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TMI Blog1989 (4) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... "controlled company" within the meaning of section 17 of the Act. While considering the benefits derived by the deceased from the controlled company for the purpose of computing the value of the estate, it was found that the benefits derived by the deceased and the assessed profit and loss of the company were as under: --------------------------------------------------------------------------------------------------------------------------------------------------- Benefits derived Assessed profit or loss --------------------------------------------------------------------------------------------------------------------------------------------------- Year Salary Rent Rs. Rs. Rs. 31-3-1969 24,000 2,040 Loss 86,698 31-3-1970 24,000 2,040 Income 36,157 31-3-1971 24,000 2,040 Loss 60,835 --------------------------------------------------------------------------------------------------------------------------------------------------- Since the remuneration was found to be reasonable, that was not taken into consideration, though the rent of IN. 2,040 was regarded as benefit under rule 5 of the Estate Duty (Controlled Companies) Rules, 1953. The average adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the net income of the company in the three years ending with the death of the deceased, is a loss, or, a negative figure, even then, the property should be deemed to pass, though not with reference to the slice rule under section 17(2) of the Act, but with reference to the whole of it. Learned counsel also emphasised that section 17(2) of the Act should be construed in such a manner as to make the charge to estate duty effective. On the other hand, learned counsel for the accountable per son submitted that section 17 of the Act is a special provision dealing with the ascertainment of the share in the assets of the controlled company deemed to pass for the purpose of estate duty to be included in the property passing on the death of a person and it should be so applied that its operation is confined only upon the fulfilment of the conditions required under section 17(1) and (2) of the Act and if, in any case, the slice of the assets of the company deemed to be included in the property passing on the death of the deceased cannot be worked out by applying that rule, it cannot be included at all. Referring to proviso (a) to section 17(2) of the Act, counsel submitted that it contemplat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to be included in the property deemed to pass on death. The proportion to be worked out is determined by the formula Benefits accruing to the deceased/ Net income of the company for three years x Assets of the company Proviso (a) to section 17(2) is designed only to compute the aggregate net income of the company in the three years ending with the death of the deceased in a case where the company had sustained loss in one or more of the said accounting years. All that is contemplated by the proviso is that, in the process of ascertaining the aggregate net income of the company, if, in any year, the company, had sustained a loss, that loss shall be deducted in ascertaining the aggregate net income. The proviso only indicates how the aggregate net income of the company should be computed and ascertained if the company had sustained loss in one or more of the three accounting years. Even so, the application of the slice rule under section 17(2) of the Act is possible, only if the proportion could be arrive at as fraction, so that that fractional part of the assets of the company can be deemed, for purposes of estate duty, to be included in the property passing on the death of the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be liable to income tax, it is thought that such income should nevertheless be taken into account in computing the 'income' for the purpose of section 49. This applies, for example, to the foreign income of foreign companies. Since the deceased's 'benefits' may include such income, it logically ought to be included in the net income also, so as to give equal treatment to both the numerator and denominator of the fraction which determines the proportion of the assets chargeable with duty: to exclude it would result in an artificial reduction in the denominator of the fraction, and an increase in the proportion of the assets liable to duty, except where such income was the only income of the company, when the denominator would be reduced to nil, so that section 46 could not be applied at all. Income received by a company under a settlement, which is treated as the income of the settlor 'and not of any other person' under the Income Tax Act, 1952, sections 404-406 (formerly Finance Act, 1938, section 38), appears to be in a similar position." (underlining ours) The provisions of section 17(1) and (2) of the Act correspond to section 46(1) and (2) of the Finance Act 1940, as amende ..... 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