M.F.ABDUL CAFOOR v. THE ATTORNEY-GENERAL

• Jurisdiction: Sri Lanka
• Date: 01 March 1978
• Type of Document: Case report

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1978 Present : Rajaratnam, J., Tittawella, J., and
Gunasekera, J.

M. F. ABDUL CAFOOR, Appellant
and
THE ATTORNEY-GENERAL, Respondent

S.C. 72/75-D.C. Colombo 100/T (Special)

Estate Duty Ordinance (Cap. 241), section 6(a), (b) and (d)-Donation: subject to a trust-Absolute power retained by settlor-Whether charitable trust-Rule against perpetuities-Resulting trust Property passing on death-Liability of trust to estate duty.

Donation of property more than 3 years before death of donor-Amending Act No. 3 of 1948-Extending of period of exemption from estate duty to 5 years-Retrospective operation-Liability of donated property to estate duty-Vested rights-Interpretation of Statutes-Interpretation Ordinance (Cap. 2) section 6 (3).

The deceased settlor by Deed No. 1832 donated certain property to three trustees to be held by them upon the terms of the trust set out of Deed No. 1833. This latter deed empowered the trustees to expend a sum not exceeding Rs. 1,000 per month "for the education .................. of deserving youth of the Islamic faith ...................." The recipients were classified and the order in which those classes of recipients were to receive the benefits was also stated. But the Trust was subject to the proviso that " during the lifetime of the grantor the trustees shall apply, the nett rents profits dividends and income of the trust property for such purposes and in such manner as the grantor in his absolute discretion whether such purposes shall fall within the objects specified in any provision above or not,. may through the Board direct".

(This trust deed has already been considered by the Supreme-Court and the Privy Council in connection with the claim of the Commissioner of Income Tax for tax on the income from the-same property. See the case in 60 N.L.R. 361 and 63 N.L.R. 56-PC).

The Commissioner of Inland Revenue assessed the property in question for Estate Duty on the death of the settlor and on an appeal therefrom to the District Court, that Court upheld the-assessments. This appeal is against the order of the District Court.

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Held: (1) That the proviso suspended the operation of the trust until the death of the settlor; that during the lifetime of the settlor the trustees did not function at all except to carry out the orders of the settlor; and that the absolute power retained to the settlor completely -nullified the trust during its operative period.

(2) That therefore the property gifted to the trustees on Deed No. 1832 was liable to estate duty under section 6 (b) and (d) of the Estate Duty Ordinance, and the assessments concerned were correctly made.

(3) That the entire trust failed as a charitable trust and it could not remain as a private trust as it offends against the rule of perpetuities.

(4) That on the failure of the trust a resulting trust occurred vesting the property back in the settlor. Such property was " property of which the deceased was at the time of his death competent to dispose " and was liable to be assessed under section 6 (a) also.

The settlor also gifted certain other properties to several donees by Deeds Nos. 1944 to 1953 all dated 10.4.1944 and certain shares of a company to donees on 4.8.1945. Whether these gifts were liable to estate duty depended on whether the Estate Duty Amendment Act, No. 3 of 1948 (which made the period of time necessary for exemption from estate duty of dispositions made during the deceased's lifetime in section 6(b), (c) and (d) five years instead of three years as earlier) applied to these properties.

Held : (Rajaratnam, J. dissenting) (1) That as the deceased died on 1.11.1948 after the amendment came into force, those gifts were liable to be assessed for estate duty in terms of section 6 (d) as amended.

(2) That the taxable event was the death of the donor and section

6 (d) had come into operation on that date. The unamended section

6 (d) never had any application to these properties.

(3) That accordingly the assessments were correctly made.

Per RAJARATNAM, J. dissenting-

(1) As regards the properties gifted on 10.4.1944, the donees have for a period of 3 years been in bona fide possession and enjoyment of the same to the entire exclusion of the owner. If the taxable event as contemplated by the law is the death of the donor within the stated' period, the death of the donor thereafter is not a relevant event in relation to the said properties and in such a case not a taxable event.

(2) On the date of the amendment (28.1.1948) the properties donated on 10.4.1944 had gone out of the pale of the Ordinance. There is no express provision (in the amending Act) to affect restrospectively the rights that have accrued (to those donees) before 28.1.1948 under the repealed law. Therefore those properties donated on 10.4.1944 are not liable to estate duty.

(3) The shares gifted on 4.8.1945 would not be free from liability to estate duty till after 4.8.1948, by which time the amending Act had come into operation. These shares are therefore liable to estate duty.

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Cases referred to :

Commissioner of Income Tax v. Trustees of the Abdul Gafoor Trust.60 N.L.R. 361.

