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Pingle Madhusudhan Reddy Vs. Controller of Estate Duty - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCase Referred Nos. 159 of 1976, 224 of 1978 and 27 of 1981
Judge
Reported in[1985]156ITR45(AP)
ActsIncome Tax Act, 1961 - Sections 147; Estate Duty Act, 1953 - Sections 34(3), 59 and 61
AppellantPingle Madhusudhan Reddy
RespondentController of Estate Duty
Appellant AdvocateS. Dasaratharama Reddy, Adv.
Respondent AdvocateM. Suryanarayana Murthy, Standing Counsel
Excerpt:
.....section 147 of income tax act, 1961 and sections 34 (3), 59 and 61 of estate duty act, 1953 - life insurance policies obtained by deceased - whether proceeds of policies should be aggregated with general estate of deceased for determination of rate to ascertain duty payable under act - high court observed that if 'disclaimer test' is to be applied after assignment answer is obvious and no discussion is necessary to show that assured had interest in proceeds of three policies - interest devolves on legal representative of deceased - history of loans on evidence of representative shows assured had 'interest' in policies and such property passed on death of deceased - held, insurance policies have to be aggregated under section 34. - motor vehicles act (59 of 1988)section 149 (2): [v...........venkatrama reddy, who died on june 3, 1965. the questions in the reference relate to three life insurance policies obtained by the deceased. two of the policies relate to a company, by name, phoenix assurance company (bombay company); the third, relates to the standard life insurance company (the calcutta company). the question principally is : whether the proceeds of the policies should be aggregated with the general estate of the deceased, for determination of rate to ascertain the duty payable under the act. 2. the three policies the assured obtained for rs. 50,000 each. on the bombay policies, the assured on october 13, 1941, and, for the second time on october 15, 1981, (sic) had taken loans from the bombay company. from the statement of facts, it is not known what sums were.....
Judgment:

Raghuvir, J.

1. The above three reference are made to this court under the E.D. Act, 1953 (34 of 1933) (the Act), relevant to the estate of Pingle Venkatrama Reddy, who died on June 3, 1965. The questions in the reference relate to three life insurance policies obtained by the deceased. Two of the policies relate to a company, by name, Phoenix Assurance Company (Bombay company); the third, relates to the standard Life Insurance Company (the Calcutta company). The question principally is : Whether the proceeds of the policies should be aggregated with the general estate of the deceased, for determination of rate to ascertain the duty payable under the Act.

2. The three policies the assured obtained for Rs. 50,000 each. On the Bombay policies, the assured on October 13, 1941, and, for the second time on October 15, 1981, (sic) had taken loans from the Bombay company. From the statement of facts, it is not known what sums were borrowed. On the Calcutta company policy, the assured obtained on June 8, 1933, a sum of Rs. 30,000 and on November 17, 1951, another sum of Rs. 58,000. The undischarged debts on the policies were ascertained to be 71,250. The assured, during his lifetime, on September 27, 1954, assigned interest in the policies to his seven grandchildren. The last testament of the deceased was executed on February 4, 1959, and in that, the testator directed that the undischarged debts on the insurance policies be paid from his general estate and not from the proceeds of the policies.

3. The accountable person submitted the return of March 30, 1973. On March 12, 1975, the value of the deceased's estate, at first, was determined in the amount of Rs. 13,51,296. This sum was varied, in the course of the proceedings, once to Rs. 12,28,010 and again re-fixed at Rs. 14,32,813. The variations were as a result of orders passed by the authorities affecting the three insurance policies. The question was, whether these policies should be aggregated for purposes of rate of duty payable under the Act, or, whether the insurance policies are to be separately assessed. Further, whether the undischarged loan amount of Rs. 71,250 be deducted from the proceeds of the policies. It is convenient to took at the subject of references from the standpoint of orders of the Appellate Tribunal for answering the questions.

4. On March 12, 1975, the Tribunal held that the three insurance policies are to be separately assessed. The amounts in the policies are not to be aggregated for rate under s. 34 of the Act. The debts arising out of the three policies were orders to be deducted from the proceeds of the policies. Three question thereupon were referred to this court in the first of the three references. One among them was at the instance of the Revenue - whether separate assessment of these policies was proper. The two questions were made at the instance of the accountable person - whether the loan amount of Rs. 71,250 be deducted from the general estate; the payment of duty exigible under the Act. whether to be deducted from the estate of the deceased.

