1974 (11) TMI 39 - SC - Indian Laws

Whether, on the facts and in the circumstances of the case, the entire value of the property known as Mayavaram Lodge or any portion of its value is liable to be included in the principal value of the estate of the deceased as property deemed to have passed on his death ? Held that - We accept the appeal, discharge the answer given by the High Court to the question referred to it and answer that question in favour of the revenue and against the accountable person. Our answer is that on the facts and in the circumstances of the case the entire value of the property known as Mayavaram Lodge is liable to be included in the principal value of the estate of the deceased as property deemed to have passed on his death.

Summary

Issues Involved:

1. Whether the entire value of the property known as 'Mayavaram Lodge' or any portion of its value is liable to be included in the principal value of the estate of the deceased as property deemed to have passed on his death.

Issue-wise Detailed Analysis:

1. Inclusion of Mayavaram Lodge in the Estate:

The primary issue in this case is whether 'Mayavaram Lodge' should be included in the principal value of the deceased's estate for estate duty purposes. The Assistant Controller of Estate Duty included a sum of Rs. 1,50,000 for Mayavaram Lodge, asserting that the property was self-acquired by the deceased and that the deed executed on March 11, 1955, which transferred the property to the deceased's sons, was a settlement rather than a partition deed. The Assistant Controller found that the deceased continued to derive benefit from the property after the transfer, as evidenced by the lease agreement executed shortly after the transfer.

2. Validity of the Partition Deed:

The respondent contended that the deed of March 11, 1955, was a partition deed of joint family properties and not a settlement. However, the Assistant Controller and subsequently the Board of Direct Taxes rejected this contention, finding no evidence that the deceased treated the property as joint family property. The Board concluded that the deed was a settlement and not a partition.

3. Timing of the Gift:

The Board noted that although the deed was executed more than two years before the deceased's death, it was registered only on June 29, 1955, which fell within the statutory period of two years before the death. Therefore, under section 9 of the Estate Duty Act, the gift was deemed to have passed on the death of the deceased.

4. Possession and Enjoyment of the Property:

The High Court held that the sons assumed possession and enjoyment of the entirety of Mayavaram Lodge upon the execution of the deed. However, it was found that the deceased continued to derive benefit from the property by leasing it back from his sons, thereby not being entirely excluded from its possession and enjoyment. The High Court concluded that only the value of the right to possession and enjoyment retained by the deceased as a lessee would attract estate duty.

5. Interpretation of Section 10 of the Estate Duty Act:

The Supreme Court referred to the relevant provisions of the Estate Duty Act, particularly sections 2(16), 5, 6, 7, 9, and 10. The court emphasized that under section 10, for a gift to be excluded from estate duty, the donee must assume immediate and exclusive possession and enjoyment of the property to the entire exclusion of the donor. The court cited previous judgments, including George da Costa v. Controller of Estate Duty, to underline that both conditions of section 10 are cumulative.

6. Judicial Precedents:

The court referenced several judicial precedents, including John Lang v. Thomas Prout Webb and Clifford John Chick v. Commissioner of Stamp Duties, to illustrate the principles of exclusion from possession and enjoyment. The court noted that even if the donor derives benefit from the property through a lease or other arrangement, the property would still be liable for estate duty.

7. Final Decision:

The Supreme Court concluded that the entire value of Mayavaram Lodge should be included in the principal value of the deceased's estate. The court found that the deceased was not entirely excluded from the property, as he continued to derive benefit from it through the lease agreement. The court discharged the High Court's answer and ruled in favor of the revenue, holding that the entire value of the property is liable to be included in the estate for estate duty purposes.

Conclusion:

The appeal was allowed, and the Supreme Court ruled that the entire value of Mayavaram Lodge is liable to be included in the principal value of the deceased's estate as property deemed to have passed on his death. The appellant was entitled to the costs of the appeal.