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Petitioner: KHATIZABAI-MUHAMMAD IBRAHIM VS Respondent: CONTROLLER OF ESTATE DUTY, BOMBAYHonorable Justice S. T. DESAIN. A. Palkhivala
1960 P T D 191
1960 P T D 191
[Bombay (India)]
Before S. T. Desai and K. T. Desai, JJ
KHATIZABAI‑MUHAMMAD IBRAHIM
versus
CONTROLLER OF ESTATE DUTY, BOMBAY
Estate Duty Ref. No. 1 of 1958, decided oh 3rd November 1958.
Estate Duty‑Settlement‑Wakf‑Reservation of a portion of income for maintenance of settlor during lifetime‑Death of settlor- Property deemed to pass‑[Estate Duty Act XXXIV of 1953 (India)].
By a deed of wakf‑al‑aulad, the settlor created a wakf of certain immovable properties ‑and a sum of Rs. 1 lakh, under which the ultimate benefit to charity was postponed until the extinction of the descendants of the settlor. The settlor reserved for her maintenance during her lifetime 62 % of the net income of the immovable properties and directed that 31/8% of the income was to be given to her daughter for her maintenance and the remaining 343/8% for her daughter's children in certain specified shares. After the death of the settlor 12 % of the net income was to be paid to her daughter and the remaining 87 % of the income to the daughter's children. The sum of Rs. 1 lakh was to be held in a separate account called the "extraordinary heavy repair fund" to be utilised for repairs and construction, but during the lifetime of the settlor the income from that fund also was enjoyed by the settlor, her daughter and her grandchildren in the same proportion in which they enjoyed the income from the other properties. On the death of the settlor, the Controller of Estate Duty brought the entire immovable properties as well as the sum of Rs. 1 lakh to assess ment. On a reference;
Held (i) that the entire wakf properties including the sum of Rs. 1 lakh were chargeable to estate duty under section 5 read with sections 3 (3) and 12 of the Estate Duty Act ;
(ii) that section 12 of the Estate Duty Act, 1953 (India) and not section 10 applied to the wakf in this case, as the wakf was a settlement and not a gift.
The expression "passing" is not used in the Estate Duty Act in any technical sense. To ascertain whether a property has passed, a comparison must be made between the persons beneficially interested the moment before the death and the persons so interested the moment after the death.
In the case of a settlement of property in which the settlor has reserved to himself for life any interest, however small, although less may pass on the death of the settlor by application of the general rule laid down in section 5 of the Estate Duty Act, (viz., only the interest which was reserved) the Legislature has by enacting section 12 ruled‑that the whole of such property of the settlor, the subject‑matter of the settlement (and not merely the interest so reserved) shall none the less be deemed to pass.
[The scheme of the Estate Duty Act, 1953, of India and of the Finance Act, 1894, of the U. K. is substantially the same].
Per S. T. Desai J.‑On analogous provisions of the Indian Law unaffected by the specialities of the English law and on funda mental concepts and on broad general principles, decisions of Courts in England are useful and of considerable guidance if utilised with due care and caution. The rule of construction relating to provisions of enactments in pari materia is one of great convenience and aid from decisions of Courts in England may legitimately be derived when any doubtful points of interpretation of any provision of the Indian statute has to be solved. But reference to the former simply on the ground of similarity has to be avoided.
It is incumbent on, the Revenue to establish that its claim comes within the very words used by the Legislature and the subject cannot be taxed unless there are words clear enough to impose taxation. The presumption is that the Parliament has granted precisely that tax to the Revenue which it has described and no more. The burden is upon the Revenue to bring the subject within the charge. This does not mean that there has to be any discrimination against the Revenue or deliberate weighing in favour of the subject.
It is clear from the incorporation of subsection (3) of section 3 in the Estate Duty Act, 1953, by the amendment made in 1954, that the provisions relating to property which is deemed to pass have to be read along with section 5, and not in any manner divorced from section 5 or in watertight compartments.
There is no warrant for introducing in the provisions of the Estate Duty Act, 1953, particularly in view of section 3(3), the concept of mutually exclusive categories (of property actually passing and property deemed to pass) as stated in the dicta of Lord Macnaghten in Earl Cowley's case. That which is notional passing of property under section 12 of the Estate Duty Act must be treated for all purposes as actual passing of property.
