1971 (11) TMI 34 - HC - Income Tax

Estate Duty Act, 1953 - Whether, on the facts and in the circumstances of the case, the entire property held by the deceased was correctly included his estate as property passing or deemed to pass on his death for purposes of estate duty question is answered in the negative in favour of the accountable persons and hold that only one-third of the family properties will be deemed to have passed on the death of Budhmal Dugar, deceased

Summary

Issues Involved:
1. Whether the entire property held by the deceased was correctly included in his estate as property passing or deemed to pass on his death for purposes of estate duty.

Issue-wise Detailed Analysis:

1. Character of the Property Post-Partition:
The court examined whether the property in the hands of the deceased, after his separation from his brother, retained the character of joint family property. It was established that the property remained joint family property even after the partition, as per the precedent set in Narendranath v. Commissioner of Wealth-tax and Attorney-General of Ceylon v. Ar. Arunachalam Chettiar (No. 2). The court noted, "It is not disputed that the property in the hands of Budhmal Dugar after he separated from his brother had already been impressed with the character of joint family properties before it came into his hands."

2. Competency to Dispose of Property:
The court addressed whether the deceased was competent to dispose of the entire property at the time of his death. The Deputy Controller's view that the deceased, being the sole surviving coparcener, could dispose of the entire property was challenged. The court held that the deceased could not dispose of the entire property due to the legal fiction that an adopted son is like a posthumous son, deemed to have come into existence before the death of the adoptive father. This was supported by the Supreme Court's decision in Krishnamurthi v. Dhruwaraj, which stated, "An adopted son is held entitled to take in defeasance of the rights acquired prior to his adoption on the ground that in the eye of law his adoption relates back, by a legal fiction, to the date of the death of his adoptive father."

3. Legal Fiction and the Rights of the Adopted Son:
The court emphasized the legal fiction that the adopted son is deemed to have come into existence before the death of the adoptive father, thus maintaining the continuity of the coparcenary. This principle was reinforced by the Supreme Court in Anant Bhikappa Patil v. Shankar Ramchandra Patil, which stated, "The adopted son is the continuator of his adoptive father's line exactly as an aurasa son, and an adoption, so far as the continuity of the line is concerned, has a retrospective effect."

4. Valuation of Interest in Coparcenary Property:
The court referred to Section 39 of the Estate Duty Act, which outlines the valuation of the interest in coparcenary property ceasing on death. It concluded that due to the legal fiction, the joint family at the time of the deceased's death consisted of the deceased, his adopted son, and his wife. Therefore, the deceased's share in the family properties at the time of his death was one-third. The court stated, "In view of the fiction enacted in section 39 of the Estate Duty Act the share of the deceased person in the family properties at the time of his death was one-third and this alone will be deemed to have passed on his death."

5. Obiter Observations and Precedents:
The court addressed the reliance on obiter observations from the Judicial Committee in Krishnamurthi v. Krishnamurthi, which suggested that a subsequently adopted son could not affect property disposed of by will. The court found this contrary to the Supreme Court's decision in Krishnamurthi v. Dhruwaraj, which held that an adopted son could take in defeasance of rights acquired prior to his adoption. The court concluded, "We are of the opinion that the above observation runs counter to the decision of their Lordships of the Supreme Court in Krishnamurthi v. Dhruwaraj."

Conclusion:
The court answered the question in the negative, holding that only one-third of the family properties would be deemed to have passed on the death of the deceased. The judgment stated, "We, accordingly, answer the question in the negative in favour of the accountable persons and hold that only one-third of the family properties will be deemed to have passed on the death of Budhmal Dugar, deceased." The accountable persons were entitled to recover costs of Rs. 200.