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TMI Blog1973 (8) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... person. The proceedings related to the computation of estate duty consequent on the death of Sri R. Rama Setty, who passed away on April 28, 1963. He was the owner of a building known as "Maruthi Mansion" at Davangere. He gifted the same to his grandson, R. S. Hanumantharaj, under a registered deed of gift dated December 27, 1956. The donee was a minor and was represented by his father, R.R. Srinivasa Murthy, as his natural guardian. On December 28, 1956, a lease deed was executed on behalf of the minor in favour of R. Rama Setty and R. R. Srinivasa Murthy in respect of portions of this property. The portion given on lease to Rama Setty was described in schedule "B" to that lease deed and that leased out to R. R. Srinivasa Murthy was described in Schedule "C" Schedule "D" specified certain portions as having been given for the common use of both the lessees. The lease deed was for a period of eleven months. Each of the lessees had to pay Rs. 300 per month as rent to the lessor. Though the lease deed was only for a period of eleven months, it is an admitted, fact that it continued to be effective even thereafter. While computing the value of the estate passing, on the death of Ram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t value in the amount chargeable for estate duty. This reduction was contested in appeal by the department to the Tribunal. The accountable person also contested the inclusion of Rs. 2,37,500. But, during the course of the argument before the Tribunal, it seems to have been submitted that the ruling of the Supreme Court in George Da Costa v. Controller of Estate Duty was against the contention sought to be put forth on behalf of the accountable person. The Tribunal held that the contention of the accountable person that no portion of the value of the property could be included under section 10 was untenable. It thus upheld the finding of the Appellate Controller in this behalf. On behalf of the department it was urged that the bona fide enjoyment of the property did not vest in the donee at any time and the rent stipulated at Rs. 300 only was ridiculously low and the donee had no freedom in the matter of fixation of rent. It appears to have been suggested on behalf of the department that the gift itself was not a genuine one. The Tribunal, however, held that this was a new case that was sought to be put forth and that neither the Assistant Controller nor the Appellate Controller ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the possession of R. R. Srinivasa Murthy and that merely on the ground of relationship it could not be said that the donor was either in possession of it or was not excluded from the possession thereof. It was also urged that the portions leased out and described in schedules "B" and "C" were each separate units and under the normal principles applicable to landlord and tenant even portions of a property could be let out as separate units and that, therefore, the contention sought to be put forth by the standing counsel was not tenable. It was further pointed out that the specific finding of the Tribunal was that the deceased occupied only a portion of the entire premises and that this is a finding of fact which cannot be challenged before this court. It was urged that, the facts and circumstances of this case were similar to those in Rash Mohan Chatterjee v. Controller of Estate Duty and the principle enunciated therein would apply to the case on hand and that only to the extent the donor had not been excluded from the property, value thereof could be included under section 10. It was pointed out that this principle had been recognised in at least two other cases in Mohammed B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... let out to Rama Setty having also been specified in the same lease deed, it is clear that they were entitled to possession of specified portions exclusively and this implies that each one was excluded from being in occupation or being entitled to such specified portions allotted to the other. Mere relationship between the parties cannot justify the inference that the donor was in occupation of the portion allotted to Srinivasa Murthy or that he was not excluded therefrom without any specific and tangible evidence in this behalf. It is not the case of the department that there was any such evidence and that it had been ignored by the Tribunal. When two portions, even in one building, are let out to two persons separately, it is impossible to hold that each one of them is not excluded from the enjoyment or being in occupation of the portion let out to the other. The mere circumstance that Rama Setty and Srinivasa Murthy were related as father and son would lot alter the position. In the facts and circumstances, it is clear that the portion described in schedule "C" to the lease deed, was in the occupation of R. R. Srinivasa Murthy and the donor, Rama Setty, was not entitled to be in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that is the single fact to be deter mined. If he has not been so excluded, the eye need look no further to see whether his non-exclusion has been advantageous or otherwise to the donee'". (The last two sentences were extracts from the judgment in Chick v. Commissioner of Stamp Duties ). The argument was that the building was a compact one and the donor was occupying a portion and, therefore, he was not entirely excluded from the subject-matter of the gift. This cannot be accepted in the light of the facts in the case on hand. The observation of the Supreme Court was in the context where the gift of the property had been made and the donor continued to stay in the house till his death. There was no question of any lease of a portion of property from the donee to the donor. The observation was in the light of the particular facts of that case and cannot be made applicable to cases where the facts and circumstances are different. The Supreme Court had no occasion to consider the effect of the words "to the extent" in section 10, as on the facts of the case before them, such a question did not arise. This aspect of the matter has been considered specifically in the ruling of the Calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deemed to pass on his death. Therefore, to the extent the donor is excluded it shall not be deemed to pass on his death. The argument of the learned standing counsel would amount to that even though the donor is excluded from a portion of the property, because the gift included that portion also, he must be deemed to be not excluded from the enjoyment of that portion also. There is no warrant or justification to make such an assumption or create a fiction to that effect. The fiction created under the section is restricted and there is no justification to extend it. We, therefore, answer the first question in the affirmative, i.e., on the facts and circumstances of the case, the Tribunal was right in holding that the entire property could not be deemed to have passed on the death of the deceased. The facts out of which questions Nos. 2 and 3 arise lie in a narrow compass. The Assistant Controller, in the computation to be made of the principal value of the estate, treated the share, cash and other items of movable property under the heading free estate. The total value thereof amounted to Rs. 5,15,670. The liabilities amounted to Rs. 10,37,905. Taking into account the funeral exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of the estate and the insurance money did not enter into the final computation, the authorities were justified in declining to grant the rebate. It is argued on behalf of the accountable person that section 34 of the Estate Duty Act contemplates the levy of estate duty on the estate at the rate or rates applicable in respect of the principal value thereof and section 36 provides for the estimation of the principal value. The argument is that as the estate has to be considered as one, the liabilities also would have to be taken into account and set off against the value of items of property passing on the death. In our opinion the contention urged is not sound. Though all properties passing on death have to be aggregated to form one unit, it is seen that, in order to evaluate, the estimate of individual property is contemplated under the Act. Section 44 of the Estate Duty Act makes provision for deductions. It reads : "44. Reasonable funeral expenses and, with some exceptions, debts and encumbrances to be allowed for in determining chargeable value of estate. In determining the value of an estate for the purpose of estate duty, allowance shall be made for funeral expenses (n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made for debts beyond the value of the assets out of which the debts are to be met. It is an unnatural use of words, in my view, to speak of making an allowance for a minus quantity in determining value." The learned counsel for the accountable person submitted that he would pursue the same line of arguments as was advanced by the counsel for the accountable person in the case of Its re Barites. He argued that as the property is deemed to pass on death and thus a fiction was created so also in regard to the debts a fiction should be created that they would be payable out of those properties. The fiction that certain properties shall be deemed to pass on death is created by the statute and it is not permissible to add another fiction which the statute does not indicate and in the absence of any such necessity to do so. The provision in section 44 is clear and against the creation of any such fiction. The free estate in the case on hand resulted in a deficit and no part of its value has been taken for the computation of the principal value of the estate, that is, the value of the free estate has not been made liable to any estate duty at all. In such circumstances, the claim for se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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