Page 1 :
1 RULE AGAINST ACCUMULATION 'OR’ DIRECTION, FOR ACCUMULATION, [Section 17], 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-, Scanned by Scanner Go
Page 2 :
E.g.: A transfers property to B in 1940 with a direction that, (ii) a period of 18 years from the date of transfer (whichever, the income arising out of the property is to be accumulated till, 64, Lectures on Transfer of Property Act, (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-, (i) the payment of the debts of the transferor or any other, person taking any interest under the transfer; or, (ii) the provision of portions for children or remoter issue of, the transferor or of any other person taking any interest, under the transfer; or, (iii) 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 tìme 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, is longer one), a, Scanned by Scanner Go
Page 3 :
Transfer for Benefit of Unborn Person, 65, 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., 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, of debts of A, amounting to Rs.50,000. The direction is valid., рayment, (ii) Provision of portions or Accumulation for raising, portions: The word 'portion' ordinarily means a share and points, ТРА- 5, Scanned by Scanner Go
Page 4 :
66, Lectures on Transfer of Property Act, to the raising of something out of something else for the benefit of, seme 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, at its present value. Thus, a fund to meet dilapidations 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 an insurance policy to, replace the capital lost by not selling leaseholds are outside the, rule against accumulations 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 perpetulty, period., Scanned by Scanner Go
