RULE AGAINST ACCUMULATION 'OR' DIRECTION FOR ACCUMULATION

Transfer of property Act, 1882

TANMOY MUKHERJEE INSTITUTE OF JURIDICAL SCIENCE

Dr. Tanmoy Mukherjee

[Advocate]

RULE AGAINST ACCUMULATION 'OR' DIRECTION FOR ACCUMULATION [Section 17 of the Transfer of Property Act, 1882]-

Tanmoy Mukherjee

[Advocate]

The term 'Accumulation' literally means "increase of principal by re-investment of interest". Section 17 of the T.P.Act, 1882 speaks about the "Accumulation of Income of Property or Direction for Accumulation".

A direction for accumulation of income is a particular mode of restraining the enjoyment of property. According to the principle embodied in Section 11 such direction for accumulation would be void and inoperative. But this section provides an exception to Section 11 and permits a direction, for accumulation of income to operate in certain cases.

(1) Where the terms of a transfer of property direct that the income arising from the property shall be accumulated either wholly or in part during a period longer than-

(a) The life of the transferor; or

 (b) A period of eighteen years from the date of the transfer, such direction shall, save as hereinafter provided, be void to the extent to which the period during which the accumulation is directed exceeds the longer of the aforesaid periods, and at the end of such last mentioned period of the property and the income thereof shall be disposed of as if the period during which the accumulation has been directed to be made had elapsed.

(2) This section shall not affect any direction for accumulation for the purpose of-

(a) The payment of the debts of the transferor or any other person taking any interest under the transfer; or

(b) The provision of portions for children on remoter issue of the transferor or of any other person taking any interest under the transfer; or

(c) The preservation or maintenance of the property transferred; and such direction may be made accordingly.

-Law prevents the storage of wealth for an unreasonable period of time by devices calculated to thwart the flow of property through the normal channels of transfer and succession.

The direction for accumulation of income of property is a particular mode of restraining the enjoyment of the property, which permits a direction for accumulation of income during either of the following two cases-

(i) The life of the transferor; or

(ii) A period of 18 years from the date of transfer (whichever is longer one)

Example-

A transfers property to B in 1940 with a direction that the income arising out of the property is to be accumulated till 1970 (i.e. for 30 years). A dies in 1965. The period during which the transferor is alive is more than 18 years from the date of the transfer, but being the longer of the two periods, the direction is valid till 1965. If, however, the transferor dies in 1950, then longer period would be 18 years and accordingly, the direction would remain valid till 1958.

Reference cases-

The Rule against Accumulation under Section 17 of the T.P.Act is based on the leading English case-

Theluson vs. Woodford, 32 ER 1030 (H.L) –

T bequeathed his property upon trust to accumulate the income during the lives of his three sons and of all their descendants who might be living at his death and after the death of the last survivor of them to be divided among the then living eldest male descendants who might be living at his death and after the death of the last survivor of them to be divided among the then living eldest male descendants of his three sons. It was held that the direction regarding accumulation was valid, as it did not contravene the rule against perpetuity although the income might be placed beyond the reach of human enjoyment for a very considerable time.

Exceptions-

 Section 17 is subject to the following three exceptions:

 (i) Payment of Debts.

(ii) Provision of portions or Accumulation for raising portions.

(iii) Preservation and maintenance of the property.

(i) Payment of Debts-

 A direction for accumulation for the purpose of the payment of the debts of either of the transferor or the transferee is valid. A makes a gift of a house to B. The income arising from the house is Rs.200 per month. A gives a direction that the rent of the house, Rs.200 should be applied in the payment of debts of A, amounting to Rs.50, 000. The direction is valid.

(ii) Provision of portions or Accumulation for raising portions:

The word 'portion' ordinarily means a share and points to the raising of something out of something else for the benefit of some children or class of children. It does not apply to the making of additions of income to capital in order to increase the capital for the person to whom it is given.

(iii) Preservation and maintenance of the property –

 Any direction for accumulation of income for the purpose of preservation or maintenance of the property transferred is beyond the purview of section 17 (1). The provision should be to maintain the property and its present value. Thus a fund to meet dilapidations at the end of a lease is within the exception at the end of a lease is within the exception. Directions to devote surplus income for maintaining building in a proper state of repair or to apply a fixed annual income to keep up and insurance policy to replace the capital lost by not selling leaseholds are outside the role against accumulation though they add income to capital, they merely keep up the property and do not add to it, so that there is no true accumulation they must be confined to the perpetuity period.