1972 (1) TMI 9 - HC - Income Tax

Estate Duty Act, 1953 - scope and effect of conversion of self-acquired property into joint family property

Summary

Issues Involved:
1. Status of the deceased's property as Hindu undivided family (HUF) property or self-acquired property.
2. Applicability of section 9 of the Estate Duty Act, 1953.
3. Interpretation of "disposition" under section 27(1) of the Estate Duty Act.
4. Creation of rights under Explanation 1 to section 2(15) of the Estate Duty Act.
5. Extinguishment of rights under Explanation 2 to section 2(15) of the Estate Duty Act.

Issue-wise Detailed Analysis:

1. Status of the deceased's property as Hindu undivided family (HUF) property or self-acquired property:
The court examined whether the deceased had thrown his self-acquired properties into the common stock of the joint family prior to the assessment year 1955-56. The accountable person argued that the deceased had treated his properties as HUF properties since 1946-47, supported by income-tax assessments made in the status of a HUF. The court noted that the deceased had published a statement in Tamil dailies on May 7 and 8, 1957, declaring his intention to treat his self-acquired properties as joint family properties. The Assistant Controller and the Central Board of Direct Taxes considered this statement as a unilateral declaration made on that day. However, the court concluded that the assessment orders prior to 1955-56 and the statement published in the dailies established that the deceased had thrown his self-acquired properties into the common stock long before two years of his death.

2. Applicability of section 9 of the Estate Duty Act, 1953:
The accountable person contended that section 9 of the Act did not apply as the properties were already HUF properties. The court agreed, stating that even if the properties were self-acquired and only thrown into the common stock by the 1957 declaration, the act did not constitute a "disposition" under section 27(1) or a creation of "other right" under Explanation 1 to section 2(15) or an "extinguishment" under Explanation 2 to section 2(15) of the Act. Therefore, the properties were not subject to estate duty under section 9.

3. Interpretation of "disposition" under section 27(1) of the Estate Duty Act:
The court discussed the meaning of "disposition" in section 27(1), referencing the Supreme Court's decision in Goli Eswariah v. Commissioner of Gift-tax, which held that "disposition" refers to a bilateral or multilateral act, not a unilateral one. The court concluded that the unilateral act of throwing self-acquired property into the common stock of a joint family did not constitute a "disposition" under section 27(1).

4. Creation of rights under Explanation 1 to section 2(15) of the Estate Duty Act:
The revenue argued that the deceased's act created enforceable rights against him or his property, constituting a "disposition" under Explanation 1 to section 2(15). The court rejected this argument, stating that under Hindu law, the right of a coparcener to demand partition is a birthright and not conferred by the father. The court cited the Full Bench decision in Commissioner of Gift-tax v. P. Rangasami Naidu, which held that the son's interest in the father's property becomes real upon the father's waiver of his rights. Therefore, the act did not create a new right enforceable against the deceased.

5. Extinguishment of rights under Explanation 2 to section 2(15) of the Estate Duty Act:
The court also addressed whether the act constituted an "extinguishment" of the deceased's rights under Explanation 2 to section 2(15). The court concluded that after the act of throwing the property into the common stock, the property vested in the joint family, and the deceased's interest extended over the whole property as a coparcener. Therefore, there was no extinguishment of the deceased's rights and creation of a right in favor of another.

Conclusion:
The court answered the reference in favor of the assessee, concluding that the properties should not be included in the estate duty assessment as properties passing or deemed to pass on the deceased's death. The court awarded costs to the assessee, with counsel's fee set at Rs. 250.