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Issues Involved:
1. Inclusion of Rs. 35,000 received from the Life Insurance Corporation (LIC) under section 14 of the Estate Duty Act. 2. Nature of the payment made by LIC-whether it was ex gratia or related to the insurance policy of the deceased. Detailed Analysis: 1. Inclusion of Rs. 35,000 under Section 14 of the Estate Duty Act: The primary issue was whether the sum of Rs. 35,000 received from the LIC should be included in the principal value of the estate passing on the death of the deceased under section 14 of the Estate Duty Act, 1953. Section 14 stipulates that money received under a policy of insurance effected by any person on his life, where the policy is wholly kept up by him for the benefit of a donee, shall be deemed to pass on the death of the assured. The court noted that the deceased had taken out a policy from LIC effective from 18th November 1959, and had paid the premium during his lifetime. The policy was thus kept up by the deceased. Despite the LIC's initial refusal to pay the amount under the policy, citing non-disclosure of material health facts, the sum of Rs. 35,000 was eventually paid to the widow of the deceased. The court examined the nature of the payment, which LIC described as ex gratia. The court referred to the Queen's Bench Division case of Edwards v. Skyways Ltd. [1964] 1 WLR 349, which clarified that the term "ex gratia" does not necessarily imply that the payment is without legal effect. The court concluded that the payment of Rs. 35,000 was traceable to the policy of insurance taken in 1959 and that the term "ex gratia" used by LIC did not change the nature of the payment. The court also referenced Attorney-General v. Murray [1904] 1 KB 165, where it was held that even if a policy is void, any payment made under it must be treated as made in respect of the policy. Applying this principle, the court determined that the sum of Rs. 35,000 should be included under section 14 of the Estate Duty Act. 2. Nature of the Payment by LIC: The second issue was whether the payment made by LIC was ex gratia and not related to the insurance policy of the deceased. The accountable person argued that the sum was received as a result of protracted discussions and was a compromise, not an enforceable right under the policy. The Assistant Controller of Estate Duty, however, included the amount in the estate's value, which was upheld by the Appellate Controller but overturned by the Tribunal. The court scrutinized the correspondence and the circumstances leading to the payment. It was evident that the payment was made after detailed representations by the accountable person's advocate, challenging LIC's refusal based on alleged non-disclosure of health issues. The court found that the payment was indeed related to the insurance policy, despite being labeled ex gratia by LIC. The court concluded that the Tribunal erred in holding that the sum of Rs. 35,000 was not liable to be brought to tax under section 14. The description "ex gratia" did not remove the payment from the scope of section 14, as it was essentially a settlement under the policy. Judgment: The court answered the first question in the negative, in favor of the revenue, determining that the sum of Rs. 35,000 was includible under section 14 of the Estate Duty Act. Consequently, it was unnecessary to answer the second question, as it was merely an argument supporting the first issue. The judgment emphasized that the characterization of the payment as ex gratia did not alter its taxable nature under the policy. There was no order as to costs.
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