# CONTROLLER OF ESTATE DUTY, GUJARAT v. HUSSAINBHAI MOHMEDBHAI BADRI

- **Citation:** [1974] 1 S.C.R. 122
- **Court:** Supreme Court of India
- **Decided:** 1973-04-30
- **Case number:** Civil Appeal No. 1096 of 1970
- **Bench:** K. S. Hec'Qe, H. R. Khanna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/controller-of-estate-duty-gujarat-v-hussainbhai-mohmedbhai-badri-6636
- **Pages:** 8

## Headnote

Estate Duty Act-Sections 5 (l ), 2(15), (16) Se11/ement by trust-Se11/or,
his
wife
and
eldest
son
appointed
trustees-Sett/or
entitled
to
net
income of
trust properties-On
his
death,
and of
said inconze
to be
ltppropriated-- by wife-On lvife's death 1/3 share of trust to be given
eldtsl
son-Whether whole of trust to be included in assessment or on/.y a portion
thereof-"Property passing on dearh"-Scope of-Change in. the beneficial interest and not title, is tlze real test.
•
The settler in the instant case, set.lied upon trust certain immovable proper ..
lies and lease-hold lands by an indenture dated 15-7-1938.
Under
that
deed·
the settlor, his wife and their eldest !)On (the respondent) were appointed
trustees. Under the terms of the trust deed. the settlor was entitled to the net
i_ncome of the trust properties during his lifetime.
After his death, the income
of those properties was to be divided into three equal shares; l /3rd of the income
was to be appropriated by the wife during her lifetime.
Out of the remaining
2/3rd, I /3rd was to be paid to the respondent and the remaining I /3rd was to be
entrusted to the rcs.vondent for being utilised for the maintenance of the two
wives and the children of the settlor's youngest son. who bad died before the
trust deed was executed.
On the death of settlor's wife. the trustees were to
divide the trust properties into two equal shares of which one share would go
to the respondent.
The settlor·s wife died on 6·10-1955.
The value of the estate left by her
was determined by the Assistant Controller at Rs. 4,15,000/· on the basis that
tbe estate consisted of two items.
(a) her individual properties and (b) l/3rd
of the trust properties.
He overruled
the objection of the
respondent, the
accountable person, to the inclusion of the value of the l/3rd share in the trust
properties in the computation of the value of the estate that "passed" on the·
death of the wife.
On appeal, the Appellate Controller considered the entire
trust property as the property that "passed" on the death of deceased and con~
sequently enhanced the
valuation made by the Assistant
Controller. The
Tribunal set aside the order of the Appellate Controller and restored that of
the Assistant Controller holding that only I /3rd of the trust estate "passed" on
the death of the deceased.
At the instance of the appellant, the Tribunal referred to the High Court fOr its opinion the question as to whether the whole of
the trust estate was to be included in the assessment or only a pGrtion thereof
and if so what portion. The High Court answered that question in favour of
the respondent assessee holding that under s. 5 of the Act only the beneficial
interest of the deceased in the tru<;t estate "passed" en her death and the passing
of the legal' title to the estate from the trustees to the
beneficiaries after the
death of the deceased was not a material circumstance.
On appeal by certificate to this Court, the appellant contended that: (i) the
title to the trust properties vested in the trustees till the death of the deceased;
(ii) that title "passed" to the beneficiaries immediately the deceased died; (iii)
the title that "passed on the death of the deceased was the title in respect of the
entire trust prooerty and therefore it must be held that the entire trust property
"passed" on thC death of the deceased and (iv) hence, the value of the entire
trust property should be taken into consideration in computing the value of the.
estate that na<ised on the death of the deceased. The resoondent contended that :
(i) the deceased had only 1/3rd interest in the trust property and that alone
''passed" on her death : and (ii) the deceased's position as truo;tee, which came
to an end on her death be considered as property passing on her death.
Dismissing the appeal,
A
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CONTROLLER ESTATE DUTY v. H. M. BADRI (Hegde, !.)
123
HEID : (i) Ever since the death of the settlor, beneficial interest in 2/3rd·
of the inco

## Text

122
CONTROLLER OF ESTATE DUTY, GUJARAT
v.