It is the absolute interest of the settlor which was the subject matter of the settlement that is to be deemed to pass on the settlor's death under section 12 and not only the reserved interest.
Per K. T. Desai J.‑The words "property passing under any settlement" in section 12 of the Estate Duty Act refer not to property passing on the death, but to property comprised in the settlement.
The object of the Legislature in enacting section 12 was that where an interest, however small, is reserved by a settlor under any settlement not taking effect as a will, for life or any other period determinable by reference to death, the whole of the property would be deemed to pass, even though otherwise a lesser part thereof might pass, and that if he has reserved to himself the right by the exercise of any power to restore to himself or to reclaim the absolute interest to such property, the whole property would pass whether he has reserved any aliquot shares in the income or any other interest in the property or not.
The words "an interest" in the context in section 12 mean The interest may be an aliquot share in the income of the property settled upon trust.
Where there is a deeming provision, it does not necessarily imply that what is sought to be included thereby must of necessity have otherwise been wholly excluded.
Attorney‑General v. Beech 1899 A. C. 53 ; Attorney‑General v. Dobree (1900) 1 Q B 442 ; Attorney General v. Earl Grey (I 8921) J Q B 318 ; Attorney‑General v. Milne 1914 A C 765 ; Christie v. Lord Advocate 1936 A C 569 ; Cochrane v. Turner 1945 Ch. 285; Commissioner for Stamp Duties of New South Wales v. Perpetual Trustee Co. Ltd. 1943 A G 425 ; Duke of Norfolk, In re (1950) 1 Ch. 467 ; Earl Cowley v. Commissioners of Inland Revenue (1899) A C 198; Inland Revenue v. Angu's Trustees 1951 S. L. T. 57 ; Longbourne's Marriage Settlement, In re : Warren v. Inland Revenue Commissioners (1932) 2 All. E R 933 ; Northcliffe, In re (1929) 1 Ch. 327; Partington v. Attorney‑General (1869) 4 H L 100 Public Trustee v. Inland Revenue Commissioners (1959) 37 I T R (E D) 43 ; Scott and Coutts & Co. v. Commissioners of Inland Revenue 1937 A C 174 ; Sanderson v. Inland Revenue Commis sioners 1956 A C 491; St. Aubyn v. Attorney‑General 1952 A C 15 and State of Bombay v. Pandurang Vinayak Chaphalkar 1953 SCR773ref.
STATEMENT OF CASE
By this application, Smt. Khatizabai Muhammad Ibrahim (hereinafter called the applicant) requires the Central Board of Revenue, to refer to the Hon'ble High Court certain questions of law which are said to arise out of the Board's Appellate Order No. BY/10/56 of 1956‑57 dated the 27th March, 1957. As in the Board's opinion, question of law does arise out of their order, the following statement of the case is drawn up and referred to the Hon'ble High Court of Bombay as required by subsection (1) of section 64 of the Estate Duty Act, 1953 (XXXIV of 1953).
2. Bai Aishabai M. Jakaria Patel (hereinafter called the deceased) died on the 12th August, 1954. The applicant is the accountable person within the meaning of subsection (1) of section 53 of the Estate Duty Act, 1953. By his order dated the 23rd December, 1955, which is made part of the statement of the case and marked annexure `B', the Controller of Estate Duty, Bombay, determined the principal value of the estate passing or deemed to pass on the deceased's death at Rs. 10,11,614 inclusive of the property settled on trust by the deceased by deed of wakf dated the 31st March, 1951, which is marked an nexure `D'.
3. The property settled by the said deed was in two parts namely;
(i) immovable properties (twelve in all) as described in the Schedule to the deed ; and
(ii) a sum of Rs.1 lakh.
