1. This and Misc. Civil Case No. 133 of 1976 are references made by the Income-tax Appellate Tribunal, Indore, one at the instance of the accountable person and the other at the instance of the Controller of Estate Duty.
2. The facts relevant for the purpose of disposal of these two references are:
3. These references arise out of the estate duty payable on the death of the deceased, Premkumari Devi, who died on 30th April, 1958. Premkumari Devi was the wife of Shri Rajkumarsinghji. The genealogical tree of the family is as follows :
Sir Hukumchand (Karta)
Lady Kanchanbai (wife)
Sri rajkumarsinghji (son)
Smt. Premkumari Devi (wife)
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Rajabhadur Maharaja Jambu Chandra Yashkumar
Singh Bahadur Kumar Kumar Singh
(son) Singh Singh Singh (son)
4. There was a partition of the HUF of Sir Seth Hukumchand on 31st March, 1950. In this partition, Sir Seth Hukumchand, his wife, Lady Kanchanbai, and Shri Rajkumarsinghji shared the assets each one getting one-third. Shri Rajkumarsinghji, in addition to the one-third share that he got on partition of the HUF, also got from Sir Seth Hukumchand and his wife substantial properties in terms of jewellery and other things and Rajkumarsinghji then executed a deed of partition of his HUF constituted of himself, his wife and five sons. In this partition, he not only partitioned the assets that he got as his one-third share in the HUF of his father but also partitioned the jewelleries and other valuables that he received as gift from his father and mother. Thus, Smt. Premkumari Devi not only got one-seventh share out of the one-third which Seth Rajkumarsinghji got but also got one-seventh share in the jewellery and other valuables which came to Shri Rajkumarsinghji as gift from his father and mother.
5. There was also liability on the HUF of Sir Seth Hukumchand as arrears of income-tax due to the income-tax department and when Shri Rajkumarsinghji partitioned his HUF the liabilities of the income-tax also fell to the share of all the members of the HUF including deceased Premkumari Devi. It was, therefore, contended that Premkumari Devi on partition did not get only 1/21 share of the assets of the original HUF of Sir Seth Hukumchand but got something more, as she also got one-seventh share in the jewellery and valuables that Shri Rajkumarsinghji got as gift from his father and mother, consequently, she should be given the benefit of deducting proportionate liability of tax relating to the bigger HUF, than 1/21 share. As this contention was not accepted and she was only allowed deduction of 1/21 share of the tax liability of the HUF of Sir Seth Hukumchand and one-seventh of the tax liability finally determined in the case of the Hindu divided family of Shri Rajkumarsinghji, therefore, the accountable person sought reference on this question.
6. The next item of dispute is about the valuation of the jewellery. The accountable person valued the jewellery and ornaments held by the deceased at Rs. 7,45,820. This was done on the basis of valuation made by an approved valuer for wealth-tax purposes and it is reported that it was accepted for the wealth-tax purposes. The Dy. CED, however, found that out of this jewellery two items which were valued by the approved valuer at Rs. 5,50,000 were in fact sold for Rs. 6,31,000 after the death of the deceased. The Dy. CED, therefore, did not accept the valuation as mentioned by the approved valuer but estimated the value of the jewellery on the death of the deceased at Rs. 8,50,000 instead of Rs. 7,45,820 as valued by the valuer.
7. On these facts, the Tribunal has referred the following two questions :
'(1) Whether, on the facts and in the circumstances of the case, there was justification in allowing only 1/21 share of tax liability of Sir Hukumchand, HUF, instead of the 1/7th or any higher proportion of liabilities ?
(2) Whether, on the facts and in the circumstances of the case, there was any justification, in law, to adopt the subsequent sale of jewellery in 1960 as basis for valuation despite the approved valuer's valuation ?'
8. On partition of the HUF of Shri Rajkumarsinghji, deceased, Premkumari Devi, was given property of the value of Rs. 16,04,312 only whereas one-seventh share in the total assets came to Rs. 17,53,271. Thus the deceased received less amount on partition to the extent of Rs. 1,48,959. This difference of Rs. 1,48,959 was included in the principal value of the estate passing on death of the deceased by the Dy. CED. But the Tribunal accepted the contention of the accountable person in second appeal and deleted this amount of Rs. 1,48,959.
