1986 (1) TMI 144 - AT - Income Tax

Summary

Issues Involved:

1. Aggregation of the interest of lineal descendants under section 34(1)(c) of the Estate Duty Act, 1953.
2. Constitutional validity of section 34(1)(c).
3. Computation of the interest of lineal descendants.
4. Valuation of goodwill of firms.
5. Deduction of estate duty liability.
6. Valuation of residential property.
7. Computation of development rebate reserve.
8. Inclusion of the value of the LIC policy.

Issue-wise Detailed Analysis:

1. Aggregation of the interest of lineal descendants under section 34(1)(c):

The main point referred to the Special Bench was whether the interest of the lineal descendants of the deceased can be aggregated under section 34(1)(c) to determine the rate of duty. The Tribunal held that the shares of the lineal descendants are determined in the same process of determining the interest of the deceased under section 39(1). The decision of the Supreme Court in Gurupad Khandappa Magdum v. Hirabai Khandappa Magdum was used to support this interpretation, asserting that a notional partition immediately before the death of the deceased is assumed, determining the shares of all family members.

2. Constitutional validity of section 34(1)(c):

The Tribunal discussed various High Court rulings, concluding that the overwhelming consensus is that section 34(1)(c) is not violative of the Constitution. The Tribunal is not competent to consider the vires of the provisions of this Act, and thus, the argument regarding the constitutional validity was not seriously contended by the learned counsel for the accountable person.

3. Computation of the interest of lineal descendants:

The Tribunal rejected the contention that there was no provision in the Act to determine the interest of the lineal descendants for aggregation purposes. The provisions of section 39(1) and the interpretation of section 6 (Explanation 1) of the Hindu Succession Act, 1956, as per the Supreme Court ruling in Gurupad Khandappa Magdum's case, were found to be applicable. The interest of the lineal descendants is determined by deeming a partition of the family property immediately before the death.

4. Valuation of goodwill of firms:

The deceased had a share in the goodwill of the firms Bombay Metals Syndicate and Mehta & Co. The Controller (Appeals) held that the firms had goodwill and computed its value based on super profits and a multiple of two. The Tribunal agreed with this valuation method and upheld the order of the Controller (Appeals).

5. Deduction of estate duty liability:

The claim for deduction of estate duty liability was rejected based on the decisions of the Karnataka High Court in K. Bhoomiamma v. CED and the Andhra Pradesh High Court in CED v. Estate of Late Omprakash Bajaj. The Tribunal upheld the order of the Controller (Appeals) in this regard.

6. Valuation of residential property:

The deceased had a half share in a residential house. The Assistant Controller included the value of the open land in the dutiable estate, but the Controller (Appeals) deleted this addition based on a certificate from the municipal board. The Tribunal upheld the Controller (Appeals)'s order, finding no reason to interfere with it.

7. Computation of development rebate reserve:

The Assistant Controller computed the share of the deceased in the development rebate reserve based on the balance sheet as on 19-10-1971, while the Controller (Appeals) used the balance sheet as on 31-10-1970. The Tribunal agreed with the Controller (Appeals) that the balance sheet as on 31-10-1970 should be used, as the date of death was before the end of the year.

8. Inclusion of the value of the LIC policy:

The Controller (Appeals) excluded the value of the LIC policy assigned to the deceased's wife. The Tribunal found this order erroneous, stating that the mere fact of assignment does not mean the amount does not pass on the date of death. The case was remanded to the Assistant Controller to determine who paid the insurance premia after the assignment. The inclusion of the policy's value in the dutiable estate would depend on this finding.

Conclusion:

The Tribunal answered the main question in favor of the revenue, upheld the valuation of goodwill, rejected the deduction of estate duty liability, and remanded the issue of the LIC policy's value for further factual determination. The departmental appeal was partly allowed, and the assessee's appeal was dismissed.