HUSSAINBHAI MOHMEDBHAI BADRI
April 30, 1973
[K. S. HEC'QE AND H. R. KHANNA, JJ.]
Estate Duty Act-Sections 5 (l ), 2(15), (16) Se11/ement by trust-Se11/or,
his
wife
and
eldest
son
appointed
trustees-Sett/or
entitled
to
net
income of
trust properties-On
his
death,
and of
said inconze
to be
ltppropriated-- by wife-On lvife's death 1/3 share of trust to be given
eldtsl
son-Whether whole of trust to be included in assessment or on/.y a portion
thereof-"Property passing on dearh"-Scope of-Change in. the beneficial interest and not title, is tlze real test.
•
The settler in the instant case, set.lied upon trust certain immovable proper ..
lies and lease-hold lands by an indenture dated 15-7-1938.
Under
that
deed·
the settlor, his wife and their eldest !)On (the respondent) were appointed
trustees. Under the terms of the trust deed. the settlor was entitled to the net
i_ncome of the trust properties during his lifetime.
After his death, the income
of those properties was to be divided into three equal shares; l /3rd of the income
was to be appropriated by the wife during her lifetime.
Out of the remaining
2/3rd, I /3rd was to be paid to the respondent and the remaining I /3rd was to be
entrusted to the rcs.vondent for being utilised for the maintenance of the two
wives and the children of the settlor's youngest son. who bad died before the
trust deed was executed.
On the death of settlor's wife. the trustees were to
divide the trust properties into two equal shares of which one share would go
to the respondent.
The settlor·s wife died on 6·10-1955.
The value of the estate left by her
was determined by the Assistant Controller at Rs. 4,15,000/· on the basis that
tbe estate consisted of two items.
(a) her individual properties and (b) l/3rd
of the trust properties.
He overruled
the objection of the
respondent, the
accountable person, to the inclusion of the value of the l/3rd share in the trust
properties in the computation of the value of the estate that "passed" on the·
death of the wife.
On appeal, the Appellate Controller considered the entire
trust property as the property that "passed" on the death of deceased and con~
sequently enhanced the
valuation made by the Assistant
Controller. The
Tribunal set aside the order of the Appellate Controller and restored that of
the Assistant Controller holding that only I /3rd of the trust estate "passed" on
the death of the deceased.
At the instance of the appellant, the Tribunal referred to the High Court fOr its opinion the question as to whether the whole of
the trust estate was to be included in the assessment or only a pGrtion thereof
and if so what portion. The High Court answered that question in favour of
the respondent assessee holding that under s. 5 of the Act only the beneficial
interest of the deceased in the tru<;t estate "passed" en her death and the passing
of the legal' title to the estate from the trustees to the
beneficiaries after the
death of the deceased was not a material circumstance.
On appeal by certificate to this Court, the appellant contended that: (i) the
title to the trust properties vested in the trustees till the death of the deceased;
(ii) that title "passed" to the beneficiaries immediately the deceased died; (iii)
the title that "passed on the death of the deceased was the title in respect of the
entire trust prooerty and therefore it must be held that the entire trust property
"passed" on thC death of the deceased and (iv) hence, the value of the entire
trust property should be taken into consideration in computing the value of the.
estate that na<ised on the death of the deceased. The resoondent contended that :
(i) the deceased had only 1/3rd interest in the trust property and that alone
''passed" on her death : and (ii) the deceased's position as truo;tee, which came
to an end on her death be considered as property passing on her death.
Dismissing the appeal,
A
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A
B
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CONTROLLER ESTATE DUTY v. H. M. BADRI (Hegde, !.)
123
HEID : (i) Ever since the death of the settlor, beneficial interest in 2/3rd·
of the income of the trust property vested in pefsons other than
th~ deceased.
The deceased was entitled to only 1 /3rd share in the incon1e of the trust pro
4
perty. In substance, only 1/3rd interest in the trust property passed on ker
death. It is true that after the death of the deceased. the respondent as well
as the other heirs of the settler who l)ad only a beneficial interest in the income
of trust property became the legal owners of the trust property. This change
in the nature of the rights possessed by
some of the beneficiaries under the
trust deed does not enlarge either the extent or value of the property that
"passed" on the death of the deceased.
