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Controller of Estate Duty Vs. Estate of Late Adapala Krishna Reddy - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberE.S.D. No. 1 of 1972
Judge
Reported in[1976]105ITR472(AP)
ActsEstate Duty Act, 1953 - Sections 9; Transfer of Property Act - Sections 126
AppellantController of Estate Duty
RespondentEstate of Late Adapala Krishna Reddy
Appellant AdvocateP. Rama Rao, Standing Counsel
Respondent AdvocateS. Dasaratharama Reddy, Adv.
Excerpt:
.....and she will be entitled to enjoy the same absolutely. ' 6. the plaintiff as well as the defendants signed the compromise memorandum. reddy and his wife should get those properties in accordance with the settlement deed executed in their favour by krishna reddy on december 25, 1962. 7. this clearly shows that the settlement deed in favour of seetharamamma dated september 5, 1957, was cancelled and the settlement deed in favour of d. what clearly emerges from the terms of the compromise is that the sale deed in favour of seetharamamma dated september 11, 1954, was confirmed not only by d. it can only mean that she had to enjoy the property with possession with absolute rights......1963. he had landed property. on september 11, 1954, he transferred under a sale deed ten acres of land to seetharamamma, the younger sister of his wife. he further executed on september 5, 1957, a gift deed in favour of the same lady in respect of six acres of land. five years later, he changed his mind and executed a deed of settlement on december 1, 1962, in respect of the same ten acres of land, which he had sold on september 11, 1954, in favour of seetharamamma, to his brother-in-law's son, d. s. reddy, and latter's wife, indiramma. in this sale deed, he stated that the sale deed dated september 11, 1954, in favour of seetharamamma was a sham transaction and was never intended to be acted upon. 20 days later, to be precise, on december 21, 1962, the deceased executed a revocation.....
Judgment:

Sambasiva Rao, J.

1. This referred case deals with levy of estate duty. The Income-tax Appellate Tribunal, Hyderabad Bench, framed the following question for our decision.

'Whether, on the facts and in the circumstances of the case, the 16 acres of land pertaining to Smt. Seetharamamma passed on the death of the deceased either in terms of Section 9 or Section 10 of the Estate Duty Act, 1953?'

2. The reference came to be made in the following manner. The original owner of the property was Adapala Krishna Reddy. He died on 29th November, 1963. He had landed property. On September 11, 1954, he transferred under a sale deed ten acres of land to Seetharamamma, the younger sister of his wife. He further executed on September 5, 1957, a gift deed in favour of the same lady in respect of six acres of land. Five years later, he changed his mind and executed a deed of settlement on December 1, 1962, in respect of the same ten acres of land, which he had sold on September 11, 1954, in favour of Seetharamamma, to his brother-in-law's son, D. S. Reddy, and latter's wife, Indiramma. In this sale deed, he stated that the sale deed dated September 11, 1954, in favour of Seetharamamma was a sham transaction and was never intended to be acted upon. 20 days later, to be precise, on December 21, 1962, the deceased executed a revocation deed cancelling the gift of September 5, 1957, in respect of six acres of land in favour of Seetharamamma, stating that the gift in her favour was a sham transaction. On December 25, 1962, he executed a settlement deed in respect of the same six acres of land in favour of D. S. Reddy and his wife. Seetharamamma took objection to this and filed O.S. No. 33/1963 in the Subordinate Judge's Court, Kavali, on July 5, 1963, praying for a permanent injunction restraining the defendants, who included the deceased, Krishna Reddy, averring that she had been in possession of the entire 16 acres of land ever since that had been conveyed to her. The parties, however, compromised the matter and filed a memorandum of compromise, on the basis of which a compromise decree dated November 13, 1963, was passed by the court. The substance of the compromise was that Seetharamamma retained eight acres of land sold to her by Krishna Reddy on September 11, 1954, and relinquished her right in favour of D. S. Reddy and his wife in respect of the other eight acres of land. The gift deed of September 5, 1957, was also specifically cancelled under the terms of the compromise decree.