5. On August, (or October) 18, 1975, the Assistant Controller of Estate Duty, it is stated in the course of a discussion with the Revenue representative, was 'informed' that the correct method was to aggregate the proceeds of the policies with the general estate of the deceased. The relevant law was indicated in a Gujarat decision showing two tests laid; one (for short) we refer as 'disclaimer test'; the other, 'test of benefits'. We will return to this subject later with more details. Assessments were thereupon reopened. The proceeds of the policies were aggregated with the general estate. The Tribunal on October 27, 1977, confirmed the order of reopening of the assessments. On facts relevant to the Calcutta policy, it was held, since the assured was not shown to have 'exercised interest', the Calcutta policy was ordered to be assessed separately. Relevant to assessment, two questions are referred - whether the reopening of assessment was proper and whether the proceeds of the Bombay policies were to be aggregated was proper and whether the proceeds of the Bombay policies were to be aggregated. Close on the heels of the order of April 30, 1979, the Tribunal stated it had made 'mistake' affecting the Calcutta policy. The Tribunal rectified the 'mistake' and aggregated also the proceeds of the Calcutta policy. Relevant to the 'mistake', three questions are referred, one repeating the question of aggregation under s. 34 of the Act. We find it is convenient to deal with the entire subject in the three reference together and indicate our answers at the end of the order.

6. Section 34 of the Act enables aggregation of insurance policies for determining the rate of duty. To be precise, under clause (1) of the section : Whether Bombay and Calcutta policies fall within the expression, 'property passing on the death of the deceased', is the issue to be determined. The above words are defined in clause (16) of s. 2 in the act to state property, if passes on the death of the deceased, and if it does with reference to the date of death has to be aggregated. In s. 14 of the Act, 'policies kept up for the a donee' are dealt with and certain fictions are incorporated in the sections to when a policy is to be kept up; as to when a policy is deemed to pass on the death of the assured. Adverting to clause (16) of s. 2 and s. 14 of the Act, it is argued by the accountable person, the assured had no interest in the policies for he had assigned his interest on September 27, 1954, infavour of his seven grandchildren and, therefore, proceed of the policies, cannot be aggregated : Whereas, from the standpoint of the history of the loans raised by the assured, payments made in discharge of the loans, according to the Revenue, show that the assured retained and had 'interest' in the policies. The policies, per force, of their history and evidence on record, have to be aggregated, as the amounts in the policies passed on the death of the assured. This is the broad range of controversy.

7. In the reported decision, cases relevant to aircraft accidents, where such a controversy was decided, were referred. The decision, however, have not directly dealt with the instant question. In Smt. Lakshmisagar Reddy v. CED : [1980]123ITR601(AP) , a captain of an aircraft died in an air accident. Compensation was paid to his legal representative under the Indian Airlines Corporation Employees' Service Rules and Establishment orders. The amount of compensation was ordered to be aggregated with the general estate of the captain. This court applied the test of 'beneficial interest' (for short) and answered the reference. It was held, the captain had no beneficial interest on the date of the accident in the amount paid to his legal representatives. The case in CED v. A. T. Sahani : [1970]78ITR508(Delhi) is another case of aircraft accident; in that, an employee of the Indian Airlines Corporation died. The compensation was paid to the legal representatives under the Indian Airlines (Flying Crew) Services Rules (rule 159). The test of 'benefits' was applied, viz., 'whether the employee had any beneficial interest' and the question of aggregation was decided by answering such a test. In the third case in CED v. Kasturi Lal Jain , a passenger in an aircraft died in an accident. Compensation was paid to his legal representatives under the Indian Carriage by Air Act, 1934. It was held, 'the property did not come into existence', at the time of accident and, therefore, compensation amount, it was held, was not the estate of the passenger, In this case, it may be stated, the test of 'beneficial interest' was not applied, but the issue was considered from the standpoint of 'existence of the property'. Another case of aircraft accident is in CED v. Smt. Motia Rani Malhotra . That case is also of a passenger who died in an air accident. This case again was considered from the point of whether the property 'was in existence so as to pass on the death' to devolve on to the successors. The fifth case of air accident is in Muthiah (M.C.T.) v. CED : [1974]94ITR323(Mad) The question in this case arose under an insurance accident policy. It was held, the passenger had no 'interest' in the lifetime of the assured in the money paid to his successors. Another case in Smt. Amy F. Antia v. Asst. CED : [1983]142ITR57(Bom) relates to air accident death of a passenger where legal representatives of air-passenger were paid money under a group insurance policy taken out by the employer. The question was answered to hold, the assured was 'possessed of the property' and he was held 'competent to dispose of the property' and on that basis that question was answered.