9. The deceased had assigned or nominated nine life insurance policies of the value of Rs. 3,92,886 in favour of Rajkumarsinghji on various dates. The Dy. CED included the total value of the policies as property deemed to pass on death of the deceased under Section 14 of the E.D. Act. In appeal before the Appellate Controller, the accountable person took objection in respect of the inclusion of five policies out of the above nine of the value of Rs. 1,79,810 as they were not kept up by the deceased and no premium was paid by her. There was no dispute about inclusion of policies worth Rs. 2,13,075. The Appellate CED, however, held that one-seventh portion of the policies of Rs. 1,79,810 in respect of which premium was paid from the HUF funds, is deemed to pass under Section 14 of the E.D. Act. On further appeal, the Tribunal accepted the contention of the accountable person. Consequently, the department has sought reference to this court on the following questions:
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 1,48,959 ?
(2) Whether, on the facts and in the circumstances of the case, the difference between the value of 1/7th share of the properties to which the deceased was entitled on family partition and the share which she actually received, is a gift includible under the provisions of Section 9 read with Section 27 of the Act ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Appellate CED was not right in including Rs. 25,687 the 1/7th share of the deceased in the life insurance policies to the 'principal value of the estate of the deceased even though the premiums were paid out of funds of the joint family in which the deceased had 1/7th share?'
10. In fact, out of these questions referred to at the instance of the department the first two questions are in substance one and the same. The difference between what the deceased Premkumari Devi got and what she was entitled to as the one-seventh share is the amount of Rs. 1,48,959 and this theTribunal deleted from the amount of the assets which were held to have passed on the death of the deceased.
11. As both these references arise out of the same matter and it is only because both the parties sought references on different questions that these two separate references have been sent to this court, but as they arise out of the same matter they are being disposed of together.
12. As regards the first two questions in the reference made at the instance of the department (Misc. Civil Case No. 133 of 1976) it was contended that the deceased was entitled to one-seventh share on partition of the HUF of Seth Rajkumarsinghji and one-seventh share of the total assets was more than what she actually got. This difference was Rs. 1,48,959 and it was contended that this amounts to a disposition or gift which being within two years of the death of the deceased will have to be added to the value of the property which ultimately passed on death of the deceased, Premkumari Devi. In support of this contention, reliance was placed on the decision of the Madras High Court in Ranganayaki Ammal v. CED : 88ITR96(Mad) ; whereas on the other hand, it was contended by the accountable person that the decisions in Smt. Cherukuri Eswaramma v. CED  69 109 (AP) and Kantilal Trikamlal v. CED  74 ITR 353 are two decisions, one of the Andhra Pradesh High Court and the other of the Gujurat High Court, taking a contrary view. It was however, contended that now with the decisions of their Lordships of the Supreme Court in CGT v. N. S. Getti Chettiar : 82ITR599(SC) and CED v. Kancharla Kesava Rao : 89ITR261(SC) , the matter is concluded and it could not be contended that when in partition one of the members gets less than what she was entitled to, it could be said to be a disposition or a gift. Consequently, it could not be added while determining the value of the property passing on death of the deceased. In CGT v. N.S. Getti Chettiar : 82ITR599(SC) , their Lordships of the Supreme Court, after examining the relevant provisions of the Act, held (page 606):
' We do not think that a partition in a HUF can be considered either as 'disposition' or 'conveyance' or 'assignment' or 'settlement' or 'delivery' or 'payment' or 'alienation' within the meaning of those words in Section 2(xxiv).'
