Abdul Cujfoor v. AUorncy-Qcneral
1978 Present: Rajaratnam, J., Tittawella, J., andGunaselccra, J.
M. F. ABDUL CAFOOR. Appellantand
THE ATTORNEY-GENERAL,, RespondentS.C. 72/75—D.C. Colombo 100/T (Special)
Estate Duty Ordinance (Cap. 241), section 6(a). (b) and (d)—Donationsubject to a trust—Absolute pcwer retained by settlor—Whethercharitable trust—Rule against perpetuities—Resulting trustProperty passing on death—Liability of trust to estate duty.
Donation of property more than 3 years before death of donor—Amend-ing Act No. 3 of 1948—Extending of period of exemption fromestate duty to 5 years—Retrospective operation—Liability ofdonated property to estate duty—Vested rights—Interpretationof Statutes—Interpretation Ordinance (Cap. 2) section 6 (3).
The deceased settlor by Deed No. 1832 donated certain propertyto three trustees to be held by them upon the terms of the trustset out of Deed No. 1833. This latter deed empowered the trusteesto 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 classesof recipients were to receive the benefits was also stated. But theTrust was subject to the proviso that “ during the lifetime of thegrantor the trustees shall apply, the nett rents profits dividends andincome of the trust property for such purposes and in such manneras the grantor in his absolute discretion whether such purposesshall 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 SupremeCourt and the Privy Council in connection with the claim of theCommissioner of Income Tax for tax on the income from thesame property. See the case in 60 N.L.P.. Sol and 63 N.L.E. 56—PC).
The Commissioner of Inland Revenv assessed the property inquestion for Estate Duty on the death of the settlor and on anappeal therefrom to the Disrict Court, that Court upheld theassessments. This appeal is again’.'; the order of the District Court.
Abdul Caffoor v. Attorney-General
Held : (1) That the proviso suspended the operation of the trust untilthe death of the settlor; that during the lifetime of the settlor thetrustees did not function at all except to carry out the orders of thesettlor ; and that the absolute power retained to the settlor completelynullified the trust during its operative period.
That therefore the property gifted to the trustees on Deed No. 1832was liable to estate duty under section 6 (b) and (d) of the EstateDuty Ordinance, and the assessments concerned were correctly made.
That the entire trust failed as a charitable trust and it could notremain as a private trust as it offends against the rule of perpetuities.
That on the failure of the trust a resulting trust occurred vestingthe property back in the settlor. Such property was “ property of whichthe 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 byDeeds Nos. 1944 to 1953 all dated 10.4.1944 and certain shares of acompany to donees on 4.8.1945. Whether these gifts were liableto estate duty depended on whether the Estate Duty AmendmentAct, No. 3 of 1948 (which made the period of time necessary forexemption from estate duty of dispositions made during thedeceased’s lifetime in section 6(b), (c) and (d) five years insteadof three years as earlier) applied to these properties.
Held : (Rajaratnam, J. dissenting) (1) That as the deceased died on1.11.1948 after the amendment came into force, those gifts were liableto be assessed for estate duty in terms of section 6 (d) as amended.
That the taxable event was the death of the donor and section6 (d) had come into operation on that*vdate. The unamended section6 (d) never had any application to these properties.
That accordingly the assessments were correctly made.
Per Rajaratnam, J. dissenting—
As regards the properties gifted on 10.4.1944, the donees havefoy a period of 3 years been in bona fide possession and enjoyment ofthe same to the entire exclusion of the owner. If the taxable eventas contemplated by the law .is the death of the donor withinthe stated’ period, the death of the donor thereafter is not arelevant event in relation to the said properties and in such a casenot a taxable event.
On the dale of the amendment (28.1.1948) the properties donatedon 10.4.1944 had gone out of the pale of the Ordinance. There is noexpress provision (in the amending Act) to affect restrospectively therights that have accrued (to those donees) before 28.1.1948 under therepealed law. Therefore those properties donated on 10.4.1944 are notliable to estate duty.
The shares gifted on 4.8.1945 would not be free from liability toestate duty till after 4.8.1948, by which time the amending Act had comeinto operation. These shares are therefore liable to estate duty
RAJARATNAM, J.—Abdul Caffoor v. Attorney-General
Cases referred to :
Commissioner of Income Tax v. Trustees of the Abdul Gafoor Trust.CO N.L.R. 361.
Abdul Cafoor v. Commissioner of Income Tax, 63 N.L.R. 56 (PC) ;(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, 53 N.L.R. 140.
Free Lanka Insurance Co. Ltd. v. Ranasinghe, 63 N.L.R. 4S1 (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. Lai 8c Co. S3 Indian Tax Reports 231.
J. P. Jani Income Tax Officer v. Induprasad Shankar Bhatt, 72Indian Tax Reports 595.
West v. Gwynne, (1911) 2 Ch. 1 ; 104 L.T. 759 ; 80 UJ. Ch 578.
Appeal from a judgment of the District Court Colomboaffirming assessments made under the Estate Duty Ordinance.
C. Ranganathan, Q.C., with S. Ambalavanar and Miss C. Joseph,.for the appellant.
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 theestate of the late Mr. N. D. H. Abdul Cafoor from the ordermade by the District Judge of Colombo, whereby he was liableto pay estate duty with regard to—a
Certain property referred to in the schedule to deedNo. 1833 dated 2442.1942.
Certain properties which were gifts made by the saiddeceased N. D. H. Abdul Caffoor by deeds Nos. 1944-1953 of10.4.1944 referred to in the first schedule to the petition filedunder section 40 of the Estate Duty Ordinance in the Court below(p.12) and
Certain shares gifted on 4.8.1945 by the said deceased inN. D. H. Abdul Caffoor Ltd. set out in the second schedule tothe same said petition.
It was the appellant’s case that there was no benefit reservedin favour of the grantor within the meaning of the Estate DutyOrdinance and therefore there v/as no liability to estate duty withregard to the properties referred to in the schedule to deedNo. 1833 of 24.12.42. It was also his case that since the donor diedmore than 3 years after the respective donations the said
RAJARATNAM, J.—Abdul Oajjoor v. Attorney-General
properties and shares were not liable to estate duties notwith-standing the fact that Act No. 3 of 1948 on 28.1.48 extended theperiod of time from 3 years to 5 years after the donation.
I shall now deal with the appellant’s case on the first matterthat is to say the main matter in issue whether the propertymentioned in the schedule to deed No. 1833, A9, passed on thedeath of the deceased in terms of s. 6(b) of the Ordinance. Theterms of the very same deed A9 have been subject to examinationboth by the Supreme Court and the Privy Council when aquestion arose with regard to the liability of the trustees of theAbdul Caffoor Trust to pay income tax for the income derivedfrom this same property. It was held that the trust instrumentdid not contain the element of public benefit which shouldcharacterise a charitable trust as defined in s. 99 of the TrustsOrdinance. Vide Commissioner of Income Tax v. Trustees of theAhdul 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 notexempt from income tax because the trust failed to attain thequalification of public character required by s. 7(1) (d) of theIncome Tax Ordinance.
I agree with learned Counsel for the appellant that the decisionin the Supreme Court and the Privy Council does not relieve usof the responsibility in this case to approach a different questionwhether the said property passed on the death of the deceasedfor the purposes of determining whether it was liable to estateduty, mindful however that some of the observations made inthe said decisions are not entirely , without any relevance todetermine this separate question before us. The Privy Councilhas held that the instrument (deed A9) was drawn for educa-tional purposes and the recipients of the benefit were ‘ deservingyouths of Islamic faith ’ but the primary disposition of the trustincome was in favour of the family of the grantor and thereforei| was no trust of a public character established solely forcharitable purposes.
The proviso to clause 2 of A9, viz.
