1. This reference raises a short, but important, question for consideration, whether the extinguishment of a debt or any other right amounts to a disposition in terms of Explanation 2 to sub-section (15) of section 2 of the Estate Duty Act, 1953 (hereinafter referred to as 'the Act'), only if such extinguishment is brought about or suffered by the deceased consciously.
2. The determination of the question posed has to be approached in the light of facts which are not in dispute and can be stated thus :
One Sri T. M.Madappa died on 5th November, 1969. Prior to his death, he had purchased an estate in the names of his sons for a sum of Rs. 1,62,500. He treated Rs. 62,500 as a gift to his sons and the remaining amount of Rs. 1,00,000 as a loan to them under a pronote dated 15th October, 1965. The gift-tax assessment regarding the amount of Rs. 62,500 which was taken on hand by the taxing authorities in the year 1966 was completed in March, 1969. The authorities acting on the affidavit dated 7th February, 1969, filed by the said Madappa, the deceased, and the said pronote regarding the loan of Rs. 1,00,000, excluded the said sum of Rs. 1,00,000 from the assessment of gift-tax. The said deceased had included the said sum of Rs. 1,00,000 in his wealth-tax return as on 31st March, 1969, and had also paid income-tax on interest accrued on the said amount up to 31st March, 1969, although the said loan had already become time-barred on 15th October, 1968.
3. The Assistant Controller of Estate Duty acting in accordance with the provisions of Explanation 2 to section 2(15) and sections 9 and 27 of the Act held that the amount represented by the said loan, i.e., Rs. 1,00,000, was a gift to the sons by the deceased and since the date of the said disposition fell within 2 years of the death of the deceased, the same had to be included in the estate of the deceased that passed after his death, and therefore, he subjected the same to estate duty. Appeal against the said decision at the instance of the accountable person was dismissed by the Appellate Controller of Estate Duty, though on a ground different from the one which had found favour with the Assistant Controller. The Appellate Tribunal differing both from the Assistant Controller as also the Appellate Controller held on the strength of a Division Bench decision of the Madras High Court in Controller of Estate Duty v. Estate of late V. L. Ethiraj : 72ITR860(Mad) that before the extinguishment of a debt or any other right can be held to be a disposition by the deceased in terms of Explanation 2 to section 2(15) of the Act, the said extinguishment should have been brought about by the deceased consciously.
4. The revenue sought the following two questions to be referred to this court :
'(1) Whether the Appellate Tribunal's decision to exclude the sum of Rs. 1,00,000 from the aggregate value of estate of the deceased is correct in law despite the provisions of Explanation 2 to section 2(15) and section 9 and 27 of the Estate Duty Act
(2) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in coming to the conclusion that the deceased had not consciously allowed the debts to get barred by limitation and in holding that the sum of Rs. 1,00,000 representing the loan by the deceased to his sons, was to be excluded from the principal value of the estate ?'
5. The Tribunal, however, referred only the first question which it framed differently and it is in the following terms :
'Whether in view of the provisions of Explanation 2 to section 2(15) and sections 9 and 27 of the Estate Duty Act, 1953, the Appellate Tribunal was right in excluding the sum of Rs. 1,00,000 from the principal value of the estate of the deceased ?'
Since, on facts, the applicability of sections 9 and 27 would depend on the applicability of Explanation 2 to section 2(15) of the Act, the latter provision, therefore, deserves to be noticed at the very outset for ease of reference. It reads :
'Explanation 2. - The extinguishment at the expense of the deceased of a debt or other right shall be deemed to have been a disposition made by the deceased in favour of the person for whose benefit the debt or right was extinguished, and in relation to such a disposition the expression 'property' shall include the benefit conferred by the extinguishment of the debt or right.'
