Jeevan Reddy, J.
1. The question referred for our opinion under s. 64(1) of the E.D. Act, 1953, is :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the thee deceased's half share in the joint family properties, valued at Rs. 4,28,765 is not liable to the duty under the provisions of sections 7, 10, 11, 12 and 27 of the Act ?'
2. Three brothers, (i) Muppana Somaraju, (ii) Veeraraju, and (iii) Chinna Veeraraju, divided their joint family properties under a partition deed dated December 15, 1919. In January, 1921, there was a reunion between the deceased, Somaraju and Veeraraju. The reunited brothers carried on extensive business and acquired properties. In 1993, Veeraraju died, leaving behind him four sons. The deceased, Somaraju, had no children and, therefore, Somaraju and the four sons of Veeraraju continued as members of the coparcenary till 1948. In January, 1948, one of the sons of Veeraraju gave a notice to the other members of the coparcenary, demanding partition. Subsequent thereto, movables were divided, but the immovable properties came to be divided only on, and under a document dated December 11, 1948. The document is described as a 'family settlement deed', and we shall refer to it by the same description. The family settlement deed refers to the earlier partition among the three brothers, the later reunion between the deceased, Somaraju, and Veeraraju, as well as to the death of Veerarju in 1933, and recites that the deceased and the four sons of Veerraraju, who were parties to the document, have been continuing as members of the joint family till end of 1947. It then recites that Vishwanadham, S/o. Veeraraju, gave a notice on January 18, 1948, demanding partition and (stating) that the several sons of Veeraraju had acquired several properties and businesses and were running them separately. It is stated further :
'From the beginning of 1948, as we are no longer willing to live joint, under the advice of the first amongst us, we are living as divided members, carrying on each his business. The movable properties of the family were already divided and we are having separate mess. We did not divide the immovable properties but kept them joint amongst us under the management of the first amongst us and we were drawing monies as per our requirements. We deemed it proper that there must be a partition deed showing our division and 2 to 5 mentioned this to the first of us and the first amongst us in accordance with the wished of 2 to 5 and with their co-operation effected the following arrangements regarding the family properties in January, 1948. We are all agreed to the arrangements made by him; out of our free will we are executing this settlement deed....'
3. The settlement arrived at among the parties was that the deceased, who is described as 'party No. 1', was not to take any properties towards his share but that he should be paid a sum of Rs. 1,000 per months as 'Varumanam' during his life, by the four sons of Veeraraju, who are described as parties 2 to 5; and further that the deceased should reside in the house called 'hillock building', and enjoy the appurtenant site of Ac. 4.87 cents during his lifetime, but without powers of alienation. It was further provided that, after the deceased, the said house and the appurtenant land should be equally divided among the other four members. All the remaining properties were divided among parties 2 to 5. The sum of Rs. 1,000 per month, agreed to be paid to the deceased, was to be paid on the 1st of every month under a receipt. It was also provided that, for payment of this amount, item 8 of the 'F' Schedule, of an extent of Ac. 642.28 cents-which was kept joint among parties 2 to 5 - shall be given as security. It was clarified that, even during the lifetime of the deceased, the said extent of Ac. 642.28 cents shall be enjoyed by parties 2 to 5 in equal shares. In view of this arrangement, the deceased relinquished his half share in the joint family properties in favour of parties 2 to 5.
4. Muppana Somaraju (the deceased) died some time in 1957. The Asst. CED held that the real nature of the transaction evidenced by the family settlement deed, dated December 11, 1948, is that of a gift of half interest in the coparcenary properties by the deceased in favour of his nephews. He held that 'nephews' fell within the expression 'relatives' as defined in sub-s.(7) of s. 27. He held that, in as much as the deceased retained a benefit, the transaction fell within the mischief of s. 10, as also ss. 11 and 12 of the Act and, therefore, half of the total value of all the properties covered by the family settlement deed must be treated as the value of the estate passing on the death of the deceased. He valued the half interest at Rs. 4,27,765. The accountable person filed an appeal. The Deputy Controller held, firstly, that the transaction entered into by the deceased and his nephews, through the deed December 11, 1948, was a disposition of the property. He held further that the family settlement deed itself purported to operate as a gift, and because the deceased and clearly reserved a benefit to himself, the provisions of s. 10 were attracted; but, inasmuch as the reservation extended only to a portion of the estate, he observed, estate duty had to be levied only to the extent of the benefit reserved by the donor. He agreed with the Asst. Controller that 'nephews' fell within the definition of 'relative' in s. 27(7). On the above findings, he allowed the appeal in part, and directed the Asst. Controller to amend the assessment in accordance with the directions given in the order, viz., to determine the value of the benefit reserved by the deceased under the said deed.
