1. These are two cross-appeals by the accountable person and the department against the findings of the Appellate Controller. We will take up first the department's appeal.
2. The first ground is the exclusion of Rs. 13,500 from the value of the property, which had been sold immediately after the death of the deceased. During his lifetime, the deceased had entered into an agreement for the sale of a property. In that agreement itself, the deceased had taken over half of the expenditure in respect of, stamp duty, registration fees, etc., for conveying the property. After his death, the property was conveyed by the legal representatives. The Assistant Controller adopted the sale price as the value of the property. The Appellate Controller had directed that the share of the deceased in the stamp duty amounting to Rs. 13,500 should be allowed as a deduction. The case of the department, as made out by Shri Srivastava, is that such a deduction is not allowed as per the provisions of the Estate Duty Rules, 1953. Now, the deduction allowed by the Appellate Controller should not be viewed as a separate deduction for expenditure on conveyance. Since the agreement for sale itself has a condition that half of the stamp duty expenditure would be borne by the deceased, in effect, such expenditure goes to reduce the sale price of the property. Therefore, as a matter of fact, the property has been sold for a price mentioned in the conveyance deed after the deduction of the share of the stamp duty. In our opinion, that is the proper way of looking at the transaction. We will, therefore, uphold the finding of the Appellate Controller on this point.
3. In ground No. 2 the question is, whether the premium paid in certain insurance policies within two years of the death could be considered as gift under Section 9(i) of the Estate Duty Act, 1953 ('the Act'). The deceased had taken nine insurance policies for various amounts. The beneficiaries mentioned therein are his wife and children. These policies were covered by the Married Women's Property Act, 1874. None of the policies exceeded Rs. 50,000 by way of the sum assured. The premium paid on these policies within two years of the death amounted to Rs. 51,104. The Assistant Controller brought this amount under Section 9 since he was of the opinion that these amounts were gifts made within the period mentioned in the section. The Appellate Controller deleted the additions for the reasons mentioned in certain orders of the Tribunal in similar matters. The department is on appeal before us.
4. We must make it clear that it is not the case of the department that the sum assured on each of the policies is not includible in the estate of the deceased. Each of these nine policies by themselves would form separate estates. Each one of them, we make it clear, is dutiable but as a separate estate. However, as mentioned earlier, since the sum assured in any one of them did not exceed Rs. 50,000, none of these separate estates will bear duty. We should, therefore, go into the question whether the premium paid would amount to a gift. The Appellate Controller had relied on certain decisions which, however, do not deal with the question whether Section 9 would be invoked. The decisions, relied on by him, are on the point whether the deceased had an interest in those policies. Therefore, those decisions are not relevant.
Property taken under a disposition made by the deceased purporting to operate as an immediate gift inter vivos whether by way of transfer, delivery, declaration of trust, settlement upon persons in succession, or otherwise, which shall not have been bona fide made two years or more before the death of the deceased shall be deemed to pass on the death : The proviso and the sub-section are not relevant. The ingredients of the section are : (i) there must be a property ; (ii) this must be taken under a disposition which operates as an immediate gift ; and (iii) it should not be made bona fide more than two years before the date of death.
6. Taking the first ingredient, what is the property taken We take that it is the premia amounts paid to the insurance company. Now, the second ingredient is that these amounts must be made an immediate gift by way of a disposition inter vivos. Is there an immediate gift by the deceased in respect of the premium to the beneficiaries The policy admittedly, is covered by Section 6 of the Married Women's Property Act. Section 6 creates a trust in favour of the beneficiaries. The amount covered by the policy would be available to the beneficiaries only after the policy had matured. Till then, the interest of the beneficiaries is contingent. They have no cause for action apart from what is given to them in the Act.
7. Now, it is clear that when a policy is taken, a trust is created and the premia paid are the trust monies. The premia are not paid to the beneficiary but to the trustee, i.e., in this case, the insurance company. The beneficiary has no interest in the amount of the premia paid. He may or may not have a right, which is a contingent right, to have the policy amounts on its maturity. Even before maturity, he may be able to transfer such future right, mortgage or surrender or disclaim. But when he does it, it is the right in respect of the policy monies that is so disposed or transferred. It is not the right in respect of the amount representing the premia paid. The beneficiaries do not have any right in respect of the instalment or the premia payable by contract between the insurer and the insured. So, there is 'no immediate gift inter vivos' in respect of the premia amounts. So, this ingredient is not satisfied and Section 9 cannot be invoked to make the premia amounts dutiable. We may briefly refer to the case of Engelbach's Estate : Re Englebach Tibbetts v. Englebach  2 Ch.
