MAHENDRA RAMBHAI PATEL Vs. CONTROLLER OF ESTATE DUTY, GUJARAT STATE
LAWS(GJH)-1963-10-7
HIGH COURT OF GUJARAT
Decided on October 28,1963

MAHENDRA RAMBHAI PATEL Appellant
VERSUS
Controller Of Estate Duty, Gujarat State Respondents

JUDGEMENT

BHAGWATI, J. - (1.) THIS Reference raises an interesting question relating to the applicability of Sections 5 to 23 of the Estate Duty Act, 1953, in relation to a settlement made by one Rambhai Patel of Uganda. The settlement was made on 26th June 1941, and the subject matter of the settlement consisted of 160 shares in a limited company called Central Cotton Trading Company (Uganda) Limited. I t appears that prior to the date of settlement a declaration of trust was made by Rambhai Patel on 19 t December 1939 settling on trust his six annas share in a partnership business carried on in the name of Central Cotton Trading Company Uganda for the benefit of his two minor sons, Mahendra and Manubhai. The partnership thereafter was converted into a limited company, namely, Central Cotton Trading Company (UGANDA) Limited and in respect of the six nanas share settled on trust, 160 fully paid up shares were allotted.80 shares bearing numbers 279 to 358 being allotted in the name of Purushottam Patel in trust for Mahendra and 80 shares bearing Nos. 1 to 80 being allotted in the name of Rambhai Patel in trust for Manubhai. Rambhai Patel thereafter made a declaration of trust in respect of these 160 shares by the settlement 26th June 1941 and in terms of settlement and with a view to effectuating it. Rambhai Patel and Purushottam Patel transferred the respective 80 shares standing in their names to the trustees with the result that a trust was constituted in respect of these 160 shares on the terms and conditions contained in the settlement. The settlement was for the benefit of Mahendra and Manubhai, the minor sons of Rambhai Patel, with certain limitations over in case of death of either, Rambhai lived for several years after making of the settlement and died on 17th October 1953. We are, however, not concerned with the position arising on the death of Rambhai Patel. What concerns us in this Reference is the position arising on the death of Manubhai. Manubhai died on 7th June 1954 when was only about 16 years of age and he did not leave behind him any widow or issue. As a matter of fact, he was not married at the time of his death. On the death of Manubhai a question arose whether estate duty was exigible on any part of the trust property. The Revenue claimed that on the death of Manubhai one half of Manubhai in the trust property passed with in the meaning of S. 5 and that estate duty was, therefore, chargeable the principal value of the said share. The claim of the Revenue was contested byMahendra who the person accountable for the estate duty within the meaning of the Act and there were two grounds on which Mahendra sought to repel the claim of the RevenueIn the first place, Mahendra contended that there was no passing of property within the meaning of Section 5 on the death of Manubhai, since Manubhai had no interest in the trust property vested in him which could pass on his death. The second contention was that in any event even if there was passing of property with in the meaning of Section . Section 23 applied to the facts of the case and property, could not therefore, be deemed to pass so as to attract the charge of estate duty. There were also one or two minor contentions urged on behalf of Mahendra but it is not necessary to refer them since they were not independent arguments but represented merely one or the other aspect of the main contentions and they would be covered by what we say in regard to the main contentions. The Deputy Controller of Estates Duty, Bombay negative the contentions urged on behalf of Mahendra and held one half share of Manubhai in the trust property passed on his death under Section 5 and that it was not exempted under Section 23 and that the principal value of the said one half share namely, Rs.10,43,050/ - was, therefore liable to be included in the principal value of the estate for the purpose of charge of estate duty. Mahendra thereupon preferred an appeal to the Central Board of Revenue. The only attack in the appeal was directed against the addition of Rs.10,43,050/ - being the principal value of one half of the trust property which, according to the Deputy Controller of Estate Duty, Bombay, passed on the death of Manubhai under section 5. The same contentions were advanced and they were rejected by the Central Board of Revenue. The Central Board of Revenue held on a construction of the provisions of the settlement that each of the two beneficiaries namely, Manubhai and Mahendra was entitled to the whole of the income of his share of the trust property and that though surplus income in excess of the amounts spent by the trustees on the maintenance and advancement of each beneficiary was to be accumulated until he attained the age of twentyfive, such surplus belonged to him as his absolute property and in the