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Controller of Estate Duty Vs. Estate of Late Sethuraman Pillai - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 460 of 1975 (Reference No. 351 of 1975)
Judge
Reported in(1979)13CTR(Mad)326; [1980]121ITR172(Mad)
ActsEstate Duty Act, 1953 - Sections 7
AppellantController of Estate Duty
RespondentEstate of Late Sethuraman Pillai
Appellant AdvocateJ. Jayaraman, Adv.
Respondent AdvocateK. Srinivasan, Adv.
Excerpt:
direct taxation - construction - section 7 of estate duty act, 1953 - while filing of estate duty on account of x value of properties given to him to collect rental income not included on ground that it did not belong to x - whether x had any interest in property allotted to him for realization of rent - whether any amount is coming from specified property that amount should be taken to have been charged on property - x has interest in such property which ceased on his death - beneficial interest created to accountable person on cessation of such interest - held, assessment to estate duty sustainable in respect of properties given to x to collect rental income. - .....other person had an interest ceasing on the death of the deceased, shall be deemed to pass on the deceased's death to the extent, to which a benefit accrues or arises by the cesser of such interest.........'.6. before the death of sethuraman pillai, the rental income could not be collected by the respective allottees of the particular properties as mentioned above though they were owners thereof. after his death they were in a position to collect the rent. thus, as a result of his death, there was a benefit which accrued to them. the deceased's right to collect the rent ceased on his death. thus, there is a cesser of interest and also a benefit accruing or arising by reason of the cesser of that interest. the language of section 7 appears to cover this case on its plain construction.7......
Judgment:

Sethurahan, J.

1. In this reference under Section 64(1) of the E.D. Act, the following question has been referred :

'Whether, on the facts and in the circumstances of the case, it could be said that the deceased had an interest in the houses allotted to his sons under the partition deed dated 9th March, 1963, whether such interest ceased on his death and whether benefit accrued on such cesser?'

2. The estate duty assessment, which has given rise to this reference, came to be made on the death of one Sethuraman Pillai. He left behind him his sons, Thandavaraya Pillai, Muthusekaran Pillai, Kalyanasundaram Pillai, Shanmugam Pillai, Radhakrishna Pillai, Paramesvaran Pillai and Purushottaman Pillai. They constituted a HUF with their respective wives and children. The family owned large properties movable and immovable. On 4th May, 1955, the nanja lands and movable properties were divided, and by a deed dated 9th March, 1963, the house properties belonging to the said HUF were divided. The deceased was allotted the properties set out in schedule A to the partition deed of 1963, and the other properties set out in schedules B to H were allotted to his sons. The houses bearing doors Nos. 55 and 56 in Sethuraman Pillai Colony were allotted to the share of Thadavaraya Pillai. Similarly, the houses bearing door Nos. 8, 9, 20, 23, 29 and 41 in the same colony were allotted to the other sons. Clause 15 of the partition deed provided that the deceased would be entitled to take Rs. 50 out of the rental income of the houses bearing doors Nos. 55 and 56 and the entire rental income of the other houses referred to above for his expenses for his life. The respective allottees were to pay the tax on the houses and maintain the same in good condition. After the lifetime of the deceased, his sons became entitled to the rent of the said houses.

3. In the estate duty account filed on the death of Sethuraman Pillai on 17th September, 1968, the value of the properties, in which he was given the right to collect the rental income, had not been included on the view that the said properties did not belong to the deceased. The Asst. CED held that the deceased had an interest in the house properties for his life by reason of his being entitled to receive the rent therefrom, that such interest ceased on his death, and that as a result of the cesser of that interest, benefit accrued to his sons. Reliance was placed on Section 7 of the E. D. Act in support of the assessment. Applying the provision of Section 40, the aggregate value of the houses was included in the assessment, except with reference to doors Nos. 55 and 56 in regard to which the proportionate part of the value of the properties referable to the rental income of Rs. 50 was alone included. The total amount which was added in the estate duty assessment in the above manner came to Rs. 87,535. Aggrieved by this assessment the accountable person appealed to the Appellate CED, who confirmed the inclusion of the said sum of Rs. 87,535. The accountable person appealed to the Tribunal. The Tribunal held that under the partition deedthe houses had been allotted absolutely to the sons of the deceased, that the deceased had been allotted some other properties of lesser value and that he was also given the right to receive the rent from the aforesaid houses for the duration of his life. In the view of the Tribunal, the deceased did not have any life interest in the houses concerned and, therefore, the sum of Rs. 87,535 was directed to be deleted. The order of the Tribunal has given rise to the question already extracted.

4. The real question is whether the deceased had any interest in the properties, which ceased on his death, and whether any benefit accrued to his sons by reason of his death. In the document dated 9th March, 1963, it is stated that each one of the allottees of the respective schedules, viz., A to H was to take the properties set out therein absolutely. Clause 15 provided that the deceased had a right to collect the rental income from the several properties described therein. The allotment under Clause 6, of the partition deed has thus to be taken, subject to the provisions of Clause 15. Under Clause 15 except with reference to the properties in which the deceased was given a right only to the extent of Rs. 50 per month as and by way of rent, with reference to the rest of the properties, he could collect the whole of the rent therefrom. The valuation of the properties is not in dispute before us.

