Skip to content


Jeanie D. Karaka Vs. Controller of Estate Duty, Gujarat - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberEstate Duty Reference No. 3 of 1977
Judge
Reported in(1982)31CTR(Guj)262; [1982]136ITR614(Guj)
ActsEstate Duty Act, 1953 - Sections 44, 46, 46(1) and 64
AppellantJeanie D. Karaka
RespondentController of Estate Duty, Gujarat
Excerpt:
.....the case may be, exceeded that which could have been rendered available by application of all the property derived from the deceased, other than such (if any) of that property as it included in the consideration given or as to which the like facts are proved in relation to the giving of the consideration as are mentioned in the proviso to sub-section (1) of section 16 in relation to the purchases or provisions of an annuity or other interest, no abatement shall be made in respect of the excess. (2) money or money's worth paid or applied by the deceased in or towards satisfaction or discharge of a debt or incumbarance in the case of which sub-section (1) would have had effect on his death if the debt or incumbrance had not been satisfied or discharged, or in reduction of a debt or..........proportionate to the value of any of the consideration given therefore which consisted of - (a) property derived from the deceased; or (b) consideration not being such property as aforesaid, but given by any person who was at any time entitled to, or amongst whose resources there was at any time included, an property derived from the deceased; provided that if, where the whole or a part of the consideration given consisted of such consideration as is mentioned in clauses (b) of this sub-section, it is proved to the satisfaction of the controller that the value of the consideration given, or of that part thereof, as the case may be, exceeded that which could have been rendered available by application of all the property derived from the deceased, other than such (if any) of that.....
Judgment:

Mankad, J.

1. The Income-tax Appellate Tribunal has referred the following two question for our opinion under s. 64 of the E.D. Act, 1953 (hereinafter referred to as 'the Act' :

'1. Whether, the estate duty liability ought to have been allowed as a deduction in the computation of the principal value of the estate

2. Whether, on he facts and in the circumstance of the case, the finding of the Tribunal that no link or nexus between the original gifts made by the deceased to his daughter and the subsequent loan given by here to him was established and, therefore, the provisions of section 46 of the Estate Duty Act, 1953, for abatement could not be attracted, is justified in law ?'

2. Out of the these two questions, question No. 1 referred to us at the instance of the accountable person is covered by a decision of these court is Smt. Shantaben Narottamdas v. CED and Mancklal Premchand Shah v. CED [1978] 11 ITR 365. Following the said decision, we answer this question in the negative and against the accountable person.

3. So far as question No. 2 referred to us at the instance of the revenue is concerned, the relevant facts are as follow : Deceased, D. C. Karaka (hereinafter referred to as 'the deceased'), made two cash gifts to his daughter, Mrs. M. D.Karaka (hereinafter referred to as 'Mrs. Karaka'). He gifted to here Rs. 15,00 on March 28, 1952, and Rs. 17,100 on July 1, 1955. Thus, the total amount gifted to Mrs. Karaka came to Rs. 32,100. The amount of Rs. 15,000 gifted to Mrs. Karaka on March 28, 1952, was credited in her current account with the Bank of Indian on the same day. It is the case of the accountable person that Mrs. Karaka purchased 150 shares of leather Textiles Ltd., for Rs. 15,000, the gifted amount, on May 5, 1952. The amount of Rs. 17,100 gifted to Mrs. Karaka by here father was also credited in her bank account on July 1, 1955. On July 4, 1955, she purchased 160 ordinary and 19 preference shares of Pickets Ltd., for Rs. 17,900, using the gifted amount of Rs. 17,100 and here own Rs. 800. Thus, accordingly to the accountable person, the entire amount of the two cash gifts, namely, Rs. 32,100, was utilised in purchasing shares. On April 18, 1960, the deceased took a loan of Rs. 20,000 from Mrs. Karaka. The deceased repaid only Rs. 1,000 out of the loan amount of Rs. 20,000 to Mrs. Karaka on June 25, 1971. The deceased died on July 3, 1973. Therefore, on the dated of his death, Rs. 19,000 was due and payable by the deceased to Mrs. Karaka. In the course of estate duty proceedings in respect of the estate of the deceased, the accountable person claimed a deduction of this debut of Rs. 19,000 under s. 44 of the E.D. Act. The Asst. Controller, however, relying on s. 46 of the E.D. Act, rejected the claim of the accountable person holding that as the amount received by Mrs. Karaka by way of gift from the deceased during his lifetime exceeded the amount of Rs. 19,000, the said sum of Rs. 19,000 cannot be allowed as deduction under s. 44 of the E.D. Act. The Appellate Controller having confirmed the view taken by the Asst. Controller, the accountable person carried the matter in appeal to the Tribunal. The Tribunal allowed the claim of the accountable person holding that there was no link or nexus between the original gift made by the deceased to Mrs. Karaka and the subsequent loan given by her to him and, therefore, the provisions of s. 46 regarding abatement were not attracted in this case. In the result, the Tribunal directed a deduction of Rs. 19,000. The revenue has challenged the view taken by the Tribunal.

