1986 (7) TMI 89 - SC - Income Tax

Whether the expression impossible also includes the possibility of including something which is not property as yet of the deceased to pass on the death of the deceased? Held that - We accept the reasoning of the High Court that if the adoption was not valid as contended for by the Revenue, then Muthiah continued to be a member of the natural family and, as such, his share in the joint family would have passed on the death of the deceased. In this background, it is, however, difficult to appreciate the stand of the Revenue that the adoption was valid but no effect could be given to the terms of the muri. The muri, according to the Revenue, stood by itself. The High Court found it not possible to accept this argument. We are of the same view. The agreement properly read could not be taken as a post-adoption agreement. In that view of the matter, certain factual aspects were urged before the High Court for contending that the accountable person was not free to urge that there was no valid adoption and Muthiah continued to be a member of the natural family. We do not find much merit in such contentions and these need not be dealt with. These have been dealt with by the High Court and we accept them. Not much serious argument in support of the appeal on this aspect by the Revenue was advanced before us. Appeal is answered by saying that amount of ₹ 2 lakhs, if assessable, would have been assessed as a separate estate and the share of the deceased in the property of the joint family at the time of death was one-third and not one-half. In the premises, this appeal fails and is dismissed.

Issues Involved:
1. Competence of the deceased to dispose of the accident insurance money.
2. Aggregation of the accident insurance money with other properties.
3. Quantum of the deceased's share in the joint family property.

Issue-wise Detailed Analysis:

1. Competence of the deceased to dispose of the accident insurance money:

The primary issue was whether the deceased was competent to dispose of the Rs. 2 lakhs payable under the accident insurance policy, thereby making it includible in the principal value of the estate. The High Court held that under sections 5 and 6 of the Estate Duty Act, 1953, properties passing on death and properties which the deceased was competent to dispose of at the time of death are liable for estate duty. The High Court reasoned that the deceased had a right to nominate a person to receive the insurance money upon his death, which was akin to a testamentary disposition. Thus, the deceased had an interest over the payment of money and not in the money itself, making the insurance money includible in the principal value of the estate.

However, the Supreme Court disagreed with this view, stating that the property (insurance money) came into existence only upon the death of the deceased in an accident. The deceased had no interest in the money during his lifetime, and the right to nominate a beneficiary did not constitute a disposition of property. Therefore, the insurance money could not be deemed to pass on the death of the deceased, and the first question was answered in the negative.

2. Aggregation of the accident insurance money with other properties:

The second issue was whether the Rs. 2 lakhs should be aggregated with the other properties of the deceased or assessed as a separate estate. The High Court had held that although the deceased was competent to dispose of the insurance money, it was not liable to be aggregated with the other properties and should be treated as an estate by itself under section 34(3) of the Act.

The Supreme Court, while addressing this issue, noted that since the insurance money was not includible in the principal value of the estate, the question of its aggregation with other properties did not arise. However, the Court opined that had it been necessary to answer this question, the amount would have been treated as a separate estate and not aggregated with the other properties.

3. Quantum of the deceased's share in the joint family property:

The third issue concerned the share of the deceased in the joint family property at the time of his death-whether it was one-half or one-third. The High Court concluded that the type of adoption set out by the accountable person was recognized by the custom of the Nattukottai Chettiar community, and the deceased had only a one-third share in the joint family properties at the time of his death.

The Supreme Court upheld the High Court's decision, agreeing that the adoption was valid and that Muthiah, despite being adopted into another family, retained his interest in the natural family's properties as per the custom and the terms of the "muri." Consequently, the deceased's share in the joint family property was one-third, not one-half.

Conclusion:

The Supreme Court allowed Civil Appeal No. 2086 of 1974, answering the first question in the negative, thereby excluding the insurance money from the principal value of the estate. Civil Appeal No. 67 of 1975 was dismissed, upholding the High Court's decisions on the second and third questions, treating the insurance money as a separate estate and confirming the deceased's one-third share in the joint family property. Both parties were ordered to bear their own costs.

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