“Provided however that during the lifetime the grantorthe trustee shall apply the net rents, profits dividends andincome of the trust property for such purposes and in sue),manner as the grantor in his absolute discretion whethersuch -purposes shall fall within the objects specified in anyprovision above or not may through the Board direct. TheBoard shall not be nor be liable to be questioned regardingor asked the grounds or reasons for any decision of the Boardin regard to any of the matters provided for in sub-clauses
RAJARATNAM, J.—Abdxd Oafjoor v. Attorney-General
(b), (c), (a), (e), (f) and (g) of this clause it being theaim intention and object of These Presents that the Boardand every member thereof shall at no time be liable to havetheir decisions or their grounds or reasons in regard to suchmatters revised discussed gone into challenged modified oraltered in any manner howsoever by any person body autho-rity or Court
did not and need not have loomed large in the consideration ofthe Supreme Court and the Privy Council to arrive at theirdecisions relevant to the provisions of the Income Tax Ordinance.On the other hand our consideration has to be focussed largelyto the above proviso. It cannot be denied that this proviso refers.
to the lifetime of the Grantor,
to the absolute discretion of the Grantor overriding theabsolute and uncontrolled decision of the Board referred toearlier in clause 2 of A9, and
(b) the Grantor’s absolute right to direct the Board that thenett rents, income, etc. be applied to such purposes whether suchpurposes shall fall within the objects of any provision specifiedin the instrument or not. It means therefore that the Board ofTrustees on the death of the Grantor held the property free fromthe terms of. the said proviso to the extent that the interest ofthe deceased in the property ceased.
Learned Counsel for the appellant submitted that the deceased’sinterest was not a personal one but only a fiduciary interest andhe did draw our attention to the fact that the proviso confinedthe absolute discretion of the Grantor to direct the trustees toapply the income from the property ‘ to such purposes and insuch manner ’. He emphasised the term ‘ purposes ’ and submittedthat it could not include a payment to the Grantor himself. Evenif I am prepared to go so far as to accept this submission on thispoint, I am faced with the difficulty with the words following“ whether such purposes shall fall within the objects specified
in any provisions above or not .”. In other
words the Instrument was made with certain objects and eachprovision had the common charitable object of benefiting‘ youths of Islamic faith ’ and the ‘ male descendants along either
the male or female line of the Grantorand the
relief of poverty. The proviso, however, was left wide open forthe Grantor in his absolute discretion, during his life time to gobeyond the objects of the provisions specified in clause 2 of A9..It cannot be said that in terms of this proviso, the Grantor couldnot have directed the Board to give Rs. 1*0,000 to A, nor could the
ltAJARATNAM, J.—Abdul Cajfoor v. Attorney-General201
Board have questioned why the Grantor gave this direction.Mr. Ismail one of the original trustees in his evidence at p. 31admitted that the Board would have had to obey such a directionof the Grantor and could not have questioned the reasons forsuch a direction. In such a case, the reasons need not have been,related to any of the objects of any of the provisions specified inclausa 2 of A9.
When interpreting the terms of this proviso, the Court hasto confine itself to the scope of the proviso according to the wordsused, therein with an objective approach. There is no doubt thatthe grantor in this particular case was a great philanthropist andhe would never have abused the absolute discretion vested inhim. But the fact remains that on his death the Board held theproperty free and unencumbered by any direction the Grantorcould have given for any purpose in his absolute discretion,whether such purpose fell within or without the objects of thespecified provisions. It is not open either to the Commissioner ofEstate Duty or to this Court to go beyond the words in theproviso, to determine whether the Grantor reserved for himselfsome interest in the property which ceased on his death. Theterms in the proviso did not preclude the Grantor acting beyondhis fiduciary power.
We were referred to certain English authorities which thoughnot exactly in point laid down cerioin sound principles whichwe respectfully accept for our guidance. Our particular attentionwas drawn to the decision in the case of Vestcy’s Executors v.Inland Revenue Commissioners, (1949) 1 A.E.R. 1108, and inparticular to the judgment of Lord Simonds at page 1114 : —
“ The first question here for consideration is what is thenature of the right to direct investment which is vested inthe authorised persons. On behalf of the Crown it is urgedthat it is not a fiduciary power or right, but a right exercisableby the authorised persons for their own benefit, so that theycan require the trustees to invest the trust funds by wayof loan to themselves or any company in which they areinterested at any rate of interest whether or not such aninvestment is or is intended to be for the benefit of thetrust estate. It is, therefore, in this view some kind ofbeneficial interest, albeit a kind, I think, hitherto unknownto the law. So far as s. 38(3) and (4) is concerned, I observethat, even if the argument for the Crown so far prevails, itmust still be established that by reason of the settlor’s rightto direct investment the income or property arising underor comprised in the settlement is ‘ payable to or applicablefor the benefit of the settlor ’. I am clearly of opinion that it«** —A 61391 (80/09)
i!02KA.TAR ATNAM, »T.—Abdul Co/fnor »». Attorney »Grnfiral)
is not. I think that these words contemplate an out-and-outparting with the trust property or income by payment tothe settlor in money or money’s worth. They are as familiarwords as any in the conveyancing art. Investment is the veryantithesis of this, for it contemplates the retention of some-thing as part of the trust property. I think, therefore, thatin any case the claim of the Crown on this head under s. 38
and (4) must fail ”.
It cannot bo argued in this case that the fiduciary power inthe absolute discretion of the grantor which went beyond theobjects of the specified provisions in the instrument was a powerin the words of Lord Simonds “ to be exercised with a singleeye to the benefits of the beneficiaries ” specified in the Instru-ment. The interest reserved in the proviso .is not merely of afiduciary power. The words are wide enough to include a bene-ficial interest over-riding the objects of the provisions specified inthe Instrument. In other words it is not possible in this case withrespect to the proviso to say that absolute discretion,the Grantorreserved for himself to give directions to the Board with regardto the funds regardless of the objects of the specified provisionswas only a reservation of a mere fiduciary interest in the property.Again the term 1 interest ’ in the property in s. 6 (b) is wideenough to include what the Grantor in this case reserved forhimself for purposes outside the objects of the specified provisionslaid down in the instrument.
On his death, it can be said that this reserved interest ceasedand to this extent there was a benefit accruing or arising inrespect of the said property. In interpreting the terms of thisproviso Lord Radcliffe in his judgment, 63 N.L.R. at p. 58,observed : —
“ The overriding trust in the Deed was that during thelife of the Grantor the Trustees were to apply the wholeof the income for jy-ich purposes and such manner as theGrantor himself should in his absolute discretion direct,whether or not such purposes should fall within thosedirected by the Deed to be operative after the Grantor’sdeath. It is plain therefore that until his death, which tookplace on 1st November 1948, the current trust income wasnot in any sense devoted to charitable purposes ”.
The appellant cannot maintain that the Board of Trusteesenjoyed bona fide possession of the property from 1942 to 1948
“to the entire exclusion, of the donorThe submission
of the appellant with regard to the property specified in theschedule to Deed 1833 (A9) must fail and I hold that theappellant is liable to pay Estate Duty on the said property.
RAJ AR A'L'NAM, J.—Abdul Caf/oor v. Attorney-General
With regard to the properties and shares (b) and (c) referredto in the first and second schedules to the petition presentedto the Court below in terms of s. 40 of the Ordinance, althoughlearned Counsel for the appellant made his submissions to applyto both, I find that it will be more helpful to treat them sepa-rately. It was his case which he put very colourfully that theseproperties and shares stood ‘ liberated ’ from estate duty threeyears after they were gifted, and since the deceased died on 1stNovember, 1948, they were not liable to the payment of estateduty notwithstanding Act No. 3 of 1948 which extended the 3year period of. liability to 5 years, Before dealing with thissubmission, I shall refer to the relevant dates—
Properties (b) in the 1st schedule to the petition were
gifted on 10.4.1944.
Shares (c) in the 2nd schedule to the petition were gifted
Amendment extending 3 year period to 5 years was on
Death of the donor was on 1.11.1948.
The appointed day was 1.4.1947 under Act No. 3 of 1948.
It will be seen that properties in the first schedule were liableunder the existing law for estate duty till 10.4.1947. Thereaftersince the donor died only on 1.11.1948 the property for purposesof estate duty was free of estate duty but for the amending ActNo. 3 of 1948 as contended which came into force on 28.1.1948.The question for the consideration of this Court is whether theamending Act No. 3 of 1948 could alter the situation when theproperties no longer belonged to the deceased and were not pro-perties liable to estate duty under the existing law after 10.4.1947for almost eight months before the amending Act No. 3 of 1948.
