a monthly amount of Rs. 1,250 to the donor from the income from the first day of Chingam 1138 to the last day of Karkidakam 1139, a period of two years, specifying further that on the expiry of the said period of two years the amount to be paid to the donor would have to be determined according to the conditions of the donor at that time.
It further appears from paragraph 11 that in the event of a default in regard to the monthly payment to the donor, the donor would have the right to recover the amount from the daughter personally or from the properties and in regard to which the properties were charged keeping the daughter liable for all costs and consequences.
It appears further from Clause 12 that settlor No. 2--daughter, Khadija, was to include the properties in her wealth from January 1, 1938, and pay Income Tax and wealth-tax arising from that date with regard to the properties which are the subject-matter of the gift deed. It is further provided that all legal proceedings, specifically referred to in Clause 13 of the document were to be conducted by settlor No. 2--daughter, Khadija, by herself or through her power-of-attorney. It is further provided in the context that the daughter, Khadija, should get mutation of names in the revenue and municipal records and enjoy the property as absolute owner. It is specified thereafter that settlor No. 2--daughter, Khadija, would have the right to evict the tenants of the buildings and would not be liable to account the income of the property to the donor making it clear that the donor would have a right of residence of the family in the two-storeyed building.
What is important is with regard to the payment of the monthly amount of Rs. 1,250 and this position is clarified in Clause 14 in the following manner :
" Except for receiving Rs. 1,250 per month for his expenses and the right for residence and for receiving the rent as stated in Clauses 9 and 13, vendor No. 1 has no other right in the said properties and after the death of No. 1 all the rights of No. 2 aforesaid shall go exclusively to No. 2 and no other heirs of No. 1 can question the same."
It would thus be seen that except for receiving Rs. 1,250 nothing is left as far as the donor is concerned, specifying it with reinforcement that all the rights of settlor No. 2 with regard to the properties in question would be exclusive for settlor No. 2--daughter, Khadija. Reading the above text and features emerging therefrom, it would be at once clear that practically all rights with regard to the properties under the said document are transferred along with the execution of the document itself. It is made clear that as a result what is left with the donor is only receiving Rs. 1,250 as monthly allowance towards maintenance and it is only in the event of non-receipt of the monthly amount, that there is a right to recover the amount initially from settlor No. 2--daughter, Khadija, personally and/ or from the properties charged in regard thereto for the same purpose. Reading the document and referring to the above various aspects floating therefrom, we would not be detained to find that the document handed over immediate possession of the properties covered by it. The aspects from the document also spelt out that this possession that came to be transferred on the execution of the document was intended to be understood as of an exclusive character having no connection with regard to the term "charge" appearing in the context of its use in regard to any possible default. It is necessary to mention that this factual conditional provision was not required to be resorted to as it is the undisputed position on facts that the donor received this amount right up to his death. Even otherwise, the initial period of two years and the provision with regard to the determination on the expiry of the said period could not be an event to have occurred and it is an undisputed position that this amount of Rs. 1,250 which was initially understood to be paid for a period of two years and to be determined thereafter came to be paid to the donor right up to his death.
Thus, it would be seen that the document refers to only one condition of monthly payment of Rs. 1,250 and thinks of the charge in regard thereto only in the event of there being default in that regard. The right to recover the monthly payment is from the daughter, Khadija, personally and from the properties under the document and in regard thereto it is stated that the said properties are charged under the document for the said monthly payment. It is already observed that except this statement with regard to creation of a charge, the property under the document has immediately passed on to the donee. Several provisions of the document are more than clear in support of understanding the intention of the donor in the context.
The aforesaid provision is obviously in the nature of a security for payment of the monthly amount only. In this connection, Section 100 of the Transfer of Property Act relating to "charges" would make the position amply clear. Section 100 of the Transfer of Property Act is as follows :
" Where immovable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have charge on the property, and all the provisions hereinbefore contained which apply to a simple mortgage shall, so far as may be, apply to such charge.
Nothing in this section applies to the charge of a trustee on the trust property for expenses properly incurred in the execution of his trust, and save as otherwise expressly provided by any law for the time being in force, no charge shall be enforced against any property in the hands of a person to whom such property has been transferred for consideration and without notice of the charge."