[127CJ
(ii) The expression "property passing on death" (as found in Ss. 5(1) and
2 ( 16) of the Act) is not a technical expression. In other words, it is not a
term of law. The word "passed" means
11changes hands". To ascertain whether
property has passed, a comparison must be made between the persons benefi·
cially interested at the moment before the death and the persons so interested·
after the death.
[126E]
What is relevant in determining
the scope
of the expression
"property
passing on the death of the deceased" is the change in the beneficial interest
and not title. In determining whether a particular property "passed" on the
death of a deceased what has to be seen is whether that deceased had any bene·
-ficial interest in that property and whether that interest "passed" to someone
on his death. [129D-EJ
Scott and Coutts and Co. v. Inland Revenue Com1nissioners; [1937] A.C. 174
Green's Death Duties: referred to.
Re. Thomas Townsend, Deceased [1901] 2 K.B. 331, applied.
Mahendra Rambhai Patel v. Controller of Estate Duty, Gujarat. 63 · I.T.R.
645, relied on.
(iii) The deceased's wife had only 1/3rd share in the income of the trust
property_.
That interest undoubtedly passed on her death. In the remaining
2/3rd In~ome. she had no interest and the same did not pass on her death.
Her title to the property as a trustee was purely a personal right.
It had novalue in terms of money. It conferred no right on her. It on1v imposed some
duties.
Such a right cannot be considered as ''property".
[129E]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1096 of 1970.
Appeal by certificate from the judgment and order dated October
3 and 4, 1968 of the Gujarat High Court at Ahmedabad in Estate Duty
Tax Reference No. 1 of 1968.
N. D. Karkhanis, P. L. Juneja, S. P. Nayar and R. N. Sachthey,.
for the appellant.
S. T. Desai, H. S. Parihar, for the respondent.
The Judgment of the Court was delivered by
G
HEGDE, J .-The appeal by certificate arises from the decision of
the High Court of Gujarat in a Reference under s. 64 ( 1) of the
Estate Duty Act (to be hereinafter referred to as the· Act). Therein
the Tribunal referred partly at the instance of the Department and
partly at the instance of the accountable person three auestions of
Jaw said to arise from its order, for the decision of the High Court.
The accountable person at whose instance the last question was re·
H
ferred informed the High Court that he does not desire to have any
answer to that auestion: consequently the High Court did not answer
that question. The High Court answered the first question in favour
pf the accountable person.
In view of that answer, it thought it
124
SUPREME COURT REPORTS
[ 1974] 1 S.C.R.
unneces.s~ry t_o answer the second question. The only question calling
for decmon 1s quest10n No. 1, which reads :
"Whether on the facts and in the circumstances of the
case, the whole of the Trust estate was to be included in
the assessment or only a portion thereof and if
so
what
portion ?"'
. Herein we
ar~ concerned w~th the estate of Bai Safiabai (the
widow ol Eusufalh Badn) who died on 6-10-1955. The High Court
opined that only 1/3rd of the trust estate of which the deceased
was one of the trustees 'passed' on her death.
The correctness of
that conclusion is challenged by the Department. According to the
Department, the entire Trust estate 'passed' on
the death
of the
deceased.
The material facts of the case may now be stated. One Eusufalli
Ebrahimji settled upon trust certain immovable properties and leasehold lands by an indenture date 15-7-1938.
Under that deed three
trustees were appointed.
They were Eusufalli (the settlor), his wife
Bai Safiabai (the deceased) and their eldest son Mohamedbhai, the
accountable person.
Under the terms of the trust deed, the settlor
was entitled to the net income of the trust properti~s during his life
time.
After his death, the income of tho.se properties was to be
divided into three equal shares; I/3rd of the income was to be
appropriated by Bai Safiabai during her life time. Out of the remaining 2/3rd, 1 /3rd was to be paid to Mohomedbhai and the remaining l/3rd was to be entrusted to Mohomedbhai for being utilised for
the maintenance of the two wives and the children of the 5ettlor's
youngest son Salebhai, who had died before the trust deed was executed.
