1. This is an estate duty appeal filed by the accountable person against the order dated 8-8-1983 passed by the Appellate Controller, New Delhi. Two questions are involved in this appeal. The first is that the life insurance policy involved in this case, according to the accountable person, should be valued at its surrender value, and according to him, the surrender value should not be treated as its maturity value of Rs. 44,213. The second contention is that the difference between the maturity value and the surrender value of the life insurance policy should be treated as a separate estate under Sub-section (3) of Section 34 of the Estate Duty Act, 1953 ('the Act'), as the deceased never had any interest in this and it should be taxed separately. The deceased in this case is one Smt. Mohini Devi. She died on 9-5-1978. The maturity value of the Life Insurance Policy taken by her namely, Rs. 44,213 was taken as a part of her estate and the value of her estate was determined at Rs. 1,67,362 by the Assistant Controller as per his assessment order, dated 7-2-1980, completed under Sub-section (3) of Section 58 of the Act.
2. Aggrieved against the said order, the accountable person came in appeal before the Appellate Controller. Originally, he claimed only an exemption of Rs. 5,000 in respect of an amount received on account of LIC premium under Section 33(1)(h) of the Act. That prayer was granted by the Assistant Controller and he had reduced the principal value of the estate by Rs. 5,000. However, on 22-7-1983, the accountable person raised two additional grounds. They are as follows: 1. That the learned Assistant Controller has seriously erred in valuing the life insurance policies at Rs. 44,213, i.e., its maturity value instead of its surrender value at the time of the death. The valuation is against the principles of valuation and the Act and the Rules of the Estate Duty.
2. In the alternative, it is submitted that this excess shall become a separate estate under Sub-section (3) of Section 34 as the deceased never had any interest in this and should be taxed separately.
In order to substantiate these grounds a written note dated 8-8-1983 was filed on behalf of the accountable person. Copy of the said written note is also furnished to us in a paper compilation. In that note, inter alia, the phrases 'paid up value' and 'surrender value' were explained. For instance, 'paid up value' is stated to be that part of the insured amount which is due to the policy holder by virtue of the premia already paid. In other words, 'paid up value' is granted free of any obligations to pay future premia. It is the reduced sum assured payable at the end of the policy term or at earlier death of the life assured, if no further premia are paid. So also the surrender value is stated to be the cash value of the policy which is payable to the policy holder, if he decides to terminate the contract. The surrender value is usually obtained from the paid up value by applying a percentage factor. It is the contention of the assessee in the said note that only the surrender value of the policy should be included in the estate of the deceased. So also, it is the contention of the assessee that the maturity value of the life insurance policy accrued only to the legal heir of the deceased after the death of the deceased and as such the entire property can never be said to have been passed on the date of the death of the deceased as the maturity value was not in existence at the time of the death and became receivable only after the death of the deceased. Even at the time of hearing before us, this argument was pressed into service by Shri S. Goyal and Shri R.L. Goyal, the learned Counsels for the accountable person and they relied upon the decisions in CED v. Kasturi Lal Jain  93 ITR 435 (J & K), CED v. Smt. Motia Rani Malhotra  98 ITR 42 (Punj. & Har.) and Smt.
Lakshmisagar Reddy v. CED  123 ITR 601 (AP). On the other hand, the learned departmental representative contended that the Appellate Controller is justified to include the whole of the maturity value of the life insurance policy as part of the estate of the deceased.
Firstly, he stated that the definition of the word 'property' given in Section 2(15) of the Act also included interest in any property.
According to him, the life insurance policy under which he paid premia itself represents property and the maturity amount realisable thereunder cannot but represent the interest in that property. Interest in property may be vested either in the capacity of a mortgagor or a mortgagee or a lessor or a lessee, a tenant in life or a remainder-man.
Further interest may be either legal interest or equitable interest, present interest or future interest, vested interest or contingent interest original interest or substitutive interest. All these interests, according to the learned departmental representative fall to be chargeable as they are included in the term 'property', provided, of course, these interests passed on the death. The learned departmental representative also invited our attention to Section 14 of the Act and argued that as the policy was wholly kept up by the deceased, the money received under it forms part of his estate. He also invited our attention to the commentary on the Estate Duty Act by D.H. Nanavati, third edn., p. 474, where it is held that the words 'at the time of the deceased's death' appearing in Section 36 of the Estate Duty Act mean 'at the exact moment of the deceased's death' or 'at the moment immediately after the deceased's death'. It is the death, which is the cause of passing of the property and the cause must be considered to precede the effect. Ultimately, he also relied upon the Gujarat High Court decision in Bharatkumar Manilal Dalai v. CED  99 ITR 179, where especially the arguments sought to be advanced on behalf of the accountable person were repelled by the Gujarat High Court as under: The learned advocate for the accountable person finally urged that the principal value of the property is to be determined with reference to the death of the insured and at the time of his death the property in question had only the value of the premiums which have been paid. This faint attempt made on behalf of the accountable person should obviously be discouraged as the question as to what is the crucial date, for purposes of valuation, has been now settled by the decision in Inland Revenue v. Graham's Trustees  SLT 46 (HL). In that case the deceased at his death in February, 1963, owned a farm, of which he and members of his family were tenants under a partnership agreement. The inland revenue maintained that the farm should be valued on the basis that vacant possession could be obtained in April, 1964, in which case the value would be 44,500; while the trustees maintained that the farm remained subject to a tenancy from year to year, in which case the value would be 30,000. The Court of Session had held...that the partnership which in Scots law, unlike English law, constituted a legal persona was dissolved by the death and that the tenancy came to an end at the same time, so that the trustees were entitled to obtain vacant possession of the farm, but that the value was nevertheless 30,000 because the farm had to be valued at the moment before the death rather than the moment after. The House of Lords reversed the decision on the last point and valued the farm at 44,500. Lord Donovan cited with approval the dicta in In re. Magan  2 I & R 208n, that the death in contemplation of law must precede the passing, and in In re. Smith  1 Ch. 365, that 'it is only when the person in question has expired, after the last breath has left the body that the property passes and the liability to estate duty arises'. In that view of the position now settled by this decision of the House of Lords, it must be held that the valuation must be ascertained on the date immediately succeeding the date of the death, which, in the present case, would be the aforesaid two sums sought to be included by the revenue in the estate of the deceased.