Regarding the immoveable properties, the deed provides that out of the income remaining after payment, of all "assess ments, rates, ground rents, duties, insurance premia, costs of ordinary repairs, painting, lime‑washing and reasonable expenses of general maintenance and management", 10% shall be set apart and credited to an account to be called "repairs fund account" and the balance be distributed in the proportion of 62 % thereof to the settlor for her lifetime 31/8%. to her daughter, Khatizabai (the applicant), for lifetime, 34 3/8% to the children of the said Khatizabai in certain specified shares. In the accounts filed by the applicant, the value of properties subject to the settlement, referred to above, passing on the death of the deceased was shown at 62 % of 90% of the total on the ground that this was the interest which the deceased had in those properties and which ceased on her death. As the properties under con sideration were the subject of a settlement by the deceased herself, the entire value of the properties was included by the Con troller in the estate duty assessment under section 12 of the Act.
Regarding the sum of Rs. 1 lakh also settled by the deed dated the 31st March, 1951, the same was to be credited to an account called "extraordinary heavy repairs fund account" and the monies invested in securities. This fund was invested in 3% conversion loan of the face value of Rs. 1,06,000 (price paid Rs. 98,874 on May 9, 1951). The Controller found that the income from these investments has been enjoyed by the deceased and her daughter and grandchildren in the same proportion in which they enjoyed the income from the immovable properties and had accordingly assessed it to duty under section 12 of the Act.
4. The applicant thereafter preferred an appeal to the Board under section 63 of the Estate Duty Act, 1953, against the Controller's order. The Board in their appellate order dated the 27th March, 1957, upheld the order passed by the Controller. The order of the Central Board of Revenue is made part of the statement of the case and is marked as annexure `A'.
The applicant has now formulated the following questions of law for reference to the High Court;
"(1) Whether on a true construction of the provisions of the deed of wakf dated March 31, 1951, the entire wakf property (including the sum of Rs. 1 lakh) or only 62 % of the wakf property (including 62 % of Rs. 1 lakh) is chargeable to estate duty under the provisions of the Estate Duty Act, 1953 ?
(2) Whether the Central Board of Revenue misdirected itself in law in holding that the entire wakf property (including the sum of Rs. 1 lakh) passed or must be deemed to have passed on the death of the deceased and consequently attracted estate duty and that section 12 of the Act applied to the case ?
(3) Whether the Central Board of Revenue misdirected itself in law in holding that the deceased retained paramount and overriding interest in the entire wakf properties ?
5. In the Board's opinion, there is some overlapping in various questions raised by the applicant. On the facts and circumstances, the Board consider that the following question only arises out of their order and the same is referred to the High Court of Judicature at Bombay, as required by sub section (1) of section 64 of the Estate Duty Act, 1953;
"Whether in the facts and circumstances of the case, the entire wakf property (including the sum of Rs. 1 lakh) or only 62 % of the wakf property (including 62 % of Rs 1 lakh) is chargeable to estate duty ?"
6. The draft statement was sent to the applicant. The applicant suggested that the questions of law as formulated by her should be referred. However, in the opinion of the Board, the question formulated in paragraph 5 above is quite specific and covers all the questions raised by the applicant. Hence, the Board feel that no amendment ‑as suggested by the applicant is necessary.