5. Two appeals were preferred before the Income-tax Appellate Tribunal, one by the accountable person, and the other by the Department, against the order of the Deputy Controller, each complaining against the appellate order in so far as it went against them. The main judgment of the Tribunal was rendered by the accountant member, who held (i) that the real nature of the transaction that took place on December 11, 1948, was that of a partition, the terms whereof were embodied in the document executed on that day. Under this transaction, the deceased took the annuity of a fixed sum of Rs. 1,000 per month, plus the right to live in and enjoy, the hillock property with the surrounding land of Ac. 4.87 cents, whereas the other properties were taken over by the other members of the family; (ii) a partition among the members of a coparcenary need not necessarily be equal. An unequal partition is not invalid in law; (iii) there was no material to show that what the deceased took was in any way less than his half share in the joint family properties; and (iv) that the only property that was includable in the estate of the deceased was the hillock property, subject to the exemption for residential house. It was noted that the accountable person had himself agreed to the inclusion of this property. The judicial member, who wrote a separate but concurring judgment, also held that the true nature of the transaction that took place on December 11, 1948, was one of partition, and not a gift. He held further that the document dated December 11, 1948, merely recited and recorded an arrangement which had already been arrived at among the members of the coparcenary in January, 1948, and thus there was no 'disposition' under the said document. Accordingly, he held that s. 11 had no application. He also held that s. 12 was equally irrelevant. Thereupon, the Department asked for and obtained this reference.
6. Mr. M. S. N. Murthy, the learned standing counsel for the Department, contended that the true nature of the transaction that took place on December 11, 1948, was one of gift to the half shares of the deceased in the joint family properties in favour of his nephews; and inasmuch as the gift was coupled with a reservation, viz., retention of the house property for the lifetime of the deceased, and the annuity payable by the nephews, it must be held that the gift was not a bona fide one. He submitted that, since the gift was not a bona fide one, the entire subject-matter of gift must be treated as the property passing on the death of the deceased, notwithstanding the fact that the gift was made more than two years prior to the death of the deceased. Alternatively, he argued that, according to ss. 10 and 11, the entire benefit reserved should be valued and brought to charge. He submitted that the house property should be valued in full, and contended further that the entire value of Act. 642.28 percents should also be included in the estate of the deceased, inasmuch as the annuity payable to the deceased by the four nephews was charged upon this property. Because a charge amounts to an interest in the property, the entire value of Ac. 642.28 cents should be deemed to pass under s. 7, read with s. 3(1)(c) of the Act, he contended.
7. On the other hand, it is contended by Sri. Y. N. Anjaneyulu, learned counsel for the accountable person, that the transaction dated December 11, 1948, was not a gift, but only a partition. He submitted that, in view of the circumstances then prevailing, the deceased thought it appropriate to take the annuity and the life-interest in the house property towards his share. Counsel emphasized the fact that there was absolutely no material to show that what the deceased took was in any manner less than the value of his half share. He pointed out that the total value of the properties dealt with under the family settlement deed was Rs. 2,50,000 only and that, in the circumstance, the annuity and the house property taken by the deceased must be deemed to properly and fully represent his half share. He submitted further that, even assuming that it was a 'gift', the result is no different. According to the learned counsel, s. 3(1)(c) has no application to the facts of the present case and that it is only s. 7 which is attracted, and not s. 10 or s. 11. He agreed that, applying s. 7, both the house property and the annuity must be deemed to pass on the death of the deceased, but submitted that, while the house property could be valued under s. 7 read with s. 40, the annuity could not valued at all. He contended that, inasmuch as the annuity cannot be valued under s. 40, it has to be ignored altogether, as held by Gujarat High Court in Smt. Mrudula Nareshchandra v. CED : 100ITR297(Guj) .
