1996 (10) TMI 69 - SC - Income Tax

Whether the sum of 1, 56, 971 relating to the estate of late Mazharunnisa Begum is includible in the estate of the deceased as passing under section 5 of the Estate Duty Act 1953 ? Whether the sum of 8, 23, 697 representing the amount spent on the construction of quarters for dependants and Khanazadas is includible in the estate of the deceased under section 9 of the Estate Duty Act ? If the answer to the above question is in the negative whether on the facts and in the circumstances of the case the claim for the allowance of the sums of 12, 61, 649 and 8, 85, 850 as debts due was hit by limitation imposed by section 46 of the Estate Duty Act ? Whether for purposes of determining under section 36 of the Estate Duty Act the principal value of the estate passing on the death of the deceased the amount of estate duty payable is liable to be taken into account and the principal value of the estate should be reduced accordingly or whether the amount could be deducted as a debt under section 44 of the Estate Duty Act ? Whether the sum of 5, 01, 460 being the value of the properties in the occupation of Sahabzadas and Sahebzadis was includible in the hands of the deceased as property passing ? Held that - The High Court noted that it was not in dispute that the late Nizam was closely associated with the said Begum and they were living like husband and wife. That after her death the Nizam took several legal proceedings holding out that he was the husband of said Begum. The Nizam himself in several proceedings mentioned her as his wife. On this evidence therefore the High Court rightly came to the conclusion that Mazharunnisa Begum was the wife of the late Nizam and consequently the amount relating to her estate passed on to the Nizam after her death and therefore was rightly includible in the estate of the late Nizam. The aforesaid finding of the High Court is well sustained on evidence on record and calls for no interference. Question No. 1 is therefore answered against the appellant and in favour of the respondent. The stand taken by the concerned accountable person in wealth-tax proceedings wherein it was submitted that the quarters after construction were handed over to the khanazadas and the Nizam had divested himself of the right over them and as such they were in the nature of gifts made by him to the khanazadas. Once the said stand was taken by the accountable person in wealth-tax proceedings obviously the cost of these constructions had to be taken as gifts made by the Nizam to the khanazadas and as the said disposition of property was within two years of his death in the present estate duty proceedings there was no escape from the conclusion that these gifted amounts by fiction of section 9 of the Act were deemed to be property passing on his death. Question No. 2 in our view was rightly answered against the appellant by the High Court. There was jural relationship between the Nizam on the one hand and these beneficiaries on the other who were the equitable owners of these amounts only as trustees and beneficiaries. No debtor-creditor relationship existed between them. Consequently section 46 was out of the picture. In our view the High Court therefore was not justified in treating these amounts as debts due from the Nizam to the concerned beneficiaries and in invoking section 46(1) in that connection. It could not be said that the claim for allowances of the aforesaid sums was hit by the limitation imposed by section 46 of the Act. Question No. 4 therefore will have to be answered in favour of the appellant. As there is no clear evidence on record to show that the amount represented the value of properties which were occupied by way of full ownership by the said Sahebzadas and Sahebzadees the said amount was rightly included in the estate of the deceased. On the scanty material on record it is not possible for us to take any view contrary to the one taken by the High Court as well as by the authorities below. Question No. 6 therefore will also have to be answered against the appellant and in favour of the respondent. Appeal partly allowed.

Summary

Issues:
1. Inclusion of the sum relating to the estate of a deceased individual in the estate of another deceased individual.
2. Inclusion of the amount spent on construction in the estate of a deceased individual.
3. Applicability of limitation on debts due by the deceased.
4. Inclusion of the value of properties in the occupation of specific individuals in the estate of a deceased individual.

Analysis:

Question No. 1:
The issue revolved around the inclusion of a sum related to the estate of a deceased individual in the estate of another deceased individual. The High Court affirmed that the deceased individual was the wife of the late Nizam, based on various legal proceedings and evidence. Therefore, the sum was deemed includible in the estate of the late Nizam. The Supreme Court upheld this decision, stating that the finding was supported by evidence and required no interference.

Question No. 2:
This question concerned the inclusion of an amount spent on construction in the estate of the deceased individual. The High Court ruled that the construction expenses amounted to a gift by the deceased within two years of his death, making it includible in his estate under section 9 of the Act. The Supreme Court agreed with this decision, emphasizing that the construction costs were considered gifts to specific individuals, leading to their inclusion in the estate by operation of law.

Question No. 4:
Regarding the limitation on debts due by the deceased, the High Court's finding in favor of the appellant influenced the answer to this question. The amounts in question were held by the deceased in a fiduciary capacity and were not part of his estate. As a result, the High Court erred in treating these amounts as debts due from the deceased, leading to a ruling in favor of the appellant by the Supreme Court. The Court clarified that no debtor-creditor relationship existed in this scenario, rendering the limitation imposed inapplicable.

Question No. 6:
The issue of including the value of properties in the occupation of specific individuals in the deceased individual's estate was addressed in this question. The High Court's decision, based on previous rulings and insufficient evidence, favored the respondent. The Supreme Court concurred, stating that without clear evidence showing full ownership by the individuals in question, the inclusion of the property value in the deceased's estate was justified. The question was answered against the appellant, aligning with the decisions of the lower courts.

In conclusion, the Supreme Court partly allowed the appeal concerning question No. 4 but dismissed it regarding the other questions, upholding the High Court's decisions. No costs were awarded in this matter.