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Controller of Estate Duty Vs. Mahendra A. Patel - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1984)9ITD239(Mum.)
AppellantController of Estate Duty
RespondentMahendra A. Patel
Excerpt:
.....share in huf property to be aggregated for rate purpose being of the value of rs. 2,83,124. shri alphonso submits that it is a fact that the deceased owned residential property, viz., babulnath property, which he returned at rs. 56,000 as per the valuer's report and in respect of which he claimed exemption under section 34 of the act to the extent at one-third as part used for residence. shri alphonso stated that when one turns to the valuation report dated 16-6-1976, it is manifest that the babulnath property belonged jointly to the [deceased and smt. jasodu ambalal patel--wife of the deceased and that according to the valuer, he placed 'a market value of the property at 8, babulnath road belonging to shri ambalal bhailal patel and smt. jasodu ambalal patel at rs. 56,000'. now,.....
Judgment:
1. This appeal by the Controller is against the Appellate Controller's order dated 11-1-1983 in the estate duty proceedings on the death of late Shri Ambalal B. Patel. It raises the following issue: On the facts and in the circumstances of the case and in law, the learned Appellate Controller of Estate Duty-cum-Commissioner (Appeals), Bombay, has erred in deleting the value of self-occupied property thrown into common hotchpot of the HUF of the deceased holding that Sections 9, 10, 13, 29, etc., are not applicable.

2. Records disclose that Shri Ambalal Patel passed away on 9-7-1976. As his accountable person Shri Mahendra Patel, his son, filed an account of the estate on 15-5-1977. The account as filed declared the principal value of the estate passing on death a sum of Rs. 1,09,277. In terms of his order dated 22-7-1981 the Assistant Controller computed the principal value of estate at an amount of Rs. 8,62,734. Against the assessment as made, the accountable person filed an appeal only on one issue, the issue related to the Assistant Controller's action in including in the principal value of the estate passing on death an amount of Rs. 4,57,685 being HUF property taxable under Sections 9, 10 and 13 of the Estate Duty Act, 1953 ('the Act'). The accountable person admitted that movables of value of Rs. 57,781, being the proportionate share of the deceased, may be included and an amount of Rs. 2,83,124 be included for rate. He disputed the Assistant Controller's action in including in the principal value the entire value of HUF property of an amount of Rs. 4,57,685. The Controller's order in its brevity indicates the basic principles but does not give the full facts. In para (2) the Controller had observed as under: On 7-2-1969 the deceased converted his self-acquired property into HUF by throwing it into the common hotchpot. The ACED held that this amounted to a gift, or disposition and applied all the provisions of Sections 9, 10 and 13 read with Section 29(1) of the Estate Duty Act. The income-tax and wealth-tax assessments in respect of this property has all along been done in the hands of the HUF. It is, therefore, contended by the accountable person that the whole property cannot be included in the estate but only one-sixth of it being the interest attributable to the deceased.

3. Proceeding on the basis of the Supreme Court decision that the throwing of self-acquired property into family hotchpot is not a gift as it is an unilateral act, the Appellate Controller was of the view that 'the transfer, if any, took place more than two years preceding the date of death, Section 9 cannot be applied. Since there is no gift, Section 10 is not applicable. Section 13 is clearly out of the question. Section 29 of the Act applies to an unequal partition and is totally irrelevant'. As such, the Appellate Controller accepted accountable person's submission that only one-sixth of the immovable property representing the interest of deceased in the estate could be included.

