1983 (3) TMI 4 - HC - Income Tax

Summary

Issues:
1. Interpretation of section 5 and section 7 of the Estate Duty Act, 1953 in relation to the transfer of properties upon death.
2. Determination of principal value of properties considering life interest under a settlement deed.
3. Application of section 40 for valuation of interests ceasing on death.
4. Whether subsequent life interest should be considered while determining principal value of properties.

Analysis:

The case involved a settlement deed where certain properties were settled on the deceased for her lifetime, with subsequent life interest passing to her son and then to his sons. The Assistant Controller of Estate Duty concluded that the properties passed from the deceased to her son upon her death under section 5 of the Estate Duty Act. Alternatively, he included the entire value of the properties in the dutiable estate of the deceased under section 7 read with section 40(a) due to the deceased's interest extending to the entire income of the properties.

Upon appeal, the Tribunal held that the value of the deceased's life interest should be considered in determining the principal value of the properties, and remitted the matter to the Assistant Controller. The Revenue contended that the subsequent life interest should not be taken into account while valuing the properties under section 40. However, the court disagreed, stating that the cesser of interest and creation of benefit for the son were simultaneous upon the deceased's death.

The court held that the principal value of the property should be determined considering the life interest of the son, as it affects the property's market value. Section 40, read with section 36, mandates the consideration of the life interest in determining the principal value, as any intending purchaser would factor in the existing life interest. Therefore, the Tribunal's decision to allow for the value of the son's life interest in calculating the principal value was upheld.

In conclusion, the court answered the referred question in the affirmative, ruling in favor of considering the subsequent life interest while determining the principal value of the properties. The Revenue was directed to pay costs to the respondent's counsel.