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Controller of Estate Duty, Madras Vs. Estate of Late R. Krishnamachari. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 54 of 1972 (Reference No. 13 of 1972)
Reported in[1978]113ITR200(Mad)
AppellantController of Estate Duty, Madras
RespondentEstate of Late R. Krishnamachari.
Excerpt:
- .....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 of the lineal descendants, the former for assessment and the latter for aggregation ?'a member of the hindu undivided family governed by the mitakshara law died. the only other members of the family were his only son and the deceased widow. the total estimated value of the properties, arrived at by applying the principle in section 36 of the estate duty act, 1953, is rs. 2 lakhs. the correctness of this finding has not been canvassed and does not from the subject-matter of any reference to us. out of rs. 2 lakhs worth of joint family properties, a bulk of it was contributed by a residential house in which the.....
Judgment:

GOVINDAN NAIR C.J. - The question that has been referred to this court at the instance of the revenue by the Income-tax Appellate Tribunal, Madras Bench, reads as follows :

'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 of the lineal descendants, the former for assessment and the latter for aggregation ?'

A member of the Hindu undivided family governed by the Mitakshara law died. The only other members of the family were his only son and the deceased widow. The total estimated value of the properties, arrived at by applying the principle in section 36 of the Estate Duty Act, 1953, is Rs. 2 lakhs. The correctness of this finding has not been canvassed and does not from the subject-matter of any reference to us. Out of Rs. 2 lakhs worth of joint family properties, a bulk of it was contributed by a residential house in which the deceased lived with his son and wife and the condition necessary for getting exemption under section 33(1)(n) of the Estate Duty Act that it should have been exclusively used by the deceased for his residence was assumed during the proceedings. The value of the house has exceeded Rs. 1 lakh, and the house being situated in the city of Madras, a place having a population of much more than ten thousand, the exemption which is claimable by the accountable person must be limited to Rs. 1 lakh. This aspect has also not been disputed. On these facts, the question that arose before the Tribunal for determination was the interpretation to be placed on section 33(1)(n) read with sections 34 and 39 of the Estate Duty Act. We are constrained to remark that in dealing with this question, the import of the sections has not been properly appreciated or even understood, with the result the findings entered on the value of the property that passed and the value of the property on which the rate prescribed by section 34(1)(c) has to be applied have been misunderstood and in view of the impression that section 39(3) also qualified the exemption under section 33, a completely wrong conclusion has been reached. The question is wide enough to deal with all the section, but we do not consider that it would be appropriate to deal with the questions of fact though by applying the principles contained in sections 36 and 39 as to the valuation of the property which belongs to the joint Hindu family, the effect of the aggregation under section 34(1)(c), the principle for applying the rate to the amount that should be determined for fixing of the duty and the amount on which the rate should be applied have all been left vague. To add to these difficulties we are informed that section 34(1)(c) that applies for the aggregation and for the rate that s to be applied has been struck down by this court and the matter is now pending before the Supreme Court, various other High Courts having upheld the validity of section 34(1)(c).

In the above circumstances, what we have proposed to do is to apply the principles that have been applied by the Supreme Court in the two decisions, Commissioner of Income-tax v.Greaves Cotton Co. Ltd. (1969) 68 ITR 200 and Commissioner of Income-tax v. Indian Molasses Co. P. Ltd. : [1970]78ITR474(SC) . Applying these principles, the Kerala High Court in Commissioner of Income-tax v. Seshasayee Bros. (Travancore) Pvt. Ltd. : [1976]102ITR372(Ker) had left a matter to be decided by the Tribunal acting under section 66(5) of the Indian Income-tax Act, 1922, by re-hearing the appeal. We also direct the Tribunal to re-hear the appeal in the light of the principles that we shall state as we understand the provisions of the Act.

A glance of the Estate Duty Act indicates that the sections are grouped under various heads. Briefly stated, it starts with the imposition of estate duty and the extent of charge in Part II, having dealt with the preliminary matters in Part I, and proceeds in Part III to deal with the exceptions from the charge of duty. Part IV contains aggregation of property and rates of duty and Part V deals with the value chargeable. It is unnecessary for our purpose to proceed further and deal with Parts VI, VII, etc.

In the second part, after dealing with the imposition of estate duty an the extent of charge, sections 6 to 20A deal with property which is deemed to pass. Section 7 thereof is important for our purpose. That section provides that the property in which the deceased or any other person had an interest easing on the death of the deceased shall be deemed to pass on the deceased death to the extent to which a benefit accrues or arises by the cesser of such interest, including, in particular, a coparcenary interest in the joint family property of a Hindu family governed by the Mitakshara, Marumakkattayam or Aliyasantana law. Section 33(1) provides that 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 kinds mentioned therein belonging to the deceased which passes on his death. One of the various kinds of property dealt with under that sub-section is a 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.