The shares in the second schedule, however, were liable toestate duty under the existing law till 4.8.1948 by which timethe amending Act No. 3 of 1948 came into operation on 28.1.194!;altering the situation.
If we do not take into account the amending Act No. 3 of 1948.both the set of properties and the shares referred to in the firstand second schedule would not have been liable for estate dutyat the time of the death of the donor on the 1st of November,1948, under the existing law without the amending Act No. 3of 1948.
It cannot be disputed that the said donations were made bonafide and that bona fide possession and enjoyment was assumedby the donees immediately upon the gifts to the entire exclusionof the Donor or of any benefit to him by contract or otherwise
204KAJARATNAM, J.—Abdul Caffoor v. Attorney-General
The deceased at the time of his death had no power or compe-tence to dispose of these properties and shares and under theexisting law at the time of the donation these properties andshares would have long ceased co be part of his estate and theywould not have been property “ deemed to be passing on death ”under s. 6 of the Ordinance and liable to duty in terms of theunamended s. 6 (d) of the said Ordinance.
It was submitted by learned Counsel for the appellant that thedonees became owners of these properties and shares under theexisting and unamended law to the entire exclusion of the donorand the said properties and shares were free from any chargeor liability for the payment of estate duty if the donor died 3years after. It was also contended that the taxable event was theact or deed of the donation. On the other hand it was submittedon behalf of the Attorney-General that the taxable event was thedeath of the donor, and in the words of the Deputy Solicitor-General the Estate Duty^Ordinance “ springs into life and speaksonly at the death of the donor ”. I find it difficult to accept thesubmission that the taxable event is the act or deed of the dona-tion and that there were rights which were acquired or vestedin respect of these properties and shares on the date of donationto be free from any charge or liability for estate duty if thedonor died 3 years later. It cannot be said that the right thus tobe free of liability after 3 years vested at the time of the dona-tion. In this case the properties in the first schedule became thusfree of any liability for duties only after 10.4.1947, but the pro-perties in the second schedule, i.e. the shares had to wait till
by which time the amending Act came to be passed.
It was argued on behalf of the Attorney-General, that thetaxable event was the death of the donor and took place afterthe amendment Act No. 3 of 1948 which came into operation on
and therefore though the 3 years had elapsed on10.4.1947 since the date of donation, because the death of thedonor, i.e. the taxable event had not taken place, the law asamended had to be applied to impose the charge and liabilitiesfor estate duty. It was the Attorney-General’s case that theprovisions of the Estate Duty Ordinance came into operationonly oh the taxable event taking place and since this event wason 1.11.1948 and subsequent to the appointed date, the period tobe reckoned is 5 years and not 3 years. The question thereforearose whether if the taxable event in respect of the propertiesin the first schedule is the death of the donor, then would theamending Act No. 3 of 1948 operate retrospectively when it fixedthe appointed date on 1.4.1947. Learned Counsel for the appellantmaintained that since the taxable event was the act and deedof the donation therefore the amendment was retrospective and
R.4.JARATNAM, J.—Abdul Oajjoor v. AUorney-Oeneral
bad in respect of both the properties and shares in the first andsecond schedule which in his own words became ‘ liberated ’before the death of the deceased.
I will accept the submission that the taxable event cannot bethe date of the donation and there were no vested rights on thedate of the donation and that the Estate Duty Ordinance only‘ springs into life and speaks only on the death of the donorand consider the question on this basis in respect of (a) the pro-perties in the first schedule and (b) the shares in the secondschedule.
I shall first deal with the shares in the second schedule. Theseshares though gifted on 4.8.1945 were subject to estate duty till
even without the amending law. If the taxable event,i.e. the death of the donor happened before 4.8.1948, regardlessof the amendment, these shares would have been subject toestate duty under s. 6 (d). It was at a stage when these shareswere still liable to duty, that the amendment came into opera-tion extending the period of liability to 5 years, and since thedonor died within the extended period, these shares in my viewcould never have been at any point of time till the death of thedonor be considered as having been free of liability. For pur-poses of estate duty, on the date of the amendment, the shareswere still subject to the unamended s. 6 (d). The argumentadvanced on behalf of the appellant fails for two reasons: —
on the date of the donation there vested no rights on
any body in respect of the shares to be free of estateduty as the death of the donor after 3 years was arequisite condition under the existing law and if thisevent took place within 3 years, it was a taxable eventremoving any such rights.,-Vested rights can neverexist if it is dependent on the happening or nothappening of an event. A conditional or a contingentright is not a vested right.
In any case no rights had accrued to anybody as yet
under the existing law at the time of the amendment,for him to have and own any rights.
I therefore hold that the shares in the second schedule referredto above are liable for estate duty.
I proceed now to the last category of properties, that is to say,the properties in the first schedule referred to above regardingwhich different considerations arise as these properties on thedate of the amendment had passed the 3 year period under theexisting law and the taxable event which is the death of thedonor had not taken place as contemplated in s. 6 (d) whichstood unamended and the holding of these properties passed
R A JAR ATN AM, J.—Abdul Caffoor. v. Attorney-General
that period. In my view the taxable event is the death of thedonor but under the existing law it had to take place before astipulated period of 3 years as required by s. 6 (d). That taxableevent as contemplated by the existing law did not take place.
The question follows that in this situation, could it be said thatthe taxable event could be made to take place anytime there-after without express retrospective legislation regardless of thefact that the period of 3 years contemplated by the existing lawhad passed and the properties were in the hands of the doneesor their successors in title for the stipulated period. In otherwords the donees had for a period of 3 years as required andcontemplated by the law been in bona fide possession and enjoy-ment of the same to the entire exclusion of the donor. It is myview that in such a situation when the donees had held the pro-perties for 3 years and the taxable event as contemplated by thelaw had not taken place within the stated period, the death ofthe donor thereafter is not a relevant event in relation to thesaid properties and in such a case not a taxable event withregard to the said properties. The amendment, however, waspassed thereafter—
when the death of the donor was neither a taxable event
nor a relevant event for purposes of the Estate DutyOrdinance in regard to the said properties.
when the said properties were not within the scope of
s. 6 (d) of the existing law and therefore not passing onthe death of the donor, and
when the donees had or their successors in title had
acquired a right to own the properties without theliability to pay estate duty.
There can be .no question that the amendment came intooperation—
when the death of the donor was neither a taxable event
or a relevant event in relation to these properties forpurposes of the Estate Duty Ordinance, and
when the properties were not within the scope of s. 6 (d)
of the existing law and could not pass on the -death ofthe donor if the donor died after the 3 years and beforethe amendment. There can also be no doubt that anyamendment extending the period thereafter tp 5 yearsin this situation must be retrospective. We werereferred to s. 6 (3) (b) of the Interpretation Ordinancewhich reads : —
“ Wherever any written law repeals in whole orpart a former written law and substitutes therefora new provision such repeal shall not, in the absence
R A J A R AT NAM, J.—Abdul CaJJoor v. Attorney-General
of any express provision to that effect, affect or bedeemed to have affected—
any offence committed, any right, liberty or
penalty acquired or incurred under the repealedwritten law”.
Maxwell on Interpretation of Statutes (11th Ed) at page 206lays down this principle as follows: —
‘‘It is chiefly where the enactment would prejudiciallyaffect vested rights, or the legality of past transactions orunfair contracts that the rule in question prevails. EveryStatute, it has been said which takes away or impairs vestedrights acquired under existing laws or creates a new. liabilityin respect of transactions or considerations already past,must be presumed out of respect to the legislature to beintended not to have a retrospective operation ",
I shall first deal with the provision of the appointed datebeing 1.4.1947 in the amending statute. The appointed date, in myview, cannot apply to a situations where the stipulated period of3 years has passed and the taxable event has not taken placewithin the stipulated period in the existing law.