8. The first question we have to answer is : what was the true nature of the transaction which took place on December 11,1948, which is found recorded in the deed of that date While according to the Department it was a gift of half share in all the coparcenary property, according to the accountable person, it was a case of partition. The Tribunal has found that it is a deed of partition, and we are unable to say that the said finding is unsustainable in the facts and circumstances of this case. The family settlement deed recites the facts which led to its execution. It refers to the notice issued by one of the nephews demanding partition, the consequent division in status and of movables, and the carrying on of the separate businesses by the nephews, as also to the fact that only the immovable properties were kept joint. The document recites that the parties 'deemed it proper that there must be a partition deed showing our division' and, accordingly, they arrived at the settlement, which is recorded in the deed. The total value of the properties divided under the document is stated to be Rs. 2,50,000. While all the properties were taken by the nephews, the deceased was given an annuity of Rs. 1,000 per month during his life, and was also given the right to reside in the house called 'hillock building' along with the adjoining land of Ac. 4.87 cents. Even in the house property and the adjoining land, the deceased was to have only a life interest, without the right to transfer. The deceased actually lived for about 10 years after this transaction. The annuity comes to Rs. 12,000 per annum, and the residential property also seems to be a substantial one. There is no reason to believe that it was not a bona fide and genuine partition in which the deceased, who had become fairly old by that time, and was no longer in a position to, or inclined to, do any business or agriculture, must have deemed it more convenient to take the annuity and (life interest in) the residential property, and spend his last days in peace. His wife had pre-deceased him, and he had no one else except the nephews, who were busy quarrelling with each other. In these circumstances, and in the absence of any other evidence, it is difficult for us to hold that the partition was an unequal one. That is also the finding of the Tribunal, and once that finding is taken as not open to attack, it must be held that the transaction which took place on December 11, 1948, was one of partition. There is also no evidence to show that it was an unequal partition. In view of this finding, it is unnecessary for us to go into the question whether there was a 'disposition', within the meaning of Expln. 2 to s. 2(15) of the E. D. Act, 1953, of that part of the deceased's share which represented the difference between what he took, and what his half share represented.
9. In CED v. Kantilal Trikamlal : 105ITR92(SC) , it has been held by the Supreme Court that, where on the partition of an HUF property, a coparcener takes less than his share, there is a held the meaning of Expln. 2 to s. 2(15) of the Act, by him of that part of his share, which he relinquishes and that, on his death within two years of the partition, that part of is share would be property deemed to pass under s. 9(1), read with s. 27(1), and Expln. 2 to s. 2(15). In this case, it may be noticed that the partition, or the gift, even if any, was long prior to two years before the death of the deceased.
10. We shall now examine the contention of the learned standing counsel for the Department that the transaction which took place on December 11, 1948, is one of gift and is governed by ss. 9 and 10 of the Act. Indeed, it is unnecessary for us to go into this question, in view of our finding that the true nature of the said transaction was one of partition; but, having regard to the fact that these questions were agitated before us at quite some length, we think it proper to express our opinion thereon. Section 9 and 10, in so far as they are relevant, read as follows :
'9(1).Property taken under a disposition made by the deceased purporting to operate as an immediate gift inter vivos whether by way of transfer, delivery, declaration of trust, settlement upon persons in succession, or otherwise, which shall not have been bona fide made two years or more before the death of the deceased shall be deemed to pass on the death :
Provided that in the case of gifts made for public charitable purposes the period shall be six months....
11. Property taken, under any gift, whenever made, shall be deemed to pass on the donor's death to the extent that bona fife possession and enjoyment of it was not immediately assumed by the donee and thenceforward retained to the entire exclusion of the donor or of any benefit to him by contract or otherwise :
Provided that the property shall not be deemed to pass by reason only that it was not, as from the date of the gift, exclusively retained as aforesaid, if, by means of the surrender of the reserved benefit or otherwise, it is subsequently enjoyed to the entire exclusion of the donor or of any benefit to him for at least two years before the death...
