1967 (12) TMI 19 - HC - Income Tax

Estate Duty Act, 1953 - Whether the house property standing in the name of the wife of the deceased was correctly included in the estate of the deceased as property deemed to pass on his death - Held, yes

Summary

Issues Involved:
1. Inclusion of house property in the estate.
2. Valuation of properties covered by the settlement.
3. Inclusion of profits and augmented value in the estate.
4. Method of computing the value of goodwill.
5. Combining profits from two businesses for goodwill computation.

Detailed Analysis:

Issue 1: Inclusion of House Property in the Estate
The first issue revolves around whether the house property at Q.M.C. No. 200 in Thamarakulam Ward, Quilon, which was in the name of the deceased's wife, should be included in the deceased's estate under Section 10 of the Estate Duty Act, 1953. The court noted that the property became the wife's more than two years before the deceased's death, but the deceased continued to live there until his death. The court referenced the Supreme Court's interpretation in George Da Costa v. Controller of Estate Duty, which clarified that for a gift to be excluded from estate duty, the donee must have assumed bona fide possession and enjoyment to the exclusion of the donor immediately upon the gift and retained it. Since the deceased continued to live in the house, the court concluded that the property should be included in the estate. This decision was made in light of the Supreme Court's ruling and the subsequent amendment to Section 10 by the Finance Act, 1965, which was not applicable in this case.

Issue 2: Valuation of Properties Covered by the Settlement
The second issue questioned whether the properties covered by the settlement dated December 29, 1954, should be valued as on the date of the settlement or the date of death. The applicant's counsel clarified that there was no dispute about the principal value being estimated as on the date of death. The court agreed and declined to answer this question, as it did not arise from the Central Board's order.

Issue 3: Inclusion of Profits and Augmented Value in the Estate
The third issue, covered by questions in both I.T.R. No. 19 of 1966 and I.T.R. No. 89 of 1967, dealt with whether the profits and augmented value of the business, which were a result of the donees' investments and efforts, should be included in the estate. The court noted that the Central Board and the Assistant Controller assumed the correctness of the applicant's contention but did not find it legally sustainable. The court referenced the House of Lords' decision in Sneddon v. Lord Advocate, which held that only the property given under the gift (and not any augmentations made by the donees) should be considered as passing on the donor's death. Thus, the court held that the value of the property as it stood on the date of the settlement, without considering augmentations, should be included in the estate. This decision was in favor of the applicant.

Issue 4: Method of Computing the Value of Goodwill
The fourth issue questioned the method adopted by the Central Board for computing the value of the goodwill of the business. The applicant's counsel did not press this question during the hearing. Consequently, the court declined to answer this question.

Issue 5: Combining Profits from Two Businesses for Goodwill Computation
The fifth issue involved whether the Central Board should have combined the profits from the two main items of business when computing the goodwill. Similar to the fourth issue, the applicant's counsel did not press this question, and the court declined to answer it.

Conclusion:
The court answered question No. 1 in I.T.R. No. 19 of 1966 in the affirmative and against the applicant. Question No. 3 in I.T.R. No. 19 of 1966 and question No. 1 in I.T.R. No. 89 of 1967 were answered in favor of the applicant, holding that only the value of the property as on the date of the settlement should be included in the estate. The remaining questions were not answered as they were not pressed or did not arise from the Central Board's order. Each party was directed to bear their own costs.