Per Shri T. Venkatappa Judicial Member - The Deceased, Shri J.Srinivasan, a leading charted accountant at Bangalore, passed away on 11-5-1975. An estate duty account was filed by the accountable person.
In the said account, the movable assets declared included a sum of Rs. 1,29,150 on account of fees receivable from clients on the date of death, viz, 11-5-1975. In addition to that, a sum of Rs. 10,850 was recovered as fees for the work done by the deceased. The accountable person claimed that the said amounts are not includible in the net principal value of the estate as the deceased was maintaining accounts on cash basis. No bills were raised during the lifetime of the deceased. There was no understanding or contract with the clients to pay any amount by way of fees, etc. The Assistant Controller did not accept these submissions. He held that the mere fact that the accounts were kept on cash basis will not decide the question as the chargeability to estate duty did not depend upon the method of accounting which is relevant only for the purpose of income-tax assessments. The deceased was entitled to get his remuneration for the services rendered and there is a present obligation on the part of the clients to make the payment. The amount of fees may be the sum usually charged in such cases. When a chartered accountant renders services, he has got a right to remuneration which gives rise to an actionable claim. Thus, he did not accept the contention that the right to fees is not property. The fact that no bills were raised during the lifetime of the deceased, does not affect his right to collect the fees. Though the fees might not have been specifically mentioned, the deceased had a right to fees which is usually charged in such cases. He gave a deduction of Rs. 7,000 as collection charges. Thus, he included Rs. 1,32,250 as fees receivable in the principal value of the estate.
2. The accountable person appealed to the Appellate Controller. He held that the work done by the deceased for the regular clients were all done at their instance and the right to fees had accrued in respect of all of them as on the date of death. There is no case for holding that the unrealised fees outstanding on the date of death of the deceased did not constitute property liable to assessment for the purpose of estate duty. Neither the fact that there was not written agreement between the deceased and the clients in most of the cases not the bills had not been raised by the deceased for the work done in relation to these clients as on the date of death stand in the way of treatment of these fees as property. These fees were all realised within a reasonable period after death. The deduction of 5 per cent allowed by the Assistant Controller meets fully the requirements of the case.
Thus, he upheld the inclusion of Rs. 1,32,250 in the principal value of the estate. Against the said order, the assessee has preferred this appeal.
3. The learned counsel for the assessee strongly urged that there was no contract between the deceased and his clients for the payment of fees. No bills were raised during his lifetime. There was no understanding or contract with the clients. At any rate, there is no ascertainment of any amount. The deceased maintains cash system of accounting. Hence, the amount of outstanding fees is not includible in the principal value of the estate. He urged that the ratio laid down in the case of A. T. Mirji v. CWT (1980) 126 ITR 93 (Kar.) applies to the estate duty assessment also. Alternatively he urged that if the outstanding fees is includible, discount should be allowed at a higher percentage. The learned departmental representative submitted that there is a quasi-contract between the deceased and his clients. The very fact that the deceased rendered services would imply that there was a contract for the payment of fees towards his services. In the case of chartered accountants no bills are raised immediately at the time of rendering services. Bills are raised subsequently on the basis of fees charged in the earlier years. It is on that basis that the bills were raised subsequently after the death of the deceased and the clients have paid the amounts. All this would clearly show that the amounts were due to the deceased for the services rendered. Instead of paying the amount during the lifetime of the deceased the payment was postponed but the deceased and a right for the amount due from his clients for the services rendered. Reliance was placed on a decision in Mrs. Menaben V. Parikh v. CED (1979) 116 ITR 840 (Bom.). It was also submitted that section 17 of the Indian Contract Act, 1872, would apply.
4. We have considered the rival submissions. The deceased rendered services to his clients in respect of which the fees was paid to the legal heirs after the death of the deceased. When the services are rendered by the deceased, there was an implied agreement with his clients for the payment of fees. The payment of fees normally depends on the work done and fees charged for similar work done in the earlier year and if any additional work is done, extra payment will have to be made by the clients. Merely because there is no written agreement, it cannot be said that the deceased did not expect any payment for the services. The deceased being a professional man would not have rendered services freely to his clients. He would have naturally expected his clients to pay the fees for the services rendered by him. Thus, there was an implied understanding for the payment of fees for the services rendered by the deceased. Merely because the bills have not been raised, it cannot be taken that no amount was outstanding towards the fees receivable for the services rendered. The very fact that after the death of the deceased bills were raised and the clients have made the payments would go to show that the payment has been made by the clients for the services rendered by the deceased. The question of maintaining the accounts on cash basis may not be very much relevant for the purpose of estate duty. Hence, the decision of the Karnataka High Court in A. T. Mirjis case (supra) dealing with the system of accounting of an income-tax practitioner for the purpose of wealth-tax may not be applicable while considering the estate duty assessment. The system of accountancy is not very much relevant for the estate duty assessment.
What is required for the estate duty assessment is whether the property has passed on the death of the deceased. In this connection, it may be relevant to refer to section 2(16) of the Estate Duty Act, 1953 (the Act) which reads as under : "Property passing on the death includes property passing either immediately on the death or after any interval, either certainly or contingently, and either originally or by way of substitutive limitation, and on the death includes at a period ascertainable only by reference to the death;" It is clear from the above provision that even property passing after any interval either certainly or contingently on the death is deemed as property passing on the death of the deceased. In Mrs. Menaben V.Parikhs case (supra) the Bombay High Court held that an immediate quantification is not an essential attribute of property under the Act.
Property passing on death would include property passing either immediately on death or after an interval either certainly or contingently in view of the wide ambit of the statutory provisions. On the facts of that case, it was held that the salary must be taken to accrue from month to month and the deceased had a legal right to receive the share of profits and could have disposed of this right.
The ratio laid down therein squarely applies to the instant case. Thus, in our view, the fee receivable from the clients for the services rendered by the deceased is includible in the principal value of the estate. Thus, it was rightly included. Coming to the alternative contention, we think a higher discount should be allowed instead of 5 per cent allowed by the Assistant Controller. If the clients have not paid the fee, normally, the accountable person had to file suits and there would have been litigation. Taking the entire facts into account, we think it proper to allow a discount of 25 per cent on the fees receivable by the deceased. We direct the Assistant Controller to allow the same.