event of his death before twenty -five, was heritable by his heirs. On this construction of the provisions of the settlement, the Central Board of Revenue applied the well -established principles of law relating to charge of estate duty and observed that since there was a change in the persons beneficially interested in the one half share of Manubhai in the trust property, in that the moment before his death he was entitled to the whole income and the moment after his death, other persons namely, his brothers were entitled to the whole income, the said one half share in the trust property passed on his death within the meaning of Section 5. The argument of Mahendra based on Section 23 was repelled by the Central Board of Revenue by holding that the interest of Manubhai under the settlement was an interest in possession since he was entitled to the whole income of his one half share in the trust property and that it could not, therefore, be said that his interest determined by reason of his death before it became an interest in possession so as to bring the case within the exemption contained in S 23. The Central Board of Revenue in this view of the matter dismissed the appeal. Mahendra being aggrieved by the decision of the Central Board of Revenue applied for a reference of certain questions of law which according to him arose out of the order of the Central Board of Revenue under Section 64(1). The Central Board of Revenue was however of the opinion that only one question of law arose out of its order and it accordingly referred the following question of law, namely: - 'Whether on the facts and in the circumstances of the case, the inclusion , in the estate of the deceased, of the amount of RS. 10,43,050/ - being trust funds in question, was justified in law?' for the decision of the Court.
(2.) THE decision of this question, it would be apparent from what is stated above, must turn largely on the true interpretation of the provisions of the settlement. The question which we must ask ourselves is: what on a true construction of the provisions of the settlement was the nature and content of the interest conferred on Manubhai under the settlement ?. The answer to this question will furnish a key to the solution of the problem before us, for it will then be a mere matter of application of the principles embodied in Section 5 and 23. It would, therefore, be in the fitness of things and make for greater clarity if we first clear the ground by determining the nature and quality of the interest of Manubhai under the settlement and then apply the principles as we apprehend them on a construction of Sections 5 and 23 aided by English authorities which fortunately illumine this difficult branch of the law and clear up many of the obscurities with which it abounds. We will, therefore, first turn to an examination of the provisions of the settlement. The terms of the settlement were of a simple character and the settlement was substantially for the benefit and advantage of Mahendra and Manubhai, the two minor sons of Rambhai Patel. Clause 1 made a gift of the said 160 shares in favour of Mahendra and Manubhai and provided that the trustees should hold the said 160 shares in trust for the benefit and advantage of Mahendra and Manubhai in equal shares. There were no words of contingency in the gift and it is, therefore, clear that under this clause, unless there be anything in the subsequent clauses which might point clearly and unmistakably in a different direction, Mahendra and Manubhai each got a vested interest in one half of the said 160 shares. Now ordinarily in the absence of any provision to the contrary in the settlement, a person who is given a vested interest in a fund but also to require the trustees to transfer the fund to him. Mahendra and Manubhai each would, therefore, have been entitled to claim the income of his one half share to him. But clauses 2 and 4 postponed the period of distribution and also provided as to what was to happen to the income of the said 160 shares in the meantime. Some argument turned on the true construction of Clauses 2 and 4 and we will, therefore, reproduce these clauses in full rather than give a mere summary of them, so that the Argument may be properly appreciated. Clauses 2 and 4 were in the following terms: ' 2. The trustees shall stand possessed of the said shares until each of the beneficiaries shall the complete the age of 25 years and until the said time, out of the profits arising therefrom to apply either the whole or part thereof as the said Trustees may deem fit and proper in the maintenance and advancement of the beneficiaries. The Trustees are hereby authorised to invest such unused or accumulated funds from the profits in any security or concern as they may deem fit and proper. 4. If and when each of the said beneficiaries complete the age of 25 years, the trustees shall transfer out of the said 160 shares his portion of the shares and the accumulation thereof or any other investment in lieu thereof as thereof as provide in classes 2 and 3 hereof absolutely.'