2002 (8) TMI 58 - HC - Income Tax

Estate Duty Act, 1953 - 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the submission of the assessee that section 7 Of the Estate Duty Act was not applicable to the facts of this case? - 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the claim of the assessee that the life interest of the deceased is not capable of valuation under section 40 and hence cannot be included under section 7? - both questions are required to be and is answered in favour of the Revenue and against the assessee.

Summary

Issues:
1. Applicability of section 7 of the Estate Duty Act to the case.
2. Valuation of life interest of the deceased under section 40 of the Act.

Issue 1: Applicability of section 7 of the Estate Duty Act:
The case involved the levy of duty on the estate of a deceased individual, Smt. Jayalakshmi, based on the interpretation of section 7 of the Estate Duty Act, 1953. The Assessing Officer applied section 7, which deals with interest ceasing on death, to value the property and levy tax. The accountable person contended that section 7 was not applicable as no interest passed to the children of the deceased upon her demise, as she only had a right to receive income from the property. However, the court held that the right to enjoy the income of the property was a benefit that accrued to the children upon the mother's death, as per the provisions of section 7. The court referred to a Supreme Court decision emphasizing that even an inalienable right to reside in a property is an asset requiring valuation, supporting the application of section 7 in this case.

Issue 2: Valuation of life interest under section 40 of the Act:
The second question revolved around the valuation of the deceased's life interest under section 40 of the Act. The accountable person argued that since the deceased did not derive actual income from the property during her lifetime, the mode of valuation under section 40 would be inapplicable. However, section 40 mandates the valuation of benefits accruing from interests ceasing on death, even if the deceased did not utilize the property to generate income. The court highlighted that the deceased had an interest extending to the whole income of the property, as specified in the release deed, despite not actively deriving income. The court rejected the argument that absence of actual income negates the applicability of section 40, emphasizing that the interest extending to the whole income justifies the levy of duty on the market value of the property. A previous case was cited to differentiate situations based on the extent of interest held by the deceased, further supporting the Revenue's position.

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