4. On giving the basic facts as indicated above Shri Roy Alphonso for the department submitted that manifestly the ground of appeal to an extent is misconceived as the ground of appeal refers to the Appellate Controller's action in deleting the value of self-occupied property thrown into the common hotchpot of the HUF, when the real relief claimed before the Appellate Controller and granted by the Appellate Controller was with reference to the amount brought to charge as a result of 'throwing the self-acquired property into the family hotchpot', a submission which the Appellate Controller accepted and directed only the inclusion of one-sixth, viz., the accountable person's share, the share as returned being Rs. 57,781 out of the principal value of Rs. 1,09,271 with an admission that 'lineal descendant's share in HUF property to be aggregated for rate purpose being of the value of Rs. 2,83,124. Shri Alphonso submits that it is a fact that the deceased owned residential property, viz., Babulnath property, which he returned at Rs. 56,000 as per the valuer's report and in respect of which he claimed exemption under Section 34 of the Act to the extent at one-third as part used for residence. Shri Alphonso stated that when one turns to the valuation report dated 16-6-1976, it is manifest that the Babulnath property belonged jointly to the [deceased and Smt. Jasodu Ambalal Patel--wife of the deceased and that according to the valuer, he placed 'a market value of the property at 8, Babulnath Road belonging to Shri Ambalal Bhailal Patel and Smt. Jasodu Ambalal Patel at Rs. 56,000'. Now, this valuation report records a fact that of the three floors the first floor is owner occupied. Shri Alphonso states that even though the ground of appeal taken is not wholly accurate, the relief which is sought by the Controller in the appeal is clearly indicated. It is stated that the relief which the Controller seeks is that the order of the Assistant Controller be restored. Shri Alphonso pointed out that he had earlier brought to our notice that whereas the accountable person had returned as the share of the lineal descendant's share to be included for the purposes of rate an amount of Rs. 2,73,124 and the share of the deceased in the HUF property at Rs. 57,781, the Assistant Controller had brought to charge an amount of Rs. 4,57,685. It is pointed out that when the Assistant Controller gave effect to the order of the Appellate Controller by his order under Section 62 of the Act, the adjustment made was that in respect of the figure of Rs. 4,57,685 as already brought to charge against which the Assistant Controller included the one-sixth share amounting to Rs. 76,281 and included the four-sixth share of the lineal descendant amounting to Rs. 3,05,123 for the purposes of rate. Shri Alphonso submits that by this appeal, the Controller seeks to urge that what should be included in the principal estate passing on death is the amount of Rs. 4,67,685 and not as ordered by the Appellate Controller an amount of Rs. 76,281 and an amount of Rs. 3,05,123 for the purposes of rate.

5. On the clarification of the ground of appeal as urged by Shri Alphonso, Shri V.S. Patel, the assessee's learned chartered accountant, did not urge anything.

6. Having heard the parties and examined the record on the limited issue of the ground as raised, we find even though the ground of appeal as raised is not proper, the dispute as raised in the appeal has been indicated with some clarity. In the circumstances, we accept Shri Alphonso's submission and allow the Controller suitably to modify the ground of appeal, the dispute being as indicated above. In other words, the dispute is about the correctness of the Appellate Controller's action in deleting from the principal value of the estate the amount of Rs. 4,57,685 and directing inclusion for assessment an amount of Rs. 76,281 and for purposes of rate an amount of Rs. 3,05,123. It may be added that the accountable person does not dispute the correctness of the inclusion of the amount of Rs. 76,281 for the purposes of tax and that of Rs. 3,05,123 for the purposes of rate.

7. Having indicated the point at issue, one may now refer to the facts giving rise to dispute. As has been stated earlier, the Appellate Controller's order is very short and does not give the facts so as to enable one to understand the dispute. Shri Ambalal Patel, it is seen, was a self made person. It is an accepted position that in his lifetime much prior to two years before his death on 9-7-1976, Shri Ambalal Patel threw in the family hotchpot some of his self-acquired property.

