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TMI Blog1972 (8) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... perty passing on the death of the said Bheema Naidu was furnished by his widow and daughter-in-law as accountable persons under the Estate Duty Act, 1953 (hereinafter referred to as " the Act "), to the Deputy Controller of Estate Duty, Madras. The Deputy Controller determined the principal value of the estate at Rs. 19,34,884 which included, inter alia, a sum of Rs. 7,33,007 being the difference between the deceased's legal share in the properties of the Hindu undivided family of which he was a member and the share actually allotted to him on partition of the family on December 31, 1951. This inclusion is said to have been made by the revenue in accordance with the provisions of section 9 read with section 27 and Explanation 2 to section 2(15) of the Act as a gift made by the deceased within two years of his death. The gift is said to arise from the following facts and circumstances which are not in dispute. Till December 31, 1951, the deceased with the widow of his pre-deceased son and four grandsons constituted a Hindu undivided family. On that date which fell within a period of 2 years prior to the death of the deceased, a partition was effected of the joint family properties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the accountable persons, the following question has been referred to us under section 64(1) of the Act : " Whether, on the facts and in the circumstances of the case, the sum of Rs. 7,33,007 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) of the said Act ? It is contended before us on behalf of the accountable persons that an unequal partition between the members of a Hindu family will not amount to a disposition contemplated in Explanation 2 to section 2(15) of the Act and that therefore it will neither attract section 9 nor section 27. It was also urged that section 9 only deals with properties taken under a disposition made by the deceased purporting to operate as an immediate gift inter vivos by way of transfer, delivery, declaration of trust, settlement or otherwise, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of a transfer. The mechanics of the transfer for purposes of Explanation 2 consist in the extinguishment at the expense of the deceased of a right and the accrual of a benefit in the form of a right so given up in favour of the person benefited. Transfer in a normal sense and as understood with reference to the Transfer of Property Act connotes a movement of property or interest or right therein or thereto from one person to another in praesenti. But in the kind of disposition, contemplated by the second Explanation, one can hardly trace such a transfer because by the mere fact of extinction of a certain right of the deceased which does not involve a movement, a benefit is created in favour of the person benefited thereby." Though the above decision was rendered with reference to the same statutory provisions and it directly applies to the facts of this case, the learned counsel for the accountable persons contends that the said decision requires reconsideration in view of certain observations of the Supreme Court in Commissioner of Gift-tax v. N. S. Getti Chettiar. It is also pointed out that some of the other High Courts have taken a view contrary to the one expressed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of any other person. Having regard to that definition their Lordships of the Supreme Court took the view that a transaction referred to in clause (d) of section 2(xxiv) takes its colour from the main clause defining transfer of property, and therefore, the transaction contemplated in clause (d) should be some sort of transfer as understood in the normal sense. But, section 2(15) of the Act defines property as including any interest in property, movable or immovable, and Explanation 2 deems the extinguishment of a debt or other right at the instance of the deceased as a disposition made by the deceased in favour of the person for whose benefit the debt or right was extinguished and in relation to such a disposition the expression " property " shall include the benefit conferred by the extinguishment of the debt or right. Explanation 2 to section 2(15) creates a special definition of a disposition and, therefore, the word " disposition " occurring in that Explanation cannot be understood in the same sense as in the definition of transfer of property in section 2(xxi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allotted a sum of Rs. 98,103 while his actual share due to him under the law was Rs. 2,06,694. The revenue had levied estate duty on the difference under section 9 read with Explanation 2 to section 2(15) and section 27 of the Act. The court held that the partition does not amount to transfer ; nor can it be said to be a transaction inasmuch as there is no donor and donee relationship between the deceased and the person benefited and that, therefore, an uneven partition does not become a gift for the purpose of section 9. In that case it was expressed that the word " disposition " in the context of section 9 and section 27 can only connote a transfer or conveyance but does not contemplate the peculiar characteristics involved in the process of partition of a Hindu undivided family, and that the word "otherwise" occurring in section 9(1) has to be read ejusdem generis. It was also expressed that the position under the Estate Duty Act is much the same as under the Income-tax Act and the Gift-tax Act, because what is envisaged under section 9 of the Estate Duty Act is a gift inter vivos, i.e., between two persons and that as there is no transfer involved in the partition of joint fami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than what he might have received according to his rightful share. The reasoning in S. P. Valliammai Achi v. Controller of Estate Duty, that any process under which there is an extinguishment of a right by the deceased