Controller Of Estate Duty v. Sri Durganand Jha — 1994 DIGILAW 259 (PAT)

Judgment K.Venkataswami, J. 1. The following five common questions of law are referred for the opinion of this court under Sec. 64(1) of the Estate Duty Act, 1953 , by the Income-tax Appellate Tribunal, A Bench, Patna, arising out of common order in R.A. No. 37/(Pat), R.A. No. 41/(Pat), R. A. No. 38/(Pat), R. A. No. 42/(Pat), R. A. No. 36/(Pat), R. A. No. 40/(Pat), R. A. No. 39/(Pat) and R. A. No. 43/(Pat) of 1977-78 dated January 29, 1978 : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the proportion of the property required to produce the annuity of Rs. 1,44,000 per annum payable to the Maharani Rameshwarlata Saheba is not excludible from the principal value of the estate of Maharaja Kameshwar Singh ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the sum of Rs. 50 lakhs bequeathed by the Maharaja Kameshwar Singh in favour of his Maharanis--vide his will dated July 5, 1961, is not excludible from his estate under Sec. 44 of the Estate Duty Act, 1953 ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that, for the purpose of working out the slice of the capital required to produce the annuity of Rs. 1,44,000 under Sec. 7 read with Sec. 40 of the Estate Duty Act, 1953 , the income of the trust fund should be taken as gross income minus income-tax ? (4) Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the following amounts could not be taken into consideration in computing the value of the trust fund under Sec. 7 read with Sec. 40 of the Estate Duty Act, 1953 ? (i) Rs. 36,600 as realisable from the Maharani Rameshwarlata Saheba. (ii) Rs. 90,462 on account of the liability of the Maharani Rameshwarlata Saheba for the wealth-tax for the assessment year 1964-65. (iii) Rs. 7,622 on account of cash debit ? (5) Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the liability of the Maharani Rameshwarlata Saheba amounting to Rs. 38,656 was excludible from the principal value of her estate ?" 2. It may be noted that out of the above questions, questions Nos. 7,622 on account of cash debit ? (5) Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the liability of the Maharani Rameshwarlata Saheba amounting to Rs. 38,656 was excludible from the principal value of her estate ?" 2. It may be noted that out of the above questions, questions Nos. 1, 2 and 4 were referred for the opinion of this court, at the instance of accountable person, and questions Nos. 3 and 5 were referred for the opinion of this court at the instance of the Revenue. 3. The brief facts relating to these matters are as under : Sir Kameshwar Singh, Maharajadhiraja of Darbhanga (hereinafter referred to as "the Raja") was the holder of an impartible estate known as Darbhanga Raj. He settled certain shares and Government securities under a trust deed date September 21, 1943, for the benefit of his stepmother, the Maharani Rameshwarlata Saheba (hereinafter referred to as "the Maharani") and appointed the official trustee of West Bengal as trustee for the said trust. As per the terms of the trust deed, the Maharani was to get a sum of Rs. 12,000 per mensem for her maintenance and other expenses. This amount was payable out of the income of the said trust fund after meeting the normal expenses such as payment of the trustees own commission, all outgoings payable in respect of the said trust fund and the cost to be incurred by the official trustee in the administration and management of the trust properties. As per Clause 4 of the said trust deed, the surplus of the income after meeting the expenses of the trust fund would remain in the hands of the official trustee and form part of the trust fund. This clause further provided that the surplus of the income of the trust fund should also be invested either in Government securities or in such other manner as the official trustee may think proper and should be held by him as part of the trust fund during the lifetime of the settlor or for a period of 18 years from the date of the settlement whichever was longer. It was provided further in the trust deed that the trust was to come to an end on the death of the beneficiary, namely, the Maharani, and thereafter, the trust fund including the accumulation thereto were to revert to the settlor or his successors. 4. Apart from the trust as mentioned above, the Raja, by a will dated July 5, 1961, bequeathed two palaces in favour of his wives, the Maharani Rajyalakshmi and the Maharani Kamsundari, for their residence for life. He also bequeathed assets of the value of Rs. 30 lakhs in their favour. Subject to these bequests, the entire estate of the Raja was to vest in a board of trustees who were directed to pay a sum of Rs. 20 lakhs to the aforesaid Maharanis out of the capital assets. They were also directed to pay a sum of Rs. 3,000 per mensem to each of the Maharanis after payment of taxes and other public payments out of the corpus itself in case the income was insufficient. After the lifetime of the Raja, the properties were to devolve on the children of the nephews of the deceased in a certain ratio, Shri L.K. Jha, Ex-Chief Justice of this court, was appointed as the sole executor of the will, and he obtained probate of the will in the Calcutta High Court on September 26, 1963, after the death of the Raja on October 1, 1962. Shri L.K. Jha, as an accountable person of the late Raja, filed the return of the estate on January 22, 1963, and declared its principal value at Rs. 2,56,01,235. Later on, he filed a revised return showing the principal value of the said estate at Rs. 2,28,32,600. However, the Assistant Controller of Estate Duty estimated the principal value at Rs. 5,50,09,273. At this stage, it may be mentioned that the Maharani died on December 18, 1964. 