6. It has been urged on behalf of the revenue that to render an extinguishment of a debt or a right, into a disposition by the deceased in terms of Explanation 2 to section 2(15) of the Act, it is necessary that the extinguishment in question should be brought about or suffered by the deceased consciously or by a design. In support of the about submission, the learned counsel relied upon a decision of the Court of Appeal in In re Stratton's Disclaimer : Stratton v. Inland Revenue Commissioner  34 ITR 47; 3 EDC 830 (CA) and has drawn our pointed attention to the following observation of Jenkins L.J., who delivered the opinion of the court (pages 59,60) :
'I cannot accept the view that, in referring to 'the person for whose benefit the debt or right was extinguished,' section 45(2) means any more than the person for whose benefit the extinguishment of the debt or right operated. I find it impossible to hold that the section requires it to be shown not only that some person benefited in fact but also that, in bringing about or suffering the extinguishment, the deceased was actuated by the intention, purpose or desire of benefiting that person. The motive or purpose of the deceased appears to me to be immaterial, provided the transaction was gratuitous and did, in fact, benefit the other person concerned.
In the vast majority of cases there would no doubt be an intention on the part of the deceased to benefit the person in fact benefited by the transaction, and it is clear that to bring a case within section 45(2) it must be shown that some person did in fact benefit.
It is also true to say that the effect of the referential operation of section 45(2) is (as indicated by the sidenote) to bring the transactions to which it relates into the category of gifts inter vivos taxed under section 2(1)(c) of the Act of 1894; and, as the judge observed, gifts involve the relationship of donor and donee.
But, to take the ordinary case of a gift inter vivos, it seems to me to be plain that where a donor gratuitously transfers property to a donee so as to constitute the donee beneficial owner of the property transferred, there is a gift of that property to the donee whatever the motive, purpose or intention of the donor may have been.
A man may (for instance) give his property to a charity not because he wants to benefit the charity but because he wants to prevent some other person from getting it. There can be no doubt, however, that the disposition in favour of the charity would be a gift.
The same would, to my mind, be the case where the gift proceeded from motives other than of benefiting the donee such as those instanced by the judge (See  Ch 132; 32 ITR 46); 'it might be because the legatee did not wish to receive any benefit from a testator because he or she regarded the property as tainted in some way or other, or had a personal dislike for the testator or something of that kind.'
Returning to the language of section 45(2), I cannot find in it any indication that the subsection is only to apply where the right is extinguished for the purpose or with the intention of benefiting some other person. It assumes that some person will in fact benefit and creates a notional disposition in favour of that person as the person for whose benefit the right is extinguished. If the subsection had been meant to apply only where a positive intention to benefit some person, as well as a benefit to him in fact, can be found, I think it would inevitably have contained some reference to intention. The word 'for' in the phrase 'for whose benefit' seems to me to connote result rather than intention, and I cannot regard it as sufficient to introduce into the subsection the requirement of intention to benefit as well as benefit in fact.'
7. The learned counsel for the revenue has also pressed into service the following passage from Dymond's Death Duties (Fifteenth edition) :
'It is thought that 'extinguishment' may be brought about by passive inaction, such as lapse of time or failure to apply, as well as by active steps......'
8. The provision of section 45(2) of the Finance Act, 1940, which came up for consideration in Stratton's case 1958 34 ITR 47 is in pari materia with the provision of Explanation 2 of section 2(15) of the Act. It reads :
'45. (2) The extinguishment at the expense of the deceased of a debt or other right shall be deemed for the purposes of the said enactments to have been a disposition made by the deceased in favour of the person for whose benefit the debt or right was extinguished, and in relation to such a disposition the expression 'property' in the said enactments shall included the benefit conferred by the extinguishment of the debt or right.'
9. The learned judges of the Madras High Court who decided Controller of Estate Duty v. Estate of late V. L. Ethiraj : 72ITR860(Mad) , which had been relied upon by the Appellate Tribunal, sought to distinguish Stratton's case  34 ITR 47 by merely observing that in that case the court had not to consider whether an extinguishment of a debt or other right by operation of law would be within the ambit of the Explanation. The Madras High Court also found itself unable to agree with the passage referred to above from Dymond's Death Duties pressed for consideration before that court also by the revenue and took the view that inaction on the part of the deceased would not constitute an extinguishment in terms of Explanation 2.