The records do not readily disclose the self-acquired property so thrown in the hotchpot. It is an admitted position that at the time of death on 9-7-1976 the value of the movables and immovables in the family hotchpot is of an amount of Rs. 4,57,685. There were six members in the family entitled to a share on the partition. One is his widow, Smt. Jasodu Ambalal Patel. The other is his son, Mahendra Ambalal Patel, who is the accountable person. The records do not show the names of the other three members. It is, however, an accepted position that on partition Shri Ambalal Patel was entitled to one-sixth share and that four-sixth has to be included for the purposes of rate. According to Shri Alphonso, Shri Ambalal Patel had the full power of disposition over the entire property of the value of Rs. 4,57,685 as being a karta, he could have effected a partition at his will. On this premise Shri Alphonso submits that the property is to be included in the estate in terms of Section 6 of the Act as the deceased was competent to dispose of the property.

8. Shri Patel for the accountable person submits that the Assistant Controller in his order has not referred to Section 6 at all. It is submitted that Shri Alphonso is making a new case for the department.

9. Having heard the parties and examined the record, on this limited issue, we find that there is no merit in Shri Patel's submission that Shri Alphonso is making a new case. It is a fact that Shri Alphonso has now referred to a Section to which directly the Assistant Controller has not made a reference. However, it is elementary that the property which the deceased at the time of his death was competent to dispose of passes on his death. As such, we proceed to consider Shri Alphonso's submission on merit concerning the applicability of Section 6.

10. Now, as stated the facts are clear that much prior to two years before his death the deceased had thrown some of this self-acquired property into family hotchpot. The deceased has a son, who is the accountable person, viz., Mahendra Ambalal Patel, being a coparcener was entitled to claim partition at any point of time without assigning any reason whatsoever. We are, therefore, of the opinion that Shri Alphonso is incorrect when he submits that the deceased Ambalal Patel had full power of disposition. No one can forget the right of coparcener to demand partition. We are, therefore, of the opinion that Section 6 is not applicable with regards the entire property. The deceased had power of disposition only with reference to his share only, as such reliance was not rightly put on Section 6 by the Assistant Controller.

11. At this stage, one may refer to a subsidiary argument by Shri Alphonso with reference to Section 27 of the Act. According to Shri Alphonso, by throwing the property into a family hotchpot there is a disposition made by the deceased in favour of his relative and as such in terms of Section 27, according to Shri Alphonso, the entire property is liable to be included.

12. In reply to this submission of Shri Alphonso, Shri Patel states that in his order, the Assistant Controller had not referred to Section 27 and as such this is a new case which the department is trying to make out.

13. Having heard the parties and examined the record for the limited purposes of appreciating Shri Alphonso's submission, we find that under Section 27, it is provided, 'any disposition made by the deceased in favour of a relative of his, shall be treated for the purposes of this Act as a gift'. Assuming that Shri Alphonso is right that by throwing the self-acquired property into family hotchpot, Shri Ambalal Patel made a disposition in favour of his relatives and that such a decision comes within the mischief of Section 27, all what follows is such disposition becomes a gift. Now, so far as the gifts are concerned, the relevant provision is Section 9 to which directly, the Assistant Controller has made a reference. It may be stated that Shri Alphonso has made a reference to Section 9 as well on that basis Shri Alphonso urged that the entire property has to be included. We find that unfortunately, the Assistant Controller and Shri Alphonso had overlooked the fact that under Section 9 what is includible is that gift which shall not have been bona fide made two years or more before the death of the deceased. As we have stated earlier, on facts there is no dispute that the act of throwing in the family hotchpot was much prior to two years before the death. Accordingly, we find no merit in Shri Alphonso's submission based with reference to Section 27 and with reference to Section 9 as well.

14. Shri Alphonso thereafter turned to the Assistant Controller's argument that the transaction is hit by Section 10. It is submitted that even after throwing into family hotchpot the deceased was not wholly excluded from the possession and enjoyment of the property.

15. In reply to the above argument of Shri Alphonso, Shri Patel submits that as already held by the Supreme Court by reason of a person throwing in the family hotchpot any self-acquired property there is no gift as gift is a bilateral transaction. As such, on this issue Shri Patel relies on the order of the Appellate Controller.