13. Their Lordships further examined Clause (d) of Section 2(xxiv) of the G.T. Act and held that this will not amount to a gift under the partition deed. Similarly, in CED v. Kancharla Kesava Rao : 89ITR261(SC) , their Lorships observed (page 264):
'We are unable to accept the contention of Mr. Rama Rao that under the partition deed there was a 'disposition'. According to him, the true nature of the transactions entered into under the partition deed were that Kotamma gave up all her rights in the family properties, including her right to maintenance unilaterally, but at the same time the other members of the family voluntarily gave her 25 acres of wet land to be enjoyed by her during her lifetime. For this contention of his, he placed reliance on the terms of the partition deed. In a matter like this we are not merely to look at the form in which the deed is drawn up. We are to find out the true nature of the transaction. From the facts set out above it is absolutely clear that under the partition deed Kotamma gave up her rights to the extent mentioned earlier and in lieu thereof the other members of the family allotted to her share 25 acres of wet land to be enjoyed by her during her lifetime. It was an adjustment of rights. The contention of Mr. Rama Rao that there was 'disposition' under the partition deed--the contention which has appealed to the High Court--appears to us to be an erroneous one. A partition is not a transfer in a strict sense. It is an adjustment of the rights of the various members of the family. In CIT v. Keshavlal Lallubhai Patel : 55ITR637(SC) , this court quoted with approval a passage from the decision of the Madras High Court in Gutta Radhakrishnayya v. Gutta Sarasamma, AIR 1951 Mad 213. That passage reads thus :
'Partition is really a process in and by which a joint enjoyment is transformed into an enjoyment in severalty. Each one of the sharers had an antecedent title and, therefore, no conveyance is involved in the process as a conferment of a new title is not necessary '.'
14. In view of these pronouncements of their Lordships of the Supreme Court the contention advanced by the department in regard to the first two questions in M.C.C. No. 133 of 1976 could not be accepted and these two questions are, therefore, answered as the first in the affirmative and the second in the negative.
15. As regards the third question in the reference at the instance of the department (MCC No. 133 of 1976) about the insurance policies it was contended by learned counsel for the accountable person that these policies were maintained by payment of premium out of the HUF arid have been nominated in the name of Shri Rajkumarsinghji. It was, therefore, contended that it could not be said that these policies were kept up by the deceased and, therefore, Section 14 of the E.D. Act could not be applied. In support of the contentions learned counsel placed reliance on the decisions reported in Seethalakshmi Ammal v. CED : 61ITR317(Mad) and CED v. Smt. v. Annapurnamba  84 ITR 756 . Learned counsel for the department on the other hand placed reliance on a decision reported in Smt. Radha De : 68ITR521(Cal) vi Samogi v. CED and contended that in this decision the Calcutta High Court has considered the impact of the Insurance Act on a policy which is nominated. It was also contended by learned counsel that in fact the CED applied Section 7 and, therefore, has only added l/7th of the value of the policies on the basis of the l/7th share the deceased had in the HUF of Shri Rajkumarsinghji.
16. Section 14 of the E.D. Act is a special provision pertaining to insurance policies and Sub-section (1) of this section runs :
'14. Policies kept up for a donee.--(1) Money received under a policy of insurance effected by any person on his life, where the policy is wholly kept up by him for the benefit of a donee, whether nominee or assignee, or a part of such money in proportion to the premiums paid by him, where the policy is partially kept up by him for such benefit, shall be deemed to pass on the death of the assured.
Explanation.--A policy of insurance on the life of a deceased person effected by virtue or in consequence of a settlement made by the deceased shall be treated as having been effected by the deceased.' This provision talks of a policy wholly kept up by him for the benefit of a donee, nominee or assignee in proportion to the premiums paid by him. Apparently, the CED felt that as the policies were kept up by premiums paid by the HUF in which the deceased had 1/7th share, he felt that policies were partly kept up by the deceased and in that ratio he, therefore, added l/7th value of the policy to the assets that shall be deemed to pass on death. The Tribunal did not accept this contention and observed that Section 14 will not be applicable.
