1977 (3) TMI 7 - HC - Income Tax

Summary

Issues Involved:
1. Inclusion of Rs. 2,96,085 in the estate duty assessment.
2. Inclusion of Rs. 57,000 representing the income from the lands gifted during the two years prior to the death of the deceased.

Detailed Analysis:

Issue 1: Inclusion of Rs. 2,96,085 in the Estate Duty Assessment
The primary contention revolves around whether the properties settled by the deceased on his wife and two daughters under the settlement deed dated July 25, 1959, should be included in the estate duty assessment. The Assistant Controller of Estate Duty (Asst. CED) and the Appellate Controller held that the gifts were void as the partition between the deceased and his minor son occurred only on January 22, 1960, thus the properties were still part of the joint family estate at the time of the gifts.

The Tribunal and the High Court both concluded that there was no severance in status or partition between the deceased and his minor son before the settlement deed dated July 25, 1959. The High Court emphasized that the partition referenced in the settlement deed pertained to the partition between the deceased and his paternal cousin on April 5, 1959, not between the deceased and his son. The court dismissed the argument that the properties gifted to the daughters were within reasonable limits of the joint family estate, as the value of the properties gifted (Rs. 20,000) did not constitute a reasonable proportion of the total immovable properties valued at Rs. 57,350.

The court also rejected the argument that the properties reverted to the HUF upon the gifts being declared void, stating that the properties were allotted to the deceased in the partition deed dated January 22, 1960, thus they belonged to the deceased individually at the time of his death. The court further dismissed the contention that the gifts could be partially upheld by "scissoring" the schedules in the settlement deed to find a reasonable proportion. The court held that such a transaction was void ab initio and could not be validated in part.

Thus, the High Court answered the first question in the affirmative, confirming the inclusion of Rs. 2,96,085 in the estate duty assessment.

Issue 2: Inclusion of Rs. 57,000 Representing the Income from the Lands Gifted
The second issue concerns the inclusion of Rs. 57,000, representing the income from the lands gifted during the two years prior to the death of the deceased. The Asst. CED and the Appellate Controller included this amount under Section 9 of the Estate Duty Act, 1953, which deems property taken under a disposition made within two years before the death of the deceased to pass on the death if not made bona fide.

The High Court analyzed Section 9(1) and concluded that for it to apply, there must be a disposition within two years before the death of the deceased. Since the settlement deed was executed on July 25, 1959, more than two years before the deceased's death on October 14, 1962, Section 9(1) could not apply. The court also rejected the argument that the deceased allowing the donees to enjoy the income constituted a disposition within the two-year period, as there was no specific act of disposition within that timeframe.

The court further examined Section 34(4) of the Act, which includes all income accrued upon the property included in the estate down to and outstanding at the date of the death of the deceased. The court found no evidence that the income of Rs. 57,000 was outstanding on the date of death, as the Tribunal had accepted that the income was appropriated by the donees.

Thus, the High Court answered the second question in the negative, ruling that the inclusion of Rs. 57,000 in the estate duty assessment was improper.

Conclusion:
The High Court confirmed the inclusion of Rs. 2,96,085 in the estate duty assessment but ruled against the inclusion of Rs. 57,000 representing the income from the lands gifted during the two years prior to the death of the deceased. Each party succeeded in part, and no order as to costs was made.