Income Tax Appellate Tribunal - Ahmedabad
Wealth-Tax Officer vs Executor Shri Manoharsinhji P. Jadeja on 26 December, 1995
Equivalent citations: [1996]57ITD524(AHD)
ORDER
B.L. Chhibber, Accountant Member
1. The short but important question for determination in these appeals by the Revenue is whether, when a testator bequeathes an identifiable property in favour of a trust created under the Will, the vesting of the legacy takes place on the date of death? If the reply is in the affirmative, nothing will survive for, what does not belong to the assessee on valuation date cannot be brought to the charge of wealth-tax. However, if the reply is in the negative, it will fall for determination as to when did the legacy vest in the legatees or did the legacy vest at all.
2. Shri Pradumansinhji, Ex-ruler of Rajkot died on 9-11-1973, leaving a Will dated 30-9-1973. According to the said Will, the Testator bequeathed certain properties to certain specific legatees and residuary estate to Shri Manoharsinhji - eldest son of Shri Pradumansinhji. The specific legacies, amongst others, i.e., to which this dispute relates were as follows :
(i) Grass Godown property to Narendrakumariba Trust
(ii) Paddock Land Property to Kumar Trust
(iii) Saloon Shed Property to Marriage & Maintenance Family Trust.
It would be worthwhile to reproduce the relevant paragraphs of the Will:
4(a) I hereby bequeath my "grass-godown property" at Rajkot to my Trustees to be held by them as Trustees of a Trust which shall be known as "Narendrakumariba Trust" and the said Trustees shall hold the said property upon the trusts and subject to powers, provisions and declarations hereinafter contained. If my Trustees are of the view that the said property is of a value of more than Rs. 2 lakhs, the Trustees shall at their absolute discretion be entitled to set apart a sum of Rs. 2 lakhs and/or investment of that value instead of the said property and shall hold the said sum and/or investments upon the same trusts and subject to the powers, provisions and declarations hereinafter contained.
(b) The Trustees shall receive the annual or other income arising out of or in respect of the Trust property or the investment made out of the Trust property and reimburse or pay and discharge all the costs, charges and expenses which may be incurred in or in respect of the administration of the Trust including all the taxes that may be levied upon the Trust and also all outgoings and municipal or other rates, assessments and dues and the expenses required for maintaining the properties of the Trust which may form part of the Trust property and subject thereto may, pay, spend or apply the balance during the lifetime of Narendrakumariba Pradumansinhji Jadeja between her and/or such charitable purposes as the Trustees think fit in such proportion as they in their absolute discretion think fit and from and after the demise of the said Narendrakumari Pradumansinhji Jadeja shall hold the Trust property for such charitable purposes as they think fit with power to hand over the same to any charitable Institution or Institutions.
5(a) I hereby bequeath my "Paddock land Property" at Rajkot to my Trustees to be held by them as Trustees of the Trust which shall be known as "KUMAR TRUST" and the said Trustees shall hold the said property upon the following Trusts and subject to powers, provisions and declarations hereinafter contained. If my Trustees are of the view that the said property is of a value of more than rupees one lakh the Trustees shall at their absolute discretion be entitled to set apart a sum of Rs. One lakh and/or investment of that value instead of the said property and shall hold the said sum and/or investment upon the Trusts and subject to the powers, provisions and declarations hereinafter contained.
(b) The Trustees shall receive the annual or other income arising out of or in respect of the Trust property or the investments made out the Trust property and reimburse or pay and discharge all the costs, charges and expenses which may be incurred on or in respect of the administration of the Trust including all the taxes that may be levied upon the Trust and also all outgoings and Municipal or other rates, assessments and dues and expenses required for maintaining the properties of the Trust which may form part of the Trust property and subject thereto may pay, spend or apply the balance during a period of ten years from the date of my demise for the benefits of any one or more of the following persons and in such proportion as they in their absolute discretion think fit.