5. The above are the broad facts relating to these matters. 6. Let us now take the first question referred for the opinion of this court. For the sake of convenience, question No. 1 is reproduced here : "Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the proportion of the property required to produce the annuity of Rs. 6. Let us now take the first question referred for the opinion of this court. For the sake of convenience, question No. 1 is reproduced here : "Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the proportion of the property required to produce the annuity of Rs. 1,44,000 per annum payable to the Maharani Rameshwarlata Saheba is not excludable from the principal value of the estate of the Maharaja Kameshwar Singh ?" 7. This question relates to the value of the estate in the shape of shares and Government securities set apart for payment of Rs. 12,000 per mensem to the Maharani (step-mother of the Raja). The Raja predeceased his stepmother. Under the trust deed, the Maharani is entitled to receive Rs. 12,000 per mensem or Rs. 1,44,000 per annum for her maintenance and other expenses during her lifetime. Therefore, it was contended before the authorities below that a portion of the trust property which would yield Rs. 12,000 per mensem or Rs. 1,44,000 per annum must be excluded proportionately from the principal value of the estate of the Raja. This contention was not accepted by the authorities below. The Tribunal, while rejecting the claim of the accountable person on this question, observed as follows : "The second contention of the learned representative of the accountable person before us is that the value of the property which passed on the death of the Maharaja should be reduced by excluding the proportion required to produce the annuity of Rs. 1,44,000. This argument is not tenable. In IRC V/s. Anouse Trustee [1961] SLJ 57 (referred to at page 185 of the Law and Practice Relating to Estate Duty in India by Sri O.P. Chopra--1973, Third edition) the deceased had settled funds on trust to pay his wife during his lifetime an annuity of such yearly sum as, after deduction of income-tax at the rate for the time being in force, would leave Rs. 400, subject thereto, to pay the balance of the income to the deceased for his life and on the death, if his wife survived (which happened) to pay the whole income to the wife for her life reducible on her marriage with remainders on her death in favour of issues. The accountable person admitted that duty was payable on the deceaseds death on the trust property. The accountable person admitted that duty was payable on the deceaseds death on the trust property. The question at issue was whether or not there should be a slice deduction for the proportion of the capital required to produce the wifes annuity during his lifetime. The court held that the duty was chargeable on the whole property vested in the trustees without any slice deductions. A similar view was taken in Cowley (Earl) V/s. IRC [1899] AC 198 (HL) and De Trafford V/s. Attorney-General [1935] AC 280 (HL). In view of these authorities and in the absence of any specific provision of law for the allowance of the deduction claimed by the accountable person, his contention is rejected." 8. Neither learned counsel for the assessee nor learned counsel for the Revenue brought to our notice any other decision except the decisions referred to by the Tribunal as mentioned above. We do not find anything wrong in the approach of the Tribunal nor in applying the ratio referred to in its order. It is not in dispute that the property set apart for yielding an annuity of Rs. 1,44,000 during the lifetime of the Maharani was to revert back to the settlor or his successors on the death of the Maharani. In other words, the corpus in the shape of shares and securities dealt with under the trust deed remained always the property of the settlor, namely, the Raja. Therefore, it cannot be said that on the date of death of the Raja, he was not the owner of the property. The enjoyment of that alone was given up temporarily under the trust deed to meet certain obligations. In that view of the matter as well, we are of the view that the Tribunal was right in rejecting the contention advanced on behalf of the accountable person. Hence, we answer question No. 1 in the affirmative and against the assessee. 9. Question No. 2 reads as follows : "Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the sum of Rs. 50 lakhs bequeathed by the Maharaja Kameshwar Singh in favour of his Maharanis--vide his will dated July 5, 1961, is not excludible from his assets under Sec. 44 of the Estate Duty Act, 1953 ?" 10. 50 lakhs bequeathed by the Maharaja Kameshwar Singh in favour of his Maharanis--vide his will dated July 5, 1961, is not excludible from his assets under Sec. 44 of the Estate Duty Act, 1953 ?" 10. We have seen while narrating the facts that the Raja has executed a will during his lifetime bequeathing certain immovable properties and assets, in all amounting to Rs. 50 lakhs, in favour of his Maharanis. It was contended before the authorities below that the said sum of Rs. 50 lakhs bequeathed by the Raja in favour of his Maharanis should be excluded from his estate under Sec. 44 of the Estate Duty Act. This was rejected by the authorities below. The Tribunal, while rejecting the above request, held as follows : ". . . . Since no charge or incumbrances existed on the estate of the Maharaja a moment before his death and the liability created by the will came into force only after his death, we reject the contention of the accountable person that the assets worth of Rs. 50 lakhs referred to in the will, are excludible from the estate of the Maharaja for the purpose of the estate duty." 11. We are of the view that the Tribunal was perfectly right in observing as above while rejecting the contention advanced on behalf of the accountable person. We may add that, rightly, no serious argument was addressed before us challenging the above conclusion of the Tribunal. Accordingly, we answer question No. 2 in the affirmative and against the assessee. 12. For the sake of convenience, question No. 3 is reproduced below : "Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that, for the purpose of working out the slice of the capital required to produce the annuity of Rs. 1,44,000 under Sec. 7 read with Sec. 40 of the Estate Duty Act, 1953 , the income of the trust fund should be taken as gross income minus income-tax ?" 13. This question, referred for the opinion of this court at the instance of the Revenue is connected with question No. 1 which was referred for the opinion of this court at the instance of the assessee. We have already held while answering question No. 1 that the proportionate portion of the property required to yield an annuity of Rs. This question, referred for the opinion of this court at the instance of the Revenue is connected with question No. 1 which was referred for the opinion of this court at the instance of the assessee. We have already held while answering question No. 1 that the proportionate portion of the property required to yield an annuity of Rs. 1,44,000 payable to the Maharani is not excludible from the principal value of the estate of the Raja. The Tribunal has dealt with this question in paragraph 29 of its order which reads as follows : "It is common ground that Sec. 7 read with Sec. 40 applies to this case. Thus, the only question for consideration relates to the determination of the slice of the capital required to produce the annuity payable to the Maharani Rameshwarlata Saheba. On this point, we may rely upon the authority cited as Ld. Adv. V/s. Fothringham [1924] SC 52 referred to at page 455 of the Law and Practice of Estate Duty by V. Balasubramaniam (1968 edition). It was held in this case that in applying similar section to the cessor of an annuity charged on land the word income would mean beneficial income, i.e., the net income after deduction from public burdens, such as local rates and taxes, etc., as also the cost of ordinary and necessary repairs. To the same effect is the commentary at page 626 of the Law and Practice Relating to Estate Duty in India by O.P. Chopra. No authority to the contrary has been quoted by the representative of the assessee. Thus, the income-tax paid in respect of the trust fund has to be deducted from the gross income finding out the income of the trust property for the purposes of Sec. 40. However, there is no question of deduction of any expenditure on account of repairs, etc., as the trust funds consist of only shares and securities. The commission paid to the trustees is also not deductible as this payment was not necessary for earning the dividends and interest on the shares and securities in question. We are, therefore, of the opinion that income of the trust fund for the purposes of Sec. 40, should be taken as gross income minus income-tax." 14. The commission paid to the trustees is also not deductible as this payment was not necessary for earning the dividends and interest on the shares and securities in question. We are, therefore, of the opinion that income of the trust fund for the purposes of Sec. 40, should be taken as gross income minus income-tax." 14. Learned counsel appearing for the Revenue frankly submitted before us that he is not in a position to cite any decision contrary to the decisions referred to and relied on by the Tribunal or to contend contra. We are also of the view that the Tribunal has come to the correct conclusion in taking the above view. Accordingly, we answer this question in the affirmative and against the Revenue. 15. For the sake of convenience, question No. 4 is reproduced : "Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the following amounts could not be taken into consideration in computing the value of the trust fund under Sec. 7 read with Sec. 40 of the Estate Duty Act, 1953 ? (i) Rs. 36,600 as realisable from the Maharani Rameshwarlata Saheba. (ii) Rs. 90,462 on account of the liability of the Maharani Rameshwarlata Saheba for the wealth-tax for the assessment year 1964-65. (iii) Rs. 7,622 on account of cash debit ?" 