Case Note & Summary
The matter arose from a reference under the Estate Duty Act, 1953, concerning the estate of a beneficiary who died a minor. A deed of trust had settled 160 shares of a company equally upon the appellant and his younger brother. The trustees were to hold the shares of each beneficiary until he attained the age of twenty-five years, and until then the income was to be applied for his benefit and advancement. Clause 5 of the deed prohibited the beneficiaries from mortgaging, encumbering, or selling the shares before attaining twenty-five. If either died before that age, the shares were to devolve on persons named in clauses 6 and 7, but the accumulated income was to go to his heirs. The younger brother died in 1954 while still a minor and unmarried. The Assistant Controller of Estate Duty held that the deceased's interest in the shares passed to the appellant under section 5 of the Estate Duty Act, 1953, and levied estate duty accordingly. The Central Board of Revenue and the High Court upheld the assessment. The appellant contended before the Supreme Court that before attaining the age of twenty-five years, neither beneficiary had any interest in the property, being entitled under the deed only to maintenance, and that section 23 of the Act precluded the levy. The Court considered whether the deceased's interest constituted 'property' under section 2(15) and passed on his death under section 5. Rejecting the appellant's contention, the Court held that although delivery of the shares was postponed, the shares belonged to the deceased from the execution of the trust deed and he was beneficially entitled to the income. Consequently, his interest in the shares and income passed on death, attracting estate duty. The Court did not accept the applicability of section 23 and affirmed the decision of the revenue authorities and the High Court. The Supreme Court thus dismissed the appeal, confirming that estate duty was correctly levied on the interest of the deceased in the trust shares.
Headnote
A) Taxation - Estate Duty - Passing of Property on Death - Estate Duty Act, 1953, Sections 2(15), 5, 23 - Under a deed of trust, shares were settled on the deceased and his brother, with delivery postponed until age 25, though the income was to be applied for their benefit. The deceased died a minor before reaching that age. The Court held that the shares belonged to him from the execution of the deed and he was beneficially entitled to the income; therefore, his interest passed on death and estate duty was correctly levied.
Issue of Consideration
Whether the interest of a beneficiary under a trust who died before attaining the age stipulated for outright ownership constitutes 'property' passing on death under Sections 2(15) and 5 of the Estate Duty Act, 1953, and whether Section 23 applies to exclude such interest
Final Decision
The Supreme Court held that the shares belonged to the deceased beneficiary from the execution of the trust deed and he was beneficially entitled to the income; therefore, his interest in the shares passed on death, and estate duty was correctly levied. The appeal was dismissed.
Law Points
- beneficial interest in trust property passes on death
- postponed delivery does not negate ownership
- estate duty is chargeable on property to which the deceased was beneficially entitled
