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Controller of Estate Duty Vs. R.S. Gwalre - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMisc. Civil Case No. 270 of 1976
Judge
Reported in[1981]130ITR261(MP); 1981MPLJ514
ActsEstate Duty Act, 1953 - Sections 33, 33(1), 34, 34(1) and 39(3)
AppellantController of Estate Duty
RespondentR.S. Gwalre
Appellant AdvocateP.S. Khirwadkar, Adv.
Respondent AdvocateK.M. Agarwal, Adv.
Excerpt:
.....appellant is liable to be set aside. - it is true that clause (n) refers to 'one house or part thereof' but the opening words of section 33(1) clearly limit the exemption to the property belonging to the deceased which passes on his death......33 ;......(c) in the case of property so passing which consists of a coparcenary interest in the joint family property of a hindu family governed by the mitakshara, marumakkattayam or aliyasantana law, also the interest in the joint family property of all the lineal descendants of the deceased member ; shall be aggregated so as to form one estate and estate duty shall be levied thereon at the rate or rates applicable in respect of the principal value thereof.(2) where any such estate as is referred to in sub-section (1) includes any property exempt from estate duty, the estate duty leviable on the property not so exempt shall be an amount bearing to the total amount of duty which would have been payable on the whole estate had no part ofit been so exempt, the same proportion as the.....
Judgment:

G. P. Singh, C.J.

1. This is a reference made under Section 64(1) of the E.D. Act, 1953, at the instance of the Controller of Estate Duty. The question of law referred is as follows :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the amount of Rs. 33,332, representing the value of the shares of lineal descendants in the residential house of the Hindu undivided family of the deceased, was exempt under Section 33(1)(n) read with Section 39(3) and Section 34(1)(c), both for accertaining the share of the deceased and also the shares of the lineal descendants which are to be included for rate purposes only under Section 34(1)(c) of the Estate Duty Act, 1953 ?'

2. The reference relates to the assessment of estate duty on the estate passing on the death of Pannalal Gwalre, who died on 10th July, 1966. The deceased at the time of his death was a member of an HUF. The net principal value of the estate of the deceased was determined at Rs. 6,12,722 under Section 58(3) of the Act by the Asst. Controller. While making the said assessment the Asst. Controller included a sum ofRs. 33,332 representing the value of 4/6ths share of the lineal descendants of the deceased in the residential house of the HUF. The Appellate Controller, on appeal by the accountable person, held that on a reading of Section 33(1)(n) read with Section 39(3) of the Act, the entire amount of Rs. 33,332 added by the Asst. Controller was exempted from estate duty. In this view of the matter, the Appellate Controller deleted the said addition. The same view was taken in appeal by the Appellate Tribunal.

3. The estate duty is imposed by Section 5 of the Act upon the principal value of all property which passes on the death of a person. Part III of the Act which consists of Sections 21 to 33 deals with exemptions from the charge of duty. Section 33(1)(n), with which we are concerned in this case, reads as follows ;

'33. (1) To the extent specified against each of the clauses in this sub-section, no estate duty shall be payable in respect of property of any of the following kinds belonging to the deceased which passes on his death--......

(n) one house or part thereof exclusively used by the deceased for his residence, to the extent the principal value thereof does not exceed rupees one lakh if such house is situate in a place with a population exceeding ten thousand, and the full principal value thereof, in any other case.'

4. Part IV of the Act consisting of Sections 34 and 35 deals with aggregation of property and rates of duty. In this case, we are concerned with Clauses (a) and (c) of Section 34(1) and Section 34(2), which read as below:

'34. (1) For the purpose of determining the rate of estate duty to be paid on any property passing on the death of the deceased,--

(a) all property so passing other than property exempted from estate duty under Clauses (c), (d), (e), (i), (j), (1), (m), (mm), (n), (o) and (p) of Sub-section (1) of Section 33 ;......

(c) in the case of property so passing which consists of a coparcenary interest in the joint family property of a Hindu family governed by the Mitakshara, Marumakkattayam or Aliyasantana law, also the interest in the joint family property of all the lineal descendants of the deceased member ;

shall be aggregated so as to form one estate and estate duty shall be levied thereon at the rate or rates applicable in respect of the principal value thereof.

(2) Where any such estate as is referred to in Sub-section (1) includes any property exempt from estate duty, the estate duty leviable on the property not so exempt shall be an amount bearing to the total amount of duty which would have been payable on the whole estate had no part ofit been so exempt, the same proportion as the value of the property not so exempt bears to the value of the whole estate.

Explanation.--For the purposes of this sub-section, ' property exempt from estate duty ' means--

(i) any property which is exempt from estate duty under Section 33 ;

(ii) any agricultural land situate in any State not specified in the First Schedule;

(iii) the interest of all coparceners other than the deceased in the joint family property of a Hindu family governed by the Mitakshara, Marumakkattayam or Aliyasantana law.'

5. Part V which consists of Sections 36 to 43 provides for the mode of computation of principal value. Section 39, which is relevant for our purposes, is as under :

'39. (1) The value of the benefit accruing or arising from the cesser of a coparcenary interest in any joint family property governed by the Mitakshara school of Hindu law which ceases on the death of a member thereof shall be the principal value of the share in the joint family property which would have been allotted to the deceased had there been a partition immediately before his death.

(2) The value of the benefit accruing or arising from the cesser of an interest in the property of a tarwad or tavazhi governed by the Marumakkattayan rule of inheritance or of a kutumba or kavaru governed by the Aliyasantana rule of inheritance which ceases on the death of a member thereof shall be the principal value of the share in the property of the tarwad or tavazhi or, as the case may be, the kutumba or kavaru which would have been allotted to the deceased had a partition taken place immediately before his death.