4. The first contention, which is raised on behalf of the revenue, is that in order to attract the application of s. 46(1)(b) of the E.D. Act there need not be any direct nexus between the gifts made by the deceased to Mrs. Karaka and the subsequent loan given by Mrs. Karaka to the deceased. It was urged that the admitted facts clearly established that the consideration for the debt was given by a person (Mrs. Karaka) amongst whose resources there was at some point of time included the property (gifted amount of Rs. 32,100) derived from the deceased. Consequently, it was submitted, the provisions of s. 46(1)(b) were attracted. On the other band, Mr. K. C. Patel for the applicant, submitted that in order to attract and application of either clause (a) or clause (b) of s. 46(1), a direct nexus between the property gifted to Mrs. Karaka and the loan advanced by her to the deceased must be established. Mr. Patel pointed out that the evidence on record proved beyond doubt that Mrs. Karaka to whom the deceased had made gifts totaling Rs. 32,100 had utilised the entire amount of the two cash gifts in purchasing shares. Therefore, submitted Mr. Patel, the amounts which were gifted to here were not available to Mrs. Karaka when she advanced a loan of Rs. 20,000 to here father, the deceased. According to Mr. Patel, the advance of loan cannot be linked with the gifts made by the deceased to Mrs. Karaka and, therefore, the debt of Rs. 19,000 which has remained unpaid cannot be held to have abated under s. 46 of the E.D. Act. In support of his contention, Mr. Patel has relied on the decision of this court in Rasiklal Lallubhai Shah v. CED : [1980]124ITR212(Guj) .

5. Section 44 of the Act, in so far as it is material for the purposes of the instant case, provides that in determining the value of the an estate for the purposes, of estate duty, allowance shall be made for debts and incumbrances subject to the condition that such debts were incurred or incumbrances were created bona fide for full consideration in money or money's worth, wholly for the deceased own use and benefit, and take effect out of his interest. Section 46 imposes certain limitations in the matter of allowance of debts and the answer the question No. 2 referred to us turns on the interpretation of that section which reads as unde :

'46. (1) Any allowance which, but for this provisions, would be made under section 44 for a debt incurred by the deceased as mentioned in clause (a) of that section, or for an incumbrances created by a disposition made by the deceased as therein mentioned, shall be subject to abatement to an extent proportionate to the value of any of the consideration given therefore which consisted of -

(a) property derived from the deceased; or

(b) consideration not being such property as aforesaid, but given by any person who was at any time entitled to, or amongst whose resources there was at any time included, an property derived from the deceased;

provided that if, where the whole or a part of the consideration given consisted of such consideration as is mentioned in clauses (b) of this sub-section, it is proved to the satisfaction of the Controller that the value of the consideration given, or of that part thereof, as the case may be, exceeded that which could have been rendered available by application of all the property derived from the deceased, other than such (if any) of that property as it included in the consideration given or as to which the like facts are proved in relation to the giving of the consideration as are mentioned in the proviso to sub-section (1) of section 16 in relation to the purchases or provisions of an annuity or other interest, no abatement shall be made in respect of the excess.

(2) Money or money's worth paid or applied by the deceased in or towards satisfaction or discharge of a debt or incumbarance in the case of which sub-section (1) would have had effect on his death if the debt or incumbrance had not been satisfied or discharged, or in reduction of a debt or incumbrance in the case of which that sub-section has effect on his death shall, unless so paid or applied two years before the death, be treated as property deemed to be included in the property passing on the death and estate duty shall, notwithstanding anything in section 26, be payable in respect thereof accordingly.

(3) The provisions of sub-section (2) of section 16 shall have effect for the purposes of this section as they have effect for the purpose that section.'

