Holding

Life‑insurance policies kept up by the assured, even after assignment, are deemed to pass on the assured’s death and must be aggregated with the general estate; they do not constitute a separate estate under Section 34(3).

Summary

The appellant, P. Venkatarama Reddy, had assigned three life‑insurance policies to his grandchildren during his lifetime but retained possession, continued to pay premiums and loans on them. The revenue treated the policies as part of the deceased’s general estate for estate‑duty purposes, while the appellant argued they should be excluded as property in which the deceased never had an interest and therefore assessed separately under Section 34(3) of the Estate Duty Act, 1953. The Supreme Court examined the deeming provision in Section 14(1) of the Act, which deems money under a policy kept up by the assured for the benefit of an assignee to pass on the assured’s death. Applying the test from Re Hodson’s Settlement, the Court found that the deceased retained an interest in the policies and that, had the assignees disclaimed, the benefit would have reverted to the deceased or his representatives. Consequently, the policies form part of the general estate and must be aggregated for rate‑determination, not treated as a separate estate. The appeal was dismissed.

Issues considered

Whether life‑insurance policies assigned during the settlor’s lifetime but kept up by the assured constitute property of the deceased passing on death under Section 14(1) of the Estate Duty Act, 1953.
Whether such policies fall within the ambit of Section 34(3) as property in which the deceased ‘never had an interest’, thereby requiring a separate estate for duty calculation.
Whether the amounts under the policies should be aggregated with the general estate for the purpose of determining the rate of estate duty.

Legislation cited

Insurance Act, 1938s. 38

Subjects

Estate dutyLife insuranceAssignment of policySection 14(1)Section 34(3)Property passing on deathAggregation of estateResulting trust

Judgment

A P. VENKATARAMA REDDY
v.
CONTROLLER OF ESTA TE DUTY

JULY 20, 1998

B [SUJATA V. MANOHARAND D.P. WADHWA, JJ.]

Estate Duty Act, J953 : Sections 2(15) and (16), J4(J), 34 and 38.

Property-Passing on death-Insured assigned Life Insurance Policies
C during his lifetime to his grandchildren-After such assignment, insured
retained possession of Policies and kept them alive-Insured also repaid
loans or parts thereof on the said policies-Held : In the circumstances of
the case, the said life insurance policies constitute property of the deceased--
Contention that deceased had no interest in the policies after assignment,
rejected
D
Section 34(3)-Property-Passing on death-One "in which the
deceased never had an interest"-Estate duty-Rate of-Determination a/-
Test-Deceased assigned life insurance policies during his lifetime to his
grandchildren-Held: Test laid down in Re Hodson's Settlement, Brookes'case
followed- Prior to assignment deceased had an interest in the policies-
E Hence, amount under the policies liable to be included in the estate of the
deceased, and not assessed separately, for determination of rate of estate
duty.
Words and Phrases:
"Jn which the deceased never had an interest"-Meaning of-Jn the
F context of S.34(3) of the Estate Duty Act, J953.
The deceased-insured has assigned life insurance policies during his
lifetime to his grandchildren. The deceased had retained possession of the
policies and had kept them alive during his lifetime even after the assignment
The deceased also repaid the loans or parts thereof on these insurance
G policies.

In the estate duty proceedings the Assistant Collector of Estate Duty
treated the policies as a part of the main estate of the deceased and levied
estate duty accordingly. The Appellate Tribunal upheld the view of the Assistant
Collector of Estate Duty. The High Court dismissed the appeal filed by the
H appellant Hence this appeal.
806
P.V. REDDY v. CONTROLLER OF ESTATE DUTY 807
On behalf of the appellant it was contended that in view of the A
assignment of the policies to the grandchildren the deceased had no interest
in the policies and, under Section 34 of the Estate Duty Act, 1953 the
policies could not be treated as property passing on death of the deceased
and, therefore, the policies would not constitute a part of the estate of the
deceased; and that even if the policies formed a part of the estate of the
deceased, they should be separately assessed under Section 34(3) of the Act. B