(3) For the purpose of estimating the principal value of the joint family property of a Hindu family governed by the Mitakshara, Marumakkattayam or Aliyasantana law in order to arrive at the share which would have been allotted to the deceased had a partition taken place immediately before his death, the provisions of this Act, so far as may be, shall apply as they would have applied if the whole of the joint family property had belonged to the deceased.'

6. A perusal of Section 33(1)(n) will go to show that the exemption under that provision is not in respect of the whole house but only to the extent it belongs to the deceased and passes on his death. It is true that Clause (n) refers to 'one house or part thereof' but the opening words of Section 33(1) clearly limit the exemption to the property belonging to the deceased which passes on his death. Now, in the case of a house belonging to an HUF, the house cannot be said to belong wholly to a member and, therefore, if a member of such a family dies, the exemption under Section 33(1)(n) cannot operate for the entire house but will be limited to the extent of the interest held by the deceased member in the house. The interest of the lineal descendants of the deceased member in the house does not belong to the deceased and cannot be said to pass on his death and, therefore, such an interest does not qualify for any exemption under Section 33(1)(n). Section 34 permits aggregation of the interest in the joint family property of all the lineal descendants of the deceased for rate purposes. This is clear by a reading of Section 34(2) and Section 34(1)(c), But Section 34 nowhere provides that in making the aggregation of the interest in the joint family property of the lineal descendants the aggregation would not cover such property of the descendants which would have qualified for exemption had any one of them died. There is no room for applying the provisions dealing with exemption at the stage of aggregation of the interest in the joint family property of the lineal descendants. Section 39(1) provides for the mode of valuation of interest in coparcenary property which ceases on the death of a member. This interest is to be valued by determining the principal value of the share in the joint family property which would have been allotted to the deceased had there been a partition immediately before his death. Section 39(3) on which great reliance has been placed by the accountable person provides that for the purpose of estimating the principal value of the joint family property of a Hindu family governed by the Mitakshara law in order to arrive at the share which would have been allotted to the deceased had a partition taken place immediately before his death, the provisions of the Act, so far as may be, shall apply as they would have applied if the whole of the joint family property had belonged to the deceased. Now, Section 39(3) creates a fiction for the purpose of estimating the principal value of the joint family property of a Hindu family. The fiction is that the joint family property is deemed to be the property of the deceased and the provisions of the Act are to apply on that basis but this fiction is 'for the purpose of estimating the principal value' and not for any other purpose. The application of the provisions of the Act by the fiction is only for the purpose for which the fiction is created, i.e., for the purpose of estimating the principal value of the joint family property. For example, Section 36 provides that 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 open market at the time of the deceased's death. This provision of the Act would be applied because of the fiction ' for the purpose of estimating the principal value of the joint family property'. Similarly, if the joint family held shares in a private company, Section 37 would be applied. The fiction, however, cannot be used to widen the exemptions contained in Section 33of the Act in determining the principal value of the joint family property under Section 39(3). The principal value of the joint family property has first to be determined by ignoring Section 33. The next stage is the determination of the principal value of the share which would have been allotted to the deceased, had a partition taken place immediately before his death. After determining the principal value of the share of the deceased in the joint family property, exemption of the value of his interest in the residential house of the family has to be allowed under Section 33(1)(n). Thereafter, the value of the interest in the joint family property of all the lineal descendants of the deceased is to be added to the principal value of the interest of the deceased minus the exemption allowed to him under Section 33(l)(n). It is on this aggregate amount that the rate of estate duty is to be applied subject to this that the inclusion of the value of the interest of the lineal descendants in the joint family property is merely for rate purposes as is clear from Section 34(2). In our opinion, the Tribunal was wrong in applying the fiction contained in Section 39(3) to extend the exemption under Section 33(1)(n) so as to cover the value of the interest of the lineal descendants in the residential house.

7. The question arising before us has been elaborately considered by the Karnataka High Court in CED v. K. Nataraja : [1979]119ITR769(KAR) . Venkataramiah J., as he then was, held in that case that the fiction under Section 39(3) is limited for the purpose of valuation only and cannot be extended for widening the exemption. It was also held by him that Section 34(1)(c) merely enables aggregation of the interest of the lineal descendants for the purpose of determining the rate of duty and that what has to be aggregated under Section 34(1)(c) is the entire interest in the coparcenary property of all the lineal descendants of the deceased member without any exemption or exception. It was further held that only the value of the interest of the deceased in a house which forms part of his coparcenary property is exempted from estate duty under Section 33(1)(n). The same view has been taken by the Allahabad and Madras High Courts [See ITAT v. Madan Mohan : [1979]119ITR781(All) and CED v. Estate of Me R. Krishnamachari : [1978]113ITR200(Mad) ]. We respectfully agree with the view taken in these cases.

8. The learned counsel for the accountable person relied upon a decision of the Andhra Pradesh High Court in CED v. Estate of late Durga Prasad Beharilal : [1979]116ITR692(AP) . This case does, to some extent, support the learned counsel but as explained by the Karnataka High Court in K. Nataraja's case : [1979]119ITR769(KAR) , the reasoning is not clear as to why the valuation of the interest of the lineal descendants in the residential house can be excluded. With great respect, we are unable to agree with, the view taken by the Andhra Pradesh High Court.

9. For the reasons given above our answer to the question is in the negative, in favour of the department and against the accountable person. There will be no order as to costs.


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