1998 (8) TMI 86 - SC - Indian Laws

Nizam of Hyderabad's Trusts Valid under Mohammedan Law: Estate Duty Exclusion

Trustees Of Sahebzadi Oalia Kulsum Trust Versus Controller Of Estate Duty

The court held that the trusts created by the Nizam of Hyderabad were valid under Mohammedan law as wakfs for charitable purposes. It was determined that ... Whether the trust created by the deceased on 21st March, 1953 known as Sahebzadi Oalia Kulsum Trust is ab initio void? Whether on the interpretation of the trust deed, the value of the corpus of the Sahebzadi Oalia Kulsum Trust is liable to be included in the principal value of the estate of late Sir Osman Ali Khan Bahadur? Held that:- In the light of the principles of Mohammedan law as set out earlier, the two trusts created in 1953 in the present case are valid wakfs. The wakif-settlor made a dedication in perpetuity of the subject-matter of these trusts for purposes which are considered pious under Islamic law. The properties, therefore, ceased to be the properties of the settlor on the creation of the wakfs in 1953. When the settlor died in 1967, they could not form a part of his estate-the settlor having divested himself of these properties fourteen years prior to his death. therefore, the beneficial interest created in favour of Oalia Kulsum and Anwar Begum is a valid creation of trust which is not affected by ss. 13 and 14 of the Transfer of Property Act. As a result the settlor had divested himself of these properties during his lifetime for the benefit of his granddaughter Oalia Kulsum and his daughter -in-law Anwar Begum and thereafter for their descendants and then for the holy shrine at Khum. On the date of his death the Settlor did not have any interest in the properties nor had he reserved any interest to himself under these trusts. Hence, for the purposes of Estate Duty, the deceased cannot be considered as having any interest in the trust property which passed on his death. The properties which constituted the subject-matter of the two trusts, therefore, cannot be included in the estate of the deceased, Sir Mir Osman Ali Khan, the Nizam of Hyderabad, for the purposes of estate duty. In favour of appellant. Issues Involved:1. Validity of the trust created by the deceased under Mohammedan law.2. Inclusion of the corpus of the trust in the principal value of the deceased's estate for estate duty purposes.Issue-wise Detailed Analysis:1. Validity of the Trust Created by the Deceased under Mohammedan Law:The primary issue was whether the trust created by the Nizam of Hyderabad in favor of his granddaughter and daughter-in-law was valid under Mohammedan law. The trust was challenged on the grounds of violating sections 13 and 14 of the Transfer of Property Act, which incorporate the rule against perpetuity. However, the appellant argued that under Mohammedan law, it is permissible to create a wakf-alal-aulad, a trust in perpetuity for the maintenance and support of the settlor's family and descendants, and ultimately for charitable purposes. The court referred to various authoritative texts on Mohammedan law, including Syed Ameer Ali's and Asaf A.A. Fyzee's works, which support the validity of such wakfs. The court also considered the historical context, including the Privy Council's decision in Abul Fata Mohammad Ishak vs. Rasamaya Dhur Chowdhary, which had invalidated such wakfs as violating the rule against perpetuity. However, this decision was later countered by the Mussalman Wakf Validating Act of 1913, which restored the principles of Mohammedan law. The court concluded that the trusts created in 1953 were valid wakfs under Mohammedan law, as they were for purposes considered pious and charitable.2. Inclusion of the Corpus of the Trust in the Principal Value of the Deceased's Estate for Estate Duty Purposes:The second issue was whether the value of the corpus of the trust should be included in the principal value of the deceased's estate for estate duty purposes. The court noted that the properties were transferred to the trust in 1953, and the settlor had divested himself of these properties fourteen years before his death in 1967. The court emphasized that the settlor had not reserved any interest in the properties for himself under the trust deeds. Consequently, at the time of his death, the settlor did not have any interest in the trust properties. The court also observed that during the settlor's lifetime, the Income Tax authorities had accepted the validity of the wakfs and had not treated the income of the wakfs as the settlor's income. Therefore, the properties constituting the subject matter of the two trusts could not be included in the estate of the deceased for estate duty purposes.Conclusion:The court set aside the judgment and order of the High Court, answering both questions in the negative and in favor of the appellant. The appeals were allowed with costs, affirming that the trusts created by the Nizam of Hyderabad were valid under Mohammedan law and the properties could not be included in the deceased's estate for estate duty purposes.