Dismissing the appeal, this Court
.,.
HELD: 1.1. Section 14(1) of the Estate Duty Act, 1953 contains a clear
deeming provision whereby even after the assignment of his policy by the
assured, if the assured keeps up the policy for the benefit of his assignee, c
the insurance policy will constitute a part of the estate of the deceased.
(813-D)
1.2. In the present case, the assignees have not contended that after the
assignment of the policies in their favour, the assignees paid the premium
or any part of the premium on the policies as assigned or the assignees kept
the policies alive. The policies were entirely under the control of the deceased. D
The deceased had taken loans and repaid loans or part thereof on these
.....
insurance policies. It was the deceased who had retained possession of the
policies and had kept them up during his lifetime even after the assignment.
The provisions of Section 14 of the Act are, therefore, directly attracted. The
contention of the appellants that the deceased did not have any interest in the E
insurance policies passing on his death must, therefore, be rejected.
[813-E-G)
CED. v. Bomansha Framji Cama, 170 ITR 600 (Bom), approved.

D. Mohanavelu Mudaliar v. Indian Insurance & Banking Corporation
Ltd., AIR (1957) Mad 115, MCt. Muthiah v. CED, 161 ITR 768 and Bharat F
Kumar Manila/ Dalal v. CED, 164 ITR 231, held inapplicable.

2.1. Only such property passing on the death of the deceased in which
the deceased "never had an interest" will constitute a separate estate under
Section 34 (3) of the Act for the purpose of determining the rate of estate
G
duly. In Re Hodson 's Settlement Brookes v. Attorney General while examining
the application of a similar provision in an English Act to decide whether the
amount under the settlement could be aggregated with the other estate of the
>-
deceased-settler the Court formulated the following test to decide when it
could be said that the property was such that the deceased never had an
interest in it: (815-H; 816-A; 817-C) H
808 SUPREME COURT REPORTS [1998] 3 S.C.R.

A "The test is to ask in whose favour there would be l' resulting trust
of the accumulations in case all the beneficiaries under which the
property passes were to disclaim the benefits conferred on them by
the disposition." 1817-DJ

2.2. If the answer is that the resulting trust would be in favour of the
B deceased or in favour of his representatives as such representatives, the
court would be bound to hold that the property is property of which it would
be untrue to say the deceased never had an interest in it. [817-E]

Re: Hodson 's Settlement, Brookes v. Attorney General, (1939] l ALL
ER 196, referred to.
c
3. Applying the aforesaid test to the present case, prior to the assignment,
the deceased clearly had an interest in the life insurance policies. Even after
the assignment, had the assignees disclaimed their interest in the policies,
the benefit under the policies would have resulted to the deceased or his
D representatives. Therefore, it cannot be said that the deceased never had an
interest in the life insurance policies for the purposes of Section 34(3) of
the Act. The amount under the life insurance policies is, therefore, liable
to be aggregated with the general estate of the deceased for the purpose of
determining the estate duty.1819-A-B]

E P. Leelavathamma v. CED., 188 ITR 803 and Barkat Ali Khan Bahadur
v. CED, 222 ITR 612, relied on.

P. Venkatarama Reddy v. CED, 156 ITR 45 (AP), approved.

Re. Hodson 's Settlement, Brookes v. Attorney General, (1939) 1 All ER.
F 196; Attorney General v. Pearson, (1924) 2 KB 375; Tennant v. Lord Advocate,
(1939) 1 ALL ER 672; Westminster Bank Ltd. v. Attorney General, (1939) 1
Chancery 610 and D' Avigdor GO/dsmaid v. Inland Revenue Commissioners,
(1953) AC 347, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 356-58 of
G 1985.
From the Judgment and Order dated 30.11.83 of the Andhra Pradesh
High Court in C.R. Nos. 159/76, 224/78 and 27 of 1981.

