1969 (12) TMI 38 - HC - Income Tax

Estate Duty Act 1953 - whether the compensation payable under the Displaced Persons (Compensation and Rehabilitation) Act 1954 hereinafter referred to as the 1954 Act is property passing on the death of the deceased under the Estate Duty Act.

Summary

Issues Involved:
1. Whether the compensation payable under the Displaced Persons (Compensation and Rehabilitation) Act, 1954, is property passing on the death of the deceased under the Estate Duty Act.
2. If so, whether the valuation of such compensation at the specified amounts was correct in law.

Issue-Wise Detailed Analysis:

Issue 1: Whether the compensation payable under the Displaced Persons (Compensation and Rehabilitation) Act, 1954, is property passing on the death of the deceased under the Estate Duty Act.

The primary question addressed in both references was whether the compensation payable under the 1954 Act is considered property passing on the death of the deceased under the Estate Duty Act. The court examined the definitions and provisions under both the Estate Duty Act and the 1954 Act.

The Estate Duty Act defines "property" in an inclusive manner under sub-section (15) of section 2, which includes any interest in property, movable or immovable. Section 5 of the Estate Duty Act levies duty on all property passing on the death of a person. The court emphasized that "property" should be interpreted broadly to include various forms of interests and rights.

The 1950 Act provided for the registration and verification of claims of displaced persons but did not confer any rights to compensation. It was the 1954 Act that created legal rights for displaced persons to receive compensation. The court referred to previous judgments, including the Supreme Court's decision in Amar Singh v. Custodian of Evacuee Property, Punjab, which distinguished between mere verified claims and actual property rights.

The court concluded that a verified claim under the 1950 Act is not "property" within the meaning of the Estate Duty Act. However, the right to make a claim for compensation under section 4 of the 1954 Act is also not considered property. It is only when an order determining the net amount of compensation under sub-section (3) of section 7 of the 1954 Act is made, or when compensation is received under section 8, that it becomes property passing on death.

Issue 2: If so, whether the valuation of such compensation at the specified amounts was correct in law.

Regarding the valuation of the compensation, the court referred to section 36 of the Estate Duty Act, which provides for the estimation of the principal value of any property based on its market value at the time of the deceased's death. The court emphasized that property passing on death must be valued at the price it would fetch if sold in the open market at the time of death.

The court noted that the compensation payable under the 1954 Act becomes property only after the net amount of compensation is determined under section 7(3) or when compensation is received under section 8. If this determination or receipt occurs during the deceased's lifetime, it is part of the estate and subject to estate duty. If it occurs after death, the right or interest in the net compensation is still considered property passing on death.

The court concluded that the amounts sought to be taxed must be the estimated value of the net compensation determined under section 7(3) of the 1954 Act, either before or after death. The valuation at Rs. 1,01,274 for Col. D. H. Rai and Rs. 1,67,330 for Bhagat Lachmi Narain was correct only if these amounts represented the estimated value of the net compensation determined under section 7(3).

Summary of Judgment:
1. A verified claim under the Displaced Persons (Claims) Act, 1950, is not property within the meaning of the Estate Duty Act.
2. The right to make a claim for compensation under section 4 of the 1954 Act is a mere right to sue and is not property within the meaning of the Estate Duty Act.
3. The order determining the net amount of compensation payable under section 7(3) of the 1954 Act, if made during the lifetime of the verified claimant, or the property received under section 8, is property within the meaning of the Estate Duty Act and will pass on death.
4. Even if no order is made under section 7(3) during the lifetime of the verified claimant, the right or interest in the net compensation to be determined under section 7(3) is property passing on death within the meaning of the Estate Duty Act.

Answers to Specific Questions:
- Estate Duty Reference No. 1 of 1967:
- Question No. 1: The compensation payable under the 1954 Act in respect of the verified claim in the name of the deceased is liable to estate duty as property passing on death if it represents the net compensation payable under an order under section 7(3) of the 1954 Act made either before or after death.
- Question No. 2: The valuation of compensation at Rs. 1,01,274 under section 36 of the Estate Duty Act is correct only if this amount is the estimated value of the net compensation determined under section 7(3) of the 1954 Act either before or after death.

- Estate Duty Reference No. 2 of 1963:
- The amount of Rs. 1,67,330 was correctly included in the principal value of the estate of the deceased for purposes of estate duty if this amount represents the estimated value of the net compensation determined under section 7(3) of the 1954 Act, either before or after death.

The court concluded that the right to receive compensation under the 1954 Act is property passing on death and must be valued based on its market price at the time of the deceased's death. The references were answered accordingly, with no order as to costs.