349 [quoted with approval in 54 ITR 884 by the Gujarat High Court (sic)] where it was held that an endowment policy taken out by a person in his own name for the benefit of his daughter, to mature on her attaining a specific age, created no legal estate in the daughter and she could not sue on the contract. We may also refer to a case of a regular trust where interest of beneficiaries is deferred till they attained majority. Till that date, the income of the trust was for charity. When the trust properties were attempted to be added to the net wealth under Section 4(1) of the Wealth-tax Act, 1957, the Supreme Court held in His Highness Yeshwant Rao Ghorpade v. CWT  61 ITR 444 that no property was held for the benefit of the children during the minority. We may also finally refer to Green's Death Rules, Ninth edn., p. 174 : "If the premium under the policy was payable by the deceased himself, the premium payment does not amount to a gift of money." [Emphasis supplied].
8. The fact that the 'disposition' mentioned in Section 9 has been enlarged in the section itself by reference to delivery, declaration of the trust, settlement, etc., does not improve the case for the department. Neither does the further reference to Section 27 of the Act. That is because, whatever the mode of disposition may be, enlarged as it is, the provisions of the statute, under the property is shown to have been taken by the beneficiary within two years of death, the section is not applicable. Our analysis shows that the property is not taken within two years of death. Enlargement of the word 'disposition' does not substitute the transfer or insurance company as the donee.
Neither does the section enlarge the period by which the gift should be completed.
9. Since the case of the department is only on Section 9 and since on an analysis we find no property passes, it is unnecessary to consider other provisions. Nevertheless, we would also show that no duty can be levied on the premia paid even with reference to Section 14 or Section 15 of the Act. This would assume a change in the nature of property passing. We will grant that although the department has not brought to assessment the policy monies, they can use all the arguments available to them in supporting the assessment order. Now, either Section 14 or Section 15 would apply to the facts of the case. It would be difficult to resist the department's contention that it is not dutiable. But, even if it is dutiable, Section 34(3) of the Act would compel the department to treat the policy monies as a separate estate. Now since the property passing is less than Rs. 50,000 the estate would be below dutiable limit.
(3) Notwithstanding anything contained in Sub-section (1) or Sub-section (2), any property passing in which the deceased never had an interest, not being a right or debt or benefit that is treated as property by virtue of the Explanation to Clause (75) of Section 2, shall not be aggregated with any property, but shall be an estate by itself, and the estate duty shall be levied at the rate or rates applicable in respect of the principal value thereof.
11. Two ingredients have to be satisfied before the benefit is made available. First, the deceased should never have had an interest in the property. Second, the property should not be one such as coming under Explanations 1 and 2 to Section 2(15) of the Act. Regarding the first, there is no difficulty in holding that in respect of policies coming under the Married Women's Property Act, the deceased never had an interest in it. Dymond's Death Rules, Fourteenth edn., p. 534 discusses this point and shows that such policy amounts are not agreeable. But we must point out that there is a basic difference in the ambit and content of Section 34(3) of the 1953 Act and the corresponding provisions of Section 4 of the UK Finance Act, 1894, before its amendments in 1969. The difference is that the second ingredient in Section 34(3) was not present in the UK Finance Act. So, we have to consider further whether the insurance policies represent such properties as are covered by Explanations 1 and 2 to Section 2(15).
Explanation 1 is clearly not applicable. The property made dutiable is not a debt or other right against the deceased, but is the policy amount by nature of a contract between the insurer and the insured, the beneficiary gets a right against the insurance company not against the deceased. Explanation 2 also does not apply. "The payment (of premia) cannot be treated as extinguishment of a debt or other rights...because the other person will not normally be under any enforceable liability to pay the first or any other premium." [Green's Death Rules, Ninth edn., p. 174.] So, the second ingredient is also satisfied. The policy monies have to be treated as a separate estate.
12. We may refer to the decision in Bharatkumar Manilal Dalai v. CED  99 ITR 179, in which the Gujarat High Court has held that the deceased did have an interest in an accident policy. That was because of the provisions of the insurance contract. They would not apply to a policy, admittedly, covered under the Married Women's Property Act. We may also mention that certain English decisions in respect of premia paid are not applicable. The premiun paid in a case like this before us has been brought to duty by special provisions made by Section 34 by the Finance Act, 1969. However, these provisions are not found in India.
13 and 14. [These paras are not reproduced here as they involve minor issues.) 15. In ground No. 5, the question is whether the lineal descendants' share can be included under Section 34(1)(c) for rate purposes. The validity of the provisions of Section 34(1)(c) had been the subject-matter of High Courts' decisions. Barring the Madras High Court, all other High Courts had considered this issue and have held in favour of the department. Therefore, the Appellate Controller is in error in holding that Section 34(1)(c) cannot be invoked.
16. Shri Nair for the accountable person supported the finding of the Appellate Controller on quite different grounds. He did not press the issue on the question of the validity of the section. But, according to him, the section is rendered unworkable. He first submitted that neither Section 5 nor even Section 7 of the Act, which are the charging sections in the Act, covered the property which would legitimately belong to persons other than the deceased. According to him, the charging sections do not cover the lineal descendants' share in the joint family property. If there is no charge created, then the mere existence of a machinery section in the statute is of no consequence.
