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Controller of Estate Duty Vs. Estate of Late Smt. K. Narasamma (Accountable Person : K. Venkataramaiah) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCase Referred No. 174 of 1976
Judge
Reported in[1980]125ITR196(AP)
ActsEstate Duty Act, 1953 - Sections 7; Hindu Women's Right to Property Act, 1937; Hindu Succession Act, 1956
AppellantController of Estate Duty
RespondentEstate of Late Smt. K. Narasamma (Accountable Person : K. Venkataramaiah)
Appellant AdvocateP. Rama Rao, Adv.
Respondent AdvocateY.V. Anjaneyulu, Adv.
Excerpt:
.....into ante-adoption agreement stating that she would be in sole possession of property - after death of adoptive mother assistant controller held that deceased had limited life interest in entire extent of property and it was case of cesser of interest assessable under section 7 - court observed adopted son should be deemed to have come into existence by date of death of his adoptive father - as a result of rule of survivorship entire state of adoptive father stands devolved on adoptive son - ante-adoption agreement did not prevent devolution of estate of adoptive father - held, section 7 not applicable. - - in pursuance of the said agreement, a deed of adoption was executed by the lady on february 17, 1943, under which it was clearly stated that she would be in possession and..........the ante-adoption agreement, the adopted son became the absolute owner of the properties after the death of narasamma and during her lifetime the properties were in the possession and enjoyment of narasamma and as narasamma had life interest in the entire extent of the impugned properties it is a case of cesser of interest assessable under section 7 of the e.d. act.9. explaining the effect of the decision of the privy council in krishnamurthi v. krishnamurthi, ramesam j. observed in t. raju v. nagammal, air 1928 mad 1289 as follows :' (1) if an agreement provides a gift to strangers it is void, (2) if the arrangement confers advantages on the widow it will continue to be valid if it is fair and beneficial as before and invalid if unfair...even if the agreement confers life interest on.....
Judgment:

Punnayya, J.

1. At the instance of the Controller of Estate Duty, Andhra Pradesh, Hyderabad, the I.T. Appellate Tribunal of Hyderabad, has made this reference under Section 64(1) of the E.D. Act of 1953, for the opinion of this court on the following questions of law :

' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the ante-adoption agreement entered into by the deceased with the natural father of the adopted son with reference to the property bearing No. 6937 was of no effect at all

2. Whether, under the facts and circumstances of the case, the value of property No. 6937 passed either wholly or partly on the death of the deceased '