A. Subba Rao for the Appellant.

H T.L.V. Iyer (Tara Chand Sharma) for B.K. Prasad for the Respondent.
":ODY v. CONTl!,OLLER OF ESTATE DUTY [SUJATA V. MANOHAR. J.) 809

Tne Judgment of the Court was delivered by A
MRS. SUJATA V. MANOHAR, J. These appeals arise out of the estate
duty proceedings in respect of the estate of the deceased P. Madhusudhan
Reddy. During his lifetime the deceased had taken out three life insurance
policies of Rs. 50,000 each. Two policies were from the Phoenix Assurance
Company, Bombay and one policy was taken from the Standard Life Insurance B
Company, Calcutta. During his lifetime the deceased had obtained loans on
the security of his two life insurance policies taken out from Phoenix Assurance
.,. Company, Bombay. It seems that the total loan amount was Rs. 78,400. The
deceased had also, from time to time, repaid a part of the loan. The amount
due in respect of the loans so taken at the time of the death of the deceased C
was Rs. 71,250.

During his lifetime on or about 29th of August, 1954 the deceased
executed an assignment in respect of each of these three life insurance
policies in favour of his grand children. The deeds of assignment have been
registered on 27.9.1954. A notice of the assignment was given to the insurance D
company in accordance with the provisions of Section 38 of the Insurance
Act, 1938 and the assignments were registered with the Insurance Companies.

The deceased made a Will dated 4.2.1959 in respect of all his properties.
In his Will, in the list of properties he mentioned, at item no. 30, as follows:
E
"There are three Policies of Life Insurance, as detailed below of Rs.
50,000 each, which are already assigned in favour of my six grandsons
and a grand daughter (i.e. the sons and daughter of my two sons).
I. The Standard Life Insurance Co., Fifty thousand. 2. The Phoenix
Assurance Co., two policies of Fifty thousand each."
F
In the Will, he also mentioned in the list of dues, payment of dues to
insurance companies amounting to Rs. 71,250. Under his Will he provided that
after his death the amount of his three life insurance policies, that is to say,
Rs. 1,50,000 plus bonuses that will be received thereon, should be distributed
equally among his surviving six grandsons and grand daughter in whose G
favour he had already assigned· irrevocably and transferred the policies. He
also provided that ·the dues of the insurance companies (inter alia) should
~ be paid out of the general estate.

In the estate duty proceedings the Assistant Controller of Estate Duty
initially treated the three policies as a separate estate for the purpose of H
810 SUPREME COURT REPORTS (1998] 3 S.C.R.

A calculation of the rate of estate duty. In Appeal, before the Appellate Tribunal
the Tribunal held that each of the three policies should be separately assessed
to estate duty. However, after reopening the assessments the Assistant
Controller of Estate Duty treated the three policies as a part.of the main estate
of the deceased and levied estate duty accordingly. In the several proceedings
B which took place dealing with the initial assessment as well as the reopening
of the assessment, the Appellate Tribunal ultimately held that the two insurance
policies taken out from Phoenix Insurance Company formed a part of the
general estate of the deceased while the third policy constituted a separate
estate. The Appellate Tribunal, however, rectified its order as a mistake and .
ultimately held that all the three policies formed a part of the general estate
C of the deceased and could not be separately assessed.

In respect of these various proceedings, depending on the view then
taken, three sets of questions were framed by the Tribunal and referred to the
High Court in three reference applications which arose from these proceedings.
The three sets of questions are as follows:-"
D
Set No. I.:

"!. Whether on the facts and in the circumstances of the case, the
Appellate Tribunal was justified in law in holding that there should
be separate assessments in respect of each of the three insurance
E policy amounts assigned by the deceased in favour of his grand-
children (At the instance of the Revenue).

