The value of a life interest in a trust property that passes on the death of the deceased is the principal value of the property.

R.R. Rastogi, J.

1. THE following questions have been referred for our opinion :

" (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions of the Estate Duty Act, 1953, were attracted in regard to the interest of the deceased under the trust deed as modified ?

(2) Whether, on the facts and in the circumstances of the case, the value of the life interest of the deceased on the date of death alone could be deemed to pass or the market value of those securities at the time of the death? "

2. THE facts giving rise to these questions briefly stated are that late Sri Pearey Lal Banerjee, an advocate, had created a trust for his benefit and the benefit of his sons and daughter-in-law. THE trust was in respect of Govt. securities of the face value of Rs. 10 lakhs and the Imperial Bank of India (now State Bank of India), Strand Road, Calcutta, was appointed as the trustee. THE instrument of trust was executed on October 26, 1937. THE settlor had by Clause (3) of the instrument reserved to himself a right to revoke, vary or modify all or any of the trust and powers declared by the instrument or concerning the trust funds or the income thereof and by means of an instrument executed on April 28, 1950, certain provisions of the original trust deed were modified. THE main modification so effected was that from and after the death of the settlor the bank shall pay the net income of the trust funds to the settlor's son, Pranab Kumar Banerji, during his lifetime, if he survived the settlor and in case he predeceased the settlor or in the event of his death after having survived the settlor, the income of the trust funds was to be paid in equal shares to the other son of the settlor, Sunab Kumar Banerji, and his daughter-in-law, Shakuntala Banerji. It is not necessary to notice the other modifications made by that instrument.

The settlor died in 1952 and the net income of the trust became payable to P. K. Banerji. P. K. Banerji died on July 20, 1962, and these estate duty proceedings relate to the estate left by him. The accountable person, Smt. Shakuntala Banerji, widow of the deceased, claimed that the interest of the deceased in the trust property was not liable to be subjected to estate duty under Section 5, 6 or 7 of the E.D. Act, 1953, and should not be treated as a part of the estate of the deceased. That contention did not find favour with the Assistant Controller and he included the face value of the trust being Rs. 7,21,884 in the computation of the principal value of the estate of the deceased.

3. ON appeal before the Appellate Controller, the same contention was again advanced on behalf of the accountable person and, in the alternative, it was further contended that the interest of the deceased in the trust being only a life interest, the value of that interest could not be equated with the value of the corpus of the trust. The Appellate Controller did not accept this submission and dismissed the appeal. The accountable person took the matter in further appeal before the Appellate Tribunal. The Appellate Tribunal held that the trust fund constituted property in the income of which the deceased had a life interest and that interest ceased on his death and corresponding interest accrued to the accountable person as a result thereof. The case was thus covered by Section 7(1) of the Act. The Appellate Tribunal also confirmed the value of this interest, which as noted above, was taken to be the face value of the trust funds, that is, Rs. 7,21,884.

4. ON behalf of the accountable person; the very same arguments were once again canvassed before us. However, after hearing parties' counsel we do not find much substance therein. In our opinion the case is squarely covered by the decision of the Supreme Court in CED v. Hussainbhai Mohamedbhai Badri [1973] 90 ITR 148. The material facts of that case were that one Eusufalli Ebrahimji had settled upon trust certain immovable proper