16. Considering the above submission of Shri Alphonso, we find that there is merit in the Appellate Controller's decision that since there is no gift, Section 10 is not applicable. It is manifest that on the deceased's throwing in the family hotchpot the property, the possession, enjoyment or the benefit of the donor in the property is consistent with the facts and circumstances of the case, viz., that he is in possession, enjoyment and benefit of the property as a member of the HUF. In our opinion, this view is supported by the decision of the Supreme Court in the case of CED v. Kamlavati [1979] 120 ITR 456. The headnote reads as under: ...If the possession, enjoyment or benefit of the donor in the property is consistent with the facts and circumstances of the case other than those of the factum of gift, it cannot be said that the donee had not retained the possession and enjoyment of the property to the entire exclusion of the donor, or, to the entire exclusion of the donor in any benefit to him by contract or otherwise. It makes no difference whether the donee is a partner in the firm from before or is taken as such at the time of the gift or he becomes a creditor of the partnership firm by allowing it to make use of the gifted property for the purposes of the partnership.

As we understand, these observations are applicable to the issue before us as well. We are of the opinion that the reliance of Section 10 both by the Assistant Controller and Shri Alphonso is misconceived.

17. Shri Alphonso then turned to the last agrument taken by the Assistant Controller in his order, viz., applicability of Section 13.

Section 13 refers to the joint investment. The relevant words of Section 13 are as under: Where a person, having been absolutely entitled to any property or to the funds with which any property was purchased, has caused it to be transferred to or vested in himself and any other person jointly, ...the whole of that property shall be deemed to pass on the death.

Shri Alphonso states that on this issue all what the Appellate Controller has stated is that Section 13 clearly is out of the question. According to Shri Alphonso, after the property was thrown in the family hotchpot, it is joint property of all the coparceners and as such Section 13 is applicable. Shri Patel on this part of the controversy relies on the order of the Appellate Controller.

18. We have given anxious thought to this submission of Shri Alphonso.

We find that the joint investment referred to in Section 13 are manifestly not of the type now under consideration. It is unnecessary to add that Section 13 as it is to be seen in the English enactment as well where the concept of coparcenary property is totally absent. On a person throwing in the family hotchpot the self-acquired property, there is no investment which that person makes jointly or he does not invest any property himself or any other person jointly but by the unilateral act he gives certain rights to other coparceners which they are in a position to exercise without reference to the person throwing in the family hotchpot the property. As such, we find no merit in Shri Alphonso's submission.

19. We have made a reference to each and every submission of Shri Alphonso but not referred to the decisions which Shri Alphonso had brought to our notice. One such decision which Shri Alphonso has brought to our notice was H.H. Iqbal Mahomad Khan, Nawab of Palanpur v.CED [1964] 53 ITR (ED) 51 (Guj.). Now, that was a case of a person governed by Mahomedan law. Headnote shows: That, on the facts, the intention of the late Nawab was manifested clearly and was sought to be carried out and effected by his letter dated May 3, 1955, and therefore, the gift of the sum of Rs. 9 lakhs was complete on that date. As the late Nawab died more than two years thereafter, the sum of Rs. 9 lakhs could not be included in the estate passing on his death under Section 9 of the Estate Duty Act, 1953.

This would indicate where the transaction was completed more than two years before the death as in the present case, the property is not includible. The next case strongly relied upon by Shri Alphonso is the decision of the Supreme Court in the case of CED v. Kantilal Trikamlal [1976] 105 ITR 92. That was a case of unequal partition. However, again the headnote would show: ... A little within two years before his death he effected a partition taking a smaller share instead of his legal half, benefiting the others to the extent of the difference.

In our opinion, the value of the estate in dispute before the Court was includible essentially because it became within the prohibited period of two years which is not the case before us.

20. Considering from all angles, we find that even though the appellate order is short, the Appellate Controller has considered every aspect properly and that there is no reason requiring any interference. As such, we dismiss the appeal.


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