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Smt. Pannaben H. Mafatlal Vs. First Assistant Controller of - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1984)10ITD695(Mum.)
AppellantSmt. Pannaben H. Mafatlal
RespondentFirst Assistant Controller of
Excerpt:
.....assistant controller to correctly grant of relief under section 50b and under section 50 of the estate duty act in accordance with law.this is a general ground and does not require any separate consideration. 2. the appellate controller erred in restricting the relief under section 50b in respect of sale of assets by seth h.b. mafatlal (huf) effected for the purpose of payment of estate duty to one-third of the capital gains tax paid by the huf. he ought to have allowed relief under section 50b with reference to the whole of the capital gains tax paid by the huf.the deceased was the karta of seth h.b. mafatlal (huf) at the time of his death. he was survived by his wife and a son so much so that his interest ceasing on his death was one-third in the huf property. it is common ground.....
Judgment:
1. These three estate duty appeals relate to the estate of late Seth Hemant B. Mafatlal, who died on 16-8-1971. While ED Appeal No. 46 (Bom.) of 1983 is by the accountable person, Smt. Pannaben H. Mafatlal, the other two appeals are by the department in respect of computation of the value of the deceased's interest in Seth Hemant Family Trust and valuation of his interest in the properties of Seth Hemant Bhagubhai Trust, respectively. For the sake of convenience, we take up the accountable person's appeal first.

1. The Appellate Controller erred in not directing the Assistant Controller to correctly grant of relief under Section 50B and under Section 50 of the Estate Duty Act in accordance with law.

This is a general ground and does not require any separate consideration.

2. The Appellate Controller erred in restricting the relief under Section 50B in respect of sale of assets by Seth H.B. Mafatlal (HUF) effected for the purpose of payment of estate duty to one-third of the capital gains tax paid by the HUF. He ought to have allowed relief under Section 50B with reference to the whole of the capital gains tax paid by the HUF.The deceased was the karta of Seth H.B. Mafatlal (HUF) at the time of his death. He was survived by his wife and a son so much so that his interest ceasing on his death was one-third in the HUF property. It is common ground that when the Assistant Controller passed the assessment order originally, he had not computed the relief allowable to the accountable person under Section 50B of the Estate Duty Act, 1953 ('the Act'). However, while giving effect to the order of the Appellate Controller by passing an order on 8-4-1976, the Assistant Controller computed the relief under Section 50B at Rs. 19,75,764 which includes a sum of Rs. 37,475 in respect of the deceased's interest in Seth H.B.Mafatlal (HUF) 4. It is common ground that the HUF had paid capital gains tax of Rs. 84,979 in respect of 450 ordinary shares of Standard Mills Co. Ltd., belonging to the HUF and (sic) sold within two years of the death for making payment of estate duty and that the capital gains tax paid by the HUF in respect of the sale of the Borivili land was Rs. 3,44,395.

There is also no dispute that the entire sale proceeds of the shares, i.e., Rs. 2,97,450 and a sum of Rs. 73,928 only out of the sale proceeds of the Borivili land amounting to Rs. 7,37,500 was utilised for the purpose of making the payment of estate duty. Further, the Assistant Controller has correctly computed the overall relief allowable to the accountable person under Section 50B at Rs. 1,12,426, i.e., Rs. 79,948 in respect of capital gains tax on the sale of shares and Rs. 32,478 on the sale of Borivili land.

On the footing that the deceased had one-third interest in the HUF, the Assistant Controller has held that the relief allowable under Section 50B would be one-third of Rs. 1,12,426 as the deceased's interest in the HUF property was one-third only.

5. The accountable person submitted before the Appellate Controller that the relief under Section 50B should not have been restricted to one-third of the capital gains tax attributable to the portion of sale proceeds of the capital assets utilised for the payment of the estate duty. However, for reasons given in paragraph 3 of his order which reads as under : 3. As regards the last grievance I am unable to agree with Mr.