N. A. Palkhivala with K. H. Bhabha for Applicant. G. N. Joshi with R. J. Joshi for the Controller.
JUDGMENT
S. T. DESAI, J.‑This reference under the Estate Duty Act raises a question of considerable importance and interest affecting the levy of estate duty on property which may be the subject of a wakf‑al‑ulad. The settlement; we have to consider, was created by Aishabai, a wealthy Memon lady who was a Hanifa Muhammadan. The facts are simple and we shall only give a broad outline of the relevant facts supplementing it if occasion demands. The deed of wakf, which we shall presently examine, was made on 31st March, 1951. It accords with the requirements of the statute on the subject. There is permanent dedication of property for the benefit of the poor and other purposes recognized by the Musalman law as religious; pious or a charitable purpose of a permanent character. The ultimate benefit to the charity is postponed until the extinction of the descendants of the wakif There is the usual provision relating to maintenance and support of the settlor during her lifetime and for the maintenance and support of her family consisting of her daughter and the children of that daughter from generation to generation. Mutavalis were appointed, the settlor herself being one, and the property was conveyed and transferred to them. The property settled by the wakifnama consisted of 12 immoveable properties of large value and a sum of Rs. 1 lakh. It is the provisions for maintenance contained in the deed that have given rise to the dispute between the Revenue and those who represent the estate of Aishabai. The settlor reserved for her maintenance during her lifetime 62 % of the net income, 31/8% of the income was given to her daughter Khatizabai for her maintenance and the remaining 34 3/8% was given for the maintenance of Khatizabai's children, the‑share of each male child being double that of each female child. Clauses 5 and 6 of the deed are material and relate to reservation and dis positions after the demise of the settlor;
"5. From and after the demise of the wakif, the Mutavalis shall out of the said 62 % of the net income hereinabove directed to be paid to the wakif set apart 9 3/8 per cent and add the same to the said 38 per cent. of the income hereinabove directed to be paid to the said Khatizabai and shall add the remaining 53 1/8 per cent. to the said 34 3/8 per cent . . . to be distributed among the children of the said Khatizabai and their descendants so that after the death of the wakif, 121 per cent. of the net income shall be paid to the said Khatizabai and the remaining 87J per cent. of the net income shall be distributed among the children and descendants of the said Khatizabai in the same manner and to the same extent as hereinabove mentioned in clauses 4 (b) and 4(c) hereof for the benefit of the said Khatizabai and her children and their descendants respectively.
6. From and after the death of the survivor of them the wakif and the said Khatizabai; the whole of the net income shall be dealt with and distributed amongst the children of the said Khatizabai and their descendants in the same manner and to the same extent and in accordance with the same proportion and method of distribution as hereinabove mentioned in clause 4.(c) hereof".
Reference may briefly be made to the sum of Rs. 1 lakh settled by the deed. The Mutavalis were directed to credit that sum of Rs. 1 lakh to an account called "extraordinary heavy repair fund account" and invest the moneys so credited in such security or securities as they may think fit. The Mutavalis would be at liberty to make use of and apply the moneys to the credit of the said account as may be required.
Aishabai, the settlor died on 2nd August, 1954. The Collector of Estate Duty included all the properties in the estate duty assessment under section 12 of the Act. With regard to the sum of Rs. 1 lakh also, he took the view that the sum was credited to an account as directed and the moneys had been invested in Government paper, but the income from the investment had been enjoyed by the deceased and her daughter and grandchildren in the same proportion in which they enjoyed the income from the settled properties. Being of that view, he assessed that sum of Rs. 1 lakh also to duty under section 12 of the Act. The matter was carried in appeal to the Central Board of Revenue. The contentions which are pressed before us were raised by the parties before the Board and we shall presently examine them. The Board rejected the appeal and the applicant has come before us on this reference.
The question we are asked to determine is;
"Whether in the facts and circumstances of the case, the entire wakf property (including the sum of Rs. 1 lakh) or only 62 per cent. of the wakf property (including 621 per cent. of Rs. 1 lakh) is chargeable to estate duty ?"
On this question, numerous points arise for discussion. To state it without refinement, the principal and the crucial question is what property passed on the death of the settlor? The contention in the forefront of the argument of Mr. Palkhivala, learned 'counsel for the applicant, has been that there was actual passing of the interest of Aishabai, the settlor, on her death. That interest being 62 per cent, of the income, the property that can be brought to death duty can only be 62 per cent. of the corpus and not the whole of it as held by the Board. Reliance has been placed on section 5 of the Act and the main argument is that section 12 on which the Revenue has taken its stand‑and which is one of the provisions relating to property which is deemed to pass"‑has been erroneously applied by the Board. The archstone of the contention is that the law on the subject laid down in sections 1 and 2 (b) of the English Finance Act, 1894, which deals with estate duty is the same as laid down in the relevant provisions of our Estate Duty Act and in support of the contention counsel has relied on certain decisions of Courts in England and particularly on the case of Earl Cowley ((1899) A C 198) a decision of the House of Lords. The conten tion of the Revenue is that the whole corpus passed on the demise of Aishabai. It is urged that the decision of Courts in England on the question are on sections which are not wholly similar and what is stressed is that though a number of provisions of the English enactment have been adopted in the Estate Duty Act, the scheme of the latter enactment is different. It will facilitate the appreciation of the rival contentions if we start with an examination of the scheme of our Act. Before turning to the decision of Courts in England very strongly relied on by Mr. Palkhivala, it seems convenient and indeed necessary to gather the meaning and effect of the relevant provisions of our Act read in their proper context and having regard to the scheme of the Act. The material language of the sections has always in these matters to be borne in mind before seeking aid and guidance from observations made in the course of interpretation of analogous provisions even though they are in pari materia. Of this more hereafter.
