COMMR. OF INCOME TAX HYD V. LATE NAWAB SHABBIR JAH BAHADUR HYD

RC/242/1996

AI Insights

The case revolves around the interpretation of the Estate Duty Act concerning the HEH The Nizam's Jewellery Trust, established by the then Nizam of Hyderabad and Berar, HEH Nawab Mir Sir Osman Ali Khan Bahadur. The trust included precious gems and securities, with specific beneficiaries outlined in the trust deed. Upon the deaths of two beneficiaries, the accountable persons declared their interests as nil in wealth-tax returns, which was contested by the Estate Duty authorities. The Tribunal found that no property or beneficial interest passed to the deceased's successors at their deaths, as the jewellery was never sold, and thus no income was generated or passed on. The High Court, referencing a Supreme Court judgment, upheld the Tribunal's findings, dismissing the case.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 680138 (HC-HYDERABAD)
• Appeal Type: Others
• Pronouncement Date: 05-11-2013
• Assessment Year: misc
• Other Referred Cases: D. Meenakshi Mills Limited vs. CIT
• Laws Referred To: Estate Duty Act
• Result in Favour of: Respondent
• Court: HIGH COURT
• Keywords: Beneficial Interest; Estate Duty; Jewellery; Trust; Life Interest; Income Yielding Assets
• Section: 7; 5(1); 40

