1. At the instance of the Controller of Estate Duty, the following question has been referred to this court under Section 64(1) of the E.D. Act, 1953:
' Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the exemption provided in Section 33(1)(n) of the Estate Duty Act, 1953, should be allowed in respect of the dwelling house of the Hindu undivided family from the value of the joint family properties before determining the share of the deceased and also that the lineal descendants, the former for assessment and the latter for aggregation '
2. One Sivalinga Chettiar died on November 18, 1966. He was the owner of certain assets, whose value came to Rs. 22,333. He was also a coparcener in an HUF consisting of himself, his wife and an adopted son. The assets belonging to this family comprised the following items :
Rs. 1.General1,15,5142.Residential house property1,40,000
----------2,55,5143.Agricultural lands36,8404.1/3 share of lands belonging to the Hindu undivided family of the deceased and his two brothers
5,1205.1/4 interest in the assets of a Hindu undivided family originally consisting of the deceased, his father and two brothers, enlarged to 1/3 on the death of the father of the deceased on 14-10-19651,44,000
The valuation of the last item has undergone modification.
3. The Assistant Controller computed the principal value of the estate in the following manner.
Rs. Half share of the deceased in the Hindu undivided family properties ( of Rs. 4,41,474)2,20,737Rs. Less : Half share in dwelling house 70,000 Funeral expenses1,000
-----------1,49,737 Add : Share of lineal descendants in
Hindu undivided family properties 2,20,737 Free estate22,333
4. The duty on Rs. 3,92,807 was calculated in accordance with the provisions of the Act and rebate at the average rate of duty was given in respect of the share of the lineal descendants included in the principal value of the estate. After giving a further rebate in respect of the insurance amounts, the balance of the duty payable was determined at Rs. 29,600-18.
5. The accountable person appealed to the Appellate Controller and his contention was that the exemption under Section 33(1)(n) had not been properly worked out by the Assistant Controller. The Appellate Controller was of the view that the property in respect of which the relief was claimed under Section 33(1)(n) was used for residential purposes and that it was situate in a place where the population was less than 10,000. He, therefore, directed the entire value of this property be exempted.
6. The revenue appealed to the Tribunal. After working out the value of the HUF properties at Rs. 4,41,474, the Tribunal gave relief under Section 33(1)(n) to the extent of Rs. 1,40,000 and the balance of Rs. 3,01,474 was arrived at as the property of the joint family in which the deceased had a half share. The half share of the deceased was then worked out at Rs. 1,50,737. In the view of the Tribunal, the value of the house property liable to be exempted under Section 33(1)(n) read with Section 39(3) had to be deducted from the principal value of the property of the family both for ascertaining the share of the deceased and those of the lineal descendants.
7. It is against this order of the Tribunal that the Controller has brought the matter by reference on the question already set out.
8. From a perusal of the order of the Tribunal, it is found that it merely followed its earlier order dated 27th February, 1975, in a different case, viz., E.D.A. Nos. 49, 52, 57, 59 and 60/69-70, etc. The controversy that is now agitated before us is, whether the exemption under Section 33(1)(n) is to be worked out after taking into account the share in the joint family properties or before it. In order to appreciate this controversy, it is necessary to set out briefly the relevant provisions of the Act.
9. Section 5 of the E.D. Act provides for the levy of estate duty passing on the death of a person. Section 7 deals with interests ceasing on the death of a person. Where a person had an interest ceasing on his death, it is deemed to pass on his death to the extent to which a benefit accrues or arises by the cesser of such interest. The interest includes in particular a coparcenary interest in the joint family property of an HUF governed by the Mitakshara, Marumakkattayam or Aliyasantana law. Where a Hindu coparcenary member governed by the Mitakshara School of law dies, Section 39 makes provision for the valuation of the interest in the coparcenary properties ceasing on death.
10. Section 39(1), to the extent relevant, runs as follows:
' The value of the benefit accruing or arising from the cesser of a coparcenary interest in any joint family property governed by the Mitakshara school of Hindu law which ceases on the death of a member thereof shall be the principal value of the share in the joint family property which would have been allotted to the deceased had there been a partition immediately before his death......
(3) For the purpose of estimating the principal value of the joint family property of a Hindu family governed by the Mitakshara.......law, inorder to arrive at the share which would have been allotted to the deceased had a partition taken place immediately before his death, the provisions of this Act, so far as may be, shall apply as they would have applied if the whole of the joint family property had belonged to the deceased.'
11. The scheme behind Section 39 is clear. Where a member of an HUF governed by the Mitakshara School of Hindu law dies, then we have to arrive at his share in the value of the properties belonging to the family on the basis that there was a partition immediately before his death. In order to estimate the principal value of the joint family properties, Sub-section (3) of Section 39 provides for the share being taken on the basis of what would have been allotted to the deceased had a partition taken place immediately before his death. The provisions of the Act, so far as may be, would apply in the same way as they would have applied if the whole of the joint family property had belonged to the deceased. In other words, under the provisions of the Act, in computing the value of the properties of the joint family, we have to proceed first on the assumption that the deceased was the sole owner of the entire properties of the joint family. We would then have to apply all the provisions of the Act for this purpose, and the share of the deceased with reference to those properties would then have to be taken into account, the share being determined in accordance with the Mitakshara law.