2. The material facts that give rise to these questions are as follows : One Kailasa Venkanna got divided from his brother, Kailasa Krishna, some time in the year 1895 and executed a registered will on August 5, 1907, by which he bequeathed to his wife, Kailasa Narasamma, his movable and immovable properties. Under the same will, he also authorised her to adopt a boy for him in the event of his dying without a male issue. The said Venkanna died issueless some time in the year 1930. Later, his wife entered into an ante-adoption agreement with one Tonde-patu Venkata Ramayya, minor, aged 17 years, through his natural father, Tondepatu Adeyya on February 15, 1943, under which the said Adeyya had agreed to give his son, Venkataramaiah, in adoption to Narasamma on the condition that she would be in sole possession and enjoyment of all the rents and profits of all the malgis and houses built on the land comprised in lease No. 1357 dated January 29, 1942, during her lifetime and after her death, the said properties should absolutely belong to the adopted son, subject to any debts that had to be discharged by her. In pursuance of the said agreement, a deed of adoption was executed by the lady on February 17, 1943, under which it was clearly stated that she would be in possession and enjoyment of all the immovable properties during her lifetime and that after her death, the adopted son would be the absolute owner of those properties. Narasamma died on February 22, 1972. In the estate duty assessment proceedings, it was contended on behalf of the adopted son, who is the accountable person, that the property bearing door No. 6937 in General Bazar, Secunderabad, belonged to the joint family of Narasamma and himself and that since she was not a coparcener, the said property did not form part of her estate. The Assistant Controller observed that the deceased, Narasamma, had life interest in the entire extent of the property by virtue of the ante-adoption agreement. He furtherobserved that the said agreement was valid in law in view of the decision of the Privy Council in Krishnamurthi v. Krishnamurthi . In the end he held that the deceased had a limited life interest in the entire extent of the property and it was a case of cesser of interest assessable under Section 7 of the E.D. Act and the full value of the said property had to be taken as the value of such interest ceasing on death. He estimated the value of the said property at Rs. 1,85,000 accordingly and included the same in the principal value of the estate of the deceased. On appeal, the Appellate Controller held that the ante-adoption agreement relied on by the Assistant Controller was invalid and illegal for the reason that in Hindu law, the interest of the adopted son relates back to the date of death of his adoptive father and the HUF continues to exist along with the adoptive mother and the adopted son. He relied upon the ruling of the Rajasthan High Court in Dhani Devi and Jhavermal v. CED . The Appellate Controller was also of the view that the deceased lady got the undivided interest of her husband on his death under the Hindu Women's Right to Property Act of 1937, that under Section 14 of the Hindu Succession Act, her limited interest became an absolute interest and that, therefore, she was entitled to half the interest in the said property. He directed the Assistant Controller to take the deceased's half share of interest in the said property and subject it to duty under Section 7. Aggrieved by this decision, the department filed an appeal to the Tribunal. The department placed strong reliance upon the decision of the Privy Council in Krishnamurthi v. Krishnamurthi, and also certain passages at pages 561 and 563 of the Principles of Hindu Law by Mulla (4th Edn.). The Tribunal referred to the decision of the Privy Council in extenso and also referred to the decision of the Supreme Court in Krishnamurthi v. Dhruvaraj, : [1962]2SCR813 . The Tribunal observed that though Sri K. Venkanna was the sole surviving coparcener till his death, still the coparcenery continued to subsist so long as the widow, Smt. K. Narasamma, was there with the power to adopt a son ; and subsequent to the death of Sri K. Venkanna, the adoption was made and thereby the will, so far as it dealt with the coparcenery property, was inoperative and the property passed to the adopted son by survivorship. When Sri K. Venkanna died in the year 1930 Smt. K. Narasamma could not have acquired any interest in the property left by her husband since the Hindu Women's Rights to Property Act (Act XVIII of 1937) came into force only on 14th April, 1937. The adoption made on February 17, 1943, takes effect by the doctrine of relation back to the date of death of Sri K. Venkanna. This means that the adopted son for all purposes of law would be deemed to have been in existence as the son of Sri K. Venkanna right from the date of his death. The adopted son, therefore, became thekarta of the family of the deceased, Venkanna, from the date of his death and Narasamma, therefore, had no right whatsoever in the impugned property and the ante-adoption agreement entered into by her with the natural father of the adopted son with reference to the impugned property is of no effect. The Tribunal, therefore, finally held that the deceased, Narasamma, had no interest in the impugned property and the adopted son inherited the property of Venkanna by virtue of his adoption. While holding so, the Tribunal ought to have held that the property is not subjected to the provisions of Section 7 of the Estate Duty Act. Instead, the Tribunal held that since the accountable person has not filed any cross-objections against the order of the Appellate Controller, they declined to interfere with the order of the Appellate Controller and thus confirmed the order of the Controller and dismissed the appeal preferred by the revenue.

3. The Controller was not satisfied with the order passed by the Appellate Tribunal and hence filed the application for making a reference to the High Court and accordingly the Income-tax Tribunal framed the above-mentioned questions of law and referred the same to this court for its opinion.

4. From the facts narrated above, it is clear that Kailasa Venkanna executed a registered will on August 5, 1907, bequeathing his movable and immovable properties to his wife, Kailasa Narasamma, and also authorising her to adopt a boy for him in the event of his death without any male issue. It is again clear that after the death of Venkanna, his widow, Narasamma, adopted Venkataramaiah, having entered into an ante-adoption agreement with his father, Adeyya, on February 15, 1943, and, under the said agreement, Adeyya agreed to give his son in adoption to Narasamma on the condition that she would be in sole possession and enjoyment of all the rents and profits of all the malgis and houses built on the land comprised in lease No. 1357 during her lifetime and after her death the said properties should absolutely belong to the adopted son subject to any debts that had to be discharged by her and in pursuance of the said agreement a deed of adoption was executed by Narasamma on February 17, 1943, with the recitals stated above. Narasamma died on February 22, 1972. After her death, Venkataramaiah, the adopted son, came into the ownership of all the properties in the possession of the deceased, Narasamma, with absolute rights.