8. It is seen, like questions under s. 4 of the Finance Act, 1804, arose in the United Kingdom. The question of aggregation was determined in Attorney-General v. Pearson [1924] 2 KB 375. In this case, the insurance policies were held to fall within the first part of s. 4. The test was specified to hold, whether the deceased 'had no living interest in the policy'. The question thus was answered from 'living interest' of policy. The word 'interest' in that case was stated to contain 'well-understood legal meaning'. This method of approach of determining 'interest' in insurance policy was approved by the House of Lords in the case of Tennant v. Lord Advocate [1939] 1 All ER 672; [1939] AC 207. The case in Bharatkumar Manilal Dalal v. CED : [1975]99ITR179(Guj) was yet another case where it was held that the assured had 'interest', in the insurance policies. Policies, therefore, were ordered to be aggregated, following another (different) test. This was the case which let to 'reopening' of assessments on August 18 (or October), 1975. The Asst. Controller reopened the assessment after discussion with the revenue representative. In that case, the test of 'disclaimer' was adopted by the Gujarat High Court, adumberated in the decision in Hodson's Settlement, In re : Brookes v. Attorney-General [1939] Ch. 343; [1939] 1 All ER 196 . The test of disclaimer was adopted to determine whether the deceased had or had not any 'interest'. One question should be asked, so it is stated in that test : 'In whose favour there would be a resulting interest if all the beneficiaries were to disclaim ?'. The answer, if it shows on facts, the policy amounts revert to legal representatives. Then, it was held, the deceased had interest in the property. This test, it is seen, is different from the 'existence' of property test or the test referred, for short, as 'beneficial interest' test.

9. In the instant case, it is argued by the accountable person, that 'there is difference between policy money that is paid after the death of the assured' and the 'very policy', therefore, it is argued, the assured had no interest in the three policies. This difference is profferred for acceptance from the standpoint of an editorial note contained in Estate Duly Cases, 1986-58, vol. 2, p. 683 where the difference adumbrated by the accountable person is referred to as 'interest provided by the settlor was the policy moneys and the policy itself'. The distinction is obscure; As to how such a distinction leads to the determination of question of 'interest' of the assured is not clear in the note.

10. To sum up the facts relevant to the policies : the policies on September 29, 1954, were assigned to the seven grandchildren of the assured. If the 'disclaimer test' is to be applied after the assignment the answer is obvious and no discussion is necessary to show the assured had interest in the proceeds of the three policies, for in that test, the interest devolves on the legal representative of the deceased. The history of loans an the evidence of representative of the shows, the assured had 'interest' in the policies and such a property passed on the death of the deceased.

11. The next question relates to the order of reopening of assessment. The Assistance Controller of Estate Duty, his order on August 18 (or October), 1975, states, during discussion with a representative of the Revenue, he was 'informed' that the correct approach or correct application of the 'law' was to aggregate the policies with the general estate of the deceased. This 'information' led to the reopening the assessment. The decision in Bharatkumar Manilal Dalal v. CED : [1975]99ITR179(Guj) was the decision referred to and the policies were aggregated. It is argued by the accountable person, the circumstances referred to by the Assistant Controller do not constitute 'information' within the meaning of s. 59 of the Act and, therefore, the confirmation order of the Tribunal was in error in accepting 'the circumstances' as 'information' within the meaning of s. 59 of the Act. Section 59 corresponds to s. 34 of the Indian I.T. Act, 1922, and s. 147 of the I.T. Act 1961. The cases arising under s. 147 recently are fully reviewed in Indian and Eastern Newspaper Society v. CIT : [1979]119ITR996(SC) and numerous decisions of the State High Courts and a decision of the Supreme Court, it was held, did not lay down correct law. The correct 'law' it was pointed out, ordinary, 'law' is to include 'norms or guiding principles having legal effect an legal consequence.....Law may be statutory law or judge-made law....'. 'The declaration set forth in the judgment or exposition in itself bears the character of law.'