12. If only these two provisions had been taken into account, then there would not have been any difficulty. However, there are two other provisions, which require to be considered in this scheme.
13. Section 34(1) provides for the aggregation of the property of the lineal descendants in order to work out the right applicable to the deceased's share. Section 34(1), in so far as it is material, runs as follows :
' For the purpose of determining the rate of estate duty to be paid on any property passing on the death of the deceased,--...
(c) in the case of property so passing which consists of a coparcenary interest in the joint family property of a Hindu family governed by the Mitakshara......law, also the interests in the joint family property of all the lineal descendants of the deceased member ;
shall be aggregated so as to form one estate and estate duty shall be levied thereon at the rate or rates applicable in respect of the principal value thereof. '
14. This provision contemplates the lineal descendants' share being aggregated with that of the deceased for working out the rate of estate duty.
15. This provision came up for consideration in the case of Devaki Ammal v. Asst. CED : 91ITR24(Mad) and this court struck down Section 34(1)(c) as violative of art. 14 of the Constitution. The matter is now in appeal before the Supreme Court and the case is still pending. We have, therefore, for our present purpose to proceed on the basis that Section 34(1)(c) is not in the statute, though by reason of the matter being kept pending on appeal, the contention for the revenue is that the provision also would have to be worked out.
16. Section 33(1)(n) is the only other provision, which requires consideration in the context of the accountable person's claim. That provision, in so far as it is material, runs as follows :
'33. (1) To the extent specified against each of the clauses in this sub-section, no estate duty shall be payable in respect of property of any of the following kinds belonging to the deceased which passes on his death--...
(n) one house or part thereof exclusively used by the deceased for his residence to the extent the principal value thereof does not exceed rupees one lakh if such house is situate in a place with a population exceeding ten thousand, and the full principal value thereof, in any other case. '
17. Section 33 confers various types of exemptions in the computation of the principal value for the purpose of estate duty. For instance, property gifted to public charitable purposes within a period of six months before the date of death of the deceased would stand excluded to the extent of Rs. 2,500 in value. Similarly, gifts made by the deceased for any other purpose within a period of two years before his death to the extent of Rs. 1,500 in value is exempt. There are similar other exemptions. Clause, (n) contemplates the exemption in respect of a house or a part thereof which was exclusively used by the deceased for his residence. The exemption is full under some circumstances and partial under others. There are two conditions for this partial exemption. One is that the principal value of the house should not exceed Rs. one lakh, and the second is, the house should be situated in a place whose population exceeds 10,000. Where the value of the property exceeds Rs. one lakh the exemption is limited to Rs. one lakh. If the property is situate in any other place, then the whole of the value of the property would be exempt. In the present case, it has been found by the Tribunal that the property is situate in a place whose population is less than 10,000. Therefore, it would follow that the . entire value of this property, which has been computed at Rs. 1,40,000 would qualify for exemption, if there were no other consideration to be taken into account.
18. The contention of the revenue is that this property belongs to the joint family, that Section 39 has made a specific provision as to how the value of the joint family property has to be computed and that only in the computation of the value of the joint family property, Section 33(1)(n) would have to be applied. In other words, the deceased had a half share in the joint family properties and, therefore, he would be eligible for exemption only to the extent of Rs. 70,000, in the present case. The contention of the accountable person is that Section 33(1)(n) should be so construed as to give full effect to it, as it ^does not import any such qualification as is contended for by the revenue.
19. This question came up for consideration in the decision in CED v. Estate of late R. Krishnamachari : 113ITR200(Mad) . In that case also, the deceased was a member of an HUF and the only other coparcener was his son. The total value of the joint family properties came to Rs. 2,00,000, out of which the house property belonging to the joint family was valued at Rs. 1,70,000. That property was situate in the city of Madras with a population exceeding 10,000 and, therefore, the exemption available was only to the extent of Rs. one lakh. The Tribunal held that the exemption provided under Section 33(1)(n) should be allowed in computing the value of the HUF properties before determining the share of the deceased and also that of the lineal descendants, the former for assessment and the latter for aggregation. It is this conclusion of the Tribunal that was challenged before this court. For reasons mentioned in the said judgment, this court did not find it possible to answer the question referred and, therefore, sent the matter back. There is a discussion of the import of the provisions of the law. The learned standing counsel, Mr. Jayaraman, brought to our notice two passages in the said judgment, which according to him, create some difficulty in the interpretation of the provisions.
