847/CBDT. - Income Tax - 847/CBDT

INSTRUCTION NO. 847/CBDT Dated : June 19, 1975 Section(s) Referred: 10 Statute: Estate Duty Act Attention is invited to Board's Instruction No. 684, dated the 19h April, 1974. It was stated in the instruction that u/s 10 of the Estate Duty Act, it is the value of the interest retained by the deceased alone and not the value of the entire property that is to be included in the computation of the principal value of the estate. 2. The Supreme Court recently had an occasion to consider the scope of the expression "to the extent" appearing in Section 10 of the Estate Duty Act, in the case of Controller of Estate Duty, Madras Vs. MST. Parvathi Ammal (Civil Appeal No. 1395 of 1970). Facts of that case in brief were as follows:- The deceased was carrying on business of boarding and lodging in the building called Mayavaram Lodge. On March, 11, 1955, the deceased executed a document described as a partition deed whereby he gave Mayavaram Lodge to his five sons in equal shares and retained for himself other properties. On June, 25, 1955, the deceased entered into an agreement with his sons by which they leased to the deceased Mayavaram Lodge wherein as before, he continued to carry on his boarding and lodging business. The Assistant Controller of Estate Duty held that the deed though described as a partition deed was, in fact, a settlement and that the deceased retained for himself a direct benefit in the property. He, therefore, included the value of the lodge in the estate duty assessment. The Board in appeal has confirmed the action of the Assistant Controller of Estate Duty. The Madras High Court, however, held that Mayavaram Lodge was a bundle of rights of which possession and enjoyment formed a part. The High Court agreed that there was non-exclusion of the deceased but added that so far as the ownership of the property was concerned there was no question that the donees exclusively retained it. The High Court held that it is only the value of the right to possession and enjoyment in the hands of the deceased as a lessee that would pass on his death and would attract duty. 3. The Department appealed to the Supreme Court. The Supreme Court did not agree with the views expressed by the Madras High Court. The Supreme Court observed. "The words to the extent" connote that if the done does not assume immediate bonafide possession and enjoyment of a part or fraction of the gifted property and thence-forward retain it to the entire exclusion of the donor or of any benefit to him by contract or otherwise, it shall be that part or fraction of the gifted property which shall be demand to pass on the death of the donor. These words seek to restrict the liability to pay estate duty in respect of...... only the aforesaid part of fraction of the property. The Supreme Court further observed "The view urged on behalf of the respondent and accepted by the High Court that the estate duty is payable only in respect of the value of the right to possession and enjoyment in the hand of the deceased as a lessee of Mayavaram Lodge runs, in our opinion, counter to the plain language of section 10 of the Act. What the section contemplates is that it would be the property taken under the gift which shall be deemed to pass on the donor's death if the bona-fide possession and enjoyment therefor was not immediately assumed by the donee and thenceforward retained to the entire exclusion of the donor or of any benefit to him by contract or otherwise. There is nothing in the section to indicate that if the done does not immediately assume bona-fide possession and enjoyment of the gifted property and thence-forward retained to the entire exclusion of the donor, in such an event the right only to possession or enjoyment of the property shall be deemed to pass on the death of the donor". 4. In view of this judgment of the Supreme Court the Board's Instruction No. 684 may be taken as modified to that extent. What is to be included in the estate u/s 10 of the Estate Duty Act is the value of that part of the property itself the possession and enjoyment of which was not assumed immediately by the donees and thence-forward retained to the entire exclusion of the donor; and not merely the value of the right to possession and enjoyment in the hands of the deceased. Thus where the deceased makes a gift of a property and the entire property is taken on lease by him, it is the value of the entire property that would be includible in the estate and not just the value of his rights as a lessee. 5. All pending assessments may be completed in accordance with the decision of the Supreme Court referred to above. In so far as the completed assessments are concerned, the decision of the Supreme Court would constitute information regarding the correct state of law and as such, action u/s 59(b) of the Act may be initiated wherever feasible.