K.C. Agrawal, J. - (1.) THIS is a reference under Section 64(1) of the E.D. Act, 1953 (Act 34 of 1953) (hereinafter referred to as "the Act"), made by the Income-tax Appellate Tribunal, Delhi Bench "C". The following question has been referred by it for our opinion ; "Whether, on the facts and in the circumstances of the case, properties settled on trust at the time of the execution of trust by the deceased could be deemed to have passed on her death ?"
(2.) THE matter arises out of the estate duty case of Miss H.S. Oliphant, who died on September 26, 1962. Sri K.S. Srivastava, who is one of the trustees under the trust created by Miss Oliphant, is the accountable person. He filed a statement regarding the estate of the deceased before the Asst. CED. Miss Oliphant founded a preparatory school for Indian boys called Welham Preparatory School in 1937. She acquired more properties thereafter. On September 29, 1956, having realised that she being 73 years of age was sufficiently old, executed a trust deed settling all the properties in favour of the school. This trust deed was executed by her to ensure the continuity and efficient management of the school so that it could render service to the Indian nation. She constituted a board of trustees consisting of herself and six others. THE properties, which were assigned and transferred to the trustees, were mentioned in schedule 'A' of the trust deed. THE value of these properties was estimated at Rs. 2,62,503-15-9 in the trust deed. THE immovable properties included buildings at Nos. 7, 7-A and 11-B, Circular Road, Dehra Dun. Apart from these buildings, there were two vacant plots of land at Nos. 5 and 9, Circular Road, Dehra Dun. All these properties were adjacent to each other. Movable properties included furniture and fittings, electric installations, refrigerator and security deposit. THE relevant clauses of the trust deed which deserve to be mentioned for the purposes of deciding this reference are the following I " Clause 2: That I shall continue to manage and run the school as trustee till such time as suitable arrangements can be made to appoint a principal. Clause 3 : That I shall receive a sum of Rs. 1,000 per month out of the funds of the school and shall have the right to live in the cottage at present occupied by me at No. 7, Circular Road, Dehra Dun, during my lifetime." Miss Oliphant continued to be in charge of the school until a short time before her death, which took place on September 26, 1962. On her death, Sri K.S. Srivastava filed a statement regarding the estate of the deceased disclosing movable properties of Rs. 2,674 only. Consequently, it will be found that the properties of the trust created by the deceased were not shown. On being questioned by the Asst. CED about these properties, Sri K.S. Srivastava claimed that a trust settling them having already been created in 1956, and their possession having been delivered to the trust, these properties could not and did not pass on the death of Miss Oliphant to the trust. On this assertion, his claim was that these properties being not the properties of the deceased at the time of her death, were not dutiable. The Asst. CED, however, did not accept the case of the accountable person. He found that Miss Oliphant was receiving Rs. 1,000 per month towards her maintenance from the income of the trust properties and was also in possession and enjoyment of a residential house throughout her life and, therefore, the whole of the trust property settled on trust by Miss Oliphant passed on her death. The Asst. CED, accordingly, held that all the properties settled by Miss Oliphant were liable to be taken into account for assessing the estate duty. The accountable person preferred an appeal to the Zonal Appellate Controller. The Appellate Controller also agreed with the Assistant Controller that the properties comprised in the trust created by the deceased passed on her death. Being aggrieved, the accountable person challenged the order of the Appellate Controller by means of an appeal under Section 63 of the Act to the Income-tax Appellate Tribunal. The Tribunal also did not find any substance in the appeal and, consequently, dismissed the same. The accountable person, therefore, filed an application under Section 64(1) of the Act to the Tribunal requiring it to refer to the High Court the question involved in the case for its opinion. The Tribunal accepted the application made by the accountable person and referred the question mentioned above.
(3.) WE may now refer to some of the provisions of the Act which would need consideration for deciding the question referred for the opinion of the High Court. Section 2(16) defines "property passing on the death", which includes property passing either immediately on the death or after any interval, either certainly or contingently. Section 5 is a charging provision. It provides: "(1) In the case of every person dying after the commencement of this Act, there shall, save as hereinafter expressly provided, be levied and paid upon the principal value ascertained as hereinafter provided of all property, settled or not settled, including agricultural land situate in the territories which immediately before the 1st November, 1956, were comprised in the States specified in the First Schedule to this Act, and in the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu, and Pondicherry which passes on the death of such person, a duty called 'estate duty' at the rates fixed in accordance with Section 35. (2) The Central Government may, by notification in the Official Gazette, add the names of any other States to the First Schedule in respect whereof resolutions have been passed by the legislatures of those States adopting this Act under Clause (1) of Article 252 of the Constitution in respect of estate duty on agricultural lands situate in those States, and on the issue of any such notification the States so added shall be deemed to be States specified in the First Schedule within the meaning of Sub-section (1)." Section 22 of the Act is the next important provision for the purpose of the present case. It provides as under : "Property passing on the death of the deceased shall not be deemed to include property held by the deceased as trustee for another person under a disposition not made by the deceased or under a 'disposition made by the deceased where (whether by virtue of the original disposition or of a subsequent surrender of any benefit originally reserved to the deceased or otherwise) possession and enjoyment of the property was bona fide assumed by the beneficiary at least two years before the death and thenceforward retained by him to the entire exclusion of the deceased or of any benefit to the deceased by contract or otherwise : Provided that in the case of property held by the deceased as sole trustee for another person under a disposition made by himself, the period shall be five years." ;