1974 (1) TMI 4 - HC - Income Tax

Estate Duty Act, 1953 - Property passing on death - deceased who was domiciled in India was entitled under a will to life interest in income from a fund situated outside India - settlor was not domiciled in India - whether the interest is includible in the property passing on the death of the deceased - Whether, on the agreed facts and circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 7,14,000 representing the value of foreign movable property in the form of life interest was exempt from the levy of estate duty ?

Issues Involved:
1. Inclusion of the value of foreign movable property in the form of life interest in the principal value of the estate for estate duty purposes.
2. Interpretation of Section 21(1)(b) of the Estate Duty Act, 1953.
3. Application of international principles of law regarding estate duty.
4. The effect of domicile on the imposition of estate duty.
5. Double taxation and relief measures.

Issue-wise Detailed Analysis:

1. Inclusion of the value of foreign movable property in the form of life interest in the principal value of the estate for estate duty purposes:
The primary question was whether the sum of Rs. 7,14,000, representing the value of foreign movable property in the form of life interest, was exempt from the levy of estate duty. The Tribunal had held that this amount was not includible in the principal value of the estate, but the High Court was called upon to review this decision.

2. Interpretation of Section 21(1)(b) of the Estate Duty Act, 1953:
The accountable person contended that the sum of Rs. 7,14,000 should be excluded from the estate's principal value by virtue of Section 21(1)(b)(ii) of the Act. The Tribunal upheld this contention, asserting that since the settlor was domiciled outside India when the settlement took effect, and the deceased had only a life interest in the property situated outside India, the case fell under Section 21(1)(b)(ii). The department, however, argued that the case fell under Section 21(1)(b)(i), as the deceased was domiciled in India at the time of her death, thus the value of the property should be included in the estate's principal value.

3. Application of international principles of law regarding estate duty:
The court examined international principles, particularly those followed in the United Kingdom under Section 28(2) of the Finance Act, 1949, which exempts non-British property from estate duty if the proper law regulating the property's devolution is not British and certain conditions are met. The court noted that Section 21 of the Indian Act does not follow the same pattern, focusing instead on the domicile of the deceased or the settlor.

4. The effect of domicile on the imposition of estate duty:
The court analyzed the legislative history and the intention behind the domicile-based provisions in Section 21. It was determined that the domicile of the deceased at the time of death or the domicile of the settlor at the time the settlement took effect constituted sufficient nexus for imposing estate duty on movable property situated outside India. The court rejected the argument to read "or" as "and" between sub-clauses (i) and (ii) of Section 21(1)(b), affirming that the legislature's deliberate change in language indicated a clear intention to impose duty based on domicile alone.

5. Double taxation and relief measures:
The court acknowledged that estate duty had already been paid in the UK on the deceased's interest in the Alexander Trust Fund. It was noted that relief against double taxation could not be claimed due to the lapse of the six-year period stipulated in the agreement between India and the UK. However, the court suggested that the Central Government might consider waiving the limitation period in light of the special circumstances.

Conclusion:
The court concluded that the sum of Rs. 7,14,000 representing the value of the deceased's interest in the Alexander Trust was includible in the principal value of the estate for estate duty purposes. The question referred to the court was answered in the negative, favoring the department, and each party was directed to bear its own costs. The judgment emphasized the legislative intent and the principles guiding the imposition of estate duty based on domicile, notwithstanding international principles or potential double taxation issues.

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