Abdul Cafoor v. Commissioner of Income Tax, 63 N.L.R. 56 (PC) v (1961) A.C. 584; (1961) 2 All E.R. 436; (1961) 2 W.L.R. 794.

Vesteys (Lord) Executors v. Inland Revenue Commissioners, (1949).

1 All E.R. 1108; 31 T.C. 80; (1949) T.R. 149. Oakes v. N. S. W. Commissioner for Stamps. (1953) 2 All E.R. 1563 ;
(1953) 3 W.L.R. 1127 ; (1954) A.C. 57.

Akilandanayaki v. Sothinagaratnam, 53 N.L.R. 385; 46 C.L.W. 67. Hai Bai v. Perera, 55 N.L.R. 442.

Suppramaniam Chettiar v. Wahid, 58 N.L.R. 140.

Free Lanka Insurance Co. Ltd. v. Ranasinghe, 63 N.L.R. 481 (PC)(1964) A.C. 541; (1964) 1 All E.R. 457; (1964) 2 W.L.R. 66.

" Queen v. Fernando, 61 N.L.R. 395.

Cadgil v. Lal & Co. 63 Indian Tax Reports 231.

J. P. Jani Income Tax Officer v. Induprasad, Shankar Bhatt, 72 Indian Tax Reports 595.

West v. Gwynne, (1911) 2 Ch. 1; 104 L.T. 759; 80 L.J. Ch 578.

APPEAL from a judgment of the District Court Colombo affirming assessments made under the Estate Duty Ordinance.

C. Ranganathan, Q.C., with S. Ambalavanar and Miss C. Joseph, for the appellant.

G. P. S. de Silva, Deputy Solicitor-General, for the State.

Cur adv. vult.

March 1, 1978. RAJARATNAM, J.

The matter before us is an appeal by the administrator of the estate of the late Mr. N. D. H. Abdul Cafoor from the order made by the District Judge of Colombo whereby he was liable to pay estate duty with regard to-

(a) Certain property referred to in the schedule to deed No. 1833 dated 24.12.1942.

(b) Certain properties which were gifts made by the said deceased N. D. H. Abdul Caffoor by deeds Nos. 1944-1953 of 10.4.1944 referred to in the first schedule to the petition filed under section 40 of the Estate Duty Ordinance in the Court below

(p. 12) and

(c) Certain shares gifted on 4.8.1945 by the said deceased in N. D. H. Abdul Caffoor Ltd. set out in the second schedule to the same said petition.

It was the appellant's case that there was no benefit reserved in favour of the grantor within the meaning of the Estate Duty Ordinance and therefore there was no liability to estate duty with regard to the properties referred to in the schedule to deed No. 1833 of 24.12.42. It was also his case that since the donor died more than 3 years after the respective donations the said

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properties and shares were not liable to estate duties notwithstanding the fact that Act No. 3 of 1948 on 28.1.48 extended the period of time from 3 years to 5 years after the donation.

I shall now deal with the appellant's case on the first matter that is to say the main matter in issue whether the property mentioned in the schedule to deed No. 1833, A9, passed on the death of the deceased in terms of s. 6(b) of the Ordinance. The terms of the very same deed A9 have been subject to examination both by the Supreme Court and the Privy Council when a question arose with regard to the liability of the trustees of the Abdul Caffoor Trust to pay income tax for the income derived from this same property. It was held that the trust instrument did not contain the element of public benefit which should characterise a charitable trust as defined in s. 99 of the Trusts Ordinance. Vide Commissioner of Income Tax v. Trustees of the Abdul Caffoor Trust, 60 N.L.R. 361 (S.C.) and 63 N.L.R. 56 (P.C.). It was held further that the income of the trust was not exempt from income tax because the trust failed to attain the qualification of public character required by s. 7(1) (d) of the Income Tax Ordinance.

I agree with learned Counsel for the appellant that the decision in the Supreme Court and the Privy Council does not relieve us of the responsibility in this case to approach a different question whether the said property passed on the death of the deceased for the purposes of determining whether it was liable to estate duty, mindful however that some of the observations made in the said decisions are not entirely without any relevance to determine this separate question before us. The Privy Council has held that the instrument (deed A9) was drawn for educational purposes and the recipients of the benefit were ' deserving youths of Islamic faith' but the primary disposition of the trust income was in favour of the family of the grantor and therefore it was no trust of a public character established solely for charitable purposes.

The proviso to clause 2 of A9, viz.

" Provided however that during the lifetime the grantor the trustee shall apply the net rents, profits dividends and income of the trust property for such purposes and in such manner as the grantor in his absolute discretion whether Such purposes shall fall within the objects specified in any provision above or not may through the Board direct. The Board shall not be nor be liable to be questioned regarding or...