Although the taxable event is the death of the donor, the giftswhich have been made more than 3 years before 28.1.48 underthe existing law as unamended were not properties deemed to bepassing on death. The death of the donor is the taxable event,but for purposes of the Estate Duty Ordinance it must be relatedto properties that have not gone out of the pale of the existinglaw.
It is clear that the said properties gifted on 10.4.1944 couldnever have been properties deemed to pass on the death of thedonor within the meaning of s. 6 (d) of the Estate Duty Ordi-nance after 10.4.1947 and it cannot be disputed that if the deathof the donor took place between 11.4.1947 and 28.1.1948, (the date•of the amendment) the said properties were not propertiespassing on the death of the donor. Between these dates at least thedonees and the gifted properties would not have been concernedwith the death of the donor for the purposes of the Estate DutyOrdinance. The said properties could have been sold as propertiesthat were absolutely free of estate duty, and in no manner•concerned with the death of the donor. The purchaser ofthese properties had no reason to expect there to be ever a changefor purposes of estate duty under s. 27(1) (b) of the Ordinancenor to be in terms of the provisions of the relevant law notionallybrought in as part of the estate of the deceased donor. In case
KA JARATNAJVI, iT.—Abdul Caffoor v. Attorney-General
of the shares however which were gifted on 4.8.1945, they couldnot be said to have ceased to be subject to estate duty till 4.8.1948and for this reason the amendment which came into operation on
had an undisputable impact on the said shares andthis impact was not retrospective and these shares I have alreadyheld are liable for estate duty in terms of the amending Act No. 3of 1948. The properties mentioned in the first schedule wouldnever have been considered by any purchasers of these propertiesto be liable to estate duty after 10.4.47 and in any case before28.1.48. It cannot be said that the holders of these propertiesdid not enjoy certain rights to hold these properties free fromany charge for estate duty on the death of the donor,whenever it occured thereafter. It follows, therefore that theamending Act No. 3 of 1948 has a retrospective impact on therights of the holders of the said properties. In my view thetaxable event under the unamended law had to occur within3 years of the donation and if it occurred after 3 years it was nota relevant event with regard to the properties donated 3 yearsearlier. For instance if A owned Whiteacre, Blackacre, Greenacreand Redacre and donated Whiteacre 5 years before his death andBlackare 4 years before his death Greenacre 2 years and Redacre1 year before his death, his death will be the taxable event buf thetaxable event will not be relevant under the old law in relationto Whiteacre and Blackacre and if the amending law is to relateto Whiteacre and Blackacre it must expressly be maderetrospective.
I am unable to hold that a mere fixing of a date as the appointeddate in relation to the deaifh of the donor, is an express provisionaffecting or deeming to affect rights acquired under the old law.
Amending Act No. 3 of 1948 fixes the appointed date of death as
41947 on 28.1.1948. If the dissenting order of Gunasekera, J. iscorrect then if the donor died on 2.4.1947 or thereafter before
and if the donation had been 3 years before the death,the law at the time of death would have been on the 3-year ruleand the appointed date in the amendment would be meaninglesswhere the death took place during the period from 1.4.1947 to
when the donation was 3 years earlier. There is thereforeno express provision to catch up at least such a case. The follow-ing cases have been sought to be affected by the said amendmentof 28.1.1948 : —
Where the properties donated have not passed the 3-year
period on 28.1.1948 and the death of the donor had nottaken place on 28.1.1948.
Where the properties donated have passed the 3-year
period on 28.1.1948 and death has not taken place before28.1.1948.
RAJARATNAM, J.—Abdul OaJ/oor v. Attorney-General
Where the properties donated have passed the 3-yearperiod on 1.4.1947 and the death of the donor has takenplace after 1.4.1947 and befo're 28.1.1948.1 find it difficultto oversimplify the problem and state that the taxableevent is the death of the donor and that it is a relevantevent in all these 3 cases.
In my view the taxable event is relevant only in the firstca§e as in the cases of the shares in the present case, because noexisting rights have been affected but not relevant in the secondand third cases where on the date of the amendment, the proper-ties donated have gone out of the pale of the Ordinance. Furtherthere is no express provision to affect the rights that have accrued
before 28.1.1948 under the repealed law.
It is a cardinal rule of construction that a retrospective effectis not to be given to a statute so as to affect an existing right orobligation otherwise than as regards matters of procedure, unlessthat effect cannot be avoided without doing violence to thelanguage of the enactment. Moreover if the enactment isexpressed in language which is fairly capable of either inter-pretation, it must be construed as prospective only—Craies onStatute Law (6th Ed. pp. 388-9). The provisions of our law aremost stringent and no repeal shall have retrospective effect “ inthe absence of any express provision to that effect The languageof the amending statute, in my view, is not express enough toapply to the third, fourth and fifth cases. In the words ofGratiaen, J. “ Section 6 (3) of the Interpretation Ordinance haslaid down a less flexible test than adopted in the correspondingEnglish enactment. This is implicit in the phrase ‘ in the absenceof any express provision to that effect ’ as contrasted with thewords ' unless the contrary intention appears ’ employed in s. 38
of the English enactment ”. Section 6 (3) of the
Interpretation Ordinance controls the operation of all repealingenactments. It protects vested rights acquired under a repealedAct from the impact of subsequent legislation unless there beunequivocal language within the four corners of the repealingAct pointing to a deliberate intention on the part of Parliamentto impair those rights. Akilandanayaki v. Sothinagaratnam, 53N.L.R. at p. 393. We have been referred to this principle beingfollowed in several cases thereafter. (55 N.L.R. 443 at 449 ; 58N.L.R. 142-144 and 65 N.L.R. 481 at 486 (PC) ).
It is the appellant’s case that the donees became owners ofthe properties free from any charge pr liability for payment ofestate duty on the date of donation. I am prepared to accept the
KAJARATNAM, J.— Abdul Caffoor v. Attorney-General
position that only after 10.4.1947 they became such owners of theproperties. It is also submitted on his behalf that the amending.Act in 1948 did affect the rights of the said donees to haveand own properties that were free of any charge or liability forestate duty. I am prepared to accept this position too as correctafter 10.4.1947. On the other hand it is the case on behalf of theAttorney-General that ‘ vested rights ’ could arise only in relationto property rights and the question here is not one of rights butliability and further the taxable event is only on the death ofthe donor.
It cannot be argued that this is a pure question of liability andnot of rights. Every liability pre-supposes a right in another to-impose that liability, and every non liability pre-supposes a rightDf another to be free of a liability. In this case on 10.4.1947 thedonees or their successors in title had such rights in respect ofthe properties which they owned.
On a consideration of s. 27 (1)(b) of the Estate Guty
Ordinance, it is clear that the estate duty payable by any person,other than the executor in respect of any property shall be thefirst charge on that property. The said properties are onlynotionally brought in as part of the estate under the law andunder s. 27 (1) (a) the estate duty payable by an executorshall be a first charge o^ly on all the property of which thedeceased was competent to dispose at his death and such chargemay be enforced against any such property for the recovery of thewhole or any part of such estate duty. Under s- 25, no executoris liable for any duty in excess of the assets which he hasreceived as an executor and has the discretion to pay estate dutyin respect of any other property passing on such death if reques-ted to do so by the person liable for estate duty in respect thereof.
I hold that the donees did acquire vested rights in the saidproperties to have and own them free of any liability whatsoeverfor the payment of estate duty after 10.4.1947. It was argued thatin matters of taxation the rules with regard to retrospectivelegislation do not apply and the observations of Basnayake, C.Jiwere referred to that retrospective laws are generally found inthe field of taxation, 61 N.L.R. at p. 401 in Queen v. Fernando. Thisobservation does not alter the cardinal principles in the rule of. interpretation to be applied in the consideration of retrospectivelegislation. There must be express provision to that effect.
In this case even if the donor died on 2.4.1947, i.e. after theappointed date, and if the estate duty had been charged, imposed'and paid before 28.1.1948, these properties would have beenoutside the pale of liability to estate duty, unless the legislation
KAJAKATNAflf, J.—Abdul Cafjoor v. Attorney-General,ill
was made expressly retrospective. The appointed date cannotbe fixed from time to time regardless of the stipulated periodsunder existing laws without express provisions removing rightsalready vested.