17. It is not disputed that the premiums were paid out of the HUF and not wholly or in part by the deceased. The question about the payment of the premiums by HUF came up for consideration before the Madras High Court in Seethalakhmi Ammal v. CED : 61ITR317(Mad) , and it was observed (page 323):
'The answer to this question will depend upon the meaning of 'kept up' and the effect and scope of ' for the benefit of a donee, whether nominee or assignee' in Section 14 of the E.D. Act, 1953. The insurance policies are a species of property, the value of which will depend upon the surrender value thereof at a given time and they are dealt with separately by the section. They may attract duty in accordance with the circumstances either under this section or Section 6 or Section 15 of the Act. For the application of Section 14, the policy of life insurance must have been kept up by the deceased either wholly or partially, and it was so kept up for the benefit of a donee, who may be a nominee or assignee. Where it was only partially kept up by the deceased, only a proportionate policy money shall be deemed to pass on the death of the assured. The phrase 'kept up' is not a legal term or a term of art but conveys the ordinary meaning. In the context of a life insurance policy, 'kept up' means the policy is continued in force by payment of premiums due in respect of it. In our opinion, not merely the physical act of getting a policy of insurance but all acts necessary for keeping the policyalive will be comprehended in the phrase. The substantial element that goes to maintain a policy alive, once it is taken out, is, however, payment of premiums. The words 'kept up by him' indicate, to our minds, that the premiums paid should be from his own funds, not merely his own hand that physically makes the remittance of the premiums. In other words, the source of the premiums paid will be determinative of who kept up the policy.'
18. This question again was considered by the Madras High Court in CED v. Smt. Y. Annapurnamba  84 ITR 756, and their Lordships, following the decision in Seethalakshmi Ammal v. CED : 61ITR317(Mad) , held that premiums in respect of policies having been paid by the joint family funds, Section 14 of the E.D. Act cannot be made applicable. The decision on which reliance has been placed by learned counsel for the department is the decision of the Calcutta High Court reported in Smt. Radha Devi Saraogi v. CED : 68ITR521(Cal) . In this decision, the policies were taken out by the karta of a HUF in his own name and assigned to his wife. The premiums were paid out of the family funds. Their Lordships held that so far as the premiums were paid out of the funds of the HUF it could not be said that the policies were kept up by the deceased as an individual and, therefore, it was held that Section 14(1) of the Act will not be applicable. But, on the facts of that case, as the policy was taken out by the karta and assigned in the name of his wife their Lordships held that the policies should be taken to belong to the joint family in which the deceased has 1/4th share ; and, therefore, it was held that 1/4th value of the policy should be treated as the property passing on death of the deceased. Their Lordships observed (page 531):
'Thus, there is evidence of payment of the premia for the insurance policies, by the deceased out of the joint family funds. There is no evidence that this payment was made to the deceased for his separate use out of the joint family funds. The entire evidence goes to show that the policies were taken in the name of the deceased to the detriment of the joint family funds and with the object of providing for the widow of the deceased, at the expense of the joint family. Income-tax rebate for the premia paid were claimed and obtained by the joint family. Thus, the policies should be taken to belong to the joint family in which the deceased had only an one-fourth share.
We now turn to the effect of the assignment of the policies by the deceased to Radha Devi Saraogi, the accountable person. The Assistant Controller made enquiries from the insurance companies and found that the version of 'irrevocable assignment' was a story and that Smt. Radha Devi Saratogi was merely a beneficiary and the deceased had full controlover the policies till his death. This categoric finding was ignored by the Central Board of Revenue but no reasons were assigned therefor.
Assuming, however, that there was an assignment, the policies were not kept up, within the meaning of Section 14(1) of the Estate Duty Act, by the deceased as an individual but, as the evidence shows, by the karta of a joint family, out of the joint family funds. Since the policies were not kept up by the deceased as an individual but as karta of a Hindu undivided family Section 14(1) does not come into play and the amounts due under the policies were not properties that passed on his death excepting to the extent of his one-fourth share therein.'
19. Learned counsel for the department placed reliance on the observations in the last paragraph quoted above. It appears that in the facts of that particular case their Lordships felt that the policies should be taken to belong to the joint family in which the deceased had only 1/4th share. But, in the present case, there was a nomination in favour of Shri Rajkumarsinghji and the deceased in whose name the policies were taken was not even the karta of the joint Hindu family. Apart from it, Section 14(1) of the E.D. Act is not applicable even in view of the view expressed by their Lordships in this case. In fact, Section 14 is a deeming provision and if Section 14(1) does not apply it is not possible to hold that a share of the policy value could be said to pass on the death of the deceased by deeming provision.