5. While the Asst. Controller took the view that the ante-adoption agreement was valid in law in view of the decision of the Privy Council in Krishnamurthi v. Krishnamurthi and hence the deceased, Narasamma, had limited life interest in the entire extent of the properties and consequently it was a case of cesser of interest assessable under Section 7 ofthe E, D. Act and accordingly he estimated the full value of the property at Rs. 1,85,000 and included the same in the principal value of the estate of the deceased, the Appellate Controller held in the appeal preferred by the accountable person that the ante-adoption agreement was invalid and illegal on the ground that the interest of the adopted son relates back to the date of death of his adoptive father, that the HUF continues to exist along with the adoptive mother and the adopted son and also on the ground that the deceased lady got the undivided interest of her husband on his death under the Hindu Women's Rights to Property Act of 193*7, and by virtue of Section 14 of the Hindu Succession Act her limited interest became an absolute interest and, therefore, she was entitled to half the interest in the said properties and finally held that the half share of the deceased, Narasamma, in the said properties is subject to duty under Section 7 of the E.D. Act. Then the department preferred an appeal to the Tribunal. The Tribunal relying upon the decision of the Supreme Court in Krishnamurthi v. Dhruvaraj : [1962]2SCR813 , held that though Venkanna was the sole surviving coparcener till his death, still the coparcenary continued to subsist as long as the widow, Narasamma, was there with power to adopt a son and subsequent to the death of Venkanna, the adoption was made and thereby the will so far as it dealt with the coparcenary properties was inoperative and the properties passed to the adopted son by survivorship on the basis of the doctrine of relation back. The Tribunal rejected the view taken by the Appellate Controller that Narasamma's limited interest became an absolute interest under Section 14 of the Hindu Succession Act as Narasamma could not have acquired any interest in the properties under the Act, XVIII of 1937, since Venkanna died in the year 1930. The Tribunal also held that as the adoption made on February 17, 1943, takes effect by the doctrine of relation back to the date of death of Venkanna, the adopted son became the karta of the family of the deceased, Venkanna, from the date of his death and hence Narasamma had no rights whatsoever in the impugned properties and the adopted son inherited the properties of Venkanna by virtue of his adoption and hence the ante-adoption agreement had no effect with reference to the impugned properties,

6. But the Controller was not satisfied with the decision of the Tribunal and wanted the Tribunal to make a reference on the questions formulated above.

7. We have no hesitation to hold that the Tribunal was justified in not accepting the finding of the Appellate Controller that Narasamma acquired undivided interest of her husband on his death under the Act XVIII of 1937 and the limited interest became the absolute interest under Section 14 of the Hindu Succession Act and she was, therefore, entitled to half theinterest in the suit properties since Venkanna died in the year 1930 long prior to Act XVIII of 1937 and hence she could not have acquired any limited interest in the properties left by her husband on his death and the question of her acquiring absolute rights under Section 14 of the Hindu Succession Act does not arise.

8. Both the Appellate Controller as well as the Tribunal differed from the Asst. Controller on the question as to the effect of the ante-adoption agreement with reference to the impugned properties. Both the Appellate Controller and the Tribunal took the view that the adoption of Venkata-ramaiah takes effect by the doctrine of relation back to the date of death of Venkanna and the adopted son should, therefore, be deemed to have been in existence by the date of death of Venkanna and consequently he should be deemed to have succeeded to the properties of Venkanna by the right of survivorship and as such Narasamma had no interest whatsoever in the impugned properties. The Asst. Controller relying upon the decision of the Privy Council in Krishnamurthi v. Krishnamurthi held that under the ante-adoption agreement, the adopted son became the absolute owner of the properties after the death of Narasamma and during her lifetime the properties were in the possession and enjoyment of Narasamma and as Narasamma had life interest in the entire extent of the impugned properties it is a case of cesser of interest assessable under Section 7 of the E.D. Act.

9. Explaining the effect of the decision of the Privy Council in Krishnamurthi v. Krishnamurthi, Ramesam J. observed in T. Raju v. Nagammal, AIR 1928 Mad 1289 as follows :

' (1) If an agreement provides a gift to strangers it is void, (2) If the arrangement confers advantages on the widow it will continue to be valid if it is fair and beneficial as before and invalid if unfair...even if the agreement confers life interest on the widow in the whole property and the adopted son's enjoyment begins after the death of the widow it will still be regarded as fair and valid. If the whole property is given absolutely to the widow, it will be regarded as unfair...if absolute interest is given to the widow in some items of the property which do not amount to practically the whole of the property, or in other words if a substantial part of the property is still left for the adopted son, the arrangement may still be regarded as fair and beneficial and therefore may be valid.'

10. His Lordship also observed :

' I do not understand the last sentence which I quoted from the Privy Council judgment to lay down that if a very small item of property is given absolutely to the widow and if the adopted son gets very large property, still the whole disposition will be invalid. Such a view seems to be against the reasons given by their Lordships and would be anomalous,comparing it with the other illustrations referring to the gift of life interest in the whole property to a widow. The word ' property' in the last sentence, I think, refers to the whole of the property. In construing that sentence, one must remember that the actual case before their Lordships related to a gift to strangers and this they held to be invalid. They were not considering in detail particular cases of gifts to the widow.'