3. The revenue thought that this 16 acres of land along with another eight acres of land that was conveyed by Krishna Reddy's wife to D. S. Reddy and the latter's wife, Indiramma, should be included in the estate of Krishna Reddy for the purpose of imposing estate duty. It is common ground that D. S. Reddy is the accountable person. The view of the revenue is that the 16 acres of land which originally belonged to the estate of Krishna Reddy devolved on Seetharamamma, D. S. Reddy and Indiramma by virtue of the compromise which was entered into only16 days before the death of Krishna Reddy and, consequently, it comes within the scope of Section 9 of the Estate Duty Act, 1953. The Assistant Controller of Estate Duty as well as the Appellate Controller of Estate Duty (Southern Zone) upheld the contention of the revenue and decided that these 16 acres and another extent of eight acres should be treated as part and parcel of the estate of Krishna Reddy. The property was valued at Rs. 5,000 per acre. The matter was carried in appeal to the Income-tax Appellate Tribunal by D. S. Reddy, the accountable person. The Tribunal accepted the submission of the accountable person that the 24 acres of land should not be treated as part of the estate of Krishna Reddy. For the purpose of this reference, we are not concerned with the other eight acres. In the view of the Tribunal, the 16 acres became the property of Seetha-ramamma and was accepted as the property of Seetharamamma under the compromise. Since the absolute right of Seetharamamma arose in the years 1954 and 1957, more than six years before the demise of Krishna Reddy, this item of land cannot be included in the estate of Krishna Reddy for the purpose of levy of estate duty. At the instance of the revenue, the question under reference has been referred to us.

4. We have already noted that under the sale deed dated September 11, 1954, the deceased conveyed to Seetharainarnma ten acres of land. Similarly, on September 5, 1957, he executed a deed of gift in her favour in respect of the other extent of six acres. When the deceased person tried to resile from these transactions, Seetharamamma filed O.S. No. 33/1963, claiming that she had acquired absolute rights in the lands under the sale deed and the gift deed, that she had been in possession of the respective lands ever since the dates of conveyance and that the defendants had no manner of right to interfere with her possession. It was on this basis, she sought the relief of permanent injunction restraining the defendants from interfering with her possession of the 16 acres of land. It may be noted here that the deceased person was the first defendant in the suit and D. S. Reddy and his wife were defendants Nos, 2 and 3. These defendants asserted that the conveyances in favour of Seetharamamma were sham and nominal and the possession of the land continued with Krishna Reddy and subsequently on execution of the deeds of December 1, 1962, and December 21, 1962, D. S. Reddy and his wife came to be in possession of the properties. It was these claims and contentions that were compromised in the suit, O.S. No. 33/1963.

5. The memorandum of compromise is very material to assess the merits of the contentions of the revenue as well as the accountable person. The memorandum of compromise first narrates the background in which the compromise came to be arrived at and then proceeds to state the terms ofthe compromise. The terms of the compromise, in so far as they are material, are as follows :

'1. Plaintiff shall relinquish her rights under the registered settlement deed executed on September 5, 1957, by the first defendant in her favour. The said deed is hereby cancelled. Defendants 2 and 3 shall be entitled to items 4, 5 and 6 covered by the said settlement deed in accordance with the settlement deed executed on December 25, 1962, in their favour by the first defendant,

2. Defendants 1 to 3 agree, subject to the following conditions, that the plaintiff shall be entitled to items 1, 2 and 3 in accordance with the sale deed dated September 11, 1954, executed by the first defendant in her favour. Items 1 and 2 comprising 4 acres and 4 acres of item 3, totalling 8 acres, including standing crops thereon and trees, shall be taken possession of by the plaintiff even today and she will be entitled to enjoy the same absolutely. Out of 10 acres which she got by sale deed dated September 11, 1954, the plaintiff shall relinquish in favour of defendants 2 and 3, her rights over 2 acres comprised in item 3. The settlement deed executed on December 1, 1962, by the first defendant in favour of defendant 2 and defendant 3 is hereby cancelled.

3. It is prayed that the hon'ble court may be pleased to pass the decree in accordance with the terms of this compromise.'

6. The plaintiff as well as the defendants signed the compromise memorandum. A reading of the first term of the compromise would show that Seetharamamma relinquished her right under the registered settlement deed executed on September 5, 1957, by Krishna Reddy in her favour. In fact, she agreed for the cancellation of the said settlement deed. D. S. Reddy and his wife are declared to be entitled to items 4, 5 and 6 of the suit, namely, that land of six acres which was the subject-matter of the settlement deed dated September 5, 1957. It is further stated that D. S. Reddy and his wife should get those properties in accordance with the settlement deed executed in their favour by Krishna Reddy on December 25, 1962.

7. This clearly shows that the settlement deed in favour of Seetharamamma dated September 5, 1957, was cancelled and the settlement deed in favour of D. S. Reddy and his wife dated December 25, 1962, was agreed to be given effect to. In other words, D. S. Reddy and his wife, Indiramma, got the six acres of land as per the terms of the settlement deed executed in their favour by Krishna Reddy on December 25, 1962, That settlement deed was agreed to and ratified by the parties under the compromise. The effect of this is that D. S. Reddy and his wife got six acres of land only under the settlement deed of December 25, 1962, which is within two years before the death of Krishna Reddy. Therefore, in the light of the terms of the compromise, only one conclusion is possible and that is that the sixacres of land which was given to D. S. Reddy and his wife came within the scope of Section 9 of the Estate Duty Act and this land is liable to be included in the estate of Krishna Reddy for the purpose of levy of estate duty.