20. Learned counsel for the department contended that Section 7 comes into operation. Section 7 talks of interest ceasing on the death of the deceased which could be brought in for purpose of calculating the assets that pass on the death of the deceased and Sub-section (2) of that section talks of a member of a Hindu coparcenary with respect to the interest the deceased had in the coparcenary property. These provisions can come into play only if it could not be held that the value of the policy became the property of the HUF. But, it could not be disputed that when the policies have been nominated in favour of a particular person the value of the policy will be the property of that person and not of the HUF from where the premiums were paid. In view of this in our opinion, the contention advanced by learned counsel for the department cannot be accepted. Consequently, we answer the third question in the reference at the instance of the department (MCC No. 133 of 1976) in the affirmative.
21. As regards the questions referred at the instance of the accountable person in M.C.C. No. 132 of 1976, the first question is about the proportion of the tax liability which the accountable person is entitled to deduct from the total assets. It was contended by learned counsel for the accountable person that as the deceased got from the bigger HUF, i.e., of Sir Seth Hukumchand, much larger share than 1/21 share she should be given the benefit of deducting proportionate liability of tax relating to theliability of bigger HUF of Sir Seth Hukumchand Swarupchand as according to learned counsel Sir Seth Hukumchand and his wife gave away to Rajkumarsinghji almost the entire jewellery which had fallen to their share in partition of 1950 and this jewellery which came to Rajkumarsinghji has been divided at the time of partition of the HUF of Rajkumarsinghji in 1956. Learned counsel for the department, on the other hand, contended that it is no doubt true that under Section 44 of the E.D. Act the accountable person is entitled to the advantage of the debts of the deceased or encumbrance created by the disposition made by the deceased. He also contended that it also could not be disputed that the liability of tax shall be proportionate to the assets received by the deceased. But he contended that in fact the gift made by Sir Seth Hukumchand and his wife in favour of Rajkumarsinghji was a personal gift. However, it is not disputed that when the HUF of Shri Rajkumarsinghji and his sons broke up what was partitioned was not only the share of Rajkumarsinghji which he got on partition of the bigger HUF but even this jewellery which was received by him from his father and mother was partitioned between all the members of the HUF. Admittedly, therefore, what the deceased got on partition of the smaller HUF was not only 1/21 share but something more than that because what came to Rajkumarsinghji was not only one-third but more than that as practically all the jewellery in the hands of Sir Seth Hukumchand and his wife were gifted away to Rajkumarsinghji.
22. Section 44 of the E.D. Act enacts :
'44. In determining the value of an estate for the purpose of estate duty, allowance shall be made for funeral expenses (not exceeding rupees one thousand) and for debts and incumbrances ; but an allowance shall not be made-
(a) for debts incurred by the deceased, or incumbrances created by a disposition made by the deceased, unless, subject to the provisions of Section 27, such debts or incumbrances were incurred or created bona fide for full consideration in money or money's worth wholly for the deceased's own use and benefit and take effect out of this, interest, or
(b) for any debt in respect whereof there is a right to reimbursement from any other estate or person, unless such reimbursement cannot be obtained, or
(c) more than once for the same debt or incumbrance charged upon different portions of the estate, or
(d) for debts incurred by or on behalf of the deceased by way of dower, to the extent, to which such debts are in excess of rupees five thousand,
and any debt or incumbrance for which an allowance is made shall be deducted from the value of the property liable thereto.'
23. Thus debts and incumbrances are to be allowed in determining the chargeable value of the estate. It is not disputed that the income-tax liabilities that have been assessed subsequently are debts which the deceased had to pay and, therefore, while determining the value of the assets for the purposes of estate duty, allowance will have to be made for the debts which remained to be paid. In fact, allowance has been made for the debts ; but what has been done is to allow only 1/21 share of the tax liability and in view of what has been discussed above apparently what the deceased got was not 1/21 share but something more than that. In this view of the matter, therefore, it could not be doubted that she is entitled to the advantage of a larger share of the tax liability of the HUF of Sir Seth Hukumchand. And in view of this, our answer to the first question in Misc. Civil Case No. 132 of 1976 is that there is no justification in allowing only 1/21 share of tax liability.