11. According to the decision of the Privy Council in Krishnamurthi v. Krishnamurthi and also the decision of the Madras High Court in T. Raju v. Nagammal AIR 1928 Mad 1289, it is clear that if the ante-adoption agreement confers life interest on the widow in the whole of the property and the adopted son's enjoyment begins after the death of the widow, the agreement will still be regarded as fair and valid.

12. The question is whether this legal position is altered by the doctrine of relation back.

13. The doctrine of relation back is based on the principle that an adopted son is the continuator of his adoptive father's line exactly as an aurasa son and an adoption, so far as the continuity of the line is concerned, has a retrospective effect and that whenever the adoption is made, there is no hiatus in the continuity of the line and that in order that there may be no break in the continuity of the line the adopted son must be deemed to have come into existence before the death of his adoptive father and if he does not come into existence before the death of his adoptive father, there will be a break in the line. Therefore, the legal fiction is that the adopted son is in existence at the time of the death of the adoptive father.

14. The Privy Council in Pratapsing Shivsing v. Agarsinghji Raisinghji, AIR 1918 PC 192 held :

' Again it is to be remembered that an adopted son is the continuator of his adoptive father's line exactly as an aurasa son, and that an adoption, so far as the continuity of the line is concerned, has a retrospective effect ; whenever the adoption may be made there is no hiatus in the continuity of the line.'

15. The Supreme Court considered and accepted the doctrine of relation back in Srinivas Krishnarao Kango v. Narayan Devji Kango : [1955]1SCR1 . Their Lordships observed that it is on this principle that when a widow succeeds to her husband's estate as heir and then makes an adoption, the adopted son is held entitled as preferential heir to divest her of the estate. It is on the same principle that when a son dies unmarried and his mother succeeds to his estate as his heir, and then makes an adoption to her husband, that adopted son is held entitled to divest her of the estate. Their Lordships laid down thus :

(1) an adopted son is held entitled to take in defeasance of the rights acquired prior to his adoption on the ground that in the eye of law hisadoption relates back, by a legal fiction, to the date of death of his adoptive father, he being put in the position of a posthumous son ;

(2) as a preferential heir, an adopted son, (a) divests his mother of the estate of his adoptive father, (b) divests his adoptive mother of the estate she gets as an heir of her son who died after the death of her husband :

(3) a coparcenary continues to subsist so long as there is in existence a widow of a coparcener capable of bringing a son into existence by adoption ; and, if the widow made an adoption, the rights of the adopted son are the same as if he had been in existence at the time when his adoptive father died and that his title as coparcener prevails as against the title of any person claiming as heir to the last coparcener ; and

(4) when an adoption is made by a widow of either a coparcener or a separated member, then the right of the adopted son to claim properties as on the date of the death of the adoptive father by reason of the theory of relation back is subject to the limitation that alienations made prior to the date of adoption are binding on him, if they were for purposes binding on the estate. Thus, the transferees from limited owners, whether they be widows or coparceners in a joint family, are amply protected.

16. Their Lordships also examined the question whether the doctrine of relation back can be applied when the claim made by the adopted son relates not to the estate of his adoptive father, but of a collateral. In that connection, their Lordships considered the correctness or otherwise of the decision of the Privy Council in Anant v. Shankar, and held that the Privy Council in Anant v. Shankar went far beyond what had been previously understood to be the law and it was not in consonance with the principle well established in Indian jurisprudence and that an inheritance could not be in abeyance and that the relation back of the right of an adopted son was only quoad the estate of the adoptive father, and, moreover, the law, as laid down therein, lead to the results which were highly inconvenient. And if the adoption took place long after the succession to the collateral had opened and the property might have meanwhile changed hands several times, the title of the purchasers would be liable to be disturbed quite a long time after the alienations and finally held that they were of the opinion that the decision in Anant v. Shankar, in so far as it related to properties inherited from collaterals was not sound and that in respect of such properties the adopted son can lay no claim on the ground of relation back.

17. The Supreme Court in Krishnamurthi v. Dhruvaraj, : [1962]2SCR813 , reaffirmed and followed the principles laid down by the decision of the Supreme Court in Srinivas v. Narayan : [1955]1SCR1 .

