1976 (7) TMI 61 - SC - Income Tax

Whether the dispositive fact of giving up by a coparcener of a good part of what is due to him at the time of division to his own detriment and to the benefit of another coparcener can be called disposition in law? Held that - Section 9 dealing with gifts takes in property under a disposition made by a deceased throwing up the question what is a gift ? Section 27 supplies the answer any disposition made by the deceased in favour of a relative of his shall be treated for the purposes of this Act as a gift unless of course it is made for full consideration. There is no limitation environmental or by the society of words warranting the whittling down of the unusually wide range of Explanation 2 to section 2(15). What the provision declares is that if the disposition made by the deceased is more than two years before death the property covered thereby shall not pass on the death unless it shall not have been bona fide. That is to say even if the transaction were more than two years before the death if it were entered into in bad faith estate duty may still attach to that property. So far as dispositions made within two years of the death of the deceased are concerned there is no question of mala fides or bona fides. All such transactions are caught within the coils of section 5 read with sections 9 and 27. The requirement of bona fides has nothing to do with dispositions within 2 years and has much to do with those beyond 2 years. The marginal obscurity in section 9 is due perhaps to compressed draftsmanship.

Summary

Issues Involved:
1. Interpretation of "disposition" under the Estate Duty Act, 1953.
2. Applicability of estate duty on relinquishment of property by a decedent within two years of death.
3. Definition and scope of "property" under the Act.
4. Relationship between sections 9, 27, and 2(15) of the Act.
5. Validity of unequal partition as a disposition.
6. Bona fide vs. mala fide transactions in the context of estate duty.

Detailed Analysis:

1. Interpretation of "disposition" under the Estate Duty Act, 1953:
The core issue was whether the relinquishment of a share in joint family property by a decedent, resulting in a smaller share for himself and a larger share for the accountable person, constitutes a "disposition" under the Act. The court observed that "disposition" is not a term of art but plain English with a wide import. It is expanded in meaning by Explanation 2 to section 2(15), which includes the extinguishment of any right at the expense of the deceased.

2. Applicability of estate duty on relinquishment of property by a decedent within two years of death:
The court examined whether the relinquishment of property within two years before the decedent's death attracts estate duty under sections 9 and 27 of the Act. The court concluded that such relinquishments are deemed to be dispositions and are treated as gifts for estate duty purposes, provided they benefit a relative and are not made for full consideration.

3. Definition and scope of "property" under the Act:
The court analyzed the inclusive definition of "property" under section 2(15) and its expansion by Explanation 2, which deems the extinguishment of any right at the expense of the deceased as a disposition. The court emphasized that this definition is broad and includes various forms of property and rights that may not traditionally be considered dispositions.

4. Relationship between sections 9, 27, and 2(15) of the Act:
The court highlighted the interconnection between these sections. Section 9 deals with gifts made within two years of death, section 27 treats certain dispositions as gifts, and section 2(15) provides a broad definition of property. The court noted that these provisions collectively ensure that various forms of property transfers and relinquishments are covered under the estate duty regime.

5. Validity of unequal partition as a disposition:
The court addressed the argument that a partition, even if unequal, does not constitute a disposition because it is merely an adjustment of pre-existing rights. The court rejected this view, stating that an unequal partition resulting in a benefit to the accountable person at the expense of the deceased is a disposition under the Act. The court relied on the broad language of Explanation 2 to section 2(15) to support this conclusion.

6. Bona fide vs. mala fide transactions in the context of estate duty:
The court clarified that the bona fides of a transaction are relevant only for dispositions made more than two years before death. For dispositions within two years of death, the Act deems them to pass on death regardless of bona fides. The court emphasized that the legislative intent is to prevent the evasion of estate duty through last-minute property transfers.

Conclusion:
The court concluded that the relinquishment of a share in joint family property by the deceased within two years of death, resulting in a benefit to the accountable person, constitutes a disposition under the Estate Duty Act, 1953. Such dispositions are treated as gifts and are liable for estate duty. The court dismissed the appeals and directed the parties to bear their respective costs.