12. According to s. 9, any gift of property made within two years of the death, is deemed to pass on the death of the donor. If, however, the gift is made two years prior to the death, and is a bona fide one, the property covered by the gift is not deemed to pass on death of the donor. In this case, the document dated December 11, 1948, assuming that it is a gift, was executed roughly nine years prior to the death of the deceased, and there is absolutely no material to doubt the bona fides of the transaction. As we have indicated above, the deceased had become fairly old by 1948, had no wife, and was in no position to engage himself in business or agriculture. Obviously, he wanted to spend his last days in peace, and that was why he secured the possession of an extensive residential property, as also the annuity of Rs. 1,000 per month which, in those days, was a substantial sum, and distributes the rest of the properties among his nephews. Thus, treating it as a gift also, it being a bona fide gift executed more than two years prior to his death, the property covered by it does not pass on the death of the deceased. Mr. M. Suryanarayanamurthy, however, contends that this is a case governed by s. 10. His argument runs as follows : The deceased made a gift of his half share, but retained possession of a portion of the property gifted, i.e., the residential house, and also the annuity. Since the deceased continued to be in possession of the house property till his death, the value of the entire house-property should be deemed to pass on his death, by virtue of s. 10. So far as the annuity is concerned, his argument is that, inasmuch as the annuity was charged upon Ac. 642.28 cents of land, the entire value of the said land should also be deemed to pass. Counsel contended that charge is an interest in immovable property and, therefore, the extent of Ac. 642.28 cents should be deemed to pass, whether under s. 10, or under s. 40. It is not necessary for us to go into the question whether the house property along with the adjoining land must be deemed to pass on the death of the deceased, or not; for, the accountable person has conceded the Department's claim to that extent, which concession is also affirmed before us by Mr. Y. V. Anjaneyulu. The only question that survives is, whether the land of the extent of Act. 642.28 cents should also be deemed to pass on the death of the deceased. We are of the opinion that the said land cannot be deemed to pass, as contended for by Mr. M. S. N. Murthy. For s. 10 to apply, it is necessary for the Department to establish that this land was gifted by the deceased to his nephews and that, in spite of the gift, he continued to be in possession thereof. Neither of these conditions is established in this case. The deceased was never in possession of this land after December 11, 1948. Only the annuity provided to him was made a charge upon this land.
13. No occasion, however, arose of enforcing that charge. Further, even if the charge was enforced, all that the deceased could do, was to proceed against the income or the corpus of this land, but not to take possession of the land and enjoy it. We are, therefore, of the opinion that s. 10 is wholly inapplicable in the facts of the case.
14. Mr. M. S. N. Murthy then contended that s. 11 is attracted in this case. Section 11, in so far as it is relevant, reads as follows :
'11(1). Subject to the provisions of this section, where an interest limited to cease on a death has been disposed of or has determined, whether by surrender, assurance, divesting, forfeiture or in any other manner (except by the expiration of a fixed period at the expiration of which the interest was limited to cease), whether wholly or partly, land whether for value or not, after becoming an interest in possession, and the disposition or determination (or any of them if there are more than one) is not excepted by sub-section(2), then -
(a) if, had there been no disposition or determination, as aforesaid of that interest and no disposition of any interest expectant upon or subject to that interest, the property in which the interest subsisted would have passed on the death under section 5, that property shall be deemed by virtue of this section to be included as to the whole thereof in the property passing on the death; or
(b) if, had there been no disposition or determination as aforesaid of that interest and no disposition of any interest expectant upon or subject to that interest, the property in which the interest subsisted would have been deemed by virtue of section 7 to be included to a particular extent in the property passing on the death, the property in which the interest subsisted shall be deemed by virtue of this section to be included to that extent in the property passing on the death.
(2) Where a disposition or determination of an interest limited to cease on the death was bona fide effected or suffered not less than two years before the death (or, if it was effected or suffered for public charitable purposes, not less than six months before the death), the disposition or determination shall be excepted by this sub-section -
(a) if bona fide possession and enjoyment of the property in which the interest subsisted was assumed immediately thereafter by the person becoming entitled by virtue of or upon the disposition or determination and thenceforward retained to the entire exclusion of the person who immediately before the disposition or determination had the interest and of any benefit to him by contract or otherwise; or...'
