Law:

Section:

Section 12 of the Estate Duty Act, 1953 - Settlement with reservation – Whether where under settlement, settlor reserved life interest in property for herself and after her death beneficiaries were given life interest in property, said property passed on death of deceased and, therefore, was liable to duty – Held, yes FACTS Under a deed of settlement, the deceased settled certain property in favour of two beneficiaries. Under the terms of the said settlement, she reserved a life interest in her own favour and after her death, the document provided, that the first beneficiary would get a life interest in the property without any power of alienation and that after the death of the first beneficiary, the second beneficiary also would get a life interest without any power of sale, mortgage or any kind of alienation or disposition. After the termination of the life interest in favour of both the beneficiaries, the settlement deed provided for the absolute devolution of the property on the issue of the second beneficiary and, in the absence of any issue to the second beneficiary, on the issue of the first beneficiary. On death of the deceased, the Assistant Controller included the value of the property in the estate duty assessment. The appeals filed by the accountable person were dismissed by the Appellate Controller and the Tribunal. On reference: HELD In the instant case, admittedly the deceased executed a settlement deed in respect of the property. Equally admittedly she reserved a life interest in the whole of the property for herself. Under these circumstances, section 12(1) clearly applied to the case, unless it could be established that the property did not pass under the settlement deed. Normally, any property passing under a settlement passes from the settlor to the settlee when the settlement deed comes into effect and, therefore, the question of that property passing on the death of the settlor would not arise. However, section 12 constitutes a special provision to cover a case where under a settlement the settlor reserves a life interest to himself or herself and in such a case section 12 creates a fiction by providing that the property passing under the…

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