2. Whether the loan amount of Rs. 78,400 taken on the insurance
policies by the deceased is liable to be deducted as a debt under
Section 44 of the Estate Duty Act from the general estate as distinct
F from the separate estate of the three insurance policies; and
3. Whether the estate duty payable is liable to be deducted while
computing the net estate exigible to duty?
(At the instance of the accountable person).
Set No. 2:
G
I. Whether on the facts and in the circumstances of the case, the
Tribunal has acted within its jurisdiction in allowing the department's
appeal and reversing its earlier order passed on 27.10.77. ..i,.

2. Whether on the facts and in the circumstances of the case, the
H Tribunal was justified in holding that the amount of Rs. l,39,284 in
, KEDDY v. CONTROLLER OF ESTATE DUTY [SUJATA V. MANOHAR. J.] 811

respect of Standard Life Assurance Co. poticy was to be included in A
the main estate of the deceased under Section 34(3) of the Estate Duty
Act.

3. Whether on the facts and circumstance of the case, the Tribunal
was correct in law in holding that Section 34(3) of the Act was not
applicable. B
Set No. 3:

1. Whether on the facts and in the circumstances of the case, the
Tribunal was correct in holding that the Assistant Controller could·
reopen the assessment under Section 59(b) of the Estate Duty Act? C

2. If the answer to the first question No. 1 is in the affirmative, whether
the two insurance policies could be assessed as separate estates
under Section 34(3) of the Act?"

The High Court by its impugned judgement (reported in 156 !TR 45) has
upheld the ultimate finding of the Tribunal that the three insurance policies D
have to be considered as a part of the general estate of the deceased and they
cannot be aggregated individually or collectively to form a separate estate or
estates for the purposes of calculating the rate of estate duty. The three sets
of questions were accordingly answered in favour of the revenue. The High
Court also upheld the exercise of power in the present case by the Assistant E
Controller of Estate Duty in reopening the assessment and it also upheld the
exercise of power by the Tribunal for rectifying the mistake.

The present appeals are filed from the above impugned judgment of the
High Court. Before us, the question relating to the exercise of power by the
Assistant Controller of Estate Duty for reopening the assessments as also the F
question relating to the power of the Tribunal exercised in the present case
to rectify the mistake, have not been pressed.

In the first set of questions, question no. 3 has been correctly answered
by the High Court against the assessee in view of two decisions of this Court,
one in the case 6f P. Leelavathamma v. Controller of Estate Duty, 188 !TR G
803, and the other in the case of Nawab Mir Barkat Ali Khan Bahadur v.
Controller of Estate of Duty, 222 !TR 612.

The remaining questions deal with two issues; (I) whether after the
assignment of the three insurance policies by the deceased in favour of his
grandchildren, it could be said that the deceased had any interest in the life H
812 SUPREME COURT REPORTS [1998] 3 S.C.R.

A insurance policies which passed on his death; and (2) if the three insurance
policies are held to pass on the death of the deceased whether (i} each of the
three insurance policies should be separately assessed to estate duty or (ii)
the three insurance policies taken together should be separately assessed to
estate duty or (iii) whether the three insurance policies have to be aggregated
B with the main estate of the deceased for the purposes of estate duty.

Under Section 2( 15) of the Estate Duty Act, 1953, "property" includes
any interest in property movable or immovable, and also includes, inter a/ia,
any property converted from one species into another by any method. The
Explanations to Section 2(15) are not relevant for our purposes. Section 2(16)
defines "property passing on death". It includes property passing either
C immediately on death or after an interval; and he phrase "on death" includes
"at a period ascertainable only by reference to the death". Learned counsel
for the appellan!s contended before us that in view of the assignments of the
life insurance policies by the deceased during his lifetime to his grandchildren,
it cannot be said that the deceased had any interest in the life insurance
D policies which could pass on his death. Hence under Section 34 of the Estate
Duty Act, 1953, the life insurance policies cannot be treated as property
passing on the death of the deceased. .,..