The settlor prescribed in the trust deed that after the death
of Safiabai :
"The trustees divide the trust properties
in
such
a
manner that one equal share i.e. half share shall be given
to my eldest son, Mohomedbhai, and if he has died before
that then, that share shall be given to his children and wife
and that division shall be made according to dictates of my
religion and the other half share shall be given to the wife
and children of Salebhai in such manner that the two anna
share shall be given to each of his two wives and the remaining twelve annas shall
be
distributed
amongst
his
(Salebhai's) children according to the dictates of my religion
and after doing so this trust shall come to an end."
(The remaining clauses in the trust deed are not relevant).
Safiabai, as mentioned earlier, died on 6-10-1955.
The value
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of the e'tate left bv her was determined by the Assistant Controller at
H
Rs. 4.15.000/-.
According to the Assistant Controller the estate left
by the deceased consisted of two times (a) of her individual properties
and (b) l /3rd of the trust properties.
'
CONTROLLER ESTATE DUTY v. H. M. BADRI (Hegde, J.)
125
A
The accountable person objected to the inclusion of the value
B
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of the l/'.!rd share in the trust properties in the computation of the
value of the estate that 'passed' on the death of Safiabai.
But that
objection was overruled by the Assistant Controller.
Aggrieved by that decision, the accountable person went up . in
appeal to the Appellate Controller.
But, later on the accountable
person sought to withdraw the appeal.
The Appellate Controller
refused to give him permission to withdraw the appeal.
Further, he
gave him notice requiring him to show cause why the entire value
of the trust estate should not be included in the computation of the
value of the estate that 'passed' on the death of Safiabai. The accountable person contended that the trust property did not belong to the
deceased and as such the same cannot be said to have 'passed' on
her death.
That contention was rejected and the entire trust property was considered as the property that 'passed' on the death of
the deceased.
Consequently the valuation made by
the
Assistant
Controller was enhanced by Rs. 5,73,000/-.
Against the order of the Appellate Controller, the accountable
person went up in appeal to the Appellate Tribunal.
The Tribunal
set aside the order of the Appellate Controller and restored that of
the Assistant Controller. It held that only I /3rd of the trust estate
'passed' on the death of the deceased.
Thereafter at the instance
of the Department, the question set out earlier was submitted to the
High Court seeking its opinion thereon.
The High Court, as mentioned earlier, answered that quesrion in favour of
the
assessee.
The High Court opined that under s. 5 of the Act only the beneficial
interest of the deceased in the trust estate 'passed' on her death.
It rejected the contention 'of the Department that the entire trust
estate passed on her death.
It further held that the circumstance
that the legal title to the estate passed from the trustees to the beneficiaries after the death of the deceased was not a material circumstance.
Before us it was centended on behalf of the Department
that the title to the trust properties vested in the trustees till the
death of the deceased. That title 'passed' to the beneficiaries immediatelv the deceased died.
The title that 'passed' on the death of
the deceased was the title in respect of the entire trust property and
therefore we must hold that the entire trust property 'passed' on the
death of the deceased.
Hence, the value of the entire trust property
should be taken into consideration in computing the value of the estate
that passed on the death of the deceased.
On the other hand it was
contended on behalf of the accountable person that the deceased had
only 1/3rd interest in the trust property' and that alone 'passed' on her
death.
According to .him, the deceased's position as a trustee, which
came to an end on her death cannot be considered as property passing
on her death.
To decide the controversy between the parties, it is necessary to
find the scone of s. 5 (1) of the Act. That section reads :
"Tn the case of everv Person dvine after the commencement of this Act. there shall, save as herein after expressly
126
SUPREME COURT REPORTS
[ 1974 j 1 S.C.R.
provided, be levied and paid upon the principal value asA
certained as hereinafter provided of all pr()perty, settled or
not settlec!, including agricultural land situate in the territories which immediately before the 1st November, 1956,
were comprised in the States specified in the First Schedule,
to this Act, which passes on the death of such person, a
duty called "estate duty" at the rates fixed in accordance
with Section 35."
B
(The remainiug portion of the section is not relevant).
At this stage we may refer to ss. 2(15) and 2(16) of the Act.
Section 2(15) says :
" "property" includes any interest in property, movable or immovable, the proceeds of sale thereof and any
C
money or investment, for the time being representing the
proceeds of sale and also includes any. property converted
' from on species into another by any method".