I find it difficult to hold that Amendment No. 3 of 1948 doesnot have a retrospective impact in certain situations as mentionedearlier. This amendment which extends the period of 3 years to.5 years, if not retrospective another similar amendment whichextends the period of 3 years to 50 ydars will not be retrospectivein the case of properties gifted half a century before the deathof the donor. In my view, the death of the donor is no doubt ataxable event but it will be so only with regard to propertiesbelonging to his estate and it will not relate to properties donated47 years earlier unless there is express provision in the amend-rrfent to include such properties. The taxable event does notautomatically bring into the pale of the operation of the EstateDuty Ordinance all gifts made during the life time of an octo-generian under the existing law, unless the amending law makesexpress provision to that effect.
It is rather difficult to agree with learned Counsel for theappellant that the * taxable ’ event is the date of the donation. Onthe other hand for the mere reason that the ‘ taxable ’ eventis the death of the donor it does not mean that all propertiesthat were gifted by him during his life time became taxableregardless that some of the properties may have been freed underthe existing laws before the amendment.
Can it be said that the amendment Act No. 3 of 1948 is prospec-tive in the case where the deceased died on 2.4.1347 and the giftswere made more than 3 years earlier ? The death of the donor is ataxable event, no doubt, but not a taxable event as regards suchproperties gifted 3 years earlier in relation to which rights haveaccrued. In such a case the death of the donor is not a relevantor taxable event in relation to such properties gifted. Similarlyeven where the donor died after the amendment, since the 3years had passed after the gifts and the existing law continuedto be in force after the 3 years had elapsed, the death of thedonor sometime thereafter on 1.11.1948 was not a taxable eventin relation to these properties.
For instance on 11.4.1947 which is 3 years after the gift thedeath of the donor thereafter was an irrelevant and a non tax-able event as regards these properties. There was somethingthat the properties donated and the donees gained that day. Therewas something that the estate of the donor gained that day. Theamending Statute however extended the period to 5 years which
RAJARATNAM, J.—Abdul Cajfoor v- Attorney-General
was a prospective piece of legislation with regard to all propertieswhich had not been freed in terms of the existing law. Thefixing of the appointed date, however, was retrospective legis-lation with regard to gifted properties which did not come with-in s. 6 (d) (unamended) of the Ordinance and where death didnot take place before 1.4.1947.
In the case of Cadgil v. Lai & Co., 53 I.T.R. 231 (SC), as theprovisions of the Act stood, a notice of assessment or re-assess-ment could not be issued against a person deemed to be an agentof a non-resident after the expiry of one year from the end of theyear of assessment. The law was amended extending this periodof limitation to 2 years. The amendment was given retrospectiveeffect from April 1, 1956. The assessee was noticed in March 1957in respect to the assessment year 1954-55. It was held thatthe right to commence proceedings for assessment in the caseended on 31.3.1956 before the amendment. The decision in thiscase was relied upon in the case of J. P. Jani, Income-Tax Officerv. Indra-prasad Devashankar Bhatt, 72 I.T.R. 595 (SC), which alsoheld that unless the terms of the Statute expressly so provide orunless there is a necessary implication, retrospective operationshould not be given to the Statute so as to affect, alter or destroyany right already acquired or to revive any remedy already fostby the efflux of time.
Moreover as Act No. 3 of 1948 reads, it has been sought tobe made applicable to two situations. The first situation is wherethe death of the donor can still take place within the period of3 years as required in terpns of the existing law as in the caseof the donees who held the shares and the second situationwhere the death did not take place within the required statutoryperiod in terms of the existing law. I have already held thatthe principles of interpretation with regard to retrospectivelegislation does not apply in the first situation but it does comeup for consideration in the second situation. The law as it wason 10.4.1947 and till 28.1.1948 contemplated the death of the donorwithin 3 years of the donation.
In the words of Buckley, L. J. in the case of West v. Gwynne,(1911) 2 Ch. 1, referred to above “ if an Act provides that as at apast date, the law shall be taken to have been that which it wasnot, that Act, I understand to be retrospective”. It is my viewthat Act No. 3 of 1948 could not have included properties alreadyfreed from liability after the expiry of 3 years, without “ expressprovision to that effect ”.
I have awaited the views of Tittawella, J. and Gunasekera, J.before the delivery of the order in this appeal. I have had thebenefit of reading Gunasekera, J.’s judgment and with great
HAJAKATNAM, J.—Abdul CuJJoor v. Attorney-General
respect, I find it difficult to agree with his observations at pp. 224and 225:
“ But this entire submission is founded on the wrongassumption that s. 6 (d) (then in its unamended form) wasin operation in respect of these properties on 10.4.1944 and
It can have no legal force or effect whatsoever
nor can it have the remotest application to the properties
o which belonged to him in his life time ”.
“ As I have held that the unamended s. 6 (d) neverhad any application to these ^properties, there can be noquestion of any rights to exemption from duty in terms ofthat section arising either.on 10.4.44 or three years later on10.4.47 ”.
With regard to these observations it cannot be said thatproperties that have been donated “ belonged to him during hislife time ”■ If that be so, a donor can never legally be said to partwith the property he donates till his death which is the taxableevent.
In terms of the Estate Duty Ordinance s. 6 (a) only “ propertyof which the deceased was at the time of his death competent todispose ” is property that belonged to him. Other propertieswere notionally brought into his estate by the operation of therest of the sub-section in s. 6. The properties under our conside-ration could have been brought in by law under s. 6 (d) of theOrdinance notionally into the estate of the deceased if he diedwithin 8 years of the donation till 10.4.47. It cannot be said thatthe law in its unamended form had no operation whatsoever atany date before the death of the donor in respect of the saidproperties.
An examination of s. 25, s. 26 and s. 27 of the Ordinancetogether with s. 6 (a) to (h) therein reveals the scheme for theliability and non-liability. For the mere reason that the taxableevent is the death of the deceased, it does riot mean that all thegifts made during his life time are affected by his death notwith-standing the provisions in the Ordinance which limit the pro-perties deemed to pass on death. The question is not what thelaw was at the time of the death of the deceased. In my viewthe question is whether the amendment had a retrospectiveimpact on the rights of the holders of the properties under theexisting law and if so whether there was express provision there-in to affect the said rights. I find considerable difficulty to answerthese questions against the appellant.
-14TITTAWELLA, J.—Abdul Ca/Joor v. Attorney-General
I have not been fortunate to find my difficulties, with greatrespect, resolved in the dissenting judgment.
I therefore hold that the properties donated and referred toin the first schedule are not liable to estate duty and the appealof the appellant is accordingly partially allowed with one-thirdtaxed costs.
Since the majority view, however, is different the whole appealstands dismissed with costs.
I have had the benefit of reading the judgments of JusticeTtajaratnam and Justice Gunasekera. I am in agreement withJustice Gunasekera that the order and decree of the DistrictCourt be affirmed and that the appeal should therefore bedismissed with costs.
The appellant, as administrator of the estate of one I- D. H.Abdul Gaffoor filed these proceedings in the District Court ofColombo against the Attorney-General by way of an appealunder sections 35 and 40 of the Estate Duty Ordinance (Cap. 241)(hereafter referred to as the Ordinance). He has thereafter filedthis appeal in this Court in terms of section 45 against theOrder of the learned District Judge affirming the decision of theCommissioner of Estate Duty (A7), upholding the estate dutyassessments on the appellant (A2, A3, A5).
The deceased died on 1.11.1948 and on this appeal two questionsarise with regard to liability for estate duty of his estate.Firstly, whether the property transferred by the deceased tocertain trustees on, two contemporaneous Deeds, No. 1832 (A8)and No. 1833 (A9) dated 24.12.1943, can .be considered to be‘ property passing on the death of the deceased ’ in terms ofsection 6 (a) and/or 6 (b) and/or 6 (d) of the Ordinance. Second-ly, whether gifts of immovable property set out in the firstschedule to the petition, made by the deceased to several doneeson Deeds Nos. 1944 to 1953 dated 104.1944, and certain gifts ofshares of a registered company made on 4.8.1945 by the deceasedto the donees mentioned in the 2nd schedule to the petition,were liable to estate duty under section 6 (d) as amended byAct No. 3 jf 1948. These tv/o questions can conveniently beconsidered in this same Order.