1. Prahaladsinhji Pradumansinhji Jadeja
2. Jayraghurajsinhji Pradumansinhji Jadeja.
(c) At the expiration of the said period of 10 years the Trustees shall distribute the Trust Property between the said beneficiaries in such proportion as they in their absolute discretion think fit.
6(a) I hereby bequeath my "Saloon Shed Property" at Rajkot to my Trustees to be held by them as Trustees of the Trust which shall be known as "Marriage & Maintenance Family Trust" and the said Trustees shall hold the said property upon the following Trusts and subject to powers, provisions and declarations hereinafter contained.
If my Trustees are of the view that the said property is of a value of more than Rs. 2 lakhs, the Trustees shall be at their absolute discretion be entitled to set apart a sum of Rs. 2 lakhs and/or investments of that value instead of the said property and shall hold the said sum upon the Trust and subject to the powers, provisions and declarations hereinafter contained.
(b) The Trustees shall receive the annual or other income arising out of or in respect of the Trust property or the investments made out of the Trust property and reimburse or pay and discharge all the costs, charges and expenses which may be incurred in or in respect of the administration of the Trust including all the taxes that may be levied upon the Trust and also all outgoings and Municipal or other rates, assessments and dues and the expenses required for maintaining the properties of the Trust which may form part of the Trust property and subject thereto may pay, spend or apply the balance for the benefits of anyone or more of the following persons and in such proportion as they in their absolute discretion think fit.
1. Shantidevi Manoharsinhji Jadeja
2. Ambalikadevi Manoharsinhji Jadeja
3. Umadevi Manoharsinhji Jadeja
(c) The Trust property shall be distributed in such proportion and after such period as the Trustees may in their discretion deem fit but not exceeding 18 years from the date of my demise.
3. During the course of assessment proceedings it was contended before the WTO that the Executors had assumed character as Trustees of the respective Trusts much before the valuation date and hence the said three properties did not belong to the Estate of the deceased on the date of valuation and hence were not includible in the wealth of the Estate of Late Pradumansinhji. The WTO however held that the said three properties belonged to the Estate of the deceased. The two main reasons advanced by the WTO for inclusion of the said three properties as assets belonging to the Estate of the deceased are as follows :
(1) That "under the Will the settlor is at liberty to distribute the properties in his absolute discretion (2) that the properties remain undistributed.
4. On appeal, the learned Deputy CWT(A) held that the WTO had misdirected himself while listing out at page 3 of assessment order the reasons for holding that the three properties remained undistributed, on a wrong premise that the settlor reserved the right for distribution. According to the Dy. CWT(A) on a plain reading of the relevant portions of the Will creating the three Trusts and bequeathing the impugned properties respectively, it was manifest that the discretion for the manner of distribution was not retained by the deceased but was given to the Trustees named in the Will. After going the detailed written submissions filed before him (which have been reproduced in the order) he concluded as under:
In view of this matter, the law and facts of the case indicate that the impugned properties were distributed before the respective valuation dates and therefore were not includible in the wealth of the appellant. Value of impugned properties from the wealth of the appellant is therefore deleted.
5. Shri K.V. Trivedi, the learned D.R. strongly supported the order of the WTO. Reiterating the reasons given by the WTO at page 3 of his order, the learned DR submitted that after the death of Shri Pradumansinhji the three impugned properties remained with the Estate of Late Shri Pradumansinhji and as such the action of the WTO in including the value of these three properties in the wealth of the Estate is fully justified.
6. Shri S.N. Soparkar, the learned Counsel for the assessee strongly supported the order of the Dy. CWT(A). He submitted that the WTO misconceived the Will as an instrument of Trust by the settlor. What is contained in the Will in the operative part creating the three Trusts, is the discretionary powers to the Trustees and not to the Settlor; as assumed by the WTO, to distribute the Trust properties. The learned Counsel contended that the Will takes effect only on the date of death of the Testator and therefore how it could be said that the Testator (i.e., the Settlor) reserved rights to be exercised after his death. According to the learned Counsel the WTO has failed to understand the concept of the Will and the facts of the case. Regarding the second reason given by the WTO, viz., that the properties remained undistributed, the learned Counsel relied upon the detailed submissions made in this regard before the Dy. CWT(A).