(The explanations to this section are not relevant}.
Section 2 ( 16) defines the expression "property passing on the
death".
That provision runs thus :
" "property passing on the death"
includes
property
passing either immediately on the death or after any interval,
either certainly or contingently, and either originally or by
way of substitutive limitation, and "on the death" includes
"at a period ascertainable only by reference to the death" :
This definition is only an inclusive definition.
It does not bring
out the meaning of the expression "property passing on the death".
The expression "property passing on death" is not a technical
expression.
In other words, it is not a term of law.
The word
"passes" means "changes hands".
To ascertain whether property
has passed, a comparison must be made between the persons beneficially interested the moment before the death and the persons so
interested the moment after the death~see the observations .of Lord
Russel of Killowen in Scott and Coutts and Co. v. Inland Revenue
Commissioner('). It is observed in Green's "Death Duties" at p. 34:
"If, after much a comparison, it appears that the .beneficial enjovment of the property (a definable part thereof)
was, in substance and in events, unaffected by the death, the
property (or that part thereof)
did
not pass
on
the
death merely because, as a matter of terminology, one set
of limitations then ceased to have effect and another became
operative'\
It is further observed therein :
" .... to the extent that there is no change or benefificial enjovment de facto, property does not -pass merely
because the exact nature or extent of the beneficial inte-
(l) [19371 A. C. 174.
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CONTROLLER ESTATE DUTY l'. H. M. BADRI (Hegde, J.)
127
rests after the death was not ascertainable until that event
A
occured; or because the beneficiary was entitled to income
only before the .death and to capital thereafter."
B
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Proceeding further, the learned author says :
"Moreover Estate duty is not payable under s. 1 (corresponding to our s. 5) by reason only of a change of title,
where the same person was entitled as of right
to
the
possession or income of the property both before and after
the death, without interruption. This is so, even if before
the death he had only a defeasible right to the income and
after the death he has an indefeasible right to the capital."
From the facts mentioned earlier, it is seen that ever since the
death of the settler, beneficial interest in 2/3rd of the income oI
the trust property vested on persons other than the deceased.
The
deceased was entitled only to on 1 /3rd share in the income of the
trust property.
In substance, only 1/3rd interest in the trust property passed on her death.
It is true, that after the death of the
deceased, the accountable person as well as the other heirs of the
settler who had only a beneficial interest in the income of the trust
property became the legal owners of the trust property. This change
in· the nature of the rights possessed by some of the beneficiaries
under the trust deed does not enlarge either the extent or value of
the property that 'passed' on the death of the deceased.
The meaning of the expression "property passing on the death of
the deceased" found in the corresponding English Act was considered
by the Kings Bench in Re Thomas Townsend, Deceased('). In that
case a testator who died before the commencement of the Finance Act,
1894, by his will, bequeathed his real and personal estate to trustees for
sale and investment, and for payment out of the annual income thereof of an annuity to his wife, and, subject to the annuity, to his eight
children equally, and after the death of his wife to divide the trust fund
among the children in equal shares; but if the fund exceeded a certain
specified sum, then to divide eight-ninths of such excess among the
children, and to pay ihe remaining ninth to certain other persons.
The wife died after the Finance Act, 1894, had come into operation.
The Cmir! hetd that the estate duty was only payable on the o;..-ninth
share of the excess of the trust fund over the specified sum and on the
benefit which accrued to t!Je children by the cessor of the annuity, since
that was the only property passing on the death of the wife.
Dealing
with the question of law arising for decision Kennedy J. observed :
"There is no question that, looking to the substance of
the disposition which is in question, as to 9600 £
the
children took an interest on the death of testator which was
[1901] 2 K.B. 331.
128.
suP-.EME COURT REPORTS
[ 1974] 1 s.c.R.
qua that sum a definite ascertained profit which vesied in
them and as to which each of the eight children ·got his
eightb share. ·Of course the whole estate was subje_ct to the
annui_ty, but the only uncertainty in case of the residu~ was
as regards the amount of anything beyond 9600 £. It JS not ·
until the death of the widow that the residue over 9600 £
passes to the children and the grand-children in the way
provided for by the. will.
