Reserved life interest under a settlement deed remains taxable unless surrender and two years' exclusionary enjoyment are proved.

A settlement deed that expressly reserves a life interest in the settlor attracts section 12(1) of the Estate Duty Act, 1953 unless the first proviso is satisfied by proved surrender of that interest and exclusionary enjoyment by the settlee for at least two years before death. The stated facts were treated as insufficient to show such surrender or exclusive enjoyment. The document also explains that default in payment of the monthly amount under the deed does not, by itself, extinguish the reserved life interest; extinction requires a properly executed and registered instrument, not mere default or implied surrender.

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Issues: (i) Whether the settled properties were includible in the principal value of the estate under section 12(1) of the Estate Duty Act, 1953, notwithstanding the first proviso. (ii) Whether default in payment of the monthly amount under the settlement deed automatically brought about surrender of the settlor's reserved interest without a registered instrument.

Issue (i): Whether the settled properties were includible in the principal value of the estate under section 12(1) of the Estate Duty Act, 1953, notwithstanding the first proviso.

Analysis: The settlement deed expressly postponed the settlee's enjoyment until after the settlor's lifetime and specifically recorded that the settlor had reserved a life interest in the properties. The deed also created a charge over that life interest in case of non-payment of the stipulated amount. These recitals showed a clear reservation of interest within section 12(1). The first proviso could apply only if the reserved interest had been surrendered and the settlee had enjoyed the properties to the exclusion of the settlor for at least two years before death. The circumstances relied on to prove such surrender were held to be irrelevant or unreliable and did not establish the necessary exclusionary enjoyment.

Conclusion: The requirement of the first proviso was not satisfied. The properties remained includible in the principal value of the estate, and the finding in favour of the accountable person was rejected.

Issue (ii): Whether default in payment of the monthly amount under the settlement deed automatically brought about surrender of the settlor's reserved interest without a registered instrument.

Analysis: The deed provided remedies on default, including a right of action, a charge on the settlor's life interest, and delivery of possession, but those stipulations did not by themselves effect a surrender of the reserved life interest. Extinction or cessation of such reserved interest required a properly executed and registered document. Mere default in payment, without affirmative steps and proof of actual surrender, was insufficient to divest the settlor's retained interest.

Conclusion: Default in payment did not by itself amount to surrender of the reserved interest, and a proper registered document was necessary to evidence any such surrender.

Final Conclusion: The reference was answered in favour of the Revenue on both questions, with the value of the settled properties remaining liable to inclusion in the estate and the claimed automatic surrender on default being negatived.

Ratio Decidendi: Where a settlement deed expressly reserves a life interest in the settlor, the property is attracted by section 12(1) of the Estate Duty Act, 1953 unless a proved surrender and two years' exclusionary enjoyment under the proviso are established; mere default under the deed does not, without a registered surrender, extinguish the reserved interest.

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