1. This appeal is by the revenue. The only point for consideration is whether an amount of Rs. 11,697, which represented payment of leave salary, could be subjected to estate duty. The deceased was an employee of Sirpur Paper Mills and passed away on 14-10-1978. The amount of Rs. 11,697 was paid to his widow which represented the equivalent of salary that would have been paid if he had taken accumulated leave. The Assistant Controller stated that there was no basis for the claim of exclusion of Rs. 11,697 and the amount was an asset which passed on death. He, therefore, subjected the same to duty.
2. In appeal, the Appellate Controller referred to a Circular of the Board No. F. 35/l/65-IT(B), dated 5-11-1965 set out in Taxmann's Direct Taxes Circulars, vol. 1, 1980 edition, p. 92, and held that the payment in question was in the nature of ex gratia payment by the employer to the legal representative of the deceased and the leave salary received was not property passing on death.
3. The revenue is aggrieved and the learned departmental representative submitted that all property which was within the disposing capacity of the deceased would be deemed to pass on his death under Section 6 of the Estate Duty Act, 1953 ('the Act'). His submission was that the deceased had a right to nominate who would receive the benefits including leave salary after his death and because he had such a right of nomination, the property was such which he was competent to dispose of and should, therefore, be deemed to pass on his death. For this proposition that the existence of a right to nominate would be sufficient to bring the property within the terms of Section 6, the learned departmental representative relied on the decision of the Madras High Court in M.CT. Muthiah v. CED  94 ITR 323.
4. The learned Counsel for the accountable person, on the other hand, relied on the judgment of the Andhra Pradesh High Court in Smt.
Lakshmisagar Reddy v. CED  123 ITR 601 and submitted that unless the four conditions set out in the aforesaid judgment were satisfied, property could not be held to pass.
5. In reply, the learned departmental representative further stated that the observations in the circular of the Board were purely in the context of considering whether the amounts received on account of leave salary by legal heirs were taxable as salary or not and the statements therein could not be pressed into service for deciding the estate duty matters.
6. We have carefully considered the rival submissions. Under Section 5 of the Act, all property which passed on the death of a person would be liable to estate duty. There are illuminating observations on the expression 'property passing on death' in the judgment of S.T. Desai, J., in the case of Khatizabai Mohomed Ibrahim v. CED  37 ITR (ED) 53 (Bom.) where it has been observed The expression 'property passing on the death' has been defined in Section 2(16) which is as under : Property passing on the death' includes property passing either immediately on the death or after any interval, either certainly or contingently, and cither originally or by way of substitutive limitation, and 'on the death' includes 'at a period ascertainable only by reference to the death.
It will be noticed that the word 'passing' has not been defined in the Act, and what is the meaning of the word 'passing' is perhaps the only point about which there is no controversy in this reference. Learned Counsel for the applicant and learned Counsel for the revenue are agreed that the meaning of the expression 'passing' in the Indian enactment is the same as has been given to that word in decisions of Courts in England. It is clear that the expression 'passing' is not used in the Act in any technical sense. It has been held that the very general word 'passes' is not a technical word but one capable of the widest possible meaning and has been used as language to be understood by ordinary people and not in a technical sense. Again it has been said that the expression 'passing on death' which is not further defined is evidently used to denote some actual change in the title or possession of the property as a whole which takes place at the death. It has also been said that changing of hands any convey the meaning of passing of property. The oft quoted meaning of this expression is this : To ascertain whether a property has passed, the comparison must be made between the persons beneficially interested the moment before the death, and the persons so interested the moment after the death. This definition by Lord Russell in a House of Lords case has not been improved upon by any Judge and with respect, the identical expression in our enactment has the same meaning.
The purpose and object of Parliament was to impose a levy on property passing on death of a person and Parliament being fully conscious of human ingenuity and devices that might be adopted to avoid the operation of the imposition has proceeded to lay down a catena of rules headed 'property which is deemed to pass'. This has been done in sections which immediately follow Section 5 . ...