24. The next question is about the valuation of the jewellery. The accountable person showed in his return the value of the jewellery at Rs. 7,45,820 based on the valuation of an authorized valuer for the W. T. Act which has been, it is reported, accepted for the assessment of wealth-tax. The Dy. CED estimated the value at Rs. 8,50,000. This has been done on the basis that two items of jewellery which had been valued by the accountable person at Rs. 5,50,000 have been sold after the death of the deceased at Rs. 6,31,000 and on this basis the Controller-considered that the estimate of Rs. 8,50,000 was a fair and reasonable estimate. Learned counsel for the accountable person contended that these items were sold in 1960, long after the death of the deceased and the time which had elapsed between the death of the deceased and the sale of these pieces of jewellery should be taken into account. Because, according to learned counsel, the value of the jewellery has to be on the date of death and not subsequently as Sub-section (1) of Section 36 of the E.D. Act clearly lays down that the value should be the value at the time of the death of the deceased. Learned counsel also contended that looking to the appreciation in the prices of jewellery quoted by Gulanikar in Two Acts--Gift & Wealth-tax (Fourth Edn. p. 921) during that period the appreciation would be about 8 to 10 per cent. and on this basis if the estimate is considered on the basis of the actual sale which took place in 1960 and the appreciation is accounted for, then the price shown by the authorized valuer would appear to be just and proper. Learned counsel for the department, on the other hand, contended that under Section 36(2) the Controller has the jurisdiction to estimate the value and in so doing it could not be said that he was wrong when he considered the actual sales of the pieces of jewellery although in 1960.
25. Section 36 of the E.D. Act provides :
' 36. (1) The principal value of any property shall be estimated to be the price which, in the opinion of the Controller, it would fetch if sold in the open market at the time of the deceased's death.
(2) In estimating the principal value under this section the Controller shall fix the price of the property according to the market price at the time of the deceased's death and shall not make any reduction in the estimate on account of the estimate being made on the assumption that the whole property is to be placed on the market at one and the same time :
Provided that where it is proved to the satisfaction of the Controller that the value of the property has depreciated by reason of the death of deceased, the depreciation shall be taken into account in fixing the price.' Sub-section (1) of this section clearly indicates that the price which has to be taken into consideration will be the price in the open market at the time of the deceased's death. It is no doubt true that Sub-section (2) empowers the Controller to fix the price of the property in accordance with the market price. It could not, therefore, be doubted that even the actual sale price in 1960 could be taken into consideration. But, if that price is taken into consideration allowance will have to be made for the appreciation in the price of jewellery during the period between the death of the deceased and the actual sale. It appears that this has not been noticed by the authorities and to that extent the contention advanced by learned counsel for the accountable person appears to be justified. It is not disputed that if on the actual price fetched by the two items of jewellery sold in 1960 allowance is made for the appreciation, roughly it will appear that the valuation given by the authorized valuer is reasonable and it could not be said that there is any reason to put any other value on the property which the valuer estimated as the price the property would fetch on the date on which the valuer valued the same. It is no doubt true that when the price the property would fetch in the open market on the date of death is to be estimated in the absence of actual sale, it could only be the price it could fetch if sold in the open market on the date of death; and in arriving at a valuation in this manner there would always be some fund of approximation. Therefore, if the basis which the Controller assumed, i.e., the actual price of certain items in 1960 is to be taken into account in order to date it back to the date of death allowance will have to be made for the appreciation in the price of jewellery and in this process again it is bound to be an approximation. And, if the difference between the two approximations is not substantial there is no reason why the price fixed by the approved valuer should not be accepted. Apparently, the Controller committed an error in accepting as the basis the price of actual sale of certain items on a date which is much later than the date of death. And, therefore, in view of Section 36 quoted above it could not be justified.
26. Consequently, our answer to the second question in Misc. Civil Case No. 132 of 1976 is in the negative.
27. We think that in the circumstances of the case, it would be just and proper that the parties be left to bear their own costs of this reference. We order accordingly.
M. C. C. No. 133 of 1976.
28. We have considered in detail the facts and circumstances of this case in the Order delivered by us today in the connected case Misc. Civil Case No. 132 of 1976 (Maharaja Bahadur Singh v. CED). As observed in that order we answer the first question in the affirmative, the second in the negative and the third question in the affirmative in this case.
2. The parties are directed to bear their own costs in this reference as well.