Nair's contention. The relevant section clearly refers to the sale of the property included in the estate in respect of which capital gains tax is subsequently paid. Therefore, what can be considered for the purpose of Section 50B relief cannot be the actual and full capital gains tax paid by the HUF and trust, respectively, for the mere reason that the full such property has not been included in the estate that passed on the death of the deceased. The Assistant Controller's allowance in this respect is correct and is upheld.6. It is submitted before us by Shri Dilip Chokshi, the learned counsel for the accountable person, that the departmental authorities have failed to appreciate that the estate duty is leviable on the entire HUF property and not on one-third of it being the deceased's interest therein. For this purpose, he took us through the provisions of Sections 7, 34(1)(c) and 39 of the Act to show that the entire property of the HUF is liable to estate duty. Particular reliance was placed on the provisions contained in Section 34(1)(c) for aggregating the value of the interest in the joint family property of all the lineal descendants of the deceased for determining the rate of estate duty applicable. Alternatively, he submitted that so long as the joint Hindu family is in existence no coparcener can predict with an amount of certainty that he has a particular share in a specific property. At the best, he can say that he has one-third or one-fourth share in the entire property of the HUF. Inviting our attention to the fact that the value of the deceased's share in the HUF property has been determined at Rs. 16,07,976 and that the HUF's assets sold amounted to Rs. 10,34,950, he urged that it can be reasonably inferred that the assets sold were entirely out of the deceased's share so that the estate is liable to relief in respect of the total amount of capital gains tax of Rs. 12,426. It is vehemently urged that the provisions contained in Section 50B are in the nature of relief to the taxpayers and that, therefore, they should be broadly interpreted. Shri Anjani Kumar, the departmental representative, has, on the other hand, strongly relied on the order of the departmental authorities. In particular, he has laid great stress on the language used in Section 7 that the HUF property is liable to estate duty to the extent of the deceased's interest therein, According to him, the mere fact that for the purpose of determining the rate applicable in a given case only the value of the interest of the lineal descendants is taken into account does not lead to the conclusion that the entire HUF property is liable to estate duty. As regards the alternative contention, Shri Anjani Kumar submitted that an extreme view may, perhaps, be taken namely, there being no identification in point of fact or law as regards the deceased's interest in a particular assets, no part of the sale proceeds can fall within the provisions of Section 50B. However, according to him, a more reasonable view would be that the interest being one-third in the HUF property, one-third of the tax may be treated as referable to the sale proceeds.

7. In order to appreciate the rival contentions carefully, it is desirable to refer to the provisions of Section 50B, which read as under : Relief from estate duty where tax has been paid on capital gains.-Where any property on which estate duty is leviable under this Act is transferred within a period of two years following the death of the deceased and tax under the Income-tax Act, 1961 (43 of 1961), has been paid in respect of the capital gains arising from such transfer, the estate duty payable shall be reduced by a sum which bears to the total amount of tax so paid the same proportion as the amount paid towards estate duty out of the proceeds of the transfer bears to the gross proceeds of such transfer : Provided that the Board may, on an application of the accountable person, extend the period of two years aforesaid if it is satisfied that the accountable person had sufficient cause for not effecting the transfer of the property within that period.

There is no dispute about the manner in which the relief is to be computed in terms of Section 50B as such. The dispute is regarding the scope and meaning of the expression 'property' on which estate duty is leviable under this Act. It is pertinent to mention that the condition precedent to the application of Section 50B is 'where any property on which estate duty is leviable under this Act, etc.'. The expression 'property' has been defined in Section 2(15) of the Act to include any interest in property. It cannot, perhaps, be disputed that the deceased's interest in the HUF property is a property within the meaning of Section 2(15). Estate duty is leviable on the deceased's above interest both because it is the property which the deceased was at the time of his death competent to dispose of in view of Section 30 of the Hindu Succession Act, 1956, as well as under Section 7 of the 1953 Act representing the cessor of his coparcenary interest in the HUF property.

8. The deceased's interest in the HUF property is certainly a property.

However, it is doubtful whether each and every asset owned by the HUF is or can be treated 'property deemed to pass on the death of the deceased on which estate duty is leviable under the Act'. It is pertinent to mention that no coparcener can ever predict whether his share in the HUF property is one-third or one-fourth, etc., until there is a partition in the family. The notional partition, as has happened in this case, only means that the deceased's interest in the HUF property is determined at one-third. This, to our mind, only means that the deceased's interest is one-third in the surplus, i.e., the value of the HUF assets minus the HUF liabilities. It is not the same thing as saying that the deceased had one-third share in each and every asset of the HUF and similarly in the liabilities. The deceased's interest in the HUF property which is property under Section 2(75) and which is certainly liable to estate duty, has, admittedly, been not transferred as such. What have been transferred are the two assets of the HUF and the deceased had one-third interest in the HUF property. In the circumstances, one can, perhaps, even take a conservative view and say that the assets of the HUF sold herein do not fall within the expression 'property' on which estate duty is leviable under this Act.