15. Section 11(1) contemplates a case, where a life interest has been disposed of or has been determined, whether by surrender, assurance, divesting, forfeiture, or in any other manner. If such disposition or determination has been effected more than two years prior to the death, bona fide, the life interest is not deemed to pass. But, where it is within two years, or was not bona fide, it is liable to be deemed as passing on the death of the deceased. This section too has no application, because this is not a case where the life interest of the deceased, whether in the house property or in the annuity, was disposed of or determined by him, in any manner whatsoever.
16. The proper section applicable in this behalf is s. 7, as rightly contended by Mr. Y. V.Anjaneyulu. Sub-sections (1) and (2) of s. 7, which are relevant for the present purpose, read as follows :
'7(1). Subject to the provisions of this section, property in which the deceased, or any other person had an interest ceasing on the death of the deceased, shall be deemed to pass on the deceased's death to the extent to which a benefit accrues or arises by the cesser of such interest, including, in particular, a coparcenary interest in the joint family property of a Hindu family governed by the Mitakshara, Marumakkattayam or Aliysantana law.
(2) If a member of a Hindu coparcenary governed by the Mitakshara school of law dies, then the provisions of sub-section (1) shall apply with respect to the interest of the deceased of the deceased in the coparcenary property only -
(a) if the deceased had completed his eighteenth year at the time of his death, or
(b) where he had not completed his eighteenth year at the time of his death, if his father or other male ascendant in the male line was not a coparcener of the same family at the time of his death.
Explanation. - Where the deceased was also a member of a sub-coparcenary (within the coparcenary) possessing separate property of his own, the Provisions of this sub-section shall have effect separately in respect of the coparcenary and the sub-coparcenary...'
17. The life interest created in the house property, as also the annuity provided for life, do fall under s. 7(1). The question then arises, how to value them The provisions relating to valuation are found in Chap. V. The only section which deals with valuation of benefits from interests ceasing on death, is s. 40, which reads as follows :
'40. The value of the benefit accruing or arising from the cesser of an interest ceasing on the death of the deceased shall -
(a) if the interest extended to the whole income of the property, be the principal value of that property; and
(b) if the interest extended to less than the whole income of the property, be the principal value of an addition to the property equal to the income to which the interest extended.'
For s. 40 to apply, the benefit accruing or arising from the cesser of an interest which is to be valued, must extend either to the whole income from the property, or to a part of the income therefrom. The house property and the adjoining land in this case squarely fall within clause (a) of s. 40, inasmuch as the benefit which is accruing to the nephews on the death of the deceased, extended to the whole of the income of that property. In other words, the deceased was enjoying the whole of the income of the said property, and that benefit now devolves upon the nephews. According to cl.(a), therefore, the principal value of the property should be taken as passing on the death of the deceased. The only controversy is about the annuity. Mr. Y. V. Anjaneyulu's argument is that annuity was not to come out of the income of the said extent of Ac. 642.28 cents, as such. He submits that the payment of annuity was a liability personally undertaken by the nephews, and the said land was given only by way of security. The family settlement deed makes it clear, he submits, that the annuity was not to come out of the income of this particular land. In such a case, he argues, neither cl.(a), nor cl.(b) of s. 40 applies. We are inclined to agree with him. It is true that the charge is an interest in the property and, on the death of the deceased, the charge comes to an end, and, to that extent, a benefit accrues to the nephews; but, the question is whether the said benefit or interest, as the case may be, extended to the whole, or part of the income of the said land within the meaning of s. 40 - and the answer has to be in the negative. Mr. M. S. N. Murthy, the learned standing counsel for the Department, contends that, inasmuch as the deceased had a right, in case of default in the payment of annuity, to realize the same from out of the income of the said land, s. 40 must deemed to be applicable. We are unable to agree. In the event of default, the deceased was entitled to recover the arrears due to him, either from the income or from the corpus of the property. But, it cannot be said with any definiteness that the interest which he had, extended either to the whole or part of the income of the property. If there was default in the payment of annuity for only, say, one month, and the deceased took proceedings for realizing the same, it could have been satisfied even from a part of the income of the property, whereas, if the default was for a longer period, whole of the income may not have satisfied the arrears. Indeed, it was equally open to the deceased to directly apply for a sale of the property, without touching the income. In such a fluid situation, it is difficult to say that the interest which the deceased had, and which interest devolves upon the nephews as a benefit, extended to the whole of part of the income of the said land. The result of the discussion is that the annuity which undoubtedly ceased on the death of the deceased and (which cessation) is, therefore, a corresponding benefit accruing to the nephews, is not capable of valuation under s. 40.