Section 6 of the Ordinance as it stood on 1.11.1948, the date ofdeath of the deceased and as relevant to the question arising in
this appeal is :
GUNASEKAJ3.A, J.—Abdul CaJJoor v. Attorney-General
“ 6- Property passing on the death of the deceased shall bedeemed to include the property following, that is to say : —
Property of which the deceased was at the time of his
death competent to dispose ;
Property in which the deceased or any other person had
an interest ceasing on the death of the deceased, to theextent to which a benefit accrues or arises by thecesser of such interest; inclusive of property the estateor interest in which has been surrendered, assured,divested, or otherwise disposed of, whether for valueor not, to or for the benefit of any person entitled toan estate or interest in remainder or reversion in suchproperty, unless that surrender, assurance, divesting,or disposition was bona fide made or effected threeyears before the death of the deceased where the dateofhisdeathis prior to theappointeddate
orfiveyearsbefore his deathwhere thedate
ofhisdeathis the appointeddate orany
subsequent date, and bona fide possession and enjoy-ment of the property was assumed thereunder imme-diately upon the surrender, assurance, divesting, ordisposition, and thenceforward retained to the entireexclusion of the person who had the estate or interestlimited to cease as aforesaid, and of any benefit to himby contract or otherwise ; but exclusive of propertythe interest in which of,-.the deceased or other personwas only an interest as holder of an office, or recipientof the benefits of a charity, or as a corporation sole ;
Property taken as a donatio mortis causa made by thedeceased or taken under a disposition made by himpurporting to operate as an immediate gift inter vivos,whether by way of transfer, delivery, declaration oftrust, or otherwise, which shall not have been bonafide made three years before his death where the dateof his death is prior to the appointed date or fiveyears before his death where the date of his deathis the appointed date or any subsequent date,or taken under any gift, whenever made, ofwhich bona fide possession and enjoyment shall nothave been assumed by the donee immediately uponthe gift and thenceforward retained to the entireexclusion of the donor or of any benefit to him bycontract or otherwise :
210GTJNASEIvGRA, J.—Abdv.l Cajfoor v. Attorney-General
the property shall not be deemed to pass on the deathof the deceased if subsequently, by means of the sur-render of the benefit, reserved or otherwise it isenjoyed to the entire exclusion of the deceased andof any benefit to him by contract or otherwise, forthree years before his death where the date of hisdeath is prior to the appointed date or for five yearsbefore his death where the date of his death is theappointed date or any subsequent date ;a
(»i) in the case of a gift made for a religious, charitable, orpublic purpose this subsection shall be read as if oneyear were substituted for three years or five years,as the case may be ;
ini) nothing herein contained shall apply to gifts made inconsideration of marriage, or which are proved to thesatisfaction of the Commissioner to have been part
'of the normal expenditure of the deceased, and to
have been reasonable, having regard to the amount ofhis income, or to the circumstances under which thegift is made, or which, in the case of any donee, donot exceed in the aggregate one thousand five hundredrupees in value or amount;
(iv) where an Assessor is of opinion that a disposition of pro-perty purporting to be a transfer for valuable consi-deration was not in fact a bona fide transfer for fullconsideration in money or money’s worth receivedor receivable wholly by the deceased for his own useand. benefit, he may treat such disposition as a gift, andthe onus of proving that such disposition was in factbona fide shall lie on the transferee or his successorsin title ; ”
Stated very briefly, the position of the Attorney-General, onbehalf of the Commissioner of Estate Duty, is that though inrespect of the. ‘ trust property ’ the gift- was made well over fiveyears .before the donor’s death, the donor had retained an inter-est in-.the property ceasing on his death and also that bona fidepossession and enjoyment of the property was not assumed bythe donee trustees immediately upon the disposition and thence-forward retained to the entire exclusion of the donor, and thattherefore this property was liable to assessment in terms of. sections 6(b) and 6 (d). It was also his contention that the entiretrust having failed as a charitable trust, according to the deci-sion of the Privy Council, the settlor became competent to dis-pose of this ‘ trust property ’ at death in terms of section 6 (a).
GUNASEKERA, J.—Abdul Cu/foor v. Attorney-General
In respect of the gifts in schedule 1 and schedule 2 of thepetition his submission is that though he concedes the gifts wereabsolute and that the donees did enter into and retained bonafide possession and enjoyment of the gifted properties to theentire exclusion of the donor, a period of five years had notpassed since the gifts were made before the death of the donorand that therefore these properties were liable to be assessedunder section 6 (d) of the Ordinance.
With regard to the first question before us, by Deed No. 3 832(A8 aforesaid) the deceased transferred the property known as‘ Gaftoor building ’ situated on the Main Street, Fort, Colombo,and valued at Rs. 2,050,000 to three trustees to be heldvby themupon the terms of the trust set out in the Deed No. 1033 (A9).This deed inter alia, provided that the trustees were to expendout of the income a sum not exceeding Rs. 1,000 per month “torthe education, instruction or training in England or elsewhere
abroad of deserving youths of the Islamic faith”
(Clause 2 (b) ). It went on however to say,
“ the recipients of the benefits provided for in this clauseshall be selected by the Board of the following classes ofpersons in the following order,
(b) (i) Male descendants along either the male or femaleline of the Grantor or of any of his brothers or sisters. ”
Thereafter were enumerated—
“ 2 (b) (ii) Youths of the Islamic faith not of group (i) bornof Muslim parents permanently resident in the city ofColombo.
(b) (iii) Such youths of such parents resident elsewhere inColombo, etc”
This deed also stated—
“ PROVIDED however that during the lifetime of theGrantor the trustees shall apply the net rents profits divi-dends and income of the trust, property for such purposesand in such manner as the Grantor in his absolute discretionwhether such purposes shall fall within the objects specifiedin any provision above or not, may through the Board direct.”(This will hereafter be referred to as the ‘ proviso ’).
This trust deed has come before this Court and the PrivyCouncil for interpretation earlier, when the Commissioner ofInland Revenue assessed the income of this property for income'tax and the trustees contended that such income was not liableto income tax, being income of a Charitable Trust. (See C I Taxv. Trustees of the Abdul Gaffoor Trust (1958) 60 N.L.R. 366 and(1961) 63 N.L.R. 561 (P.C ) ).
L‘l 8GUNASEKERA, J.—Abdul Caffoor v. A Itorncy-Gcnrral
The question now before us is whether the estate of thedeceased settlor was liable to estate duty on the property giftedto the trustees on the deed A8, and so those judgements of thisCourt and the Privy Council will not be directly relevant in thedetermination of this liability under sections 6 (b) and 6 (d) ofthe Ordinance ; they will be directly relevant however on thequestion of liability under section 6 (a). But even on the ques-tion whether the settlor reserved an ‘ interest ceasing on deathor whether ‘ bona fide possession and enjoyment of the propertywas assumed thereunder immediately upon the disposition ’ theobservations of the learned Judges in those judgements will behighly persuasive authority and of considerable assistance.
This first question can be determined on a consideration onlyof the 1 proviso The proviso has clearly suspended the operationof the trust until the death of the settlor and during thesettlor’s lifetime the trustees did not function at all as such,except to carry out the orders of the settlor. This is the plainmeaning of the words of the proviso ; and what happened in factalso is just this. Mr. Ismail, himself a lawyer and the sole survi-ving Trustee, in his evidence said :
“ The Board during the Settlor’s lifetime had no power togive donations on their own without having received direc-tions from the Settlor. The Trustees did the disbursementson the sole directions of the Settlor because no act could bedone without reference to the Settlor. The discretion waswith the Settlor to direct the Board of Trustees as to how anymoney should be disbursed.c
Q : Did the Board of Trustees have the power to deal withthe income derived from the property mentioned inthe deeds of trust on their own ?