18. In the case on hand we are not concerned with what their Lordships held with regard to the application of the doctrine of relation back to theestate of a collateral and hence we need not consider in this case the effect of the same. But we are concerned with the other four principles mentioned above. The last principle laid down by the Supreme Court would make it clear that if the adoptive mother while enjoying the estate of the deceased (adoptive father) made alienations prior to the date of adoption, they are all binding on him and thus the transferees from limited owners, whether they be widows or coparceners in a joint family, are amply protected.

19. With regard to the rule of divestiture, the Supreme Court states that by virtue of the doctrine of relation back, the adopted son is entitled to divest the adoptive mother of the estate of his adoptive father. But the Supreme Court does not state that the adopted son would divest his adoptive mother of her enjoyment of the estate of his adoptive father when she was enjoying the same as per the terms of the ante-adoption agreement which confers on her the right to enjoy the same during her lifetime. Such an arrangement cannot be said to be unfair as held by the Privy Council in Krishnamurthi v. Krishnamurthi and also by the Madras High Court in T. Raju v. Nagammal, AIR 1928 Mad 1289. Thus it is clear that the adopted son is entitled to invoke the benefit of the doctrine of relation back and the rule of divestiture subject to these limitations as pointed out by the Supreme Court in the fourth principle. It is under these circumstances that we hold that the Appellate Controller was not correct in saying that the ante-adoption agreement is invalid and illegal. But this does not mean that the rights of an adopted son in the estate of his adoptive father which is in the enjoyment of his adoptive mother are in any way diminuted. It is true that the alienations made by the adoptive mother before the adoption are binding on the adopted son. But if no alienation is made before the adoption, the adoptive mother is not permitted under law to alienate even a small portion of the estate in her enjoyment. This is on account of the legal position that his rights are vested in the estate by virtue of the doctrine of relation back and as such the adoptive mother is not competent to deal with the properties in any manner detrimental or prejudicial to the interests of the adopted son. It is in this way that the doctrine of relation back can be reconciled with the ante-adoption agreement.

20. When the right of the adopted son to succeed to the estate of his adoptive father is not affected in any way by the ante-adoption agreement, it has to be concluded that the entire estate of Venkanna in the case on hand is devolved on the adopted son, Venkataramaiah, and hence it is not a case of cesser of interest assessable under Section 7 of the E.D. Act. Section 7(1) of the E D. Act reads 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... '

21. According to the provisions of Section 7(1) it is clear that the property in which the deceased had an interest which ceases on his death shall be deemed to pass and hence the estate, duty is payable only on the cesser of interest which is the property deemed to pass on his death. But in the case on hand, there is no cesser of interest which is liable for duty under Section 7(1) of the Estate Duty Act, because of the operation of the doctrine of relation back by which the adopted son, Venkataramiah, should be deemed to have come into existence by the date of death of his adoptive father and hence the entire estate of the deceased, Venkanna, stands devolved on Venkataramaiah as a result of the rule of survivorship. It is true that Narasamma was in the enjoyment of the- properties of the deceased, Venkanna, under the terms of the ante-adoption agreement. But that does not prevent the devolution of the estate on Venkataramaiah, the adopted son of the deceased, Venkanna, as a result of the doctrine of relation back. On the other hand, she is deemed to have been permitted by the adopted son to enjoy the properties during her lifetime. It is under these circumstances that we find that the Tribunal is justified in holding that the ante-adoption agreement has no effect with reference to the impugned properties and the Asst. Controller is not correct in holding that Section 7 of the E.D. Act is applicable to the properties in question. Even the Appellate Controller is not correct in treating that half the share in the properties is subject to duty when he came to the conclusion that the estate of Venkanna devolved on the accountable person by virtue of the doctrine of relation back. When the Tribunal rightly held that the adopted son is entitled to take the entire estate, the Tribunal is not justisfied in not interfering with the order of the Appellate Controller merely on the ground that the accountable person has not preferred cross-objections. We do not think that this reasoning of the Tribunal is proper. When the entire matter is under consideration on account of the appeal preferred by the department, there is no necessity for the accountable person to prefer cross-objections. Since the entire case was under the consideration of the Tribunal, it is open to the Tribunal to give the benefit of its decision that the accountable person is entitled to take the entire estate by virtue of the adoption and also the doctrine of relation back without subjecting the properties of the accountable person to any duty.

22. Having regard to the aforesaid reasons and findings, we answer the first question in the affirmative and in favour of the accountable person. In view of our finding that the entire,estate devolved on the accountable person by virtue of the adoption as well as the doctrine of relation back, the question of its passing wholly or partly on the death of the deceased, Narasamma, does not arise. Hence, the second question is answered in the negative. No costs. Advocate's fee Rs. 250.


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