He drew our attention to Section 38 of the Insurance Act, 1938. Section
38(1) provides that a transfer or assignment of a policy of life insurance can
E be made only by an endorsement upon the policy or by a separate instrument
in the manner provided there. In sub-section (2) it is provided that the transfer
and assignment shall be complete and effectual upon the executions of such
endorsement or instrument in the manner provided but shall not be operative
as against an insurer and shall not confer upon the transferee or assignee or [
his legal representatives any right to sue for the amount of such policy until
F a notice in writing of the transfer or assignment and either the said endorsement
or instrument itself or a certified copy thereof have been delivered to the
insurer. Under sub-section (5), subject to the terms and conditions of the
assignment, the insurer shall, from the date of the receipt of the notice referred
to in sub-section (2) , recognise the transferee or assignee named in the notice
G as the only person entitled to benefit under the policy, such person shall be
subject to all liabilities and equities to which the transferor or assignor was
subject on the date of the transfer or assignment. Since the deceased had
duly assigned the policies in accordance with the provisions of Section 38
and by com9lying with all its requirements, the assignee alone, it is contended,
had an interest in these policies at the time of the death of the deceased.
H Hence no interest was left in the deceased in respect of these policies which
P.V. REDDY v. CONTROLLER OF ESTATE DUTY [SUJATA V. MANOHAR, J.] 813

passed on his death. A
In considering this contention, one must bear in mind Section 14(1) of
the Estate Duty Act, 1953. It provides as follows:

"14( I): Money received under a policy of insurance effected by any
person on his life, where the policy is wholly kept up by him for the B
benefit of a donee, whether nominee or assignee, or a part of such
money in proportion to the premiums paid, by him, where the policy·
is partially kept up by him for such benefit, shall be deemed to pass
~
on the death of the assured.

Explanation. - A policy of insurance on the life of a deceased person c
effected by virtue or in consequence of a settlement made by t4e
deceased shall be treated as having been effected by the deceased."

The remaining part of Section 14 is not relevant for the present purpose. By
virtue of Section 14(1) money under a life insurance policy which is kept up
by the donee for the benefit of his nominee or assignee is deemed to pass
D
on the death of assured. This is a clear deeming provision whereby even after
. the assignment of his policy by the assured, if the assured keeps up the

- policy for the benefit of his assignee, the insurance policy will constitute a
part of the estate of the deceased.
E
From the Statements of Case which are before us in the three references,
as also the facts found, the assignees have not contended that after the
assignment of the policies in their favour, the assignees paid the premium or
any part of the premium on the policies so assigned or the assignees kept
the policies alive. The policies were entirely under the control of the deceased.
The deceased had taken loans and repaid loans or parts thereof on these F
insurance policies. From the tenor of the will it is apparent that it was the
deceased who had retained possession of the policies and had kept them up
during his life time even after the assignment. The provisions of Section 14
are, therefore, directly attracted in the present case.

The contention of the appellants that the deceased did not nave any
G
interest in the insurance policies passing on his death must, therefore, be
rejected in the light of Section 14. Learned counsel for the appellants drew
~
our attention to a decision of the Madras High Court in D. Mohanavelu
Mudaliar and Anr. v. Indian Insurance and Banking Corporation Ltd.,
Salem and Anr., AIR (1957) Mad. 115. The Madras High Court, however, was H
814 SUPREME COURT REPORTS (1998] 3 S.C.R.

A not concerned with the question whether on assignment of a life insurance
policy by the insurer during his life time, the insurer had any interest left in
the life insurance policy which could pass on his death under the provisions
of the Estate Duty Act, 1953. The Court was concerned with the effect of
assignment and whether a creditor of the insurer could attach the policy
which was already assigned. The provisions of the Estate Duty Act are not
B considered in the judgment.