8. At this juncture, we may take note of a contention of Sri Dasaratha-rama Reddy appearing for the accountable person. In his submission, Seetharamamma became entitled to this extent of six acres of land by virtue of the gift deed dated September 5, 1957, and such a gift deed can be set aside by only one of the methods mentioned in Section 126 of the Transfer of Property Act. Since the gift deed was not set aside in any such manner, that must be deemed to be continuing in force by the time of the compromise. When Seetharamamma agreed to relinquish her rights in the six acres under the compromise, it can only mean that she gave a gift of the property to D. S. Reddy and his wife. He points out that in fact gift-tax was levied and collected not only in respect of this six acres of land, but also in respect of the other land. So, no estate duty is leviable on this six acres.

9. Mere levy of gift tax does not preclude the revenue from imposing estate duty, if it is so leviable under the provisions of the Estate Duty Act. Imposition of gift-tax has only probative value (vide Estate of Late G. Rama-swami Naidu v. Controller of Estate Duty : [1970]76ITR559(Mad) ). It is not binding on the revenue to exclude the property from the levy of estate duty because it had already been subjected to gift-tax. When the question arises, it is the duty of the assessing authority to find out whether the property can really be subjected to estate duty. If it comes to the conclusion that estate duty is leviable, it is not precluded from imposing it for the reason that on some erroneous application of the law, the gift-tax authorities have collected gift-tax. So, payment of gift-tax has no greater significance.

10. In regard to setting aside of the deed of gift dated September 5, 1957, in favour of Seetharamamma that was in fact the matter in issue in O.S. No. 33 of 1963. When the defendants attempted to interfere with her possession, she filed a suit for permanent injunction and the defendants tried to resist that by saying that the gift was not enforceable. This claim and the counter-claim were settled by the compromise. Therefore, the compromise cancelling the gift deed dated September 5, 1957, comes within the ambit of Section 126 of the Transfer of Property Act.

11. We have, therefore, no hesitation in holding that the Controller and the Appellate Controller of Estate Duty are right in including the six acres in the estate of Krishna Reddy for the purpose of calculating the estate duty.

12. It is, however, a different matter in the case of the balance of ten acres. That was covered by the sale deed dated September 11, 1954, executed in favour of Seetharamamma by Krishna Reddy. The second term of the compromise specifically states that Seetharamamma shall be entitled to items 1, 2 and 3 in accordance with the sale deed dated September 11, 1954. The memorandum of compromise goes a step further and says that the settlement deed executea by Krishna Reddy on December 1, 1962, in favour of D. S. Reddy and his wife was cancelled. That means the parties agreed to the affirmation of the sale deed dated September 11, 1954, executed in favour of Seetharamamma. This conclusion is further fortified by another provision, namely, that out of ten acres of land which Seetha-ramannna got under the said sale deed, she should relinquish two acres in favour of D. S. Reddy and his wife. That would mean that while confirming the sale deed dated September 11, 1954, the parties agreed that Seetharamamma should give up her rights in two acres. That can be tantamount only to a gift by Seetharamamma in favour of D, S. Reddy and his wife. Gift-tax was already levied and collected on this portion of the property also. What clearly emerges from the terms of the compromise is that the sale deed in favour of Seetharamamma dated September 11, 1954, was confirmed not only by D. S. Reddy and his wife, but also by Krishna Reddy. Though Sri P. Rama Rao, learned counsel for the revenue, brings to our particular notice that possession of the land was given to Seetharamamma on the date of the memorandum of compromise, we are not inclined to attach any significance to that recital. It can only mean that she had to enjoy the property with possession with absolute rights. So, as far as the balance of ten acres of land is concerned, that passed to Seetharamamma even on September 11, 1954, under the sale deed which fact was affirmed under the compromise. Consequently, it has ceased to be part and parcel of Krishna Reddy's property more than six years before his death. So no estate duty can be levied thereon.

13. In the result, the view of the Tribunal is affirmed in respect of the ten acres of land which is the subject-matter of the sale deed in favour of Seetharamamma dated September 11, 1954, and reversed in respect of the six acres of land agreed to be given to D. S. Reddy and his wife as per the terms of the settlement deed in their favour dated December 25, 1962, The question referred to us is answered accordingly.

14. We may also take notice of the question of the value of the lands. The Tribunal did not go into this question as it was not inclined to treat this land as part of Krishna Reddy's property, While the accountable person contended that the value was only Rs. 3,000 per acre, the first two authorities assessed it at Rs. 5,000 per acre. The question of value should go back to the Tribunal and shall be decided by it.

15. In the circumstances of the case, the parties will bear their own costs.


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