A. Not during the lifetime of the settlor. .
Q. How did the Boarcf of Trustees function during the life-time of the settlor ?
A. The trustees held the income. The settlor gave direc-tions with regard to the disbursement of the money.Thereafter the Board considered and sanctioned it. ”
This also is what Lord Radcliffe meant when at p. 58 of 63 New
Law Reports he said,
“The overriding trust, in the Deed was that during thelife of the Grantor the Trustees were to apply the whole ofthe income for such purposes and in such manner as theGrantor himself should in his absolute discretion direct,
..GUNASlilCERA, J.—Abdul Caffoor v. Attorney-Central
whether or not such purposes should fall within those direc-ted by the Deed to be operative after the Grantor’s death. Itis plain therefore that until his death, which took place on1st November, 1948, the current trust income was not in anysense devoted to charitable purposes. ”
“ Once the grantor was dead his overriding trust came toan end. ”*
It need hardly be said that if the settlor had the completedisposing power over the entire income of the ‘ trust property 'during his life-time and he could use such income for purposeseven outside the objects of the trust, he had * an interest ’ inthe entirety of the trust property ceasing on his death and alsothat bona fide possession and enjoyment of the property was notassumed by the trustees for the beneficiaries, immediately onthe disposition to them (sections 6 (b) and 6 (d) ). The evidenceof Mr. Ismail also is that the settlor did in fact use the incomeof the trust for purposes completely outside the objects of thetrust.
Mr. Ambalavaner’s only submission on this question was thatbecause the proviso appeared in a trust deed, it must be under-stood as giving the settlor only a ‘ fiduciary power ’ over theincome of the trust property, and that he could not exercise thispower outside the trust purposes, and that therefore there wasno interest remaining in him in the trust property. But this isagainst the plain meaning of the clear words of the proviso, thatthe settlor can utilise the trust income for “ such purposes andin such manner as the grantor in his absolute discretionwhether such purposes shall fall within the objects specified inany provision above or not ”.
Mr. Ambalavaner relied for this submission on the case ofVesteys (Lords) Executors v. I.R.C., (1949) 1 All England Reports1108. In that case certain settlors were assessed for tax, inter alia,on the ground that the trust instrument gave them as ‘ authorizedpersons ’ certain powers of investment of the trust funds and theassessees contended that they were not so liable for the reasonthat the power retained to them was only a 1 fiduciary powerLord Simmon from whom Mr. Ambalavaner quoted at lengthaccepted the reasons and conclusions in the judgment of LordMorton, who had he said 1 fully narrated ’ the facts. I will there-fore cite from Lord Morton just to show that that case cannot beat all helpful to us in interpreting the proviso. Lord Morton said •
“ It is said on behalf of the Crown that cl. 3 of the lease(already quoted) put the annual profits of Union into thehands of the Paris trustees, and that the power to directinvestments, vested in the * authorized persons ’, was the
GUNASEICERA, J.—Abdul Caffoor v. Attorney-General
means by which the Vesteys were able to obtain, out ofthese profits the cash necessary for financing the businesswhich they controlled. It is further said that certain passagesin the cases stated show that the power was, in fact usedfor this purpose. My Lords, in my view, one must solve thisquestion of construction on a consideration of the words usedin the trust deed, by which alone this right or power is cons-tituted, applying to these words the ordinary principles ofconstruction, without regard to the fact that this deed ispart of a scheme of tax avoidance. If it appears that thereis some latent ambiguity in the deed itself, one can seekto resolve it by a consideration of the relevant surroundingcircumstances.”
He next analysed the clauses in the deed bearing, on theexercise of this power and also referred to the similar languagecontained in the Settled Land Act of 1882, and said,
“The result is that, in my view, on the true constructionof the trust deed, the power of direction is a fiduciary power,and the authorised persons are not entitled to use it for thepurpose of obtaining a benefit for themselves.”
Applying the very principle enunciated by Lord Morton in thatvery case, I can with certainty say that “ a consideration of thewords used in the trust deed ” and especially the 1 proviso putit beyond any question that the absolute power retained to. thesettlor was not a fiduciary power but a power that completelynullified the trust during its operative period.
Mr. Ambalavaner also cited the case of Oakes v. N. S. W.Commissioner for Stamp Duty, (1953) 2 All England Reports p.1563, as authority for his submission that even if the settlor, underthe proviso, used the trust income for the use of his own family,he was still not getting any benefit for himself. But what Lord,Reid held in that case (p. 1568) was that if a trustee, used thetrust income for the education and maintenance of the beneficiary,in accordance with the terms of the trust and ‘ without impairingor diminishing the value of. the gift to them he got no taxablebenefit for himself just because he happened to be the father ofthe beneficiary. In this case the settlor is not the trustee ner ishis family the beneficiary of this ‘ charitable trust ’.
I therefore hold that the property gifted to the trustees ondeed A8 was liable to estate duty under sections 6 (b) and 6 (d)and that the assessment made thereon on the appellant w§scorrectly made.
The further question whether the * trust property ’ becameassessable in terms of section 6 (a) becomes then only ofacademic value, as I have held that the assessment can be validly
GUNASEKERA, J.—Abdul Cajjoor v. Attorney-General
made on the value of the entire property under sections 6 (b)and 6 (d). However as Mr. Ambalavaner spent considerable timeon this aspect of the case I will consider his submissions. Hesays,
“4(11).'It is accepted that consequent to the decision ofthe Privy Council in the Gaffoor Trust that this clauseis not charitable. The other clauses 2(b) (ii), 2(b) (Hi)were in jact held charitable. The trust as a whole hasnot failed as shown in paragraph 4.12. Whether thisclause is charitable or npt, whether it is effective ornot, whether it is effective for a period of time ornot does not affect the validity of the trust. If thissubmission is correct, then no liability to estate dutywill arise since the trust and transfer of property wascreated well before the statutory period during whichgifts and settlements can be brought into assessment.