. Now what is the true meaning and effect of these clauses which deal both with corpus and with income? So far as regards corpus, Mr.I.M.Nanavati contended that on true construction of these clauses, neither of the two beneficiaries was entitled to any vested interest in one half of these the said 160 shares until he attained the age of twenty -five and that the interest of beneficiary in one half of the said 160 shares was contingent on his attaining the age of twenty -five. We do not agree that this the right construction of clause 2 and 4. Clause 2 and 4 merely postponed the period of distribution and did not in any way affect the vesting of interest in one half of the said 160 shares in each of the two beneficiaries effected under clause 1. The interest of each beneficiary in one half of the said 160 shares vested in him the moment the gift in clause 1 took effect and Clauses 2 and 4 merely postponed possession of such one half until he completed the age of twenty -five. Clauses 2 and 4 did not have the effect of making contingent the interest of each beneficiary in one half of the said 160 shares which was vested under clause 1. In regard to income, Clause 2 provided that the trustees should out of the income of one half share of each beneficiary apply such amount being the whole or part thereof as they might think fit and proper for the maintenance and advancement of such beneficiary and accumulate the surplus income and Clause 4 directed the trustees to hand over accumulation of surplus income to such beneficiary on his completing the age of twenty -five. The construction which Mr.I.M.Nanavati, however, pressed upon us to accept was that Clause 2 dealt with the income of the said 160 shares as a whole until the period of distribution in respect of either of the two beneficiaries arrived and provided that such income -being the entire income of the said 160 shares -should be utilised either wholly or in part as the trustees thought fit and proper for the maintenance and advancement of both the beneficiaries irrespective of their share in the said 160 shares. This construction is in our opinion fallacious for it sins against the fundamental rule of interpretation that in construing any writing, be it a writing, settlement or anything else, every clause must be with reference to the context and other clauses of the writing so as, as far as possible, to make a consistent whole and that no part of the writing should be construed in isolation for the intention of the author of the writing is to be found not in one part of thee writing or in the other, but in the entire writing and that intention can be gathered by viewing a particular part of the writing not detached from its context in the writing but in connection with its whole context. If Clause 2 is read with the recital in the settlement and Clauses 4,6,and 7, it is clear that Clause 2 cannot bear the construct it. The last recital in the settlement clearly shows that the intention of the settler was that out of the said 160, 80 shares should be for the benefit and enjoyment of one beneficiary and 80 shares should be for the benefit and enjoyment one beneficiary and 80 shares should be for the benefit and enjoyment of the other beneficiary. The intention of the settler was not that any part of the income of 80 shares intended for one beneficiary should at the discretion of the trustees be utilised for the benefit of the other beneficiary. No doubt Clause 2 started with the words 'the trustees shall stand possessed of the shares' and then proceeded to deal with 'the profits arising therefrom' meaning thereby the profits of the shares referred to in the earlier words, but the context makes it clear that by using the words ' the said shares'the settler did not mean to refer to the said 160 shares as a whole but intended to refer to one half of the said each beneficiary making up in the aggregate the said 160 shares. That is the only way in which Clauses 2 and 4 can be reconciled and harmoniously read. If the reference were intended to be made to the said 160 shares as a whole, the plain and grammatical meaning of the opening of Clause 2 would be that the trustees would stand possessed of the said 160 shares, until two of the beneficiaries, that is,until both the beneficiaries completed the age of twenty -five, but that would be contrary to the Clause 4, for under that Clause when either beneficiary attained the age of twenty -five,the trustees were bound to transfer his one half of the said 160 shares to him together with the accumulation of surplus income in respect of such one half. What Clause 2, therefore, meant to provide was that the trustees should stand possessed of the two halves of the said 160 shares, one half being for the benefit and advantage of one beneficiary and the other being for the benefit and advantage of the other beneficiary and that possession of each one half of the said 160 shares should remain with the trustees until the beneficiary entitled to such one half completed