1987 (5) TMI 92 - AT - Wealth-tax

Summary

Issues Involved:
1. Whether the rectificatory orders passed by the Wealth-tax Officer (WTO) under Section 35 of the Wealth-tax Act, 1957, excluding the estate duty liability from the net wealth of the Hindu Undivided Family (HUF) for the assessment years 1970-71 to 1978-79, were justified in law.

Detailed Analysis:

1. Background and Facts:
The case involved the estate of a deceased coparcener of a Hindu Undivided Family (HUF). Upon his death, his 1/3rd share in the HUF property devolved on his legal heirs. Initially, the WTO allowed 2/3rd of the estate duty liability as a deduction in the net wealth of the HUF. However, later, through rectificatory orders under Section 35 of the Wealth-tax Act, 1957, the WTO excluded the estate duty liability entirely from the net wealth of the HUF for the assessment years 1970-71 to 1978-79.

2. Commissioner (Appeals) Decision:
The Commissioner (Appeals) upheld the rectificatory orders passed by the WTO. The Commissioner reasoned that:
- The issue was not debatable as the provisions of the Estate Duty Act were straightforward.
- Under Section 74 of the Estate Duty Act, the estate duty liability is a first charge on the 1/3rd share of the HUF property passing on death, and the other coparceners were not liable to pay from the estate that did not pass on death.
- Even if the HUF paid the estate duty liability, it was entitled to recover the same from the legal heirs of the deceased.
- The estate duty liability is not admissible under Section 2(m) of the Wealth-tax Act as the debts are secured on property in respect of which wealth-tax was not chargeable.

3. Appellate Assistant Commissioner Decision:
Following the Commissioner (Appeals), the Appellate Assistant Commissioner also upheld the rectificatory orders passed by the WTO for the assessment years 1970-71 to 1974-75.

4. Assessee's Contentions:
The assessee argued that:
- Originally, 2/3rd of the assets and debts were considered in the hands of the HUF, while 1/3rd was assessed in the hands of the legal heir.
- There was no partition in the HUF, and therefore the estate duty liability was a charge on all the properties of the HUF, including the share of the deceased.
- Section 2(m) does not mention estate duty payable, and Rule 35A of the Tribunal Rules provides for filing separate stay petitions regarding recovery of estate duty.
- The issue was debatable, and hence, rectification under Section 35 was not warranted.

5. Departmental Representative's Contentions:
The departmental representative argued that:
- The estate duty liability is the liability of the legal heirs and not of the HUF.
- Under Section 74(1) of the Estate Duty Act, the estate duty liability is a first charge on the immovable property that passed on death.
- The estate duty is payable by the accountable persons, and they can claim such liability.

6. Tribunal's Analysis:
The Tribunal considered the rival contentions and concluded:
- On the death of the deceased, 1/3rd share of the HUF property devolved on the legal heirs by virtue of the proviso to Section 6 of the Hindu Succession Act.
- The proviso to Section 6 of the Hindu Succession Act does not effect a disruption in a coparcenary family and only creates a fiction for the limited purpose of fixing the persons entitled to succeed to the property of the deceased coparcener.
- The property that belongs to the HUF and the share that devolved on the legal heirs continued to be enjoyed as tenants in common, and the legal heirs continued to be members of the family.
- The estate duty liability is attributable only to the share of the HUF property that is deemed to pass on the death of the deceased in terms of Section 7(1) of the Estate Duty Act.
- The original assessments allowing 2/3rd of the estate duty payable in the hands of the HUF were correct and did not require rectification.

7. Judgment:
The Tribunal held that:
- The allowance of 2/3rd liability to estate duty in the hands of the HUF was not a mistake apparent from the record that could be rectified under Section 35 of the Wealth-tax Act.
- The issue was highly debatable, and there was only a change of opinion on the part of the WTO.
- Consequently, the rectificatory orders passed by the WTO were set aside and annulled.

8. Separate Judgment by Judicial Member:
The Judicial Member disagreed with the Accountant Member on the question of rectification under Section 35. He held that:
- The estate duty liability is not a debt as contemplated under Section 44 of the Estate Duty Act, and hence, it cannot be considered a mistake apparent from the record.
- The WTO was justified in invoking Section 35 to rectify the mistake in the original assessments.

9. Third Member Decision:
The Third Member agreed with the Judicial Member, holding that:
- The WTO acted validly in invoking Section 35 and excluding the estate duty liability from the net wealth of the HUF.
- The Commissioner (Appeals) orders were justified and did not call for interference.

Conclusion:
The rectificatory orders passed by the WTO under Section 35 of the Wealth-tax Act, 1957, excluding the estate duty liability from the net wealth of the HUF for the assessment years 1970-71 to 1978-79, were justified in law. The appeals filed by the assessee were dismissed.