20. At p. 205, it is observed :
' The question is then whether in determining the value of the joint Hindu family properties, the properties mentioned in Section 33(1) which are exempt from the charge should be omitted and then the share of the deceased member determined. A reading of Section 33 makes it clear that subject to the limitations introduced by the various clauses regarding the quantum of the exemption, properties of the kinds mentioned in the various clauses of Sub-section (1) of Section 33 will not come into the picture at all in reckoning the value of the property that passed on the death of an individual. This section has to be applied in the case of individuals, in their exclusive right as well as in the case of members of a joint Hindu family who by virtue of the fictions introduced by Sections 7 and 39(1) are taken to have passed on properties on their death for the purpose of the Estate Duty Act. Naturally, it follows that in determining the total value of the properties of the Hindu family, these properties that are left out of account by the clear provisions under Section 33(1) must also be left out for the purpose of determining the total value of the properties of the joint family. To make it clear, we would like to state that there is no charge at all on the exempted properties. It is as though that these properties are not taken into account at all for the purpose of the Act. '
21. Later on, at p. 206, it is stated, after referring to Section 33(1)(n), as follows:
'It is evident that the exemption relates to property. The property must be of the kind belonging to the deceased and it must have passed on his death in order that Section 33(1) may be applied. But there is limitation about the extent of the exemption. If the house is situate at a place having a population in excess of ten thousand, the exemption is limited to Rs. 1 lakh. In this case, therefore, the assessee will be entitled only to exemption of a maximum extent of Rs. 1 lakh, regarding the house, which as we stated, has been assumed to belong to him and exclusively used for his residence at the time of his death. This house passed as a result of his death. That his interest in the house passed as a result of his death is not disputed. The difficulty, however, arises because the principal value of the house comes to Rs. 1,70,000 and the value of the half share to which the deceased was entitled in the house comes to Rs. 85,000....The property which passed can only be the half share in the house and the exemption being only in respect of that property, nothing more than the value of the property can even be exempt......It is, therefore, clear on the facts of thecase that the extent of the exemption is only Rs. 85,000.'
22. The difficulty pointed out by the learned counsel for the Commissioner was that if the exemption had to be granted as was indicated in the earlier passage, in arriving at the value of the joint family properties, then the accountable person would not be eligible for any further relief to the extent of Rs. 85,000 as was given in the said case. His point was that the relief could be worked out only at one stage. He wanted the relief to be worked out at the stage when the joint family properties are evaluated, and, according to him, there is no further scope for applying Section 33(1)(n). The two passages adverted to by the learned standing counsel do create some difficulty, as they do not appear to be harmonious. However, there is an indication of what the learned judges wanted to decide in that case and that is to be found at p. 205 in the portion following the first of the two extracts from the said judgment.
23. The relevant passage runs as follows :
' In the light of the above, for the purpose of determining the value of the share of a member of the joint Hindu family and for the purpose of imposing estate duty on his estate after his death, first of all, the total value of all the properties valuing each of them separately, must be determined under Section 39(3). After having determined that, such of those properties to the extent to which exemption has been given under the various clauses in Section 33(1) will be taken out to that extent. The aggregate of the remaining must be divided as if at the time of death there was a partition and the share due to the deceased determined. The share so determined will be the share on which duty can be imposed under the Act and on no other.'
24. This passage clearly goes to show that in computing the value of the joint family property, the relief available under Section 33(1)(n) would have to be taken into account, and in the balance that remains as the principal value, the share of the deceased would have to be worked out. This view is consistent with one other decision of this court in CED v. Estate of late S.B. Rajarathnam Chettiar in Tax Case No. 399 of 1971, judgment dated March 7, 1979 (sic). The learned judges, Ramanujam and Rathnavel Pandian JJ., in arriving at this conclusion, referred to two other decisions. The first is CED v. Estate of Late Durga Prasad Beharilal : 116ITR692(AP) and the second is CED v. K. Nataraja : 119ITR769(KAR) . After referring to those decisions, it was held that the exemption provided in Section 33(1)(n) could be only in relation to the share of the deceased. In other words, what was meant was that the value of the joint family properties will have to be first computed and the exemption under Section 33(1)(n) would have to be considered and, in the balance, the share of the deceased should be worked out.
25. In another unreported case in Sundaresa Metha v. CED (Tax Cases Nos. 439 and 440 of 1975) judgment dated July 10, 1979 [since reported in : 127ITR107(Mad) we were concerned with a similar problem. The deceased in that case had a one-third share in the joint family properties. The value of the joint family properties was computed by the Asstt. Controller. One of the properties belonging to the family was a house property at No. 18, Barnaby Road, Kilpauk, and this property was ultimately taken at a value of Rs. 2,10,000. The question for consideration was whether the exemption under Section 33(1)(n) would be available to the extent of Rs. 1,00,000 or to the extent of Rs. 70,000 which represented the one-third share of the deceased in the property. In answering the reference, it was held that the exemption under Section 33(1)(n) should be computedafter the value of the share of the deceased was determined and in the light of the decision in CED v. Estate of Late R. Krishnawachari : 113ITR200(Mad) . What was meant was that the value of the joint family properties would have to be worked out in accordance with the provisions of the Act, and the value of the property to the extent exempted under Section 33(1)(n) would, at that stage, have to be deducted and the share of the deceased ascertained accordingly. A combined reading of Section 39 and Section 33 can produce no other result.
26. The result is that, in the present case, the question referred to us has to be answered in the following manner. The exemption provided under Section 33(1)(n) of the E.D. Act should be allowed in respect of the dwelling house only to the extent of the share of the deceased in the joint family properties. There will be no order as to costs.