the age of twenty -five, when under Clause 4 possession of such one half should be handed over to him. This construction which we are inclined to place, apart from making a consistent provision out of clauses 2 and 4, does not in any way strain the language of Clause 2. Even when we turn to Clauses 6 and 7 we find that the words 'the said shares' are used in those Clauses to denote not the said 160 shares as a whole but the one half share of the respective beneficiary in the said 160 shares. There is also another circumstance which throws considerable light on the construction of Clause 2 and shows that the construction which we are placing upon these Clauses is the right construction and not the construction contended for by Mr. I. M. Nanavati. That circumstance relates to the accumulation of surplus income referred to in both Clauses 2 and 4. Clause 4 provided that when any beneficiary attained the age of twenty -five, the trustees should transfer to such beneficiary his one half share in the said 160 shares as also the accumulation of surplus income in respect of such one half share. Clause 4 clearly postulated the existence of a distinct and separate accumulation of surplus income in respect of one half share of each beneficiary in the said 160 shares. Now there could not be a distinct and separate accumulation of surplus income in respect of one half share of each beneficiary unless the amount to be utilised for the maintenance and advancement of each beneficiary was to go only out of the income of his one half share in the said 160 shares. Unless the income in respect of the one half share of each beneficiary were treated by the settlement as distinct and separate, there could not be distinct and separate accumulations of surplus income in respect of the one half share of each beneficiary in the said 160 shares. Clause 2, therefore, made a distinct and separate provision in regard to the income of the one half share of each beneficiary in the said 160 shares and provided that until such beneficiary attained the age of twenty -five, the trustees should apply the whole of the income of the one half shares of such beneficiary in the said 160 shares or such part thereof as they thought fit and proper for the maintenance and advancement of such beneficiary and accumulate the surplus income in excess of the amounts so applied and when such beneficiary completed the age of twenty -five, Clause 4 provided that the trustees should transfer to such beneficiary the accumulation of surplus income together with his one half share in the said 160 shares. The net position which thus obtained was that though each of the two beneficiaries, namely Mahendra and Manubhai, was given a vested interest in one half of the said 160 shares, such one half was not to be handed over to him until he attain the age of twenty -five and in the meantime out of the income of such one half, the trustees were bound to provide for his maintenance and advancement in such amount as they thought fit and proper and the surplus income was to be accumulated and when he attained the age of twenty -five, such one half together with the accumulation of surplus income was to be handed over to him. Mahendra and Manubhai each had thus a vested interest in one half of the said 160 shares and had also the vested right to the income of his one half share in the said 160 shares. With only this restriction that though he was presently entitled to receive maintenance and advancement out of such income, the amount of such maintenance and advancement was in the discretion of the trustees and the surplus income in excess of the amount applied by the trustees for such maintenance and advancement could be received by him only when he completed the age of twenty -five. It was for this reason that Clause 5 provided that neither Mahendra nor Manubhai should have any right to sell, mortgage of encumber in any manner his interest in the corpus or income until he completed the age of twenty -five. We may point out here as an additional argument in support of our view, that if the interest of Manubhai and Mahendra in their respective one half share in the said 160 shares had been contingent on their respectively attaining the age of twenty -five or if they had no vested right to the income of their respective one half share in the said 160 shares, it would have been totally unnecessary to have Clause 5 in the settlement. Clause 5 became necessary because settler wanted that neither Mahendra nor Manubhai should be entitled to sell, mortgage or encumber in any manner either interest in one half of the said 160 shares or his vested right to the income in respect of such one half share. Having said what was to happen to the corpus and income until Mahendra and Manubhai respectively attained the age of twenty -five and what was to be done to the corpus and accumulation of surplus income when Mahendra and Manubhai respectively attained the age of twenty -five.clauses 6 and 7 proceeded to declare what was to happens if either Mahendra or Manubhai