1978 (2) TMI 56 - HC - Income Tax

Summary

Issues Involved:
1. Whether estate duty payable on the passing of the property of the deceased is deductible in ascertaining the principal value of the estate.
2. Whether the entire residential house belonging to the HUF in which the deceased had only a 1/2 share is exempt under s. 33(1)(n) of the E.D. Act.
3. Whether an adopted son can be regarded as a lineal descendant within the meaning of section 34(1)(c) of the E.D. Act, 1953.

Issue-wise Detailed Analysis:

Issue 1: Deductibility of Estate Duty
The court addressed whether estate duty payable on the passing of the property of the deceased is deductible in ascertaining the principal value of the estate. This issue was covered by the precedent set in CED v. Estate of Late Omprakash Bajaj [1977] 110 ITR 263 (AP). The court reaffirmed the view expressed in that case, answering the question in the affirmative and against the accountable person.

Issue 2: Exemption of Residential House
The court considered whether the entire residential house belonging to the HUF, in which the deceased had only a 1/2 share, is exempt under s. 33(1)(n) of the E.D. Act. This issue was covered by the judgment in E.D.C. No. 7 of 1975 dated October 13, 1977 [CED v. Durga Prasad Beharilal-since reported in [1979] 116 ITR 692 (AP)]. Based on the opinion expressed in that case, the court answered this question in favor of the accountable person.

Issue 3: Adopted Son as Lineal Descendant
The primary issue for the court's decision was whether an adopted son can be regarded as a lineal descendant within the meaning of section 34(1)(c) of the E.D. Act, 1953. The facts necessary for answering this question involved the deceased, Nuli Lakshminarayana, and his adopted son, N.V. Somaraju, who constituted a HUF governed by the Mitakshara law. The Assistant Controller of Estate Duty (Asst. CED) and subsequent appellate authorities had rejected the contention that the share of the adopted son, Somaraju, should not be aggregated under s. 34(1)(c) for purposes of arriving at the principal value of the estate.

The accountable person's counsel argued that an adopted son should not be equated with a lineal descendant, drawing support from the decision in Sahebgouda v. Shiddangouda, AIR 1939 Bom 166 [FB], which distinguished between an aurasa son and an adopted son in the context of succession to an impartible estate. However, the court noted that this case did not explicitly state that an adopted son is not a lineal descendant.

The court examined s. 12 of the Hindu Adoptions and Maintenance Act, which deems an adopted child to be the child of the adoptive parents for all purposes, severing ties with the biological family. The court also referenced several legal texts and precedents, including Bouvier's Law Dictionary, Privy Council decisions, and authoritative Hindu law texts, which consistently held that an adopted son occupies the same position as a natural-born son, inheriting both lineally and collaterally in the adoptive family.

The court rejected the argument that the legal fiction created in s. 12 of the Hindu Adoptions and Maintenance Act should not be extended to the E.D. Act. It emphasized that the E.D. Act itself, in s. 27(7)(ii), includes references to adopted children. The court concluded that the expression "lineal descendant" in s. 34(1)(c) of the E.D. Act includes an adopted son, aligning with the broader interpretation of inheritance rights under Hindu law.

Therefore, the court answered the question in the affirmative, holding that an adopted son can indeed be regarded as a lineal descendant within the meaning of section 34(1)(c) of the E.D. Act, 1953, and ruled against the accountable person. No costs were awarded, and the advocate's fee was set at Rs. 250.