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TMI Blog1963 (11) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... rd writ petition, the orders impugned were made by the Deputy Controller on July 12, 1960, and on September 6, 1960. The estate duty levied hereunder is Rs. 6,45,204. The second of the orders referred to are the demand notices issued by the Deputy Controller. Certain broad facts have to be set out in order to appreciate the controversy raised in these writ petitions. The Zamorin of Calicut is the seniormost male member in a group of three families which are independent of each other in so far as the property owned by each group is concerned. There are five sthanams known as the Zamorin, the Eralpad, the Munalpad, the Edatralpad and the Nedutralpad. The larger family unit from which the Zamorins are drawn is known as the Nediyiruppa Swaroopam, which is a Hindu joint family governed by the Marumakkattayam law. This family has three branches. For the purpose of filling the five sthanams referred to, the seniormost male member in this group of three families is chosen. The peculiar feature regarding these sthanams is that whenever one of the sthanams falls vacant by the death of the holder of the sthanam, a person next in age to him takes his place. He is generally the one who is holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Controller excluded agricultural lands and it was only in the last of the orders that the value of the agricultural lands has also been included for the purpose of estate duty. One of the principal contentions raised by the petitioner is that he cannot be regarded as the accountable person in respect of each and every one of these assessments notwithstanding that he is the present Zamorin. Objection has also been taken to any levy of duty in so far as the four sthanams other than that of the Zamorin are concerned. According to the petitioner, the deceased Zamorin had interest only in the Zamorin Raja's sthanam properties at the time of his death, and that he had no interest at all in any of the properties of the other sthanams. The contention is that only the estate which comprised of the Zamorin's sthanam properties is liable for estate duty and not the properties of the other sthanams. The view taken by the Deputy Controller that because the deceased Zamorin had at some time or other during his lifetime an interest in the other sthanam properties, they were also aggregable for the purpose of estate duty is disputed. Another line of attack is that under the Hindu Succession Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the Deputy Controller, which could not be met by the petitioner, penalties have also been imposed by the Deputy Controller. It may be repeated that these assessments were made in 1960 for the first time when at least three Zamorins had died. By that time, successive assessments had to be made, the result being that besides an ascertained demand of Rs. 2 lakhs, another sum of Rs. 6+ lakhs (provisionally assessed) became due by reason of the death of the third Zamorin on May 2, 1958. The Deputy Controller demanded that some properties should be sold and a substantial portion of the amount should be paid. The petitioner had paid only a negligible amount of Rs. 20,000 or so. But the Controller holding that the petitioner was personally liable for the payment of the estate duty imposed penalties. The view of the Controller that a heavy amount of duty would become payable as a result of the third death is challenged as incorrect for the reason that by the provisions of the Hindu Succession Act, the entire properties of the Zamorin's estate could not be regarded as property of the deceased Zamorin which passed at his death. The basis for the imposition of the penalty is thus attack ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to deal with the matter in that way. With regard to arrears of rent again, while the figure that was originally furnished by the petitioner was at Rs. 1,89,000 and odd, he subsequently deleted time-barred items and furnished such arrears of agricultural rent at Rs. 1,24,000 and odd. In the absence of anything to indicate that this amount was not recoverable, the whole amount was taken as part of the out standings due to the estate. Another important point canvassed in the counter-affidavit is that by a subsequent order dated September 15, 1960, the Deputy Controller has allowed quick succession relief to which the estate is entitled, so that the estate duty payable on the second death became reduced from Rs. 89,000 and odd to Rs. 45,000 and odd only. The contentions raised in the other writ petitions are similar and it is not necessary to set them out at length. Two important questions of law are raised. The first of them is, the properties of the sthanam, that is, of the Zamorin, alone pass and that the devolution of the interest in the properties attached to the remaining sthanams cannot be taken into account for the purpose of levying estate duty. In amplification, what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between two persons who may both be alive at that time should be brought within the scope of the estate duty. But that is inevitable, for the incident which gives rise to the passing of property as between those two persons is related to the death of a third person, and if that death should be the occasion for the passing of property as between totally different parties, that would nevertheless be a taxable event in the eye of the law. Passing of property in other words means only property changing hands and nothing more. In Attorney-General v. Beech [1899] A. C. 53 ; 1 E. D. C. 171, 174, a deed of trust was executed whereunder some property was settled upon the son of the executrix absolutely subject to her own life interest. Subsequently, the life interest was surrendered by a further deed. On the death of the executrix some years later, the question arose whether the value of the properties so surrendered was property passing on the death. The contention of the Crown was that under the charging section, which is in identical terms with section 5(1) of the Estate Duty Act, the property in question passed by reason of the death. The Crown also relied upon section 2 of the Englis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st shall not be aggregated with any property, but shall be an estate by itself, and the estate duty shall be levied at the rate or rates applicable in respect of the principal value thereof. This provision contains an indication that even property in which a deceased person never had any interest could be property passing on death liable to pay estate