1. Trust creation for a beneficiary — Provision for trustee remuneration — Includibility of trust corpus in deceased's estate under Section 10, Estate Duty Act. (Para 1 , 2 )
Back
Next 
1998 Supreme(SC) 520
SUPREME COURT OF INDIA
Mrs. SUJATA V. MANOHAR AND D.P. WADHWA, JJ.
Trustees of Prince Shahmat Ali Khan Trust, Appellant
Versus
Controller of Estate Duty, Hyderabad, Respondent.
Civil Appeal No. 1540 of 1985, D/- 23-4-1998.
A gift is not conditional merely because the trustees may receive remuneration for their services.
Headnote:
ESTATE DUTY ACT - S. 10 - GIFT - TRUST - REMUNERATION TO TRUSTEES - WHETHER GIFT IS CONDITIONAL - WHETHER S. 10 IS ATTRACTED.
Fact of the Case:
The Nizam of Hyderabad created a trust for the benefit of his grandson, settling certain shares in the trust. The trust deed provided that the trustees could receive remuneration for their services, subject to a maximum of Rs. 3,000 per annum. The Nizam died, and the question arose whether the corpus of the trust fund was liable to be included in his estate under S. 10 of the Estate Duty Act, 1953.
Finding of the Court:
The court held that S. 10 of the Estate Duty Act was not attracted in this case. The gift of shares under the trust deed was absolute, and the donor had not reserved any right or interest in the gifted property. The clause providing for remuneration to the trustees was a subsequent act of the trustees and did not make the settlement of shares conditional. No such resolution was ever passed, nor was any remuneration received by any of the trustees.
Issues: Whether the corpus of the trust fund was liable to be included in the estate of the deceased under S. 10 of the Estate Duty Act, 1953.
Ratio Decidendi: The court held that S. 10 of the Estate Duty Act applies when the property is taken under any gift, to the extent that bona fide possession and enjoyment of it is not immediately assumed by the donee but is retained to some extent by the donor. In this case, the gift of shares under the trust deed was absolute, and the donor had not reserved any right or interest in the gifted property. The clause providing for remuneration to the trustees was a subsequent act of the trustees and did not make the settlement of shares conditional.
Final Decision: The court allowed the appeal, answered the question in favor of the accountable person, and held that the corpus of the trust fund was not liable to be included in the estate of the deceased.
Legal Category Hierarchy
Table of Contents
2. Whether a provision allowing trustees to determine their own remuneration renders a trust settlement conditional, making the corpus includible in the donor's estate under Section 10, Estate Duty Act. (Para 3 , 5 )
3. Absolute and unconditional transfer of property to trustees — Remuneration clause refers to subsequent trustee actions — No actual remuneration received by donor — No retention of benefit. (Para 4 , 5 , 6 )
4. Section 10, Estate Duty Act applies only where the donor retains bona fide possession or enjoyment of the property; a provision for trustee remuneration does not constitute such retention. (Para 5 )
5. Appeal allowed — Trust corpus held not includible in the estate of the deceased. (Para 7 )
6. When is property includible in a donor's estate under Section 10 of the Estate Duty Act?
Property is includible under Section 10 when the donor, despite making a gift, does not immediately relinquish bona fide possession and enjoyment of the property to the donee, retaining some extent of benefit. (Para 5 )
7. Does a clause allowing trustees to receive remuneration make a trust settlement conditional under the Estate Duty Act?
No. A clause providing that trustees may resolve to pay themselves remuneration is a subsequent act of the trustees and does not make the initial settlement of property conditional or imply retention of interest by the donor. (Para 5 )
8. How does the court distinguish between a conditional gift and an absolute gift for estate duty purposes?
An absolute gift is one where the donor reserves no right or interest in the gifted property. If the transfer is unconditional and the donor does not retain enjoyment or benefit, the property is not includible in the estate. (Para 4 , 5 )
Judgement
JUDGMENT :- The following question was referred to the High Court under S. 64(1) of the Indian Estate Duty Act, 1953 :
"Whether on the facts and in the circumstances of the case, the Trust Fund Prince Shahmat Ali Khan is liable to be included in the estate of late Mir Osman Ali Khan Bahadur under S. 10 of the Estate Duty Act."
2. The High Court has answered the question in the affirmative and in favour of the revenue. The present appeal is from this judgment and order of the High Court.
The facts broadly stated are as follows :
H.E.H. The Nizam Sir Mir Osman Ali Khan Bahadur died on 24-2-1967. Under an indenture made at Hyderabad on 21-3-1957 he created a trust known as Prince Shalmat Ali Khan Trust settling certain shares specified therein for the benefit of his grandson. Clause 18 of the Trust Deed provides as follows :
Clause 18 :
It is hereby further expressly agreed and declared that each of the Trustees shall be entitled to charge remuneration and be remunerated for rendering service as Trustee of these presents out of the income of the Trust property and the Trustees shall pay such remuneration to each of the Trustees as may be fixed by them by a unanimous resolution in that behalf from time to time 540 provided that the amount of such remuneration payable to any one Trustee for services rendered during any one year shall not exceed the sum of Rs. 3,000/- (Rupees three thousand)."
3. In making the estate duty assessment the Additional Assistant Controller of Estate Duty, A-Ward, Special Circle-I, by his order dated 25-1-1973 included in the dutiable estate of the Nizam, the sum of Rs. 12,88,169 representing the corpus of the said trust at the time of death of the deceased under S. 10 of the Estate Duty Act. This view was upheld by the Appellate Controller. In appeal, however, the Tribunal held that S. 10 of the Estate Duty Act will not apply in the present case. It, therefore, allowed the appeal filed by the accountable person. In reference, however, the High Court has answered the question in favour of the revenue holding that S. 10 of the Estate Duty Act is attracted and the entire corpus of the trust fund is includible in the estate of the deceased.
4. Section 10 of the Estate Duty Act, 1953 was recently examined by this Court in the case of Sarojini Ammal v. Controller of Estate Duty (1996) 222 ITR 408 : (1996 AIR SCW 4050). This Court held, after examining a number of English decisions, that the rigour with which S. 102 of the English Act corresponding to S. 10 of our Act was applied, has been mellowed down and certain amount of leniency has definitely been shown in favour of the accountable persons. In that case the donor had given a gift of certain amounts to the donees. A week later the donees requested that a partnership be formed. The amounts gifted were retained and returned as share capital of the donees in the partnership firm. The Court held that when the gift was made and accepted, it was unconditional. In the light of the letter which was written by the donees, the Court was of the view that there was nothing to suggest that parting with the enjoyment of benefit by the donee or permitting the donor to share them out of the bundle of rights gifted in the property, was referable to the gift. The two were independent transactions and hence the gift cannot be subjected to the provision of S. 10.
5. The wording of S. 10 also makes it quite clear that when the property is taken under any gift, to the extent that bona fide possession and enjoyment of it, is not immediately assumed by the donee but is retained to some extent by the donor, the benefits so retained will form part of the estates of the donee. In the present case the indenture of trust quite clearly provides that the shares have been transferred unconditionally under the Deed of Trust to the trustees for the benefit of the grandson of the donor. The gift under the Trust Deed, of the shares is absolute. The donor has not reserved any right or intere
