1980 (12) TMI 37 - HC - Income Tax

Summary

Issues:
Assessment of estate duty on the estate passing upon death, interpretation of sections 33(1)(n), 34(1)(c), 34(2), and 39(3) of the Estate Duty Act, 1953 regarding exemptions and aggregation of property for rate purposes.

Analysis:
The judgment pertains to a reference under S. 4(1) of the E.D. Act, 1953, regarding the assessment of estate duty on the estate of a deceased member of an HUF. The issue revolves around the exemption under section 33(1)(n) for the value of shares of lineal descendants in the residential house. The Asst. Controller included the value of lineal descendants' shares in the assessment, but the Appellate Controller and Tribunal held it exempt under s. 33(1)(n) read with s. 39(3) of the Act, leading to the deletion of the addition.

The court analyzed the provisions of the Act concerning exemptions and aggregation of property for rate purposes. Section 33(1)(n) exempts the principal value of the deceased's residence, but the exemption is limited to the property belonging to the deceased and passing on his death. In the case of an HUF, the exemption applies only to the deceased member's interest in the house, not the lineal descendants' shares. Section 34 permits aggregation of interests in joint family property, but there is no provision to extend exemptions to lineal descendants' shares during aggregation.

The court further examined the application of s. 39(3) for valuation purposes. The fiction created by s. 39(3) deems the joint family property as belonging to the deceased only for estimating the principal value, not for extending exemptions. The valuation process involves determining the deceased's share, allowing exemptions under s. 33(1)(n), and then aggregating lineal descendants' interests for rate purposes under s. 34(2).

The court referred to the Karnataka High Court's decision in CED v. K. Nataraja, which limited the fiction under s. 39(3) to valuation purposes only. The court concurred with the Karnataka High Court's interpretation that exemptions under s. 33(1)(n) do not extend to lineal descendants' shares during aggregation. The court also cited similar views by the Allahabad and Madras High Courts, disagreeing with the Andhra Pradesh High Court's stance on excluding the valuation of lineal descendants' interests.

In conclusion, the court answered the reference question in the negative, favoring the department and rejecting the accountable person's claim. No costs were awarded in the matter.