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4. On appeal, the Appellate Controller agreed with the view taken by the assessing officer. The trustees appealed to the Income-tax Appellate Tribunal contending that the beneficiaries had a vested interest in the corpus of the trust. The death of the settlor did not affect the rights of the beneficiaries in so far as their interest in the property was concerned and that the Appellate Controller had misinterpreted the rule. The Tribunal, relying upon the judgment of a Division Bench of this court in CWT v. Trustees of H. E. H. Nizam's Suppl. Family Trust [1968] 68 ITR 508(AP), in which the very trust deed was interpreted, held that the beneficiaries had a vested interest in the corpus of the trust. The Tribunal also held that after the death of the settlor the only change brought about was that during his lifetime, the beneficiaries could not ask the trustees to pay the income to them very year; but they could do so only after the death of the settlor. The Tribunal also found, after referring to the accounts maintained by the trust, that the beneficiaries were subjected to income-tax and also wealth-tax in respect of their beneficial interest flowing from the trust in question.

5. Sir Suryanarayana Murthy, learned standing counsel for the Department, contends that only after the death of the settlor, the allotment of the interest of the beneficiaries in the ratio of 11 : 6 : 6 took place and this was indicative of the fact that the beneficiaries had no vested interest in the property. The beneficiaries had absolutely no interest till the death of the Nizam, the settlor, since the settlor was empowered to effect changes in the trust and therefore the interest of the beneficiaries in the trust was only contingent but not vested. Sir Ratnakar, learned counsel for the assessee, counters the contentions raised for the Revenue by submitting that the beneficiaries even during the lifetime of the settlor had a vested interest in the corpus was acquiring interest for the benefit of the beneficiaries. The right of enjoyment of the income was postponed that after the death of the settlor, the right of the beneficiaries was enlarged, in that they became entitled to receive income from the corpus of the trust. There was no change whatsoever in the beneficiaries either before or after the death of the settlor. Payment of income to the beneficiaries after the death of the settlor did not amount to passing of property within the meaning of section 5 of the Estate Duty Act.

9. From the aforesaid summary of the relevant clauses in the trust deed, it will be seen that the trustees were not empowered to revoke the trust. The discretion given to the trustees to invest the trust fund either in the purchase of immovable property or by way of securities or in any other manner was solely for the benefit of improving the trust properties. The interest of the beneficiaries was assured by the recitals in the trust. The only different situation brought about after the death of the settlor was that the beneficiaries got the right to receive the income whereas earlier, the corpus of the trust property was allowed to accumulate the income. The trust deed did not contemplate diversion of the income from the trust in favour of any other beneficiaries. It also did not contemplate any change in the beneficiaries after the death of the settlor. Clause 11 empowered the trustees, if they so desired, to create separate trust deeds in favour of the beneficiaries. But the creation of such separate trust deeds was not intended to bring into being new trusts unrelated to the rights which had already accrued to the beneficiaries under original trust deed. For more beneficial enjoyment of the trust property by the beneficiaries, the trustees were given the aforesaid discretion under clause 11. The property before and after the death of the settlor continued to exist and there was no change whatsoever in the beneficiaries.

"The income of the property absolutely belongs to the beneficiary and such part of the interest as is not applied for the benefit of the beneficiary is liable to be accumulated for his benefit, and in the event of his death before he attains the age specified in the deed of trust, it is to devolve upon his heir, creates in the beneficiary an interest in possession and not an interest in expectancy."

18. In that case the question pertained to the death of one of the beneficiaries and not the settlor. The beneficiary on completion of the age of 25 years was to become absolute owner. But before that event, the beneficiary died and the settlement deed contemplated that the shares settled on the beneficiary were to devolve on certain persons. On the death of one of the beneficiaries before attaining the age of 25 years, in terms of the settlement deed, the property devolved on his heirs an d, therefore, the supreme court held that there was passing of property on the death of the beneficiary to the heirs specified in the settlement deed.