To turn to the scheme of the Act and the provisions with which we are mainly concerned on this reference. The estate duty is imposed by section 5, which is the charging section and the relevant part of it is in the following terms;
"5. (1) In the case of every person dying after the commence ment 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 States specified in the First Schedule to this Act, which passes on the death of such person, a duty called `estate duty' at the rates fixed in accord ance with section 35".
The section applies to the case of every person dying after the Act came into operation. It speaks of the imposition of levy and payment of the same which is to be upon the principal value of property to be ascertained in accordance with certain other provisions of the Act. It embraces property settled as well as not settled and it touches property on the death of a person. The expression "property" is defined in section 2 (15) as including "any interest in property; movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale and also includes any property converted from one species into another by any method." The expression "settled property" is defined in section 2 (19) to mean;
"Property which stands limited to, or in trust for, any persons, natural or juridical, by way of succession, whether the settlement took effect before or after the commencement of this Act."
The expression "property passing on the death" has been defined in section 2 (16) which is as under;
" `Property passing on the death' includes property passing either immediately on the death or after any interval, either certainly or contingently, and either originally or by way of substitutive limitation, and `on the death' includes `at a period ascertainable only by reference to the death'."
It will be noticed that the word "passing" leas not been defined in the Act, and what is the meaning of the word "passing" is perhaps the only point about which there is no controversy in this reference. Learned counsel for the applicant and learned counsel for the Revenue are agreed that the meaning of the expression "passing" in the Indian enactment is the same as has been given to that word in decisions of Courts in England. It is clear that the expression "passing" is not used in the Act in any technical sense. It has been held that the very general words "passes" is not a technical word but one capable of the widest possible meaning and has been used as language to be understood by ordinary people and not in a technical sense. Again it has been said that the expression "passing on death" which is not further defined is evidently used to denote some actual change in the title or possession of the property as a whole which takes place at the death. It has also been said that changing of hands may convey the meaning of passing of property. The of quoted meaning of this expression is this : To ascertain whether a property has passed, the comparison must be made between the persons beneficially interested the moment before the death, and the persons so interested the moment after the death. This definition by Lord Russell in a House of Lords case has not been improved upon by any Judge and with respect, the identical expression in our enactment has the same meaning.
The purpose and object of Parliament was to impose a levy on property passing on death of a person and Parliament being fully conscious of human ingenuity and devices that might be adopted to avoid the operation of the imposition has proceeded to lay down a catena of rules headed "property which is deemed to pass". This has been done in sections which immediately follow section 5. It will suffice at this stage to state some of those sections (6 to 16) together an idea of the scheme of the Act and while doing so we shall set out sections 9, 10 and 12 on which certain arguments have been advanced before us.
"6. Property within disposing capacity.‑Property which the deceased was at the time of his death competent to dispose of shall be deemed to pass on his death.
7. (1) Subject to the provisions of this section, property in which the deceased or any other person had an interest ceasing on the death of the deceased shall be deemed to pass on the deceased's death to the extent to which a benefit accrues or arises by the cesser of such interest, including, in particular, a coparce nary interest in the joint family property of a Hindu family governed by the Mitakshara, Marumakkattayam or Aliyasan tana law.
8. Gifts mortis causa.‑Property taken as a gift made in contemplation of death shall be deemed to pass on the donor's death.
9. Gifts within a certain period before death.‑(1) Property taken under a disposition made by the deceased purporting to operate as an immediate gift inter vivos whether by way of transfer, delivery, declaration of trust, settlement upon persons in succession, or otherwise, which shall not have been bona ,fide made two years or more before the death of the deceased shall be deemed to pass on the death...
(2) The provisions of subsection (1) shall not apply to gifts made in consideration of…
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