1976 (1) TMI 63 - AT - Income Tax

Summary

Issues involved:
1. Deletion of addition under s. 9 r/w with Explan. 2 to s. 2(15) of the ED Act.
2. Liability to estate duty under s. 9(1) r/w Expln. 2 to s. 2(15) of the ED Act for unequal partition of family properties.
3. Inclusion of a cash gift in the principal estate of the deceased.

Detailed Analysis:

1. The first issue revolves around the deletion of additions made under s. 9 r/w with Explan. 2 to s. 2(15) of the ED Act. The deceased, as the kartha of the H.U.F., underwent a partial partition where a credit balance was divided unequally between the deceased and his son. The difference amounting to Rs. 92,942 was included in the deceased's estate. The Appellate Controller of Estate Duty held that in a partial partition, there is no automatic extinguishment of a debt or right, and it cannot be deemed as a disposition under the ED Act. The Appellate Controller also cited a Supreme Court decision stating that in a partition, unless there is a disposition, the unequal distribution of property does not attract estate duty. Consequently, the addition of Rs. 92,243 was deleted. The Tribunal upheld the decision, emphasizing that unequal partition alone does not create a liability to estate duty.

2. The second issue pertains to the liability to estate duty under s. 9(1) r/w Expln. 2 to s. 2(15) of the ED Act for an unequal partition of family properties. Referring to a previous case where a deceased received a lesser share than entitled to within two years of death, the Madras High Court held that the difference between the entitled share and the actual share taken is liable to estate duty. The accountable person argued that such difference does not constitute a disposition under the ED Act, citing Supreme Court decisions. However, the Tribunal relied on the Madras High Court's interpretation of "disposition" and upheld the estate duty liability in cases of unequal partitions within two years of death.

3. The final issue involves the inclusion of a cash gift in the principal estate of the deceased. The Asstt. CED included a cash gift of Rs. 10,000 made by the deceased to his grandson within two years before death. The Appellate Controller held that since the gift was from HUF funds, not the deceased's personal funds, it should not be included in the principal estate. However, the Tribunal disagreed, stating that any disposition made by the deceased out of his interest is subject to estate duty, even if the property did not belong solely to the deceased. Therefore, the inclusion of the cash gift in the principal estate was deemed justified, and the Revenue's appeal was allowed.