In Smt, Shantaben Narottamdas v. CED  111 ITR 365, there are the following observations by the Gujarat High Court : ...The taxing event is the passing of the property on the death of a person. And the property which passes on the death of a person is the property in respect of which title is transmitted to the heirs and successors of the deceased on account of the death. [We are, for the present, not concerned with the inclusive definition contained in Section 2(16) of the Act]. When does transmission of title then take place So long as the deceased was alive, no transmission of title by operation of law by testamentary succession or intestate succession could have taken place and no property could have passed from his hands to the hands of his heirs and successors. Passing of property can, therefore, take place only upon the death at the instantaneous moment (however small in the time dimension) next after the moment of death. It would happen at that infinitesimal point of time which intervenes between the last breath exhaled by the deceased and the next breath that he might have inhaled if he were not dead. The concept of time itself is a concept of human mind and, therefore, we have to visualize a minimal point of the time when the deceased breathed his last and visualize the very next moment, which is the point of time when passing of the estate takes place. Passing of property must follow the death of necessity and, therefore, death and passing cannot be simultaneous ....
Thus, unless, viewed in the light of the aforesaid observations that there is a passing on death of property, the provisions of Section 5 are not attracted.
7. The Andhra Pradesh High Court in Smt. Lakshmisagar Reddy's case (supra) had stated as under : In order to attract the provisions of Section 5(1) of the Act, the following ingredients must be satisfied : (1) The property must be in existence at any time before the death of the deceased.
(2) The deceased must have a beneficial interest, be it in praesenti or contingent, in the property.
(3) The deceased must be in possession and control, be it actual, constructive or beneficial, of the property.
(4) The deceased must have power to dispose of such property." (p.
606) We now set out the relevant portion of the circular of the Board referred to : The leave salary paid to the legal heirs of the deceased employee in respect of privilege leave standing to the credit of such employee at the time of his/her death is not taxable as salary.
For being taxable as salary, the payment must be due from an employer to the assessee. If the deceased officer is regarded as the assessee in respect of the proposed payment, then the amount was not due to the assessee. Firstly, this is not a payment which was due to be paid to him after his death as a matter of contractual right.
Secondly, even before his death, the payment was not due to him unless and until the leave was actually taken by him.
If the legal representative of the deceased is to be taken to be the assessee, then the amount proposed to be paid is certainly not due to him. It is an ex gratia payment on compassionate grounds in the nature of gift. Thus the payment is not in the nature of salary.
The categorical statements are that the amount was not due to the deceased unless he took leave which he had not taken in the present case. It was also not a payment which was due to be paid after his death as a matter of contractual right. Therefore, the deceased was not possessed of any property. This is a case where property, viz., monetary equivalent of leave salary, was not in existence at a time before the death of the deceased. This being so, the question of any property passing on his death did not arise. In the Board's circular it is also categorically stated that the payment was an ex gratia payment on compassionate grounds in the nature of a gift to the legal heirs.
The learned departmental representative sought to submit that the amount may be ex gratia as far as the legal heirs were concerned, but it did not imply that it partook of the same nature as far as the deceased was concerned. If the amount was due to the deceased, it could never be an ex gratia payment to the legal heirs, but it would be a legitimate due. So, if the payment is ex gratia to the legal heirs, certainly it was not an amount due to the deceased.
8. Having come to the conclusion that there was no property of the deceased prior to his death, the question of any property passing on his death, albeit a moment after his death, insofar as leave salary in respect of leave not taken is concerned, did not arise. We may also point out that the Andhra Pradesh High Court in the case of Smt.
Lakshmisagar Reddy (supra) had stated that it was unable to agree with the Madras High Court view that the mere right to nominate beneficiaries under insurance policy would amount to an interest in property. So also, a mere right to nominate, even if it had existed in the present case, would not bring into existence any property which is deemed to pass under Section 6 on the facts we have stated.