Reserved interest under Estate Duty law requires a settlor's own benefit; relatives-only maintenance does not trigger the deeming rule.
Section 12(1) of the Estate Duty Act, 1953 applies only where the settlor reserves an interest in the settled property for himself, either alone or with his relatives. Reading the two trust deeds together, the transfer was held to take effect during the settlor's lifetime, with income distributable to the sons in that period. The settlement reserved no right of residence, revocation, or other beneficial interest to the settlor, so the statutory deeming provision was not attracted. The explanation was construed as requiring reservation for the settlor's maintenance as well as that of relatives; a relatives-only arrangement did not suffice.
Issues: (i) Whether the trust came into effect during the lifetime of the deceased and whether the property was transferred during his lifetime. (ii) Whether the deceased had reserved an interest in the settled property within the meaning of section 12(1) of the Estate Duty Act, 1953, including whether the explanation to that provision applied. (iii) Whether the word "and" in the explanation to section 12(1) was used in a disjunctive sense so as to make the reservation of maintenance sufficient without any reservation in favour of the settlor.
Issue (i): Whether the trust came into effect during the lifetime of the deceased and whether the property was transferred during his lifetime.
Analysis: The two trust deeds were read together. The rectification deed clarified that the trustees were to hold the trust properties during the lifetime of the settlor and his wife and were to distribute the income among the sons during that period. This showed a present transfer of the property and an effective disposition of income in the settlor's lifetime, rather than a settlement taking effect only on death.
Conclusion: The trust came into effect during the lifetime of the deceased, and the answer to this issue was in favour of the accountable person.
Issue (ii): Whether the deceased had reserved an interest in the settled property within the meaning of section 12(1) of the Estate Duty Act, 1953, including whether the explanation to that provision applied.
Analysis: The settlement did not reserve any right of residence, any power of revocation, or any other beneficial interest to the settlor. The explanation to section 12(1) applies only where the settlor reserves an interest for the maintenance of himself and any of his relatives. Since there was no reservation in favour of the settlor, the statutory condition was not met. The question of residence in one of the trust properties did not alter this position.
Conclusion: There was no reservation of interest by the deceased within section 12(1), and this issue was answered in favour of the accountable person.
Issue (iii): Whether the word "and" in the explanation to section 12(1) was used in a disjunctive sense so as to make the reservation of maintenance sufficient without any reservation in favour of the settlor.
Analysis: The language of the explanation was construed as requiring a reservation of interest for the maintenance of the settlor as well as his relatives. A mere arrangement for the maintenance of relatives, without any reservation for the settlor himself, did not attract the deeming provision.
Conclusion: The word "and" was not used in a disjunctive sense, and this issue was answered against the revenue.
Final Conclusion: The reference was substantially decided in favour of the accountable person, the property was held not to pass under section 12 of the Estate Duty Act, 1953, and the remaining questions were left unanswered as academic.
Ratio Decidendi: Section 12(1) of the Estate Duty Act, 1953 applies only where the settlor reserves an interest in the settled property for himself, either alone or together with his relatives; a settlement that benefits relatives without any reserved interest in favour of the settlor does not attract the deeming provision.