5. Section 7 of the Estate Duty Act provides as follows :

'Subject to the provisions of this section, property in which the deceased or any other person had an interest ceasing on the death of the deceased, shall be deemed to pass on the deceased's death to the extent, to which a benefit accrues or arises by the cesser of such interest.........'.

6. Before the death of Sethuraman Pillai, the rental income could not be collected by the respective allottees of the particular properties as mentioned above though they were owners thereof. After his death they were in a position to collect the rent. Thus, as a result of his death, there was a benefit which accrued to them. The deceased's right to collect the rent ceased on his death. Thus, there is a cesser of interest and also a benefit accruing or arising by reason of the cesser of that interest. The language of Section 7 appears to cover this case on its plain construction.

7. However, the learned counsel for the accountable person put forward two submissions. The first submission was that the properties had already been allotted to the respective allottees and that what they got had already been obtained by them under the partition deed and not by reason of the death. The second submission was that the deceased had been given only a right to collect the rental income from certain properties and that what passed on his death was only the accumulated collection that may be available at the time of his death, the right to collect the rent not being any interest in the property. We are unable to accept these contentions. The property would be valueless without a right to collect the rent therefrom.Any person owns property only for the purpose of enjoying the income therefrom (except where he occupies it himself). In this particular case, the enjoyment of the income from these properties as of right was not available to the other allottees during the period of the lifetime of the father, Sethuraman Pillai, as that right belonged to him till his death. That right ceased on the death of Sethuraman Pillai the result being the operation of Section 7,

8. There was some discussion before us whether the interest which a person should have on the property is something akin to an interest in the nature of a charge. The section does not use the word 'charge' and the provision would appear to be consistent with the view, that, though an interest in the nature of a charge would be within the scope of this section, even independent of existence of a charge, there can be an interest, in the property which would come within the scope of that provision. What is contemplated by Section 7 is some tangible association with the property, and not some interest which cannot be correlated to the property. Judged by the above test, in the present case, the deceased had an interest in the property, because of the right to collect the rent from the property. This right having ceased on his death and the right to collect the rent having accrued to other allottees on his death, there was a statutory passing of property.

9. The Tribunal in the course of its order has referred to the decision of the Supreme Court in CED v. R. Kanakasabai : [1973]89ITR251(SC) . In that case, one Ratnasabapathy Pillai was the owner of certain properties. He died on 5th February, 1959, leaving behind him some heirs. The question that arose in the estate duty assessment related to certain properties settled by the deceased on his wife, sons, grandsons and daughter. In the document in favour of the sons and the minor grandsons, it was provided that they had to pay during his lifetime a sum of Rs. 1,000 per year for his domestic expenses. In the document in favour of the daughter it was stated that she had to maintain him and his wife during their lifetime, and in the document in favour of his wife, it was stated that in the hope that she would support him during his lifetime he settled the particular property on her. On the terms of this document, the Supreme Court held that neither the provisions of Section 10 nor those of Section 12 were attracted. There was no scope for any discussion as regards the interpretation of Section 7 in the said case. The real question in that case was whether the deceased retained any interest in the properties. On the language of the document, it was found that he did not have any interest in those properties and, therefore, the Supreme Court held that there was no liability to estate duty under Section 10 or 12 of the Act. We are not concerned with a similar situation.

10. The Tribunal has pointed out that the rent receivable from the houses alone had been allotted to the deceased and not any other interest for the life of the deceased and that if the sons became entitled to receive the rentfrom these houses after the death of the deceased, it was because the houses had been allotted to them and the right given to the deceased to receive the rent was no longer an impediment. There was an impediment, even on the Tribunal's finding, to the collection of the rent during the lifetime of the, deceased. It would thus be clear that there was a cesser of one's interest and accrual of benefit to another. The right created in the partition deed is of no consequence as far as the present problem is concerned. We are concerned with the existence of the right, and not its origin. In these circumstances, the Tribunal was not right in coming to the conclusion that the provisions of Section 7 did not apply.

11. In Manian Nalesan v. CED [1965] 56 ITR (ED) 5, this court considered the question as to whether a liability to estate duty arose consequent on the death of an individual, who had the right of residence in a particular property under a will. It was held that the interest of the individual in the property was such as to pass on the death within the meaning of Section 7 of the Act. It was also held that under the terms of Section 7, the right of residence in the property was 'property' which could be deemed to pass on the death of that person. If a mere right of residence, without more, could itself be treated as property passing on the death under Section 7, the case of right to collect the rent would stand a fortiori.

12. In CED v. Jameela Begum : [1975]101ITR165(Mad) , this court pointed out that in the case of a settlement under which the deceased was entitled to the income from the property during the lifetime there was an interest in the property gifted to the person, who was entitled to the income. It was observed at page 177 as follows :

'It is well established that wherever an amount is to conic from a specified property that amount should be taken to have been charged on the property so that the amount could be realised by proceeding against the property. In this view, we must hold that Fathima Bi should be taken to have an interest in the property which ceased on her death and a corresponding benefit created to the accountable person on the cesser of such interest.'

13. From the above passage, it would be clear that if income from a particular property is the source of a payment or receipt, then the right to the income would be in the nature of a charge on the property. On this view also the assessment to estate duty would be sustainable in this case, as the rent from particular properties was to be taken by the deceased. He had thus interest in the property which ceased on his death.

14. The result is that the question, referred to us is answered in the affirmative and in favour of the revenue. The revenue will be entitled to its costs. Counsel's fee Rs. 500.


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