12. In the instant case, the Assistant Controller followed the declaration set forth in the judgment in Bharatkumar Manilal Dalal v. CED : [1975]99ITR179(Guj) where disclaimer's test was referred to. Applying the tests to the facts of the case, therefore, he construed, discussion with the Revenue representative resulted in 'information' within the meaning of s. 59 of the Act.

13. The view of the Assistant Controller was confirmed by the Tribunal. We hold, the Assistant Controller was not in error to have construed the decision in Bharatkumar Manilal Dalal v. CED : [1975]99ITR179(Guj) indicating the correct view of law. Reopening of the assessment therefore was not improper. It is in this regard, the learned counsel cited various decision of the State High Courts touching on the word 'information' in s. 59. All decisions were cited and reviewed in the case, Indian and Eastern Newspapers Society v. CIT : [1979]119ITR996(SC) . Therefore, we do not think it is necessary to refer to them as that will merely add t the bulk of the judgment.

14. The next question is with regard to the order of the Tribunal of April 30, 1979, relevant to a mistake in the order of October 27, 1977, of the Tribunal. The evidence relating to the loans obtained by the assured, in the order, was referred : One on June 8, 1933, for a sum of Rs. 33,000 and the assured has repaid the loan. The other loan on November 17, 1951, in the sum of Rs. 58,000 was obtained by the assured and was repaid. The Tribunal, as to this evidence, stated, 'we have overlooked the evidence on record and gave an erroneous judgment' and rectified the mistake by their order on April 30, 1979. The rectification order was issued by the Tribunal under s. 61 of the Act which corresponds to s. 35 of the Indian I.T. Act, 1922, and s. 254 of the I.T. Act, 1961. Section 61 of the Act enable 'rectification of any mistake apparent from the record'. The analogous provisions of the I.T. Act, viz., the words 'mistake apparent on the record' in Balaram ITO v. Volkart Brothers : [1971]82ITR50(SC) were interpreted. The Supreme Court in this case left open the question of distinction in the expression 'error apparent on the face of the record' and 'mistake apparent on the face of the record'. The decision shows what constitutes 'mistake'. In the instant case, the evidence on record was ignored by the Tribunal and the order of the Tribunal stated that there was a mistake. It is not argued that there was no evidence available on record leading to the rectification of the mistake and, therefore, we hold s. 61 enabled the Tribunal to rectify the mistake.

15. Following the discussion, we answer the questions referred in the three references :

R.C. No. 159 of 1976

Q. Whether, on the facts and 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 policy amounts assigned by the deceased in favour of his grandchildren (at the instance of the Revenue) : A : The Tribunal was not justified to order separate assessments. The answer, in favour of the Revenue : Q. 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 s. 44 of the E.D. Act from the general estate as distinct from the separate estate of the three insurance policies : A : In view of the earlier answer, this question does not arise : so need not be answered. Q : 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) A : This question is covered against the accountable person in CED v. Estate of Late Omprakash Bajaj : [1977]110ITR263(AP) .

R.C. No. 224 of 1978 :

Q. Whether, on the facts and in the circumstance of the case, the Tribunal was correct in holding that the Assistant Controller could reopen the assessment under s. 59(b) of the Estate Duty Act A : The answer is in the affirmative in favour of the Revenue : Q : 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 s. 34(3) of the Act A : The insurance policies have to be aggregated. The answer is against the accountable person.

R.C. No. 27 of 1981 :

Q. 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 October 27, 1977 A : The answer is in the affirmative : The Tribunal was within its jurisdiction.

Q. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 1,39,284 in respect of Standard Life Assurance Co. policy was to be included in the main estate of the deceased under s. 34(3) of the Estate Duty Act A : The aggregation is proper. The answer is against the accountable person :

Q. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that s. 34(3) of the Act was not applicable A : The aggregation under s. 34 is proper. The answer is against the accountable person.

16. It is represented in R.C. No. 159 of 1976, where an identical question was the subject of decision in CED v. Estate of Late Omprakash Bajaj : [1977]110ITR263(AP) , in respect of which this court granted leave to appeal to the Supreme Court. The learned counsel for the assessee made an oral request for leave to appeal to the Supreme Court. While this request is not opposed as respects question No. 3 by the learned counsel for the Revenue, it was requested, leave may be restricted only to that question. It is not desirable on the facts of the case to restrict leave to some or one question. We, therefore, certify that this is a fit case for appeal to the Supreme Court under the Act, 34 of 1953.


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