6. As laid down by this court in Rasiklal Lallubhai Shah's case : [1980]124ITR212(Guj) , on an analysis of ss. 44 and 46 of the Act, the position which emerges is as follows(p. 212 :

'In determining the value of an estate for the purpose of estate duty allowance has to be made, inter alia, for debts incurred and incumbrances created by the deceased. In order, however, that such allowance may be made, it must be shown, amongst other things, that such debts or incumbrance were incurred or created bona fide for full consideration in money or money's worth and that such consideration in money or money's worth was for the deceased's own used and benefit. Any allowance which is otherwise to be made for a debt incurred or incumbarance created by the deceased as aforesaid is, however, subject to abatement in two cases-(a) where the whole or a part of the consideration for the debt or incumbrance consisted of the property derived from the deceased, and (b) where the consideration did not consist of the property derived from the deceased but such consideration was paid by a person who was at any time entitled to, or amongst whose resources there was at any time included, any property derived from the deceased.'

7. In our opinion, the admitted facts in the instant case clearly bring it within the four corners of the provisions contained in s. 46(1)(b). We, therefore, do not consider it necessary to deal with the argument of Mr. Raval for the respondent that the debt in question abates under s. 46(1)(b). For a case to fall within the ambit of s. 46(1)(b), the consideration need not consist of the property derived from the deceased but must have been paid by a person who was at any time entitled to, or amongst whose resources three was at any time included, any property derived from the deceased. It is not in dispute that in the instant case, Mrs. Karaka had received cash gifts amounting to Rs. 32,100 from the deceased. A loan of Rs. 20,000 was taken by the deceased in April, 1960, after the said gifts were made. There is, therefore, no doubt that the loan was given by the persons 'who was at any time entitled to, or amongst whose resources there was at any time included, an property derived from the deceased'. Amongst the resources of Mrs. Karaka from which she had advanced the loan of Rs. 20,000 to the deceased, the gifted amount of Rs. 32,100 was included at some time. The debt in question, therefore, clearly falls within the purview of s. 46(1)(b). We are unable to agree with Mr. Patel that a direct nexus must be established between the amounts gifted and the loans advanced in order or attract the application of s. 46(1)(a) and (b). Mr. Patel strongly relied upon the following observation made by this court in Rasiklal Lallubhai Shah's case : [1980]124ITR212(Guj) :

'In both the cases, however, there has got to be a clear nexus between the transaction of loan and derivation of the property of the deceased by the persons providing the consideration for the loan.'

8. This observation cannot be read in isolation and out of context. It has to be read in the context of the language used in s. 46(1). If so read it is clear that in order to attract the application of s. 46(1)(b) it must be established that the value of the consideration for a debt or incumbrance was given by any person who was at any time entitled to or amongst whose resources there was at any time included any property derived from the deceased. In other words, there has to be a nexus between the transaction of loan and derivation of property of the deceased by the person providing the consideration for the loan in the sense that the person providing the consideration for the loan must be the person who was at any time entitled to or amongst whose resources there was at any time included any property derived from the deceased. Relying on the above observation, Mr. Patel's contention was that unless it is provided that the loan flowed from the property derived from the deceased s. 46(1)(b) cannot apply. Mr. Patel overlooks the distinction between clause (a) and clause (b) of s. 46(1). We are not at present examining the case from the point of view of s clause (a). In so far as clause (b) is concerned, there is no question of a direct nexus between the loan transaction and the derivation of the property of the deceased by the person providing consideration for loan in the sense that the loan must flow from the property derived from the deceased as urged by Mr. Patel. When the loan was advanced the gifted amounts were already included in the resources of Mrs. Karaka. There was thus a clear link between the transaction of loan and the derivation of property, inasmuch as the resources of Mrs. Karaka from which she had advanced the loan included the gifts received from her father, the deceased. We, therefore, fail to see how the observation made by this court in Rasiklal Lallubhai Shah's case : [1980]124ITR212(Guj) , adverted to above, in any way advance the case of the accountable person. In our opinion, as the requirement of s. 46(1)(b) are satisfied in the instant case, the loan amount of Rs. 19,000 due and payable by the deceased to Mrs. Karaka is subject to an abatement. It must, therefore, be held that the Tribunal is not right in holding that as there was no nexus between the original gifts made by the deceased to his daughter and the subsequent loan given by her to him, the provision of s. 46 of the Act were not attracted. In the result, we answer the question referred to us as follow :

9. At the instance of the accountable person -

1. Whether the estate duty liability In the negative and against ought to have been allowed as a the accountable person in deduction in the computation of the view in Smt. Shantaben principal value of the estate Narottamdas' case : [1978]111ITR365(Guj) . At the instance of the revenu :-

2. Whether, on the fact and in the In the negative and against circumstances of the case, the accountable person. finding of the Tribunal that no link or nexus between the original gift made by the deceased to his daughter and the subsequent loan given by her to him was established and, therefore, the provisions of section 46 of the Estate Duty Act, 1953, for abatement could not be attracted, is justified in law

10. Reference is answered accordingly with no order as to costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //