Controller of Estate Duty v. Nirmala Saxena — 1995 DIGILAW 9 (RAJ)

Judgment V.K. Singhal, J.-The Income-tax Appellate Tribunal has referred the following question of law arising out of its order dated September 14, 1982, under Section 64(1) of the Estate Duty Act, 1953 “Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the share of the lineal descendants in the coparcenary house property was not includible in the principal estate of the assessee for rate purpose under Section 54(1)(c)T’ 2. The facts as stated by the Assistant Controller of Estate Duty, Jaipur, in his order dated February 5, 1980, are that the deceased had a 1/5th interest in the residential family house property belonging to the deceased, his wife and three sons. It was claimed that the value of the family property should be exempt under Section 33(1)(n) as its value was below Rs. 1,00,000. According to the Assistant Controller of Estate Duty, the value of the house property was assessed at a figure of Rs. 65,000. The house property was assessed in land and building tax as on March 1, 1973, at a figure of Rs. 56,500. Therefore, in order to estimate the value as on April 1, 1973, the Assistant Controller considered it at a figure of Rs. 1,00,000 and the 1/5th share of the deceased therein was exempted and the 3/Sths share of the three legal representatives was held liable to be included in the estate for rate purposes. 3. In appeal, the Appellate Controller of Estate Duty following the decision in CED vs. Estate of Late Durga Prasad Beharilal [1979] 116 ITR 692 (AP), the said amount was directed to be excluded from the principal value of the estate. The Income-tax Appellate Tribunal asked a question from the Departmental Representative as to whether the deceased alone was residing in the house in dispute or the lineal descendants were also residing therein. Since he was not in a position to correctly state the facts, therefore, the Appellate Tribunal came to the conclusion that the deceased was occupying the house exclusively before his death and, therefore, the entire house was held not includible in the principal value of the estate passing on his death in view of the provisions of Section 33(1)(n) of the Estate Duty Act. The Tribunal, therefore, came to the conclusion that the value of interest of the lineal descendants was not includible under Section 34(1)(c) of the Estate Duty Act. 4. No one has appeared on behalf of the respondent. The arguments of learned standing Counsel for the appellant have been heard. The provisions of Sections 33(1)(n) and 34(1)(c) are as under “33. Exemptions. --(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.” “34. Aggregation.--(1) For the purpose of determining the rate of the estate duty to be paid on any property passing on the death of the deceased,-- .(a) all property so passing other than property exempted from estate duty under Clauses (c), (d), (e), (i), (j), (1), (m), (mm), (n), (o) and (p) of Sub-section (1) of Section 33 .(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 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” 5. The language such as is referred to in Section 34(1)(c) provides for aggregation of property passing on the death of the deceased in respect of the interest in the joint family property of all the lineal descendants and the exemption under Section 33(1)(n) is of one house or part thereof exclusively used by the deceased for his residence. .6. The language such as is referred to in Section 34(1)(c) provides for aggregation of property passing on the death of the deceased in respect of the interest in the joint family property of all the lineal descendants and the exemption under Section 33(1)(n) is of one house or part thereof exclusively used by the deceased for his residence. .6. Theapex Court in the case of Asst, CED vs. V. Devaki Animal [1995] 212 ITR 395, while reversing the decision of the Madras High Court, in vs. Devaki Ammal vs. Asst CED [1973] 91 ITR 24, has upheld the aggregation and constitutionality of the provisions of Section 34(1)(c) as under (at page 403): .“Section 34(1)(c) only provides for the rate of estate duty to be levied upon such benefit. For determining that rate the interests of all the lineal descendants of the deceased in the joint Hindu family property are to be aggregated so as to form one estate and estate duty is to be levied at the rate applicable to the principal value thereof Sub-section (2) of Section 34 is put somewhat clumsily. It uses the expression ‘property exempt from duty’ and its Explanation defines the expression to include the interests of all coparceners other than the deceased in the joint family property. Where, therefore, the estate referred to in Clause (c) of Sub-section (1) of Section 34 includes the interests of coparceners, other than the deceased, which is the property exempt from estate duty, the estate duty leviable on the property not exempt, i.e., on the interest of the deceased, shall be calculated by application of this formula. What is the proportion of the value of the property not exempt to the value of the estate : that proportion of the amount payable on the estate is payable on the interest of the deceased.” 7. On a bare perusal of Section 33(1)(n) it is clear that the house which is exclusively used by the deceased 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 has been exempted. On a bare perusal of Section 33(1)(n) it is clear that the house which is exclusively used by the deceased 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 has been exempted. The finding which has been recorded by the Tribunal in the present case is that the said house was exclusively occupied by the deceased before his death and, therefore, the entire house was not includible in the principal value of the estate passing on his death. 8. Shri Bapna submitted that so far as the interpretation of the Tribunal is concerned that the property which is exclusively used by the deceased would be exempt under the provisions of Section 33(1)(n) is not in dispute. The dispute is only that the coparceners’ interest in the joint family property of the Hindu family governed by the Mitakshara, Marumakkattayam or Aliyasantana law, also, the interest of the lineal descendants of the deceased member in the property is to be aggregated so as to form the estate for the purpose of levy of duty or not. Under Section 34(2), Explanation (iii), provides that “property exempt from estate duty” means the interest of all coparceners other than the deceased in the joint family property of a Hindu family. 9. Sofar as the wife is concerned she is not a lineal descendant and the property of the deceased being exempted under Section 33(1)(n) is not to be included for rate purposes. It is only the share of the lineal descendants in the joint family property which has to be included, and this point has not been properly considered by the Income-tax Appellate Tribunal. Inasmuch as the “interest” of the coparcener is different from the use of the property. The use of the property by the deceased may be in any manner even in respect of property which is not owned by him and, therefore, the provisions of Section 33(1)(n) cannot be construed so as to override the provisions of Section 34(1)(c). The exemption under Section 33(1)(n) is only of the property which is owned or belonging to the deceased and passes on his death. The exemption under Section 33(1)(n) is only of the property which is owned or belonging to the deceased and passes on his death. The property which is owned by the lineal descendants of the deceased or in which they have interest (and it is not in dispute that they had interest to the extent of 3/5th of the property) the same is liable to be included in accordance with the provisions of Section 34(1)(c). .10. Provisionsfor valuation of interest in coparcenary property ceasing on the death has been provided under Section 39(1) of the Act. For the purpose of determining the value of the share of a member of the joint Hindu family and for the purpose of determining the estate duty on his estate after his death and the total value of the property valuing each of them separately has to be determined in accordance with this provision. The .question of exemption, if any, then has to be examined in accordance with the provisions contained in Section 33(1)(n). The balance of the estate thereafter has to be aggregated in accordance with the provisions of Section 34(1)(c). On this principle of law, it has to be seen that the exemption which has been provided under Section 33(1)(n) is in respect of the house or a part thereof which is exclusively used by the deceased for his residence. The provisions of Sub-section (1)(c) of Section 34 have to be interpreted in the manner that exemption contemplated by Section 33(1)(n) in respect of those assets which belong to the deceased and pass on his death, alone are to be excluded. An asset which does not belong to the deceased or does not pass on his death cannot be covered by the exemption clause. The provisions of Section 34(1)(c) contemplating the aggregation of the property, in which a coparcener has any interest cannot be treated to be property belonging to the deceased or which could pass on his death. It is the share of the deceased alone which passes on his death. 11. The Gujarat High Court in the case of Ramniklal J. Daftary vs. CED [1982] 136 ITR 422 has held that the interest of the lineal descendants of the deceased in the joint family property should be taken for rate purposes under Section 34(1)(c) of the Estate Duty Act. 11. The Gujarat High Court in the case of Ramniklal J. Daftary vs. CED [1982] 136 ITR 422 has held that the interest of the lineal descendants of the deceased in the joint family property should be taken for rate purposes under Section 34(1)(c) of the Estate Duty Act. The Madras High Court in the case of T. Sundaresa Mehta vs. CED [1981] 127 ITR 107, has also taken the view that in computing the exemption on house property owned by the Hindu undivided family in which the deceased was a member, the exemption under Section 33(1)(n) of the Act will be available on the share of the deceased in the property and not on the entire value of the property before determining his share. The Karnataka High Court in the case of CED vs. K. Nataraja [1979] 119 ITR 769 has interpreted the provisions of Section 33(1)(n) of the Estate Duty Act that the words “property of any of the following kinds belonging to the deceased which passes on his death” and held that exemption can be claimed under that sub-section only in respect of that property which belongs to the deceased and which passes on the death of the deceased. It was also held that in the case of a residential house belonging to a Hindu undivided family governed by the Mitakshara law, only the share of the deceased in such house is exempt from estate duty under Section 33(1)(n). For the purpose of determining the rate of estate duty the value of the share of the deceased in such house has to be excluded from the value of the property passing on his death under Section 34(1)(a), but the value of the shares of all lineal descendants of the deceased in the coparcenary property including the residential house has to be aggregated under Section 34(1)(c) without any reference to any exemption under Section 33(1)(n) of the Act. 12. In this case, the decisions in the case of ITATv. 12. In this case, the decisions in the case of ITATv. Madan Mohan [1979] 119 ITR 781 (All), and CED vs. Satish Chandra [1979] 119 1TR 783 (All) were considered, wherein the Allahabad High Court was of the opinion that the words “which passes on his death” cannot be isolated from the provisions of Section 33(1) (n) and in the case of a residential house belonging to the Hindu undivided family it is the share of the deceased which passes on his death. The value of such share alone in the residential house will be exempt from payment of estate duty under Clause (n). The Karnataka High Court in the case of CED vs. N. Ramachandm Bhat [1980] 123 ITR 841, while interpreting the provisions of Section 33(1)(n) of the Act observed that in a residential house belonging to a Hindu undivided family governed by the Mitakshara law only the share of the deceased in the house is exempted from estate duty under Section 33(1)(n). For the purposes of rate of estate duty, the value of the share of the deceased in such house has to be excluded from the value of the properly passing on his death under Section 34(1)(a) but the value of the shares of all the lineal descendants of the deceased in the coparcenary property including the residential house has to be aggregated under Section 34(1)(a) without any reference to any exemption under Section 33(1)(n). In the case of Smt. Gunvantibai vs. CED [1981] 130 ITR 122, the Madhya Pradesh High Court has also taken the view that the value of the share of the lineal descendants of the deceased in the coparcenary property has to be aggregated with the principal value of the estate of the deceased for purposes of rate of duty under Section 34(1)(c) of the Estate Duty Act, 1953. Under Section 33(1)(n), only the share of the deceased in the residential house belonging to the Hindu undivided family is exempt from estate duty, because a notional partition of the Hindu undivided family property immediately before death is assumed and the value of that share is determined. Exemption under Section 33 is permissible only to such share because that share alone passes on death. A similar view has been taken in the case of CED vs. R.S. Gwalre [1981] 130 1TR261 (MP). 13. Exemption under Section 33 is permissible only to such share because that share alone passes on death. A similar view has been taken in the case of CED vs. R.S. Gwalre [1981] 130 1TR261 (MP). 13. In view of the various decisions referred to above and on the basis of the language used in Section 33(1) (n) we are of the opinion that the exemption is available only in respect of property which belongs to the deceased and which passes on his death. Hindu undivided property in which the lineal descendants have any interest cannot be said to be entirely belonging to the deceased. It is only the share of the deceased to the extent which passes on his death which is exempt. It is his share alone which passes on his death and, therefore, the exemption contemplated in Section 33(1)(n) is restricted to the share of the deceased. Under Section 34(1)(c) the value of the lineal descendants of the deceased in the coparcenary property has to be aggregated with the principal value of the estate of the deceased for the purposes of rate of duly. 14. In view of the specific language of Clause (c) of Section 34(1) the validity of which has already been upheld by the apex Court, the interest of lineal descendants is liable to be included and, therefore, we are of the view that the Income-tax Appellate Tribunal was not justified in holding that the share of the lineal descendants in the coparcenary property was not includible in the principal value of the estate of the deceased for rate purposes under Section 34(1)(c). 15. Thereference is accordingly answered in favour of the Revenue and against the assessee. No order as to costs.