1980 (9) TMI 11 - HC - Income Tax

High Court excludes trust property value from dutiable estate under Estate Duty Act Section 12.

The High Court ruled in favor of the accountable persons, holding that the value of trust properties was not includible in the dutiable estate under ... Charitable Trust, Estate Duty Issues Involved:1. Inclusion of trust properties in the dutiable estate under Section 12 of the Estate Duty Act.2. Validity of the trust deeds under Section 32 and Section 126 of the Transfer of Property Act.3. Applicability of the rule against perpetuity to the power of revocation in the trust deeds.4. Effect of registration under the Bombay Public Trusts Act on the revocability of the trusts.5. Public policy considerations regarding the revocation of public charitable trusts.Detailed Analysis:1. Inclusion of Trust Properties in the Dutiable Estate under Section 12 of the Estate Duty Act:The primary issue was whether the value of several trust properties settled by the deceased was includible in the dutiable estate under Section 12 of the Estate Duty Act. The court noted that the deceased, Narandas Lakhmidas Joshi, had created multiple trusts with provisions allowing him to revoke these trusts. The Assistant Controller and the Appellate Controller of Estate Duty included the value of these trust properties in the estate, reasoning that the power of revocation meant the properties passed on Narandas' death under Section 12 of the Act. However, the Tribunal concluded that under Hindu law, a public charitable trust is irrevocable, making the power of revocation void. The High Court agreed with the Tribunal, holding that the power of revocation had become inoperative due to the amalgamation of the trusts and the blending of trust funds.2. Validity of the Trust Deeds under Section 32 and Section 126 of the Transfer of Property Act:The Department initially argued that the trust deeds were void under Section 32 of the Transfer of Property Act but later abandoned this point. Instead, they contended that the trusts were void under Section 126, which deals with revocable gifts. The court rejected this argument, clarifying that a trust is not a gift and the provisions of the Transfer of Property Act relating to gifts do not apply to trusts. The court emphasized that a trust is a separate legal concept and cannot be equated with a gift as defined by the Transfer of Property Act.3. Applicability of the Rule Against Perpetuity to the Power of Revocation in the Trust Deeds:The respondents argued that the power of revocation was void as it violated the rule against perpetuity, given that it could be exercised by Narandas' heirs, executors, administrators, and assigns. The court found this argument unnecessary to address, as it had already determined that the power of revocation had become inoperative due to the amalgamation of the trusts.4. Effect of Registration under the Bombay Public Trusts Act on the Revocability of the Trusts:The Charity Commissioner argued that once a public charitable trust is registered under the Bombay Public Trusts Act, it becomes irrevocable, even if it contains a revocation clause. The court did not find it necessary to decide on this point, as the power of revocation in the trust deeds had already been rendered inoperative by the amalgamation of the trusts.5. Public Policy Considerations Regarding the Revocation of Public Charitable Trusts:The respondents and the Charity Commissioner contended that allowing revocation of public charitable trusts was against public policy, as it would enable the settlor to reclaim property that had benefited from public donations. The court again found it unnecessary to address this argument, given its conclusion that the power of revocation was inoperative.Conclusion:The High Court ruled in favor of the accountable persons, concluding that the value of the trust properties was not includible in the dutiable estate under Section 12 of the Estate Duty Act. The court emphasized that the power of revocation in the trust deeds had become inoperative due to the amalgamation of the trusts and the blending of trust funds. The Department was ordered to pay the costs of the reference, and the Charity Commissioner was entitled to recover costs from the trust funds.