Introduction

• Doctrine of accumulation is a way to restrain the enjoyment of property. Put differently, it would imply restricting the favorable use and pleasure derived from the property.
• The provision for Direction for accumulation is provided under Section 17 of the Transfer of Property Act, 1882 (TPA).

Section 17 - Direction for Accumulation

• (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 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.

For Example:

• A transfers his property in favour of B for life with the condition/direction that the income of the said properties shall be accumulated during A’s life and shall be given to C is a valid direction of accumulation.

Rule Against Accumulation Explained

• As per Section 11 of TPA, any condition which is repugnant to the interest created or which restraints the enjoyment of property which was transferred absolutely is void and in operative.
• The direction of accumulation of income is a kind of condition which is contrary to the interest created or limiting the right to enjoyment in favour of the transferee to whom the property is transferred absolutely.
• Section 17 of TPA is an exception to Section 11 as it permits a direction of accumulation of income to operate in certain cases. But Section 17 and 11 are different in terms as Section 11 is only applicable in cases of transfer of absolute interest whereas section 17 is applicable to all kinds of transfer.
• Direction of accumulation of incomes and profits of property transferred as per the terms of TPA as a separate fund means postponing the transferee’s right of beneficial enjoyment of the property transferred.
• Like the postponement of vesting of interest is discouraged under Section 14 (rule against perpetuity) the postponement of transferee’s right of beneficial enjoyment of property is also discouraged under Section 17 (direction against accumulation) of the Act.
• Section 14 fixes the maximum permissible limit for postponing the vesting of interest and Section 17 prescribes the maximum permissible period up to which income and profits of the property transferred can be accumulated. Section 17 allows accumulation of income during either of the two following periods:
  • The life of the transferor
  • Period of 18 years from the date of transfer (whichever is longer one).
• Therefore, any direction or condition which makes accumulation of income is beyond the prescribed period shall be held void. The result will be that at the end of the last-mentioned period (permissible postponement) the property together with the incidental benefits shall go to the transferee.

Exceptions

• Payment of Debts
  • If the purpose of the accumulation is payment of debt incurred by the transferor or anyone having interest in property, then Section 17 shall not be applicable in that case.
• Raising Portions
  • Raising portion means providing for a portion of income for maintenance. If the purpose of the direction of accumulation of income on the property transferred is providing maintenance to the children or remoter issue of the transferor or any other person interested in transfer.
• Preservation of Property
  • In case the income of property was directed to be accumulated for the purpose of preservation and maintenance of the property so transferred then also section 17 will not have application.

Concept under English Law

According to the English Law of Property Act, 1925, the income may be accumulated during any of the following periods: -

• The life or lives of the transferor or transferors.
• 21 years from the death of the transferor.
• During the minority of any person living at the death of the transferor.
• During the minority of any person, who would be entitled to the property, if he was of full age.