and creation of a benefit thereby, should be deemed to be a disposition in the nature of a transfer has not been adverted to or appreciated in this case. In Kulbushan v. Controller of Estate Duty, the Punjab High Court had also expressed the view that an unequal partition of the family properties between the deceased and his sons would not amount to a disposition in favour of relatives. Here again the decision proceeded on the basis that there is no transfer of an interest from one coparcener to another in the process of partition, that the word " disposition " in section 27 must possess the element of transfer of an interest in property from one person to another and that the partition, even if unequal, does not involve extinguishment of any interest in the property at the expense of the coparcener who receives less than what be might have received according to his rightful share. But, the learned judges had not discussed the provisions of Explanation 2 to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and creation of a right in favour of another, in the case of throwing the self-acquired properties into the common stock. " The said decision does not deal with the question as to whether there is an extinguishment of a debt or right at the expense of the deceased in favour of the person for whose benefit the debt or right was extinguished in the case of an unequal partition so as to attract Explanation 2 to section 2(15). We are of the view that the decision in S.P. Valliammai Achi v. Controller of Estate Duty has laid down the correct principle, if we may say so with respect. With due respect, we are not inclined to adopt the reasoning in the three decisions referred to above which have taken a contrary view. In this connection, it is pertinent to point out that a Full Bench of the Punjab High Court in Controller of Estate Duty v. Jaigopal Mehra followed Valliammai Achi v. Controller of Estate Duty and held that the relinquishment by the deceased of his share in the property of the joint family amounted to the extinguishment of his rights in that property in favour or for the benefit of his sons and that it clearly fell within the definition of " disposition " in Explanation 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reting the word " disposition " occurring in that section. It is stated that there is considerable difference not only between the provisions of the Gif t-tax Act and those of the Estate Duty Act but also in the tax effect. It is also said that the tax structure is different in both the Acts in that while the Gift-tax Act contemplates and deals with only inter vivos transactions, the Estate Duty Act brings in all dispositions, whether inter vivos or not, into charge under certain circumstances. We are inclined to agree with the learned counsel for the revenue that if section 9 of the Estate Duty Act alone has to be taken into account it could be said that only inter vivos transactions would stand attracted by that section. But section 27 provides that any disposition made by the deceased in favour of his relative shall be treated for the purpose of the Act as a gift unless the disposition has been made for full consideration in money or money's worth, etc., provided where the disposition was made for partial consideration in money or money's worth paid to him for his own use or benefit, the value of the consideration shall be allowed as a deduction from the value of the property fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the person for whose benefit the debt or right was extinguished of property consisting of the benefit conferred by such extinguishment. This produces the result that the benefit conferred by a transaction falling within the ambit of sub-section (2) of section 45 of the Act of 1940 is to be treated as ' property. . . . . . taken under a disposition made by " the deceased " purporting to operate as an immediate gift inter vivos' within the meaning of section 2(1)(c) of the 1894 Act,. . . ." Roxburg J. expressed : ". . . .The structure of section 45(2) of the Finance Act, 1940, is such that a certain state of facts is to be deemed to be a different state of facts, and the line between fact and hypothesis seems to me to be drawn by the word 'deemed'. If this be so, only three actual facts are expressed to be necessary in order to involve the hypothetical situation : (1) the existence of a right, (2) its extinguishment, (3) its extinguishment at the expense of the deceased. When those three facts concur, the hypothesis goes into action, and the hypothesis is that these facts are equivalent to a disposition made by the deceased in favour of the person for whose benefit the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession " disposition of property " is defined in the Act in the widest possible terms and that it is impossible to conceive any type of transaction by which the property is transferred from one person to another which would not be comprehended by the provisions in clauses (a) to (e) of the said Act. But, the definition goes further in paragraph (f) bringing in transactions which do not involve a disposition of property within the meaning of that term. Under paragraph (f) in the said definition, transactions which are not in any sense dispositions of property are deemed to fall within the meaning of that expression and such transactions are those entered into by any person with intent thereby to diminish, directly or indirectly, the value of his own property and to increase the value of the property of any other person, and, to that extent, the meaning of the expression " disposition of property " is extended beyond the general words and paragraphs (a) to (e) of the definition. In that case the court cited with approval the following passage from the judgment of Willams J. in Grimwade v. Federal Commisssioner of Taxation : " The whole emphasis of paragraph (f) is upon a transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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