duty, but by reason of this sub-section is entitled to be treated as a separate estate by itself. Certain observations of the House of Lords in Attorney-General v. Milne [1914] A. C. 765; 2 E. D. C. 8, 18, 20 lend further support to the above proposition. Lord Dunedin stated that while the charging section which uses the word " passes " is naturally associated with the idea of " from " and " to " and " on the death " thereby directing attention to the death of a person who leaves property behind him, that section does not stand alone and it is modified by section 2 of the English Act which is analogous to section 7 of our Act. He observed: "By sections 1 and 2, a tax is imposed whenever, to use very un-technical language, a death occurs, and somebody in consequence gets property which he did not have before; and this tax is impose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cultural lands situate in these States also became liable to estate duty. It would accordingly appear that since the death of the first Zamorin took place on October 16, 1953, there could be no levy of estate duty upon agricultural lands which passed on that death ; nor would those lands (situate in Madras and the present State of Kerala) be liable to estate duty on the second of the deaths which took place on July 9, 1954, since both of these dates are prior to the dates of the notifications. Though the value of the lands cannot be taken for the purpose of imposing estate duty, that for purposes of determining the rate of duty the value of these lands are liable to be aggregated is laid down in section 34 which states : " In the case of agricultural land so passing, if any, situate in any State not specified in the First Schedule, its value shall be aggregated so as to form one estate, and estate duty shall be levied thereon at the rate or rates applicable in respect of the principal value thereof." Sub-section (4) of section 34, however, provides, that where any such estate as is referred to in sub-section (1) includes any property exempt from estate duty, the estate duty lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... devolution peculiar to such families, no member of a tarwad or thavazhi was entitled to partition and to possession of a separate interest in the properties of the tarwad or thavazhi. For the purpose of the Estate Duty Act, however, it was deemed that in the case of a person who had completed his 18th year at the time of his death, his interest could be evaluated for the purpose of determining the extent of the property which passed on his death. Sub-section (4) of section 7 also lays down that no duty will be chargeable if the property was one in which the deceased had an interest only as a holder of an office. Before dealing with the changes effected by the Hindu Succession Act in this regard, it may be helpful to state briefly what the position was before the passing of the Act in so far as tarwads and sthanams are concerned. A Malabar tarwad or thavazhi is a corporate unit not dissimilar from the Mitakshara Hindu joint family. The property held by the family is normally impartible. No member has a definite share, nor can he enforce a right to partition. The management is vested in the senior most male member called the karnavan. The principle of survivorship known to the Mitaks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des that the family of a sthanamdar shall include every branch of that family, whether divided or undivided, the male members of which would have been entitled by custom or usage to succeed to the position of the sthanamdar, if this Act had not been passed. It would be seen from these provisions that the process of the customary law which was in vogue previously in respect of the tarwad and sthanam properties was completely displaced and the law provides that a member of a tarwad or a sthanamdar is deemed to have owned or possessed only that share in the property of the tarwad or sthanam as would have fallen to him if a partition had been effected of the properties immediately before his death. If that should be the position, then it must necessarily follow that on the death of the sthanamdar, it is not the entirety of the properties of the sthanam that passes on the death, for, by operation of the law, a moment prior to his death, the property is deemed to have been divided, and the extent of the sthanamdar's interest is limited by the provisions of this Act. The contention advanced by Mr. Kuttikrishna Menon, learned counsel for the petitioner, is thus that most certainly after th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le when it comes to the inevitable corollaries of that state of affairs. " To a like effect are the following observations of the Supreme Court in State of Bombay v. Pandurang 1953] S. C. R. 773, 778 ; A. I. R. 1953 S. C. 244. In that case, the Bombay Building (Control on Erection) Act, 1948, provided that the earlier Ordinance was repealed and " it is hereby declared that the provisions of sections 7 and 25 of the Bombay General Clauses Act, 1904, shall apply to the repeal as if that Ordinance were an enactment. " The concluding words " as if that ordinance were an enactment " had to be interpreted by their Lordships, and they observed: "When a statute enacted that something shall be deemed to have been done which in fact and truth was not done, the court is entitled and bound to ascertain for what purposes and between what persons a statutory fiction has to be resorted to and full effect must be given to the statutory fiction and it should be carried to its logical conclusion." They refer to the earlier House of Lords decision which has been cited. It should follow on the principles laid down in these decisions that in considering the extent of the property which passed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purports to apply to all sthanams; the management of the estate of a deceased sthanam which is not taken over by the Government vests in the seniormost of the karnavans among the various tarwads. The argument advanced on the basis of this provision has reference to the contention that the petitioner is not the accountable person, which I shall deal with later. Mr. Ranganathan, for the department, contends that the fiction of a division is intended only for the purpose of determining the heirs and the respective shares and does not amount to a statutory division having been effected even during the lifetime of the sthanamdar. Reference has been made by the learned counsel to a decision of the Supreme Court in Commissioner of Income-tax v. Elphinstone Spinning and Weaving Mills Company [1960] 40 I. T. R. 142 ; [1960] 3 S. C. R. 