1972 (8) TMI 10 - HC - Income Tax

Esatte duty Act - Unequal partition of HUF, karta takes lesser share than his entitlement - whether there is a gift and there is liability to Estate Duty Act - Whether the sum representing the difference between the value of a share in the family properties and the value of the properties actually allotted to R. Bheema Naidu at the partition of the family properties within 2 years prior to the death of the deceased has been rightly included in the estate as property deemed to pass on the death of the deceased within the meaning of section 9(1) of the Estate Duty Act, 1953, read with section 27 and Explanation 2 to section 2(15) - view of the Tribunal is upholded and answer the reference in the affirmative and against the accountable persons

Issues Involved:
1. Inclusion of the difference between the deceased's legal share and actual share received in partition as estate duty.
2. Interpretation of "disposition" under Explanation 2 to Section 2(15) of the Estate Duty Act.
3. Applicability of Section 9 and Section 27 of the Estate Duty Act to unequal partition.

Issue-wise Detailed Analysis:

1. Inclusion of the Difference Between Legal Share and Actual Share Received in Partition as Estate Duty
The primary issue was whether the sum of Rs. 7,33,007, representing the difference between the value of the deceased's legal share and the actual share received on partition, should be included in the estate for estate duty purposes. The Deputy Controller of Estate Duty included this amount under Section 9(1) read with Section 27 and Explanation 2 to Section 2(15) of the Estate Duty Act, 1953, considering it a gift made by the deceased within two years of his death.

2. Interpretation of "Disposition" Under Explanation 2 to Section 2(15) of the Estate Duty Act
The accountable persons argued that under Hindu law, no member of a joint family has a definite share before partition, and thus, there can be no relinquishment of such a share. The Board, however, rejected this contention, holding that Section 39 of the Act mandates that the value of any benefit arising from the cesser of coparcenary interest should be the principal value of the share the deceased would have received had there been a partition immediately before his death. The court referenced S. P. Valliammai Achi v. Controller of Estate Duty, which held that the extinguishment of a right and creation of a benefit is statutorily deemed to be a disposition in the nature of a transfer.

3. Applicability of Section 9 and Section 27 of the Estate Duty Act to Unequal Partition
The court examined whether an unequal partition could be considered a disposition under Explanation 2 to Section 2(15) of the Act. The accountable persons argued that an unequal partition does not amount to a disposition as contemplated by the Act. The court, however, disagreed, citing that the definition of "disposition" under Explanation 2 to Section 2(15) includes the extinguishment of a right and creation of a benefit, which is in the nature of a transfer. The court also referenced various High Court decisions that took a contrary view but ultimately upheld the principle laid down in S. P. Valliammai Achi v. Controller of Estate Duty.

Conclusion
The court upheld the view of the Tribunal, affirming that the difference between the deceased's legal share and the actual share received on partition should be included in the estate for estate duty purposes. The court concluded that the extinguishment of the deceased's right and the creation of a benefit in favor of other family members constituted a disposition under Explanation 2 to Section 2(15) and Section 27 of the Act. The reference was answered in the affirmative, and costs were awarded to the revenue.

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