18. Mr. M. S. N. Murthy then contended that, applying s. 3(1)(c), the entire value of the said land must be deemed to pass. Section 3(1)(c) reads as follows :
'3(1) For the purpose of this Act, -...
(c) money which a person has a general power to charge on the property of another person shall be deemed to be an interest in that property of which the former has power to dispose.'
19. For this clause to apply, the deceased must have had a 'general power' to charge the said land. 'General Power' is defined in cl.(9) of s. 2 in the following words :
''general power' includes every power or authority enabling the donee or other holder thereof to appoint or dispose of property as he thinks fit, whether exercisable by instrument inter vivos or by will or both, but exclusive of any power exercisable in a fiduciary capacity under a disposition not made by himself or exercisable as mortgagee.'
20. Now, it is evident that the deceased had no such general power. His power, if at all, was only a contingent one, i.e., in case of default in paying the annuity, he could proceed against the property. In our opinion, therefore, such a power does not fall within s. 3(1)(c).
21. We must record that the applicability of s. 12 has not been urged before us. Indeed, this plea is said to have been abandoned even before the Tribunal though the question referred to us does refer to s. 12, among other sections. We, therefore, think it unnecessary to deal with s. 12.
22. Once the annuity is held to be incapable of valuation either under s. 40, or under s. 3(1)(c), the question arises whether it can be taken into account at all, in determining the estate passing on the death of the deceased. In Smt. Murudula Nareshchandra v. CED : 100ITR297(Guj) , it has been held by a Bench of the Gujarat High Court that, if a limited interest passing under s. 7 is incapable of valuation under s. 40, such a benefit must be held not liable to estate duty under s. 7. The learned judges observed that the primary object of every taxing statute is to recover the tax or duty in cash, on the happening of a particular taxable event and that this event under the E.D. Act is the actual, or deemed passing of property on the death of a person. Every taxing statute, the learned judges observed, contemplates the levy of a tax or duty on a valuation which is arrived at on the principles enunciated in the statute itself If the valuation principles stated in the statute cannot be worked out with any precision in respect of any property, it would follow as a necessary corollary that that property is not one which is intended to be subject to the tax or duty, contemplated by the statute. On this principle, it was held, if a benefit arising by cesser of an interest cannot be measured under s. 40, the cesser of such interest does not attract the payment of estate duty under s. 7.
23. Mr. M. S. N. Murthy, however, brought to our notice that this decision the the Gujarat High Court has been dissented from by a Bench of the Madras High Court, and he commended to us the reasoning of the Madras High Court.
24. The judgment relied upon by Mr. Murthy is reported in the same volume, at page 320; (CED v. Ibrahim Gulam Hussain Currimbhoy : 100ITR320(Mad) . The difference of opinion between the two High Court is on the question whether the interest in the goodwill of a deceased is capable of valuation or not under s. 40. While the Gujarat High Court held that such an interest in not capable of valuation under s. 40, the Madras High Court has taken a contrary view. But, we are not concerned herein with that aspect. So far as the principle relevant for our purposes is concerned, viz., that, if an interest cannot be valued under s. 40, it does not pass under s. 7, there is not difference of opinion between the two courts.
25. Before we conclude, we must refer to an attempt of Mr. Murthy to being the annuity within the four corners of s. 10. We are wholly unable to appreciate this contention. For s. 10 to apply, there must be a gift of the property, the possession whereof has not been fully and completely delivered to the donee. We are unable to see how the annuity or its cessation can be made to fit into the scheme and content of s. 10. For this reason, we think it unnecessary to deal with the decisions cited by the learned counsel on s. 10. None of them deal with a situation like the one before us.
26. For the above reasons, we answer the question referred to us in the affirmative, i.e., in favour of the accountable person and against the Department. In the circumstance, there shall be no order as to costs.