4(12). The next question to consider is the effect of clause2 (b) (i). Since it has been held and it is accepted thatthis clause is not charitable, it offends the rule againstperpetuity as set out in section 110 of the TrustsOrdinance. In accordance with section 110(2) of theTrust Ordinance where an interest fails as regardssome persons in a class by reason of the provisionsof section 110(1), the interests of the whole class fails.In the result clause 2(b) (i) is of no effect and is void.There is no failure of the trust as a whole. It is onlythe interest of the class that is affected by section 110(1) that fails. There is no resulting trust in favour ofthe grantor. Therefore there is no liability to estateduty in respect of the property under section 6 (a) orany other section of the Estate Duty Ordinance. ”
He expressed surprise that very able Counsel had not both inthe Supreme Court and in the Privy Council submitted this argu-ment of his that the trust was divisible and had not failed inthe ‘ Public ’ part of its objects, and submitted that both thosejudgments were wrong and had been entered per incuriam. ButFernando, C.J. in 60 N.L.R. at p. 376 has given the reason whyMr. H. V. Perera, Q.C., advisedly did not make this submissionthus :
“ Counsel for the trustees did not argue that the incomeintended by the settlor to be utilised under clauses (c) to(/) of the instrument can be regarded as being income of a.separate trust and therefore entitled to exemption from tax.Indeed having regard to the powers exercisable by theBoard under paragraph (g) and the uncontrolled discretion
222QTJNASEKERA, J.—Abdul Caffoor v. Attorney-General
to restrict the use of the income and of the reserve fund forthe purposes mentioned in paragraph (b), one can wellunderstand why no question of separation was raised inthese proceedings. I am not called upon therefore to makeany further observations with regard to it. ”
Although for the same good reason it can be assumed thatMr. Gratiaen, Q. C., also did not make this submission in the PrivyCouncil, Lord Radcliffe in 63 N.L.R. at p. 66 has given the answerto this submission thus :
“ Is then the Abdul Gaffoor Trust a charitable trust ?It was not disputed that to determine this it is necessaryto treat the whole trust income as if it were appropriatedfor the purposes specified in clause 2 (b). This is sobecause the form in which the various trust sub-heads areexpressed is such that no definite sum of money is dedicatedto any one and the power given by sub-head (g) makesit possible for the whole of the income to be carried to areserve fund which could then be expended as from timeto time the Board thought proper in the exclusiveimplementation of. the purposes of sub-head (b). To testwhether any particular trust is a charitable one what mustbe asked is whether the income is bound with certaintyto be applied to charitable purposes, not whether it may beso applied. Unless therefore sub-head (b) itself declares avalid charitable purpose, no part of the Trust comes withinthe exempting provision of the Ordinance. ”
He also said that,
“It was argued with plausibility for the appellants thatwhat this trust amounted to was a trust whose generalpurpose was the education of deserving young people ofthe Islamic faith and that its required public character wasnot destroyed by the circumstances that a preference in theselection of deserving fecipients was directed to be givento members of the Grantor’s own family. Their Lordshipsgo with the argument so far as to say that they do notthink that a trust which provides for the education of asection of the public necessarily loses its charitable statusor its public character merely because members of thefounder’s family are mentioned' explicitly as qualified toshare in the educational benefits or even, possibly, aregiven some kind of preference in the selection. They partwith the argument, however, because they do not considerthat the trust which is now before them comes within thc-range of any such qualified exception. Considering what isin effect the absolute priority to the benefit of the trust
GUNASKKERA, J,—-Abdul CaJJoor. v. Attorney-General
income which is conferred on the Grantor’s own family byclause (i) of sub-head (b), the only fair way to describethis Trust is as a family trust under which the income ismade available to provide for the education or training ofrelatives of the propositus, in this case the grantor himself,provided only that they are young, deserving and of therequired faith. The conditions do not make it the less afamily trust. Such a trust is not a trust of a public charactersolely for charitable purposes. ”
As pointed out by Mr. de Silva, the Deputy Solicitor-General,therefore it is factually incorrect to say that the Privy Councilheld that the trust in clauses 2 (b) (ii) and 2 (b) (iii) in thetrust deed, were good charitable trusts ; and adopting withrespect Lord Radcliffe’s analysis of the various clausesin the trust deed and his conclusion in law thereon, I hold thatit is incorrect in law to say that a part of this trust deed survivedas a good charitable trust.The entire trust fails as a publiccharitable trust and it. cannot remain as a private trust as itoffends against the rule of perpetuities. And so, Mr. de Silva’sfurther submission that*on the resulting trust that occurred theproperty vested back and remained in the deceased settlor,and that this was therefore * property of which the deceased wasat the time of his death competent to dispose ’ (section 6 (a) )is entitled to succeed. I therefore hold that the * trust property ’was liable to be assessed also under section 6 (a).
The second question before us, i.e. whether the gifts inschedules 1 and 2 of the petition are liable to be assessed forestate duty, depends solely on whether the Estate Duty(Amendment) Act, No. 3 of 1948, is applicable to these properties.
This amendment became law^pn 28.1.1948, but it becameoperative as is usual with all tax laws, from the beginning ofthat year of assessment, viz., 1.4.1947, which date was referredto therein as the ‘ operative date ’. The legal effect of theamendment was only to make the period of time necessary forexemption from estate duty of the dispositions made during thedeceased’s life-time in sections 6 (b), 6 (c) and 6 (d) (supra),five years if the death referred to therein occurred after 1.4.1947.Prior to this amendment the period was three years.
As the deceased died on 1.11.1948, well after this amendmentcame into force, any gift made within five years of the date ofdeath, that is in the instant case after 1.11.1943, was liable to beassessed for estate duty in terms of the amended section 6 (d).
Mr. Ambalavaner however contends that this is not so. Hesubmitted that though these gifts were made on 10.4.1944 and
ft UNAS i£ KISH A, J.—Abdul Qqffoor v. Attorney-General
respectively, because the law then was that only giftsmade within three years before 4 death were liable to beconsidered as passing on death ’ under section 6 (d), the donees
took these gifts under that unamended section 6 (d),
they acquired immediately a ‘ vested right to non-
liability ’ if the deceased did not die within threeyears thereafter and, that
as the Amendment does not do so in express terms, it
cannot retrospectively affect these ‘ vested rights ’(section 6 (3) (b) of the Interpretation Ordinance,Cap. 2).'i,
The donor in fact died after three years had passed since thegifts and Mr. Ambalavaner says that these properties cannottherefore be assessed for estate duty. ,
But this entire submission is founded on the wrongassumption that section 6 (d) (then in its unamended form) wasin operation in respect of these properties on 10.4.1944 and4.8.1945. The donor Abdul Gaffoor was very much alive on
and section 6(d) or any other section whatsoever ofthe Ordinance had absolutely no application to any of hisproperties whilst he was alive, and so, on these two dates aswell, whether in his hands before the gifts or in the hands ofthe donees after the gifts. It is self-evident that the Ordinancebegins to apply to properties that belonged to a person onlyafter his death and only if he happens to leave a taxable estate ;necessarily therefore before that event the Statute not being inoperation, it can have no legal force or effect whatsoever norcan it have the remotest application to the properties whichbelonged to him in his life-time. But to sustain his submissionMr. Ambalavaner was'compelled to say that under the Ordinancethe taxable event is not the death of the donor but the givingof the gift by him. To my mind, this is as erroneous as sayingthat the moment a person acquires a property he becomes liableto pay estate duty on it, and I will therefore only say that thisis to me a totally unacceptable submission.
If thus, section 6 (d) was not in operation in respect of thesegifted properties on the dates of the gifts, it follows that thedonees did not as submitted,
take the gifts under that section, or
acquire on the gifts any ‘ vested rights to non-liability ’
under that section.
A further fallacy in this submission is that it assumes that adonee can acquire ‘ vested rights to non-liability ’ on the estate
GUNASEKERA, J.—Abdul CaJJoor v. Attorney-General
of the deceased donor. Estate duty is a tax on propertiesthat comprise the ‘ estate of the deceased ’ and not a tax on adonee of the deceased (section 3). It is, and always remains,primarily a liability or a ‘first charge’ on all the propertieswhich ‘pass on the death’ and that ‘first charge’ goes with theproperty as a liability, to ‘ any person in whom the same (theproperty) is vested in possession by alienation or otherderivative title ’ (section 26). Thus, this condition of liability(or non-liability) does not attach to a donee, qua donee, on thedate he receives a gift ; but a charge on the gifted property mayarise on the death of the donor, and attach to it in the handsof whoever owns and possesses it on that day. The liability topay the duty or ‘ discharge * the property of that tax burden,lies on the owner not because of the gift but on account of thefact of ownership on the date of death. It is therefore incorrectto talk of the donee acquiring ‘ vested rights to non-liability ’as a donee on the date of the gift.
As I have thus held that the taxable event in this case wasthe death of the donor and ^that therefore section 6 (d)began to come into operation in respect of these properties onlyon the date of death of the donor, and that therefore, theunamended section 6 (d) was not in operation in respect of theseproperties on the date of the gifts and could not in any waygive rise to ‘ any vested rights to non-liability ’ in the donees onthe date of the gifts, I need not consider MV. Ambalavaner’sfurther submission that the amending Act could not affect thedonee’s ‘ vested rights ’ retrospectively.
On the same reasoning I regret I cannot accept the distinctiondrawn by my brother Rajaratnam, J. and his finding basedthereon, that the gifts made on 10.4.1944 are not liable to beassessed for duty. As I have held that the unamended section6(d) never had any application to these properties, there canbe no question of any rights to exemption from duty in termsof that section, arising either on 10.4.1944, or three years lateron 10.4.1947. Besides, with all respect, even on our commonview that the taxable event in this case is the death of thedonor, no ‘ vested rights to non-liability' can arise at any timebefore that event, because liability or non-liability to dutycan only be determined according to the law in force on thedate or happening of the taxable event. I
I accordingly affirm the Order and Decree of the DistrictCourt in terms of section 45 of the Estate Duty Ordinance anddismiss this appeal with costs payable to the respondent.
M. F. ABDUL CAFOOR, Appellant and THE ATTORNEY-GENERAL, Respondent