1987 (6) TMI 32 - HC - Income Tax

Summary

Issues Involved:
1. Whether the value of the share of the lineal descendants in the joint family residential house should be aggregated under section 34(1)(c) of the Estate Duty Act, 1953, for calculating the rate of estate duty on the estate of the deceased.
2. Whether the entire value of the joint family residential house is exempt under section 33(1)(n) of the Estate Duty Act, 1953, or only the value of the deceased's share.
3. The constitutional validity of section 34(1)(c) of the Estate Duty Act, 1953, under Article 14 of the Constitution.

Detailed Analysis:

1. Aggregation of Lineal Descendants' Share under Section 34(1)(c):
The primary question referred to the court was whether the Tribunal was legally correct in excluding the interests of the lineal descendants of the deceased in the residential house of the joint family from aggregation under section 34(1)(c) of the Estate Duty Act, 1953. The Assistant Controller of Estate Duty initially held that the value of the share of the lineal descendants in the house, i.e., Rs. 50,000, was liable to be aggregated for ascertaining the rate of estate duty payable on the estate of the deceased. However, the Appellate Controller reversed this decision, and the Tribunal upheld the Appellate Controller's decision, stating that since the value of the joint family residential house was less than Rs. 1,00,000, the entire value of the house, i.e., Rs. 70,000, would be exempted, and not just the deceased's share.

2. Exemption under Section 33(1)(n):
The Tribunal's decision was based on the interpretation that the entire value of the joint family residential house should be exempt under section 33(1)(n) of the Act. The Tribunal relied on a precedent set by the Madras High Court in CED v. D. Rajasekaran Kamak, where it was held that the exemption should be applied to the entire value of the joint family residential house, treating the deceased as the owner of the entire house for the purpose of exemption. This approach aimed to ensure that co-sharers receive equal shares and avoid inequalities.

However, the court disagreed with this interpretation. It emphasized that under section 2(15) of the Act, property includes any interest in property, and section 5 specifies that estate duty is leviable on the principal value of the property that passes on the death of the deceased. Section 7 further clarifies that in the case of Mitakshara coparcenary properties, what passes on the death of the deceased is the interest of the deceased in the coparcenary. Therefore, the court held that the principal value of the share of the deceased in the joint family residential house should be exempted under section 33(1)(n), not the entire value of the house.

3. Constitutional Validity of Section 34(1)(c):
The accountable person contended that section 34(1)(c) of the Act, which provides for aggregating the share of the lineal descendants in the joint family property for calculating the rate of estate duty, is violative of Article 14 of the Constitution. The court noted that this question was not referred to it by the Tribunal and could not have been agitated before the Tribunal. Therefore, it could not be raised in the present reference application. The court also referenced a prior decision in Rameshwar Lall Agarwal v. Union of India, where the constitutional validity of section 34(1)(c) was upheld, confirming that it was not violative of Article 14 and was a valid piece of legislation.

Conclusion:
The court answered the reference in the negative, in favor of the Revenue and against the accountable person. It held that the Assistant Controller was correct in exempting only the value of the deceased's share in the joint family residential house and aggregating the value of the share of the lineal descendants for calculating the rate of estate duty. The decisions of the Appellate Controller and the Tribunal were found to be incorrect. The court also affirmed the constitutional validity of section 34(1)(c) of the Estate Duty Act, 1953.