Thus, having considered both the arguments, we are of the opinion, that the appeal preferred by the accountable person bears no merit and is liable to be dismissed. The prime question for consideration is whether the surrender value or the maturity value of policy passed on the death of the deceased. In this connection, the Bombay High Court decision in Harendra Popatlal Gandhi v. CED  112 ITR 41 is quite instructive.
In that case, in some of the life insurance policies held by the deceased, his wife was described as nominee under those policies. The policies were never assigned in her favour. The question which cropped up before the High Court was whether under those circumstances, the nominee had the right to collect the amounts under the policies and whether the amounts collected under those policies ceased to be considered as part of the estate of the deceased or not. While considering that aspect, the Bombay High Court has approvingly quoted the decision of the Madras High Court in Seethalakshmi Animal v. CED  61 ITR 317. In order to bring a clear distinction between 'assignment' and 'nomination' having extracted from the Madras High Court decision, the Bombay High Court held as follows: In view of the above position in law, it is clear that even if the position is to be considered immediately upon the death of the deceased, it cannot be said that as regards the nominated policies the moneys thereunder had become the property of the wife, much less the absolute property of hers. In fact, upon the death of the deceased all that the wife got under the nomination was a right to receive the moneys from the insurance company and the moneys under the nominated policies continued to be the property of the estate of the deceased, clearly liable to be attached by creditors for satisfaction of their debts. In other words, to the extent of nine policies which had been nominated by the deceased in favour of his wife, the moneys thereunder were liable to satisfy the unsatisfied debts of the free estate and in a sense the said insurance moneys really formed part of the free estate of the deceased and not property deemed to pass under other titles ....
Therefore, it can be seen that the above is a clear authority for the proposition that the moneys received under the life insurance policies after the death of the deceased becomes part of the estate. The Gujarat High Court decision, from which it is already quoted above is a clear authority for the proposition that it is the maturity value but not the surrender value which passed on the death of the deceased. In Sardar Harbansingh v. ACED  8 ITD 180 (Hyd.), after considering the nature of the policy which fell for determination, we hold that it was a composite policy in as much as it was a life policy as well as an accident benefit policy both rolled in one. We also found that under the terms of the policy, the two main components, i.e., the components of the life policy and the components of the accident benefit policy are kept distinct, different, separate and several. We hold that the appellant under the life policy together with the accrued bonus was worth Rs. 1,01,750, whereas the amount payable under the accident policy was Rs. 1 lakh, expressing our opinion regarding the dutiability of the life insurance policy. We hold "As far as the payment which can be ascribed to the life policy is concerned, it is governed by the clear provisions of Section 14 of the Act and so we have no hesitation to hold that the amount passes on the death of the deceased as it is a policy wholly kept up by him", (p. 190) I am the author of the said order and so even, according to the said decision, the maturity value of the life insurance policy passes on the death of the deceased. None of the decisions, cited on behalf of the accountable person really help him. In the Andhra Pradesh High Court decision in Smt. Lakshmisagar Reddy's case (supra), it is held that under four circumstances or instances, the provisions of Section 5(1) of the Act, applied: (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.
Now applying these tests to the facts of the present case, all of them apply to the life insurance policy held by the deceased at the time of his death. Firstly, he got the property in the policy itself, secondly, he had a beneficial interest in the property. Thirdly, he had control over the property and fourthly, he had full right to dispose of the property, either by will or assignment and, hence, the property passes under Section 5(1). The facts of that case, however, are quite different. It concerns with an accident policy and under the terms of the policy, the payment of compensation should be given always to the legal representatives of the deceased under the service rules of the Indian Airlines Corporation. Further, the compensation payable is discretionary at the discretion of the authorities of the Indian Airlines Corporation, on fulfilment of conditions. Taking the special circumstances into consideration, the Andhra Pradesh High Court held that the property under the accident policy does not pass on the death of the pilot, who was the deceased in that case. However, this case is quite distinct and different from the one considered by the Andhra Pradesh High Court. The decisions in Kasturi Lal Jain's case (supra), M. Ct. Muthiah v. CED  94 ITR 323 (Mad.) and 93 ITR 42 (Guj.) (sic) were all decisions rendered after construing the accident policies. None of the cases were cited by the counsel for the accountable person, dealing with the simple life insurance policy.
Therefore, we reject the contentions of the counsel of the accountable person and hold that there are no grounds established in order to interfere with the findings given by the learned Appellate Controller.
3. In the result, we hold that the appeal bears no merits, and, hence, we dismiss it.