1. This is a departmental appeal. The issue involved is the computation of the value of the properties held by the HUF, of which the deceased was a member. This computation has to be done under Section 39 of the Estate Duty Act, 1953 ('the Act').
2. The deceased was a member of a HUF. The family had made a gift of Rs. 10,000 to one of the members of the family. The deceased had died within a period of two years from the date of the gift. According to the Assistant Controller, in computing the value of the assets of the HUF the gift made by the family within two years period of death has to be included. On appeal, the Appellate Controller held that gift made by the deceased alone will have to be included under Section 9 of the Act.
The HUF is a separate legal entity and, therefore, this section cannot cover such gifts. On that ground, he deleted the inclusion.
3. The department is on appeal before us. Shri Chawla, for the department, submitted that on a proper reading of Section 39(3) it would be seen that the sub-section creates a legal fiction; that legal fiction is to assume that the properties of the HUF would be the properties of the individual-deceased. The sub-section clearly states that all the provisions of the Act shall apply as they would have applied if the whole of the joint family property had belonged to the deceased. Section 9 being one of the sections, that also will have to be applied. Therefore, he submitted that the Assistant Controller was correct in his order. He has relied on the commentary of Shri V.Balasubramaniam on 'Law & Practice of Estate Duty', Third edition, wherein the learned author has opined that such an inclusion is warranted by the wording of the section.
4. We have considered the submissions. Section 39 deals with 'the valuation of interest in corparcenary property ceasing on death'. This is the marginal note. Though the marginal note will not control the provisions of the section, the intention unless otherwise clear from the section itself is that the provisions of Section 39 would apply for all valuations. Now, Sub-section (1) of Section 39 states that the value of the benefit accruing or arising from the cesser of a coparcenary interest shall be the principal value of the shares in the joint family property which would have been allotted to the deceased had there been a partition immediately before his death. Sub-section (2) states the same thing but with reference to other schools of law like Marumakkattayam or Aliyasantana. So, Sub-sections (1) and (2) lay down the rules for finding out what is the extent of the cessor of interest. In both the sections, the cessor of interest is fixed to the share the deceased would have received had there been a partition on the date of death.
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.
The first part of the sub-section shows that the provisions would be used for the purpose of estimating the principal value of the joint family property. The latter part of the section states that the provisions of the Act shall apply as they would have applied if the whole of the joint family property had belonged to the deceased. The latter part of the sub-section read with the first part would make it clear that it is meant only for the purpose of estimating the principal value of the joint family property. It is true, as Shri Chawla stated, the section does create a legal fiction; but in giving effect to a legal fiction, one must keep in mind the purpose for which the fiction is created. The purpose is for estimating the principal value of the joint family property. So, all provisions of the Act which have anything to do with estimating the principal value of the properties would be applicable. These are the sections which are contained in Part V of the Act, i.e., Sections 36 to 43 of the Act. The sections by which properties which are not owned by the deceased are deemed to pass, are contained in Part II of the Act. This Part contains Sections 6 to 16 of the Act and the special provisions with regard to controlled companies in Sections 17 to 20A of the Act. These sections deal with properties which in law do not pass but which the Act deems that they pass. In fact, the expression used in the Act itself is 'property which is deemed to pass'. It will be very difficult for us to hold that such deeming provisions which include properties which are deemed to pass have also to be included for the purpose of estimating the principal value of the properties of the HUF.6. It is true that the commentary of the learned author, Shri V.Balasubramanian relied on by Shri Chawla supports him. However, the learned author himself had revised his opinion on this point. In the Fourth edition, the following para occurs : On a reconsideration of the position in the light of the later decisions as well as the experience in the administration of the Act, this view does not seem to be the correct view. For the purposes of estate duty the actual property passing or deemed to pass on the death should in the first place be computed and its principal value ascertained in the second place. Fixing of the items of property is entirely a different process from that of estimating the value. Under the first, come the inclusion of all items of property passing or deemed to pass on the death, adjustment of debts, allowances, etc., whereas under the second, only the question of evaluating the principal value comes in. Section 39(3) deals only with valuation and for this purpose all the property belonged to the family is deemed to belong to the individual. The expression used is : 'joint family property had belonged to the deceased'. This can take into account only the property existing in the joint family on the date of the death. Items such as gifts made prior to the death within or without the statutory period, etc., cannot, therefore, be included. In the absence of the further expression 'and which passed on the death after belonged to the deceased' it would be incorrect in law to continue the fiction to the point where the entire property of the family is not only regarded as belonging to the deceased but is also deemed to pass on the death. The fiction should, therefore, be confined only to treating the entire family properties as belonging to the deceased and not treating the entire family properties as passing on the death. The provisions of Sections 6 to 17 of the Act or Sections 30 to 33 or 44 to 46, etc., cannot have application to the joint family property. This view also finds support from the Andhra Pradesh High Court decision in Gunda Bhaskar Rao v. Controller. (p. 410) For these reasons, we hold that the provisions by which properties are deemed to pass are not to be invoked while computing the principal value of the properties of the HUF, in determining the cessor of interest.