Therefore, if it does
not pass
until then, it cannot be ascertained until then, for it cannot
be known until then that there will, be any such residde.
Otherwise the matter seems quite clear.
Tl)e property as
regards the 9600 £ was property which passed on the death
of the testator, and not on the death of the testator's widow,
and therefore is not liable to this claim to the extent
of
the eight-nineths."
A similar view was expressed by Phillimore J. He observed :
II
c
"lt seems to me obvious that, as regards the legacies
and as regards eight-nineths of the residue, or, as the legacies go to the same people, we may say as regards eightnineths of the property, it passed at once to the children
D
subject to .the burden of the annuity; and if Mr. Thomas
Townsend had died in the year of grace 1900 or 1901, and
these had been, not children, but nephews or great-nephews
liable to pay,Jegacy duty, I do not think the Inland Revenue
officials would willingly have accepted the suggestion that
legacy duty would not become payable until after the death
of his widow."
·
E
The rule laid down in Townsend's case is equally applicable to
the facts of. the present case. In our opinion what is relevant in determining the scope of the expression "property passing on the death
of the deceased" is the change in the beneficial interest and not title.
This conclusion of ours receives supporf from the decision of this
Court in Mahendra Rambhai Patel v. Controller of Es.'ate Duty,
Gujarat('). Therein by a deed of trust dated June 28,
1941
one
Rambhai settled 160 fully paid up shares in a company_ in trust for
the b.cnefit of his sons Manubhai and Mahendra is equal shares. The
trustees were to stand possessed of the shares until each
of
the
beneficiaries completed the age of 25 years and apply in their discretion the whole or part of the profits arising therefrom for the .
maintenance and advancement of the beneficiaries and to invest the
surplus. If and when each cf the beneficiaries comoleted the age of
25 years the trustees ·were to tra•fer out of the 160 shares his portion of the shares and the accumulation or any other investment in
lieu thereof to him absolutely. If any of the beneficiaries should die
before como!eting the age of 25 vears, the shares settled on him
(but not thP, accumuhted surolu• income) were to devolve on certain
persons.
Th~ beneficiaries !1ad no right to mortgage or create any
incumbrance or sell it until each of ·them completed the age of 25
(0 63 I.T.R. 645;
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CONTROLLER ESTATE DUTY v. H. M. BADRI (Hegde, J.)
1.29
years. Manubhai died on June 7, 1954, a minor and unmarried; and
the principal value of his interest in the settled property was brought
lO estate duty in the hands of- his brother. The accountable pers2n
challenged the validity of the levy.
He contended that no property
passed on the death of his brother Manubhai. This contention was
rejected both by the High Court and this Court. This Court held
that though the shares were not to be delivered to Manubhai until
he ·attained the age of 25 years, the shares belonged to him since
'the execution of the trust deed and he was also beneficially entitled ·
to the income from those shares.
In the course of his Judgment Shah
I. (as he then was) speaking for the Court observed at p. 649 :
"The interest of Manubhai in the shares and in
the
accumulated income was "property' within the meaning of
·section 2(15). That property did, _as
we have already
pointed out; vest in -ownership in Manubhai immediately on
the execution of the deed of trust. On Manubhai dying unmarried, the property as to the shares under clause 7 of the
deed and a:id as to the accumulated income under the law
of inheritance devolved
on his
brother
Mahender. On
Manubhai's death, the.re was under the deed of trust a change
in the person who was beneficially interested in the shares.
This decision clearly lays down 'that in determining whether a particular property 'passed' on the death of a. deceased what has to be
$!:en is whether that deceased had any beneficial interest in that property and whether that interest 'passed' to someone on his death. The
deceased Safiabai had only I /3rd share in the income of the trust property. That interest undoubtedly passed on her death. In the remaining 2/3rd Im:ome, she had no interest and the same did not pass
on her death.
Her title to the property as a trustee was purely
a
personal right.- JI had no value il\ terms of money .. It conferred no
right on her. It only imposed some duties. Such a right cannot be .
CO!\sidered as 'property'.
For the reasons mentioned above, we entirely agree with the conclusions reached by the High Court.
In the result this appeal fails and· it is dismissed with costs.
S.B.W.
Appt;_al dismissed.
10-L 944 Sup Cl/73