17. We are unable to accept this submission. It is not correct to say that the lineal descendant's share in property has been charged to estate duty. What is charged is only those properties which passed on death. However, the rates at which the property passing on death will be dutiable is an entirely different issue. These rates are not part of the charging sections but part of the Schedules. What Section 34(1)(c) does is to indicate, which of the rates mentioned in the Second Schedule will be appropriate. The effect of this section is only to fix up the rate. We, therefore, do not find any difficulty in giving a finding that the provisions of Section 34(1)(c) would be applicable.
18. It was then submitted that even if Section 34(1)(c) is applicable, there is no machinery in the Act by which there could be an evaluation of the share of the lineal descendants. Shri Nair pointed out that the share of the deceased in the HUF, which continues to exist, is determined under Section 7 as a cesser of interest in property. The cessor of interest in property by itself would not be sufficient to make it dutiable unless there was a machinery section, which would show how to evaluate the cesser of interest. He pointed out that the attempt to levy duty failed for this precise reason in the case of Arunachalan Chettiar 34 ITR (sic). This lacuna in the law had been made good in the Act by Section 39 of the Act. But that section confines itself to Section 7 only. It cannot be applied to Section 34(1)(c). Therefore, according to Shri Nair, even if Section 34(1)(c) would be applicable, there was no provision to activate that section. There is no provision to evaluate the interest of lineal descendants.
19. While we appreciate the argument of Shri Nair for its novelty and ingenuity, we are unable to accept the same. Now, the question is : is there any provision in the Act by which the share of lineal descendants could be ascertained Is there further any provision by which the share can be evaluated Both these points have been answered, though not directly, by the Calcutta High Court in the case of Satyanarayan Saraf v. Assistant Controller  111 ITR 432. The matter had come to the High court by way of a writ only, not by way of a reference. The Court observed : For the purpose of aggregation under Section 34(1)(c), there can be no doubt that the principal value has to be ascertained first.
Section 39 lays down that the principal value is the value of the share of the deceased in the joint family property which would have been allotted to him had there been a partition immediately before his death. It is, therefore, clear that Section 39 contemplates a notional partition of the joint family property immediately before the death of the deceased in order to ascertain the principal value....
20. It would be seen from the above question that, according to the High Court, Section 39 would be the machinery by which the principal value of the joint family property would be ascertained for the purpose of Section 34(1)(c) also.
...In order to ascertain the shares of the lineal descendants of Hanuman Prasad a notional partition of the smaller Hindu undivided family is also contemplated between Satyanarayan and his son, Bhagawati Prasad....
22. Thus, according to the High Court, Section 39 gives the machinery for the purpose of ascertaining the shares of the lineal descendants.
We may mention that the above decision is the only authority which has considered the issue of ascertainment of the shares for Section 34(1)(c). Shri Nair, no doubt, is right in his contention that the High Court has not considered the limitations built in Section 39 itself, that is, its applicability of Section 7 alone. But since the authority gives an answer to the question, we must adopt it.
23. On the facts of this case, there is one other answer to this question. Now, we have seen that there was a partial partition of some of the assets of the joint family, valued at Rs. 2,24,162. The deceased took as his share only Rs. 5,000 and that was why an amount of Rs. 1,07,081 was included in the estate. That is a separate ground in the accountable person's appeal and we will deal with it later. For the purpose of this ground, there is a partial partition. Now, after a partial partition, there is no presumption that the member would continue to remain in the joint family in respect of the rest of the undivided properties. Mulla's Principles of Hindu Law, Fifteenth edn.
has this passage : It is open to the members of a joint family to make a division and severance of interest in respect of a part of the joint estate, while retaining their status as a joint family and holding the rest as the properties of a joint and undivided family. But where there is evidence to show that the parties intended to sever, then the joint family status is put an end to, and with regard to any portion of the property which remained undivided the presumption would be that the members of the family would hold it as tenants-in-common unless and until a special agreement to hold as joint tenant is proved....
24. In this case, there is partition of some of the parties of the joint family. The presumption regarding the unpartitioned assets would be that they hold it as tenant-in-common. If that were so, there is no difficulty at all in determining the share of the lineal descendants.
25. One objection to this line would be that, in such a case, the property included as share of the deceased had passed under Section 5 itself and, therefore, there is no need to go to Section 39.
Consequently, Section 34(1)(c) would not be applied. But this objection has to be rejected because the Gujarat High Court has held that Section 34(1)(c) would apply even if property passes under Section 5. In Ramniklal J. Daftary v. CED  136 ITR 422, it was observed : ...It is, therefore, not relevant whether the coparcenary interest of the deceased passes under Section 5 or Section 7 of the Act. In the instant case, the coparcenary interest of the deceased did pass on his death whether under Section 5 or under Section 7 of the Act and, consequently the provisions of Section 34(1)(c) are attracted....
We will, therefore, hold that the lineal descendants' share was rightly included.
26 to 28. [These paras are not reproduced here as they involve minor issues.) 29. The appeal filed by the accountable person is dismissed. The department's appeal is partly allowed.