Judgement Text

"HON’BLE SRI JUSTICE G. CHANDRAIAH AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM R.C. No.242 OF 1996 ORDER:- (per Hon’ble Sri Justice Challa Kodanda Ram) At the instance of the Revenue, the Income Tax Appellate Tribunal, Hyderabad Bench-‘B’ had referred the following question of law: “Whether, on the facts and in the circumstances of the case, the ITAT was correct in holding that no property passed on to the accountable persons on the death of the deceased u/s 7 of the E.D. Act in respect of HEH The Nizam’s Jewellery Trust?” 2) The matter arises under the Estate Duty Act (for short, “the Act”). HEH Nawab Mir Sir Osman Ali Khan Bahadur, the then Nizam of Hyderabad and Berar, settled certain precious gems, jewels, ornaments and articles of jewellery and antique pieces specified in the First Schedule and securities worth Rs.10 lakhs specified in the Second Schedule on trust vide Trust Deed dated 29.3.1951, for the benefit of his children. The trust is named as HEH the Nizam’s Jewellery Trust. By various trust deeds, the modalities of distribution of the income and other assets were delineated. Sofaras the present case is concerned, it is relevant to record that the funds in these cases are relatable to remaining sons’ funds and remaining daughters’ funds. As per the trust deed, the deceased late Sb.Ramzani Begum and Nb. Shabbir Jah Bahadur are the beneficiaries of the trust. The shares of the beneficiaries are specified in the trust deed. As per which, both are entitled to the incomes of the respective funds which are to be earned by the trustees from the investment of the funds realised on sale of jewellery of the trust. Clause-13 of the Deed provided for the eventuality of sale of jewellery. However, the jewellery could not be sold by the trustees as stipulated and consequently there were no funds from which income could be earned and received by the trustees. The accountable persons declared the value of the interest of the two deceased at nil as in the wealth-tax returns of the two deceased for the period prior to their death. The Assistant Controller of Estate Duty basing on the valuation report of the valuation officer valued the interest of the two deceased at Rs.42,90,200/- in the case of Sb. Ramzani Begum and Rs.55,09,300/- in the case of Nb. Shabbir Jah Bahadur. The valuations were arrived at by dividing the corpus notionally as per Clause 4 of the deed. This was challenged by the accountable persons before the Appellate Controlling Officer of Estate Duty who held that Section 5(1) of the Act, has no application as no beneficial interest of the deceased passed or changed hands on their respective deaths. He also held that the two deceased had only a life interest limited to income from the principal fund of the trust and such interest could have only notionally passed on their death under Section 7(1) of the Act and on account of the death such interest never materialised during their life time as there was no sale of jewellery in terms of Clause 13 of the Trust Deed. The Appellate Controller Estate Duty had also held that even on the basis of their enforceable right of interest in the settled property, there was no passing of that right as the same could arise only after the sale of some or all of the items of jewellery by the trustees and not from the date of handing over of the jewellery to the trustees, but it was to take effect from the time of their sale together with investment of the proceeds in income-yielding assets. He further held that it was not enough that some interest ceased on death, but there must be some property with respect to which the interest ceased and some benefit must accrue to some person, viz., the children of the deceased. The Assistant Controller of Estate Duty challenged the order of the Controller of Estate Duty before the Income Tax Appellate Tribunal, Hyderabad Bench. The Tribunal while dealing with the case had recorded as under: “8. As per caluses 9 and 10 of the deed, the two deceased were given a right to enjoy the income for their life. In other words, such right to enjoy the income was to cease on their respective deaths. Assessability of such an interest is provided in Section 7(1) of the Act which reads as under: “7. Interests ceasing on death. (1) Subject to the provisions of this section, property in which the deceased or any other person had an interest ceasing on the death of the deceased shall be deemed to pass on the deceased' s death to the extent to which a benefit accrues or arises by the cesser of such interest, including, in particular, a coparcenary interest in the joint family property of a Hindu family governed by the Mitakshara, Marumakkattayam or Aliyasantana law.” On a bare reading of Section 7, it is evident that the deceased must have an interest in a property, that interest must cease on his/her death and that a corresponding benefit must accrue or arise by the cessor of such interest. Though a right is given or a benefit is granted to the two deceased as per clauses 9 and 10 of the Trust Deed to enjoy the income of their respective funds, such occasion had never arisen. The property of the funds remained in the shape of jewellery on their respective deaths and, therefore, there was no question of any investment of the sale proceeds thereof nor any accrual of income from investment of such funds. It remained an inchoate right with the two deceased. The two deceased beneficiaries were entitled to income only if there was income and not otherwise. The jewellery was to be sold within 3 years of the death of the survivor of the settler or Prince Azam Jah but could not be sold because of some restrictions imposed by the Government and, therefore, the two deceased beneficiaries had no remedy to enforce their right. It became a dormant right with the two deceased which could never frutify during their life time or even at the time of their respective deaths. Such interest, before it became a vested interest, of course, ceased on their respective deaths but no benefit had accrued or arisen by such cessor to their respective successor beneficiaries mentioned in the trust deed. In these circumstances, therefore, there cannot be any deemed passing of property under Section 7 of the Act as it requires that a corresponding benefit should occur or arise because of the cessor of interest of the deceased. In our opinion, therefore, the Appellate Controller of Estate Duty was justified in holding that there was no passing of property either under Section 5 of under Section 7 of the Act. 9. The issue may be examined from a different angle as well, that is, on the aspect of valuation of the benefit which is deemed to pass on cessor of interest. Section 40 of the Act provided for the valuation of the benefit from interest ceasing on death. It read: “The value of the benefit accruing or arising from the cessor of an interest ceasing on the death of the deceased shall- a) if the interest extended to the whole income of the property, be the principal value of that property, and b) if the interest extended to less than the whole income of the property, be the principal value of an addition to the property equal to the income to which the interest extended.” This section pre-supposes that there must be some income of the property in which the deceased had an interest. On their death, there was no income in the respective parts of the principal fund to which the two deceased belonged and, therefore, ‘passing of property’ failed on this account as well. The interest of the deceased in the income of the fund cannot be evaluated in the absence of any income arising to the fund.” 3) In the light of what has been recorded by the Tribunal holding that there was no passing of property either under Section 5 or Section 7 of the Act, the question now referred is declined to be answered as the question raised is a pure question of fact and there is no challenge to the said fact or of finding recorded by the Tribunal. It is well settled by the judgment of the Supreme Court reported in D. Meenakshi Mills Limited vs. CIT[1];’that the facts as recorded by the Tribunal are required to be accepted by the High Court in exercise of the jurisdiction under Section 256(1) of the Act in the absence of challenge of the said finding of the Tribunal as perverse. Inasmuch as there is no challenge in this R.C of the finding that there was no passing of property either under Section 5 or Section 7 of the Act, the reference fails. 4) Accordingly, the Referred Case is dismissed. No order as to costs. Miscellaneous Petitions, if any, pending in this Referred Case shall stand disposed of. ______________________ G. CHANDRAIAH,J ____________________________ CHALLA KODANDA RAM, J Date:05.11.2013. Gk. HON’BLE SRI JUSTICE G. CHANDRAIAH AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM R.C. No.242 OF 1996 Date:05.11.2013. Gk [1] (1957) 31 ITR 28 SC "