10. With respect to the learned judges, we do not think that Stratton's case  34 ITR 47 could be explained away on that ground for even in the case which was before the Madras High Court as also the case before us, the extinguishment of the debt or right is not by operation of law in the sense that a law promulgated by the competent authority extinguished a debt or a right. The law of limitation or some such law does not fall in the category of such a law, for the law of limitation is being brought into the picture by the inaction of a party, in the present case, the deceased, to sue for recovery of the debt in time, while the law extinguishing a debt or right that would not fall within the Explanation of sub-section (15) of section 2, would be a law which would do so without the party contributing to that and, in any manner, or even being opposed to the passing of a law which would operate to extinguished the debt or right.
Hence, with great respect to the learned judges of the Madras High Court, we find ourselves unable to agree with the view taken in Ethiraj's case : 72ITR860(Mad) , for one thing the legislature had not disclosed any intent that the action or inaction of the deceased bringing about extinguishment of a debt or other right in terms of Explanation 2 must be actuated by a conscious intention to cause such an extinguishment, and for another, the acceptance of the interpretation which the Madras High Court in Ethiraj's case : 72ITR860(Mad) has placed on the language of Explanation 2 in question, would tend to defeat the very purpose of the incorporation of the fiction in question in that Explanation which, in our opinion, was intended by the legislature to prevent the property represented by the debt or right (subject-matter of extinguishment) from escaping the liability of payment of estate duty.
11. Limiting ourselves to the facts of the present case, it has to be seen as to what could be the import of the expression 'conscious inaction' used in the Madras High Court judgment. Without attempting to be exhaustive, it could mean that the deceased was ignorant of the law of limitation or that he was, for some reason, unable to take civil action for recovery of the debt. In either of the situations, if he had tried to recover the loan amount after it became time-barred, he could not have successfully maintained the suit for recovery, either by pleading ignorance of law or any other kind of his inability to bring the suit earlier.
12. On behalf of the respondents, the learned counsel, Mr. Bhat urged, relying on the following decision in Commissioner of Income-tax v. Nathimal Gaya Lal : 89ITR190(All) [FB] :
'Moreover, as section 25A(3) is a provision which creates a legal fiction, we have to interpret the provision in such a manner as would not work injustice to a party, for even when the court steps into the world of legal fantasy, the principle of equity and justice cannot be lost sight of as has been said in Lachminarain v. Munni Lal  ALJ 821 , where one of us, speaking for the court, observed as under : 'Fiction is a conscious error, a deliberate falsehood. It can, therefore, never attain apotheosis, nor can it be used to work injustice. As an illustration, the fiction of corporate personality has never been used to conceal the fraud or illegality committed by the agents of a corporation. Courts may use a legal fiction as a crutch to help reach justice.'
13. According to Blackstone :
'.... these fictions of law though at first they may startle the student, he will find upon further consideration to be highly beneficial and useful; especially as this maxim is ever invariable observed, that no fiction shall extend to work an injury, its proper operation being to prevent a mischief or remedy an inconvenience that might result from the general rule of law. So true it is, that in fiction juris semper subsist it acquits (in a fiction of law equity must always subsist) (Blackstone's Commentaries, abridged by George Chase, Fourth edition, page 637).'
14. Stone J. said :
'While fictions are sometimes invented in order to realise the judicial conception of justice, we cannot define the costitutional guarantee in terms of a fiction so unrelated to reality without creating as many tax injustices as we would avoid' : Curry v. McCanless 83 L Ed 1339 : see also G. L. Helvering v. Stockholmes Enskilda Bank 79 L Ed 211.' that the fiction should not be allowed to work injustice.
15. We do not think that such is the case here for the fiction embodied in Explanation 2 does not inflict any injustice either on the deceased or his heirs.
16. For the reasons stated, we hold that the extinguishment of a debt or any right brought about by the inaction or action of the deceased and whether such inaction or action was conscious or unconscious would amount to a disposition in terms of Explanation 2 to section 2(15) of the Act.
17. In view of the above, we answer the question in the negative and in favour of the revenue and hold that the Appellate Tribunal was not right in excluding the sum of Rs. 1,00,000 from the principal value of the estate of the deceased.
18. In the circumstances of the case and since the question of law has arisen for the first time, we order the parties to bear their own costs.