It would be at once seen that the charge is either by an act of parties or by operation of law and is in the nature of security for payment of money to another. It is in the nature of the provisions in regard to a simple mortgage. It is elementary that a simple mortgage as is understood by the provisions of Section 58(b) of the Transfer of Property Act is understood independent of possession of the property concerned whereunder there is a personal binding to pay the money and only in the event of any default happening in regard thereto, the mortgagee gets a right to sell the property and apply the proceeds thereof towards the repayment of the mortgage money. It is also seen as the statutory provision that the enforcement cannot be without notice of the charge in regard thereto. Therefore, the above provisions of law would clarify the position further in the context that the enforcement of the charge would only occur in the event of there being any default in regard to the payment and would not be in the nature of any difficulty or impediment in regard to the passing of the property. In order to find out whether Section 10 of the Estate Duty Act, 1953, gets attracted, it would be really unnecessary to take time after understanding the document and the intention of the donor as above.
As is necessary for our purpose, the provisions of Section 10 of the Estate Duty Act, 1955, would be as follows :
" 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 donee 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."
The second proviso is not necessary for reproduction for the purposes of this judgment. It is also necessary to state that the first proviso reproduced hereinbefore came on the statute by addition by the Finance Act of 1965 (sic). Therefore, it would govern the situation in the context. It is obvious that the provision firstly creates a deeming situation with regard to the passing of the property taken under the gift in question.
Only in the event of a situation that bona fide possession and enjoyment is not assumed by the donee and thenceforward retained to the entire exclusion of the donor of any benefit to him by contract or otherwise. This is not the situation when the document is read and understood. The property, as we have observed above, passed on to the donee on the execution of the document itself. We have already considered the position with regard to the condition relating to monthly payment and, therefore, it would be seen that the situation would not be governed by the first proviso also. The Tribunal has referred to the decision of this court in Dr. K.P. Mohamed Babu Vs. Controller of Estate Duty, laying down the same proposition to the effect that the gift would be a conveyance of all the rights in the properties covered by it and in regard thereto the provision for maintenance would have to be understood on the basis of the contract spelt out in the deed and referable to it. This court has also considered the importance of the phrase "to the extent" occurring in Section 10 under consideration to mean "as not causing any different situation in regard to the passing of the property".
Apart therefrom there is yet another aspect which would put out totally the rigour of the application of the provisions of the Estate Duty Act, 1953, to the situation.
Section 33 of the Act speaks of exemptions to enact that no estate duty shall be payable in respect of the property of any of the kinds stated therein as belonging to the deceased which passes on his death. We have already held on the understanding of the document in question that the property passed on to the donee on the execution of the document. Apart therefrom, the provisions of Section 10 referred to hereinbefore create a deeming situation in a clear way with regard to the passing of the property taken under any gift whenever made to pass on the donor''s death in favour of the donee. Therefore, the provisions of Section 33 of the Act would also apply even otherwise in view of the above provisions of Section 10 of the Act. In this context, Section 33(1)(o), if applied, would clearly put the transaction covered by the document of gift deed out of the rigour of the provisions of the Act as an exempted transaction. The above provisions are as follows :
" 33. Exemptions, - (1) To the extent specified against each of the clauses in this sub-section, no estate duty shall be payable in respect of property of any of the following kinds belonging to the deceased which passes on his death-- ....
(o) property taken under any gift made by the deceased to the spouse, son, daughter, brother or sister, beyond a period of five years before his death :
Provided that the property is either chargeable to gift-tax under the Gift-tax Act, 1958 (18 of 1958), or is not chargeable u/s 5 of that Act, for any assessment year commencing after the 31st day of March, 1964."
This clearly takes out the gift deed in question as it is made by the deceased beyond a period of five years before his death. At the outset it is stated that the donor died on November 25, 1967, and the document in question is dated September 30, 1962, clearly beyond the above period of five years. Therefore, independently also, by virtue of the deeming provision as contained in Section 10 of the Act, reading it into the provisions of Section 33(1) of the Act, the document and the transaction would be out of the clutches of the Estate Duty Act, 1953.
The Tribunal has also considered the question on its own and has reached the same conclusion as stated above relying on the earlier decision of this court in Dr. K.P. Mohamed Babu Vs. Controller of Estate Duty, , The Tribunal also has considered the provisions of Section 33(1)(o)of the Act. The same would get endorsement on the additional reasons given hereinbefore.
The result of the above discussion is that question No. 1 is answered in the affirmative, against the Revenue and in favour of the accountable person. Similarly, question No. 2 is also answered in the affirmative, against the Revenue and in favour of the accountable person. In the same manner, question No. 3 is also answered in the affirmative, against the Revenue and in favour of the accountable person.
A copy of this judgment shall be caused to be sent under the seal of the court and the signature of the Registrar to the Income Tax Appellate Tribunal, Cochin Bench. Order accordingly.