The appellants also drew our attention to two decisions of this Court
dealing with accident policies. One is a decision in the case of M. CT. •
Muthiah and Anr. v.. Controller of Estate Duty, Madras, 161 ITR 768 and the
c other is the decision in the case ·Of Bharat Kumar Manila/ Dalal v. Controller
of Estate Duty, Gujarat, 164 ITR 231. In the former case, the deceased , prior
to flying by air, took out a personal accident policy under which the insurance
company agreed that if, any time during the currency of the policy, the
deceased should sustain an accident resulting in any injury or injuries leading
to death, the insurance company would pay to the assured or to his legal
D
representatives in the case of his death, such sum as was specified. The
deceased effected a nomination in favour of M. The deceased died following
)-
the crash of the airline in which he was travelling. On his death, the insurance
company paid the nominee M a sum of Rs. 2 lakhs which was the benefit
stipulated to be paid. The question was whether the sum of Rs. 2 lakhs should
E be included in the estate of the deceased as property passing on the death
of the deceased for the purposes of estate duty. This Court held that the
insurance amount became property only on the death of the deceased in an
accident during the subsistence of the policy. During the life time of the
deceased interest was vested totally and irrevocably in the hands of the
F nominee. The death did not cause the property to change hands. Therefore,
the sum of Rs. 2 lakhs was not includible in the principal value of the estate
of the deceased for the purpose of estate duty. This Court also observed that
though it was not necessary to decide the point , had it become necessary
to decide, it would have held that the sum of Rs. 2 lakhs was a separate estate
from the other estate of the deceased. The same view has been taken by this
G Court in the subsequent case of Bharat Kumar Manila/ Dalal (supra). Both
these cases deal with policies of accident insurance where the amount became
payable only on the death of the insurer in an accident. In such a situation, _.__
there was no question of any amount ever coming to the deceased, the
amount under the policy being payable only to a nominee on insurer's death
H in an accident.
Ci

P.V. REDDY v. CONTROLLER OF ESTATE DUTY [SUJATA V. MANOHAR, J.] 815

These cases cannot apply to the present case which deals with A
assignments of life insurance policies. In view of the express provisions of
Section 14, the deceased must be considered to have an interest in these
policies passing on his death for the purposes of estate duty,

In the case of Controller of Estate Duty v. Bomansha Framji Cama and ·
Ors., 170 !TR 600, the Bombay High Court held that the provisions of Section B
14( 1) were attracted in a case where the deceased had settled on trust five
policies of insurance on his life, when the premiums on the said policies after
their assignment under the settlement, were paid by the deceased. The policies
became fully paid up during the life time of the deceased. On his death, the
moneys received by his assignees were held to be property passing on the C
death of the deceased by virtue of Section 14(1 ). The Court said that the
words "kept up" mean that the policy has been and is kept valid by payment
of premiums by the donee and is not allowed to lapse. In the case of a paid
up policy, no further payment of premium is required to prevent it from
lapsing. The past payments of premium kept the policy valid and such a
policy must be considered as having been kept up by the assured for the D
purpose of Section 14.
{

Therefore, the contention of the learned counsel for the appellants that
the policies do not form part of the estate of the deceased must. be rejected.

Under Section 34 of the Estate Duty Act, 1953, for the purpose of E
determining the rate of estate duty to be paid on any property passing on
the death of the deceased, the properties specified in sub-sections ( 1) and (2)
shall be aggregated as provided therein. Sub-section (3) of Section 34, however,
provides as follows:

"34(3): Notwithstanding anything contained in sub-section (1) or sub- F
section (2) any property passing in which the deceased never had an
interest, not being a right or debt or benefit that is treated as property
by virtue of the Explanations to clause (15) of section 2, shall not be
aggregated with any property, but shall be an estate by itself, and the
estate duty shall be levied at the rate or rates applicable i!1 respect of G
the principal value thereof."

It is, therefore, contended by learned counsel for the appellants that
even if the life insurance policies constitute a part of the estate of the
deceased, they should be separately assessed under Section 34(3). Now, only
such property passing on the death of the deceased in which the deceased H
816 SUPREME COURT REPORTS (1998] 3 S.C.R.