We, however, find that the departmental authorities have taken a very equitable view holding that a presumption can be drawn that the deceased had one-third share in each and every asset of the HUF on which estate duty is leviable so that the estate is entitled to relief under Section 50B of one-third of the capital gains tax computed in proportion to the utilisation of the sale proceeds to the total sale proceeds of the capital asset.

3. The Appellate Controller erred in restricting the relief due under Section 50B in respect of sale by Hemant Family Trust No. 2 to two-thirds of the capital gains tax paid by the trust. Inasmuch as the sale proceeds were utilised for the payment of estate duty, the relief ought to have been allowed with reference to the whole of the capital gains tax paid in respect of such sales.

The arguments advanced in this regard are the same as are advanced in connection with ground No. 2. There being no dispute that only one-third of the deceased's interest in the trust corpus has been deemed to pass and the estate duty is leviable thereon, we hold that the Controller was right in confirming the order of the Assistant Controller that relief was allowable to the extent of one-third only.

10. There is no other ground in the appeal by the accountable person.

The first ground in the departmental appeal [ED Appeal No. 50 (Bom.) of 1983] is : 1. In view of the facts and in the circumstances of this case, the Commissioner of Income-tax (Appeals) has erred in directing the Assistant Controller to allow the relief under Section 50B of the Estate Duty Act in respect of probate fees on the basis of gross duty payable.

It is admitted that the reference to Section 50B should be read as reference to Section 50 of the Act. The Assistant Controller has allowed the accountable person proportionate relief under Section 50 observing as under: Probate court fees of Rs. 6,103.75 have been paid. A copy of the Succession Certificate has also been filed. Relief as due restricting it to the deceased's interest in HUF assets and after excluding proportionate fees in respect of assets not included in estate duty assessment is being allowed.

The Controller has, on the other hand, accepted the claim as in his view there was no ambiguity in Section 50 which clearly stipulates deduction from the estate duty payable. It is submitted before us by the departmental representative that the Controller failed to appreciate that like Section 50B Section 50 also requires relief to be given in respect of the property on which estate duty is leviable. The property being of the HUF in which the deceased had only one-third share and on which estate duty is leviable, for reasons given by us in paragraphs 7 and 8 of our order, we hold that the Controller was not justified in directing the Assistant Controller to give the assessee full relief. Accordingly, we set aside the order of the Controller and restore that of the Assistant Controller.

2. In view of the facts and in the circumstances of this case, the Commissioner of Income-tax (Appeals) has erred in directing the Assistant Controller to allow the relief under Section 50B in respect of capital gains tax paid on the basis of actual capital gains tax payable and not on the basis of net average rate of tax.

The short question involved herein is whether the capital gains tax paid by the HUF or the trust in respect of the assets sold for the payment of estate duty payable in respect of the estate is to be taken at the highest level, i.e., the amount actually paid as capital gains tax, or on the basis of net average rate of tax. In this connection, reference may be usefully made to Section 14 of the Income-tax Act, 1961, which provides different heads of income. It is pertinent to mention that capital gains comes last but one in the list,i.e., before income from other sources only. Since there is no dispute that the assets in dispute, whether belonging to the HUF or the trust, have been sold primarily with a view to paying the estate duty in respect of the estate, it is only reasonable that the capital gains tax should be treated as the last item of income in the total income of the respective assessees. Accordingly, we do not find any merit in this ground of the department.

12. The first ground in the departmental appeal [ED Appeal No. 51 (Bom.) of 1983] is : 1. On the facts and in the circumstances of the case and in law, the learned Appellate Controller-cwm-Commissioner of Income-tax (Appeals) has erred in directing the Assistant Controller to allow the relief under Section 50B of the Estate Duty Act in respect of probate fees on the basis of the gross duty payable.

This ground is misconceived and does not arise out of the order of the Controller.

2. On the facts and the in circumstances of the case and in law, the learned Appellate Controller-cum-Commissioner of Income-tax (Appeals) has erred in directing the Assistant Controller to allow the relief under Section 50B in respect of capital gains tax paid on the basis of actual capital gains tax payable and not on the basis of net average rate of tax.

This is the same ground that we have considered in the departmental appeal [ED Appeal No. 50 (Bom.) of 1983]. For reasons given therein, we uphold the order of the Controller.

14. In the result, the accountable person's appeal [ED Appeal No. 46 (Bom.) of 1983] is dismissed, the departmental appeal [ED Appeal No. 50 (Bom.) of 1983] is partly allowed and the other departmental appeal [ED Appeal No. 51 (Bom.) of 1983] is also dismissed.


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