Estate duty rules on trusts, retained enjoyment, and derived liabilities under sections 10 and 46

Properties settled in trust were treated as includible in the estate where no effective conveyance to trustees was executed and the settlor had not divested title. Gifted properties were also brought into the chargeable estate where the deceased retained enjoyment and control, including collection and use of rents, so the donees did not obtain exclusive possession. Liabilities claimed by the accountable person were disallowed under the abatement rule because they were traceable to property derived from the deceased. The article thus explains that section 10 applies to retained ownership or continued benefit, while section 46 limits allowance of liabilities linked to derived property.

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Issues: (i) Whether the properties settled in trust for the charities were includible in the estate under section 10 of the Estate Duty Act. (ii) Whether the gifted properties, except the gift to one donee, were includible in the chargeable estate under section 10. (iii) Whether the liabilities claimed by the accountable person were rightly disallowed under section 46 of the Estate Duty Act.

Issue (i): Whether the properties settled in trust for the charities were includible in the estate under section 10 of the Estate Duty Act.

Analysis: A valid trust over immovable property required an effective transfer to the trustees. The instrument contemplated conveyance to the trustees, but no such conveyance was executed. The settlor was not the sole trustee, and mere declaration was insufficient to vest title in a body of trustees without transfer and, where necessary, registration. As the deceased had not divested himself of the properties, he continued to be treated as owner for estate duty purposes.

Conclusion: The properties settled in trust were rightly included in the estate under section 10, against the assessee.

Issue (ii): Whether the gifted properties, except the gift to one donee, were includible in the chargeable estate under section 10.

Analysis: The gifts were found to be accompanied by continued enjoyment and control by the deceased. He collected the rents and utilised the income for his own purposes, and there was no exclusive possession or enjoyment by the donees. On these facts, the transfer was treated as attracting section 10 notwithstanding the timing of some gifts close to the commencement of the Act.

Conclusion: The gifted properties, except the excluded item, were rightly brought into the chargeable estate, against the assessee.

Issue (iii): Whether the liabilities claimed by the accountable person were rightly disallowed under section 46 of the Estate Duty Act.

Analysis: The disputed liabilities were traced to property derived from the deceased. Section 46 required abatement of allowances to the extent consideration consisted of property derived from the deceased, and the accumulated rents credited in the donees' personal accounts were treated as liabilities connected with such derived property. The disallowance was therefore sustained.

Conclusion: The liabilities were rightly disallowed under section 46, against the assessee.

Final Conclusion: The reference was answered wholly against the assessee, and the inclusions and disallowances made by the revenue authorities were sustained.

Ratio Decidendi: Where the settlor does not effectively divest himself of immovable property by transfer to the trustees, or where gifted property remains under the donor's continued enjoyment and control, section 10 applies; liabilities traceable to property derived from the deceased attract abatement under section 46(1)(a).

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