953. That decision dealt with a fiction created by the First Schedule of the Finance Act, which was to the effect that the excess dividends shall be deemed to be out of the undistributed profits of one or more years preceding the previous year. The question arose as to the extent to which this fiction would operate, and their Lordships observed that all that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties in respect of which estate duty is payable. " Among the accountable persons are every legal representative to whom such property so passes or every other person in whom any interest in the property so passing or the management thereof has at any time vested. A legal representative is under this Act defined very broadly to mean a person who in law represents the estate of the deceased person and includes any person who takes possession or intermeddles with the estate of a deceased person or any part thereof. While it is no doubt true that the petitioner is the fifth of the Zamorins upon whom this sthanam devolved by reason of the four prior deaths, undoubtedly he is in possession of a part of the property of each and every one of his deceased predecessors, so that in so far as the estate duty is concerned, he can be regarded as the legal representative, or at least a person in whom any interest in the property that passed or the management thereof has at any time vested. The words " at any time " are important. On a consideration of all of these features, though the petitioner may not be the immediate successor to the Zamorin who died in 1953 or 1954 or 1958, since the property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the property according to the market price at the time of the deceased's death. The complaint of the petitioner is that the valuation has not been done in accordance with the principle above. In the counter-affidavit of the department, it was contended that the methods usually adopted in the valuation of various types of property were adopted in this case and that in fact the petitioner himself had declared a certain valuation on the basis of which also, after discussion with his representative, the Deputy Controller proceeded to estimate the market value. It was pointed out that the nature of the property was such that in respect of some of them at least there was and could be no evidence as to market value of similar properties. According to the accounts submitted by the petitioner, the non-agricultural and agricultural properties were valued at more or less identical figures, both with reference to the date of death in 1953 and to the date of death in 1954. It is pointed out that it is only an estimate, in the opinion of the Controller, that has to be reached. The essentials of an estimate are that it should be honest and not arbitrary or capricious. In the light of the circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... state of things, take a lesser value is a conclusion that is entirely within his jurisdiction. The question of the proper value to be adopted is nevertheless canvassable in appeal and may be more properly dealt with in that proceeding. I leave the matter there. The next point urged is that forest land has been valued at Rs. one lakh and odd, which it is contended has followed an un-understandable method of valuation. Firstly, the argument is that these lands should have been altogether excluded as they are in the possession of tenants under lease agreements and the rental realised is only a sum of Rs. 1,475 as found or Rs. 1,425 as furnished in the accounts. It is argued that the valuation of Rs. one lakh and odd adopted by the Controller has not followed any ascertainable principle. It is claimed that if the Controller was dissatisfied with the accounts that had been furnished by the accountable person, he ought to have given an opportunity to the petitioner to furnish a correct account. In his order, the Controller stated that the forests are mostly unsurveyed and had been let out on long leases to various persons. The valuation was, therefore, made with reference to the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncement. Whatever might have been the result, I am satisfied that the petitioner was not denied the opportunity which the law requires to be given to him. One of the items of properties is what is called the Tiruvachira Palace which has appurtenant to it an extent of about 45 acres of land. Originally, this property seems to have been tentatively valued at Rs. 1,50,000. Among the contentions put forward by the petitioner was one, viz., that the land is in reality agricultural land and cannot be treated as appurtenant to the palace with the result that it cannot be included in the assessment of estate duty. If it is regarded as agricultural land, quite obviously for the first two assessments at any rate no duty would be payable thereon, though the value of the agricultural land is aggregable for the purpose of ascertaining the rate of duty. If, on the other hand, it is regarded as appurtenant to the palace, duty would be payable on the value of the land as well. The order of the Controller says that of this extent of 45 acres, about 20 acres are in the possession of the Zamorin covered by various buildings, outhouses, coconut gardens, tanks, wells, etc. He accepted the value of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eath may be made ignoring the fact that the later death has taken place within the period of the time specified in the second and the amount of estate duty chargeable on such death may be assessed, the actual amount that is payable is reduced in the manner specified in the section. It follows therefore that before the accountable person can be called upon to pay any amount, section 31 of the Act must be given effect to. In the present case that has not been done. For instance, on the second death, the net duty that was chargeable was computed at Rs. 89,979. The estate which passed on the death which took place on October 16, 1953, became again liable to estate duty by reason of the death on July 9, 1954, a death which took place within one year of the previous death. Under section 31 of the Act, the amount of estate duty payable on the second death has to be reduced by 50 per cent. It is not denied that on the date on which the Controller made the assessment to estate duty on the second death, he was fully aware that there had been an assessment by reason of the first death within one year previously. It is conceded in the counter-affidavit that the duty payable on the second death ..... X X X X Extracts X X X X X X X X Extracts X X X X
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