Section 36 in Part V providing for value chargeable states that the principal value of any property shall be estimated to be the price which, in the opinion of the Controller, it would fetch if sold in the open market at the time of the deceaseds death. Section 34 in Part IV which deals with aggregation of property and rates of duty in so far as it is relevant for our purpose states in clause (a) of sub-section (1) that all property so passing other than property exempted from estate duty under clause (n) of sub-section (1) of section 33, in clause (b) agricultural land so passing, if any, situate in any State not specified in the First Schedule, and in clause (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, Marumakkattayam or Aliyasantana law, also the interest 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. The emphasis has been supplied by us. Now, turning to section 7 again and reading it with section 34, it is clear that for the purpose of the rate, when a person deceased had lineal descendants, it is the rate applicable to the aggregate value of the shares held by the deceased as well as the lineal descendants that have to be taken into account. We must emphasise that this is only for the purpose of the rate to be applied and has nothing to do with the question of the property or its value on which estate duty has to be charged. Section 39 is important and it is as follows :

'(1) 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.

(2) The value of the benefit accruing or arising from the cesser of an interest in the property of a tarwad or tavazhi governed by the Marumakkattayam rule of inheritance or of a kutumba or kavaru governed by the Aliyasantana rule of inheritance which ceases on the death of a member thereof shall be the principal value of the share in the property of the tarwad or tavazhi or, as the case may be, the kntumba or kavaru which would have been allotted to the deceased had a partition taken place 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, Marumakkattayam or Aliyasantana law in order 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.'

From section 39(1) it is clear that the value of the benefit accruing or arising from the cesser of a coparcenary interest-these words reflect the terms of section 7-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. Sub-section (3) of section 39 states that for the purpose of estimating the principal value of the joint family property of a Hindu family governed by the Mitakshara, Marumakkattayam or Aliyasantana law, in order 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 joint family property had belonged to the deceased. On analysing the provisions of the section, the following aspects are evident.

The benefit that accrues or arises on a coparcenary interest of the deceased who was a member of the joint Hindu family is the value of the share which would have been allotted to him had there been a partition in the family at the time of his death. In order to determine the value of his share, it is necessary to determine the value of the joint family property and for that purpose alone section 39(3) has provided that it may be assumed that the deceased died possessed of properties which belonged to the joint Hindu family and the provisions of the Act, so far as may be, for the determination of the value of the property of an individual when he died, for the purpose of estate duty, shall be applied for determining the market value of the total f the joint Hindu family properties. This is merely for the purpose of finding out the total value of the entire properties of the joint Hindu family, which is necessary in order to find out the value of the share of the deceased, which alone is taken to have passed on his death. The duty under the Act can, therefore, be imposed only on the value of the property which passed as the share of the deceased in a Hindu undivided family, which he would have obtained, had there been a partition in the family at the time of his death.

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.

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 at 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. But in the case, where the deceased had left behind lineal descendants, by virtue of the provision in section 34(1)(c), the extent of the shares of the lineal descendants of the deceased has to be aggregated to the share of the deceased in the property and the rate applicable to the aggregated value of that estate will have to be taken into account.

Only one other aspect remains to be dealt with and that is, how can section 33(1)(n) be applied. Section 33(1)(n) is as follows :

'(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.'

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 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 his death. This house passed as a result of the 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 to in the house comes to Rs. 85,000. When that is the property-the interest in which of the deceased was Rs. 85,000-which passed, is it possible under the section to grant exemption from duty to the extent of Rs. 1 lakh is the question arising for determination. Obviously, the answer is in the negative for the section very clearly refers to the property which passes. 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. The limitation of Rs. 1 lakh provided by the section imposes a restriction and that too will have to be applied if the interest that passes can be valued at over 1 lakh of rupees. But the exemption under this section on no account can exceed the value of the property which passed. If the value of the property exceeds Rs. 1 lakh, the exemption will be limited to Rs. 1 lakh. If the value of the property that passed is less than Rs. 1 lakh, the exemption would have to be limited to the value of the property. It is, therefore, clear on the facts of the case that the extent of the exemption is only Rs. 85,000.

We have sufficiently made clear that various provisions and indicated the method that should be adopted in determining the total value of the property of the joint family and the property that can be said to pass on the death of an individual and also the rate that has to be applied. In regard to the property that passes, estate duty must be determined by applying the rate-if section 34(1)(c) is held to be valid by the Supreme Court-taking the aggregate of the estate of the deceased as well as the lineal descendants. If, on the other hand, section 34(1)(c) is not held to be valid by the Supreme Court, no question of aggregation arises, and the rate that is applicable to the estate that passed will apply. These are matters of detail which will have to be taken into consideration by the Income-tax Appellate Tribunal when it re-hears the case under section 64(5) of the Estate Duty Act which is similar to the provision contained in section 66(5) of the Indian Income-tax Act, 1922, which has been relied only the Supreme Court in the two decisions we have referred to in the beginning of this judgment.

In the light of the above, we decline to answer the question in the absence of clear finding on the basis of the provisions of the Act regarding the total value of the property of the joint family and in regard to the aggregate value which is applicable to the share of the deceased as well as the lineal descendants and also a clear finding regarding the rate applicable to the appropriate amount. The Tribunal may deal with the matter afresh in re-hearing the appeal under section 64(5) of the Estate Duty Act. There will be no order as to costs in this reference.


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