7. We have considered the rival submissions and perused the facts on record. It is noted that the factum and the genuineness of the Will of Late Shri Pradumansinhji is not denied/doubted by the Revenue. In the ultimate analysis, it is the content of the Will which determines the date of vesting of the legacy. It is well settled that the cardinal rule of interpretation of document is that effect should be given to the expressed intentions of the Testator which has to be gathered on reading of the entire document. In the Law of Succession, unless a condition to postpone a bequeathing is fastened in the Will, the vesting of the legacy takes place on the death of the Testator (Section 104 of the Indian Succession Act). The relative paragraphs in the Will granting bequeathing to the three Trusts which have been reproduced (supra) established that the directions in the Will by the Testator were specific, unambiguous and worded in terms which are not capable of two interpretations. The Executors upon death of the Testator are enjoined to take the property under the Law, as Trustees of the named Trusts. The same very Will appoints the Executors as Trustees of the Trust created under the Will. The Will bequeaths the properties to the Trustees in general terms without specifying any time or a condition and it should follow that the properties bequeathed pass out of the hands of the Executors or the Estate on the date of death. On a plain reading of the Will, it is manifest that the directions by the Testator do not postpone the vesting of properties as presumed by the WTO. The language is specific and the Law very clearly provides that the rights of the legatees take place immediately on death. The fact that no contingency or no further action by the Executors was even remotely in the mind of the Testator when he made out his Will, is patent on the plain reading of the Will. Under the Indian Trust Act, for the Testamentary Trusts, any formality of "transfer" is not necessary in view of the provisions of Sections 5 and 6 of the Indian Trust Act. The legal possession therefore passed on the legatees on Trustees acknowledging the receipt of the properties.
8. The fact that the impugned properties were already distributed soon after the death is accepted by the department itself by taxing in the hands of the residuary legatees, the wealth as on 31-3-1974 which included the Estate left by the deceased minus specific legacies and the residuary legatee takes place the legacy last in order of preference. In other words, if the last legatee in the queue has received the "balance" Estate, the specific legatees ranking earlier in the queue are deemed to have received earlier their respective bequeaths from the Executors. Even in the income-tax assessment of the residuary legatee, the income from the properties earmarked as specific legacy is not included nor any action is taken to assess the income of such properties in the hands of the Estate.
9. Even under the Urban Land Ceiling Act, the impugned properties are shown as belonging to the Trust and held by Shri M.P. Jadeja as a Trustee. It is further noted that it is not the Executors of the Estate who have filed the information in the form prescribed under the Urban Land Ceiling Act showing holding of immovables by the Estate, but the Trustees of all the three Trusts have separately filed three separate forms showing holding of respective properties as on 17-2-1976. Further according to the minutes of the meeting of the Trusts, the Trustees have taken possession of the properties and so far as the Grass Godown Property was concerned, the same was held for charitable purposes ever since the date on which Urban Land Ceiling Act applied, i.e., 16-2-1976. Thus, the entire circumstantial evidence leads to the irresistible conclusion that the impugned three properties passed on to the legatees on the death of the deceased and did not form part of the Estate of Late Shri Pradumansinhji.
10. We do not find any merit in the first reason given by the WTO, i.e., "under the Will, the Testator is at liberty to distribute the properties in his absolute discretion", because one wonders how settlor i.e., the deceased can be said to have retained rights after the death. In fact, the question of distribution amongst the beneficiaries arises only in the hands of the Trustees of the Trust and not in the hands of either deceased or his Estate. We accordingly reject this misconceived notion of the learned WTO.
11. In the light of above discussion, we concur with the findings of the Dy. CWT(A) that the value of the impugned three properties is not includible in the wealth of the Estate of Late Shri Pradumansinhji.
12. In the result, the appeals are dismissed.