died before attaining the age of twenty -five, Clause 6 provided that if either Mahendra or Manubhai died before completing the age of twenty -five leaving a male issue or issues surviving him., the trustees should possessed of his one half of the said 160 shares on trust for such male issue or issues till each of them completed the age of twenty -one. If either Mahendra or Manubhai died before completing the age of twenty -five without leaving any male issue, Clause 7 provided that the trustees should stand possessed of his one half of the said 160 shares on trust for the other living sons of Rambhai patel, is the then living brothers of the deceased, in equal shares after making certain provisions for the female or issues if any of the deceased .If, therefore, either Mahendra or Manubhai died before attaining the age of twenty -five, his vested interest in one half of the said 160 shares was to be divested and such one half share was to go to the male issue or issues if he died leaving male issue or issues and if he died without leaving male issue, then it was to go to his brothers living in equal shares. But what was to happen to the accumulation of surplus income in respect of one half share if either Mahendra or Manubhai died before completing the age of twenty -five? The gift over in clauses 6 and 7 was confined only to the one half share of each beneficiary in the said 160 shares and provided for its destination in case of death of such beneficiary before completing the age of twenty -five and did not extend to the accumulations of surplus income in respect of such one half share did not, therefore, go over on the death of such beneficiary to the persons ultimately entitled to the corpus of such one half share. Mr. IM Nanavati contended that the words 'the said shares' in clause 6 and 7 referred not only to the one half share of the dying beneficiary in the said 160 shares but also to the accumulation of surplus income in respect of such one half share, but this contention was a contention of despair, for it is clear on a comparison of the language of clauses 2 and 4 on the one hand and 6 and 7 on the other, that wherever the settler intend to refer to the accumulation of surplus income, he did so in express terms and made a clear distinction between 'the said shares' or 'his portion of the shares' on the one hand and 'accumulated funds' or accumulation thereof on the other. If the settler intended that the accumulations of surplus income should also be the subject of a gift over along with the one half shares, he would have used the language for the purpose of giving effect to his intention and he would not have stopped short at the words 'the said shares'in clauses 6 and 7 but would have proceeded to include 'the accumulation thereof' as he did in clause 4. We cannot , therefore, agree with Mr.I.M.Nanavatithat clauses 6 and 7 contained a gift over in case of death of either beneficiary before completing the age of twenty -five not only in respect of his one half share in the said 160 shares but also in respect of such one half share. To our mind, it is clear that the accumulation of surplus income in respect of the one half share of each beneficiary in the said 160 shares was not intended to go over to the persons mentioned in clauses 6 and 7 on the death of such beneficiary before completing the age of twenty -five and since such beneficiary had a vested right to the income of his one half share during his life time, such accumulation of surplus income would on the death of such beneficiary pass by testate or intestate succession. This being the position, it is clear that Manubhai was entitled to the whole of the income of his one half share in the said 160 shares, though he attained the age of twenty -five, he could not claim to receive such income save and expect such part thereof as might be paid to him by the trustees as and by way of maintenance and advancement. The surplus income was liable to be accumulated and he was entitled to receive the accumulation of surplus income when he attained the age of twenty -five. If he died before completing the age of twenty -five, the accumulation of surplus income would not go over to the persons ultimately entitled to the corpus of his one half share but would pass by testate or intestate succession. Until his death the whole income of his one half share in the said 160 sares therefore belonged to him even though he died before completing the age of twenty -five an from and after his death his brothers then living became entitled to the whole income of such one half share in the said 160 shares.
(3.) THIS being the nature and quality of the interest conferred on Manubhai under the settlement, the first question that arises for consideration is : did the one half share of Manubhai in the said 160 shares pass on his death under Section 5 ? Section is the charging section and imposes charge in general terms on all property, settled or not settled, in the following terms: -;


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