A "never had an interest" will constitute a separate estate under Section 34(3) ,,.
for the purpose of determining the rate of estate duty. What is meant by the
phrase "in which deceased never had an interest"? The language of Section
34(3) is similar to the language of Section 4 of the English Finance Act of 1894
as amended by the Finance Act of 1900. Section 4 of the Finance Act, 1894
is as follows:
B
"For determining the rate of estate duty to be paid on any property
passing on the death of the deceased, all properties so passing in
respect of which estate duty is leviable shall be aggregated so as to •
form one estate, and the duty shall be levied at the proper graduated
rate on the principal value thereof:
c
Provided that any property so passing in which the deceased never
had an interest ................ shall not be aggregated with any other
property, but shall be an estate by itself and the estate duty shall be
levied at the proper graduate rate on the principal value thereof
D
In the case of Attorney General v. Pearson and Ors., (1924) 2 K. B. 375
the English Court considered a case where the settler had assigned to trustees
a policy of assurance on his wife, reserving interest for himself until marriage,
and thereafter to hold the moneys payable under the policy in trust to pay
E the income thereof to his wife during her life time and after the decease of
the settlor and his wife, in trust for the children of the marriage as therein
mentioned and if there is no child of the marriage, for the senior absolutely.
The court, inter alia, considered whether the money under the policy should
be aggregated with the other estate of the deceased under Section 4 determining
the rate of estate duty. The court asked, (page 388) "Had the deceased ever
F an interest within the meaning of the Act in the moneys which were to
become payable under the policy"? The court answered, one could not hold
that the deceased never had an interest in this property. "On the contrary he
had an interest in the policies before he settled them. Moreover after he
settled them he had an interest in the benefit which was going to accrue or
G arise from them on his death, though it may have been a remote interest which
he never could enjoy iri possession. He had an interest during all his married
life contingently upon the failure of the trusts in favour of his wife and
children. If his wife and children had predeceased him the legal position
would have altered, but his interest would then have become a very proximate
and extremely valuable interest, and he would have died worth the capital
H value of the insurance money". Of course, on the facts of that case siuce the

[
P.V. REDDYv. CONTROLLER OF ESTATE DUTY [SUJATA V. MANOHAR. J.] 817

settlor had reserved to himself an interest in the eventuality of the failure of A
the trust in favour of his wife and children, it was easy for the court to come
to the conclusion that the deceased had an interest in the insurance money
during his life time.

In Re Hodson 's Settlement, Brookes v. Attorney General, (1939) 1 AER
196 the settlor had vested a trust fund in trustees upon trust that they should, B
if the income were sufficient, pay yearly sum of£ 1,200 to one S during her
life time. He also made certain other settlements under none of which there
was any chance of anything accruing to the settlor. The court, in examining
the application of Section 4 of the Finance Act of 1894 to decide whether the
amount under the settlement could be aggregated with the other estate of the C
deceased-settlor, formulated a test to decide when it could be said that the
property was such that the deceased never had an interest in it. The court
observed (page 210) that in different circumstances different tests may well
be applicable. However, there was one test which was properly applicable to
the facts of the case before it. "That test is to ask in whose favour there
would be a resulting trust of the accumulations in case all the beneficiaries D
under the disposition under which the property passes were to disclaim the
benefits conferred on them by the disposition." If the answer is that the
resulting trust would be in favour of the deceased or in favour of his
. representatives as such representatives, the court would be bound to hold
that the property is property of which it would be untrue to say the deceased E
never had an interest in it.