16. This question was dealt with by the Tribunal and answered in paragraph 34 as under ; "In our opinion, the findings of the authorities below are correct and the same call for no interference. The representative of the assessee has not given the details of the aforesaid items nor has he explained as to how these amounts are liable to be taken into consideration in computing the value of the trust fund or the slice of the trust fund which produced the annuity. We do not, therefore, find any force in these claims of the assessee. The same are, therefore, rejected." 17. Even before us, no attempt was made to give details of the items in question and no attempt was also made to explain as to how these amounts are liable to be taken into consideration in computing the value of the trust fund or the slice of the trust fund which produced the annuity. The same are, therefore, rejected." 17. Even before us, no attempt was made to give details of the items in question and no attempt was also made to explain as to how these amounts are liable to be taken into consideration in computing the value of the trust fund or the slice of the trust fund which produced the annuity. Accordingly, we have no good reason to interfere with the conclusion reached by the Tribunal and consequently we answer this question also in the affirmative and against the assessee. 18. For the sake of convenience, question No. 5 is reproduced : "Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the liability of the Maharani Rameshwarlata Saheba amounting to Rs. 38,656 was excludible from the principal value of her estate ?" 19. The Tribunal has dealt with this aspect at paragraphs 39 and 40 of its order, which read as follows : "It appears from the record that the executor had advanced some money to Maharani Rameshwarlata Saheba and the outstanding dues amounted to Rs. 38,656 on her death. The Appellate Controller of Estate Duty has allowed this liability observing as follows : The appellant has taken an additional ground of appeal regarding the allowance of liability of Rs. 38,656. The additional ground of appeal is admitted. The Maharajadhiraja of Darbhanga died on October 1, 1962, and Pandit Lakshmi Kant Jha, executor, appointed under the last will, took over the charge of the estate immediately after his death. The executor advanced money to the deceased and outstanding dues amounted to Rs. 38,656 on the date of the death. The Assistant Controller has observed that the executor had been directed to pay as per will of the testator all expenses incidental to or consequent to the death along with other liabilities of the estate. The appellants representative has contended that the Assistant Controller has taken the literal meaning of the above sentence whereas the same expressly refers and confines such expenses to lawful expenditure under Sec. 307 of the Succession Act, 1925. The executor is given the power to spend something beyond his limits prescribed under Sec. 307 but these powers can be exercised with the specific direction and the approval of the High Court under Sec. 308 of the Act. The executor is given the power to spend something beyond his limits prescribed under Sec. 307 but these powers can be exercised with the specific direction and the approval of the High Court under Sec. 308 of the Act. Under the circumstances, it was contended that the executor had no power to pay any such sum to anybody and the sum of Rs. 38,657, therefore, clearly represented a loan to the deceased and should have been allowed as liability from the value of the estate. The appellants contentions are accepted. The executor was authorised only to incur expenses incidental to or consequent on the death along with other liabilities of the estate. As held earlier, the deceased was being paid the fund amount of Rs. 1,44,000 from the trust fund. As such the sum of Rs. 38,657 did not represent either expenditure incidental to or consequent on the death of the Maharajadhiraja or any other liability of the estate. The sum of Rs. 38,657 advanced to the deceased was, therefore, clearly by way of a loan and the same has to be allowed as liability from the principal value of the estate. We are in agreement with the observation of the Appellate Controller of Estate Duty . The representative of the Department has not pointed out how the sum of Rs. 38,657 did not represent the liability of the deceased at the time of her death. We, therefore, confirm the finding of the Appellate Controller of Estate Duty in this point." 20. Before us also, no serious argument was addressed challenging the conclusion of the Tribunal wherein the Tribunal has concluded that the representative of the Department has not pointed out how the sum of Rs. 38,657 did not represent the liability of the deceased at the time of her death. Therefore, we answer this question in the affirmative and against the Revenue. 21. In the result, all the questions are answered in the affirmative. These tax cases are, accordingly, disposed of. 22. Let a copy of this judgment be forwarded to the Income-tax Appellate Tribunal, "A" Bench, Patna. N.K.Sinha, J. 23 I agree.