1982 (8) TMI 2 - HC - Income Tax

Issues Involved:
1. Inclusion of Rs. 92,243 in the principal value of the estate under section 9(1) read with section 27 and Explanation 2 to section 2(15) of the Estate Duty Act, 1953.
2. Inclusion of Rs. 10,000 under section 9 of the Estate Duty Act, 1953.

Detailed Analysis:

Issue 1: Inclusion of Rs. 92,243 in the Principal Value of the Estate

Facts:
The deceased was the karta of a Hindu undivided family (HUF) and there was a partial partition in the family on October 17, 1972. The credit balance in the pawn-broking business was Rs. 2,76,727. In the partition, Rs. 46,121 was allotted to the deceased and Rs. 2,30,606 to his son. The difference of Rs. 92,243 was included in the estate's principal value under section 9 read with Explanation 2 to section 2(15) of the Estate Duty Act, 1953.

Appellate Controller's Decision:
The Appellate Controller deleted the addition of Rs. 92,243, holding that:
1. There was no extinguishment of a debt or right to deem it as a disposition under Explanation 2 to section 2(15).
2. In a partial partition, adjustments can be made at the final partition.
3. The Supreme Court's decision in CED v. Kancharla Kesava Rao [1973] 89 ITR 261 established that partition does not amount to a disposition.

Tribunal's Decision:
The Tribunal disagreed with the Appellate Controller, holding that any extinguishment of right by the deceased and creation of benefit in favor of his son constitutes a disposition, regardless of whether it is a partial or total partition.

Court's Analysis:
The court noted that the Supreme Court's decisions in Getti Chettiar's case and Kancharla Kesava Rao's case were not applicable. Instead, the decision in Ranganayaki Ammal v. CED [1973] 88 ITR 96 (Mad), approved by the Supreme Court in CED v. Kantilal Trikamlal [1976] 105 ITR 92, applied. The court held that:
1. An unequal partition resulting in the extinguishment of the deceased's right and creation of benefit for the son amounts to a disposition under Explanation 2 to section 2(15).
2. The partial partition is final and binding, and adjustments cannot be presumed unless explicitly agreed upon.

Conclusion:
The court affirmed the inclusion of Rs. 92,243 in the principal value of the estate, answering the first question in the affirmative and in favor of the Revenue.

Issue 2: Inclusion of Rs. 10,000 under Section 9 of the Act

Facts:
The deceased made a cash gift of Rs. 10,000 to his grandson on August 30, 1972. The Appellate Controller found that the gift was from joint family funds, not the deceased's personal funds.

Appellate Controller's Decision:
The gift was not includible under section 9 as it was made from joint family funds.

Tribunal's Decision:
The Tribunal held that a disposition to attract estate duty under section 9 need not be of property to which the deceased was the absolute owner but can be of any property he was competent to dispose of. Thus, it upheld the inclusion of Rs. 10,000.

Court's Analysis:
The court noted that the deceased was entitled to only half of the Rs. 10,000, i.e., Rs. 5,000, as the other half belonged to the other coparcener. As the karta, the deceased had no power to gift the entire joint family property. Thus, only Rs. 5,000 could be validly included under section 9.

Conclusion:
The court held that only Rs. 5,000 of the Rs. 10,000 gift was validly includible under section 9, answering the second question accordingly.

Final Judgment:
Both questions were answered partially in favor of the Revenue and the accountable person, respectively. There was no order as to costs.

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