The test so laid down in this case has been repeatedly applied by the
English courts. In the case of Tennant and Ors. v. Lord Advocate, (I 939) I
AER 672 the deceased effected a policy of insurance on his own life. Later
.. on he assigned the policy to trustees whom he directed, inter alia, (i) to pay F
to his testamentary trustees the proceeds of the policy in satisfaction of all
death duties payable by reason of his death, and (ii) to pay any residue to
his children. On his death the whole proceeds of the policy were paid to the
testamentary trustees for payment of death duties. The House of Lords said
that for the purpose of determining the rate of estate duty, the sum realised G
under the policy bad to be aggregated with the other estate of the deceased.
Lord Russel of Killowen in his judgment observed (page 675): "I feel no doubt
that the deceased had, from the commencement of the policy's existence, an
interest, and for many years the sole interest, in the proceeds thereof. He
could, before the assignation, have assigned or charged the entirety of those
proceeds, and even after the assignation he had a contingent interest therein H
818 SUPREME COURT REPORTS [1998) 3 S.C.R.

A by way of resulting trust, of which he could have disposed inter vivas or by
will. The word 'interest' is a word capable of wide meaning, and I see no valid
reasoning for limiting its scope in Section 4 as was suggested in the course
of the argument. The case is really covered by the decision of Rowlatt, J., in
A-G v. Pearson .........."

B Jn Westminster Bank Ltd. v. Attorney General, (1939) I Chancery 610,
the Court of Appeal in England considered a case where a settlor assigned
to bank as trustee life policy and investments on trust to accumulate the
income of the investment for 21 years or during his life whichever should be
shorter and thereafter ;o hold the settled property on trust to pay the income
C to other persons specified there. Jn considering the application of Section 4
to the amounts so settled by the deceased-settlor, the Court of Appeal
followed the test laid down in Re Hodson 's Settlement (supra) and the decision
of House of Lords in Tennant and Ors. (supra) observing that it was not
possible to predicate regarding policy moneys paid in respect of a policy at
one time belonging to the deceased, that the deceased never had any interest
D in that policy.

Our attention was drawn to a decision of the House of Lords in D 'A
Vigdor-Goldsmidv. lnland Revenue Commissioners, (1953) A.C. 347. In that
case, the settlor, inter alia, appointed a policy taken on his life and other
E settled property being free hold premises to his son absolutely. From the date
of that appointment the premiums previously paid by the settlor were paid by
his son. To the extent of the income from the free hold, premiums thereafter
were paid by the son from such income. The premiums so paid were, by the
Finance Act, 1939, Section 30, attributed to the settlor. The settlor died and
his sgn received under the policy £ 48, 765. The Court, for the purposes of
F Section 2(1)(d) of the Finance Act, 1894, came to the conclusion that the
money received by the son under the policy did not form part of the estate
of the deceased. The question, therefore, of the aggregation of this amount
with other properties of the deceased did not arise for consideration before
the House of Lords in that case. In fact, the decisions in Attorney General
G v. Pearson and Ors., Tennant and Ors. and Westminster Bank Ltd. (supra)
were referred to and it was observed that the issue in those cases was one
of aggregation and, therefore, none of these three cases were directly in point.
The decision, therefore, in D 'A Vigdor-Goldsmid (supra) is not directly relevant
to the issue in the present case.

H Applying the test as laid down in Re Hodson 's Settlement (supra) to the
P.V. REDDYv. CONTROLLER OF ESTATE DUTY [SUJATA V. MANOHAR, J.] 819

present case, prior to the assignment, the deceased clearly had an interest in A
the life insurance policies. Even after the assignment, had the assignees
disclaimed their interest in the policies, the benefit under the policies would
have resulted to the deceased or his representatives. Therefore, it cannot be
said that the deceased never had an interest in the life insurance policies for
the purposes of Section 34(3) of the Estate Duty Act, 1953. The amount under
the three life insurance policies is, therefore, liable to be aggregated with the B
general estate of the deceased.

In view of the above, the other question as to whether the debts under
the three policies should be paid out of the general estate of the deceased
or out of the insurance money does not now survive.
c
In the premises, we hold that the amount under the three life insurance
policies forms a part of the general estate of the deceased and that the
amounts under the three life insurance policies have to be aggregated with
the general estate of the deceased for the purpose of determining the rate of
estate duty. The appeals are, therefore, dismissed. In the circumstances, D
however, there will be no order as to costs.