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TMI Blog1984 (2) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of Hindustan Motors Ltd. belonging to the dependants and Khanazadas trust were held by the deceased in a fiduciary capacity and whether they are not includible in the estate of the deceased under section 22 of the Estate Duty Act ? 4. If the answer to the above question is in the negative, whether, on the facts and in the circumstances of the case, the claim for the allowance of the sums of Rs. 12,61,649 and Rs. 8,85,850 as debts due was hit by limitation imposed by section 46 of the Estate Duty Act ? 5. Whether, on the facts and in the circumstances of the case for purposes of determining under section 36 of the Estate Duty Act the principal value of the estate passing on the death of the deceased, the amount of estate duty payable is liable to be taken into account and the principal value of the estate should be reduced accordingly or whether the amount could be deducted as a 'debt' under section 44 of the Estate Duty Act ? 6. Whether, on the facts and in the circumstances of the case, the sum of Rs. 5,01,460 being the value of the properties in the occupation of Sahabzadas and Sahebzadis was includible in the hands of the deceased as property passing?" Question No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two members of the Tribunal while affirming the decision of the lower authorities gave different reasons. The judicial member upheld the inclusion on the ground that after the death of Mazharunnisa Begum, her estate passed into the hands of the late Nizam who was in actual possession of the same till his death. He reached this conclusion on the ground that in the memorandum of grounds filed before the Appellate Controller, there, was an admission in ground No.11 that the notional share of the estate of the late Mazharunnisa Begum devolved upon the deceased Nizam, and that an admission can be used as evidence against the maker of the admission, and that the admission made by the counsel on facts is binding on his client. The accountant member upheld the inclusion on the ground that in response to the notice issued by the Assistant Controller of Estate Duty, subsequent to the death of Mazharunnisa Begum, the late Nizam submitted a return relating to her estate and, hence, the estate of late Mazharunnisa Begum passed on her death to the late Nizam. The accountant member held that the late Nizam undoubtedly had some interest in the estate of the late Mazharunnisa Begum, although it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary information and, as such, the proceedings under section 147(a) of the Income-tax Act were incompetent. The contention was upheld by this court on the ground that the assessment proceedings were completed and all the necessary information was before the Income-tax Officer, that on the material available, the Income-tax Officer came to the conclusion that the three ladies were not his wives, that there was no failure or omission to disclose any particulars and, therefore, the proceedings under section 147(a) were without jurisdiction. Thus, it is seen that the question whether Mazharunnisa Begum was the legally wedded wife of the Nizam was not directly in issue in this case nor was it decided by the High Court This decision of the Andhra Pradesh High Court was carried in appeal to the Supreme Court. While affirming the decision, the Supreme Court observed in ITO v. Nawab Mir Barkat Ali Khan Bahadur [1974] 97 ITR 239 as follows (at p. 245): " In any event, we are not called upon in this proceeding to record finding on the question whether in fact the ladies were the respondent's legally wedded wives. We are concerned only with the question whether the condition precedent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us to show that these findings are incorrect. There is nothing to show that the interest of the late Mazharunnisa Begum did not pass to the accountable person on the death of the deceased. In fact, we find from the order of the Assistant Controller that the accountable person's representative had admitted the inclusion of this amount and in ground No. 11 of the memorandum of grounds filed before the Appellate Controller, it is stated that the notional share of the estate of the late Mazharunnisa Begum devolved upon the deceased. This is the case of the accountable person himself. In this background of facts, we cannot but come to the conclusion that the addition of Rs. 1,56,971 relating to the estate of Mazharunnisa Begum was rightly included in the estate of the deceased as passing on his death. We, therefore, answer this question in the affirmative and against the assessee. Question No. 2.-This question relates to the inclusion of a sum of Rs. 8,23,697. King Kothi palace originally belonged to the late Nizam. This property was gifted on March 21, 1957, by an instrument in writing registered in favour of his grandson, Prince Mukarram Jah, the present accountable person. Simulta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es any property converted from one species into another by any method... Explanation 2.-The extinguishment at the expense of the deceased of a debt or other right shall be deemed to have been 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." In CED v. Kantilal Trikamlal [1976] 105 ITR 92, it was held by the Supreme Court (at pp. 102 103) that " the term 'disposition' is not term of art nor legalese but a plain English word of wide import. What is more, this word has acquired, beyond its normal ambit, an abnormal semantic expansion on account of a special definition with an explanation superadded. In short, 'disposition' in the estate duty law of India enjoys an extended meaning ...... We have also to stress the expression `other right' in the Explanation which is of the widest import and cannot be constricted by reading it ejusdem generis with 'debt'. `Other right', in the context, is expressly meant considerably to widen the concept and, therefore, suggests a somewhat c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , he cannot be permitted to deny the truth of the representations before the authorities at a later stage. In CIT v. Army and Navy Stores Ltd. [1957] 31 ITR 959 (Bom), it was held that having taken a benefit by a certain representation, the assessee cannot go back on that representation and deny the truth of the same and that he is estopped from doing so. It is, therefore, not open to the assessee herein to contend that the late Nizam had made no gift of this property. We accordingly hold that the inclusion of this amount was justified. Question No. 3.-This question relates to the inclusion of two amounts of Rs. 12,61,649 and Rs. 8,85,850 representing respectively sale proceeds of the property known as " Persi Polis " belonging to Prince Mukarram Jah (Mir Barkat Ali Khan), i. e., the accountable person herein and the shares of Hindustan Motors Limited belonging to dependants and khanazadas in the estate of the late Nizam. The building known as " Persi Polis " situated at Bombay was one of the properties gifted by the late Nizam in the year 1957 to his grandson, Prince Mukarram Jah, the accountable person herein. Prince Mukarram Jah sold the said property for a consideration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n section 22 of the Estate Duty Act. To appreciate this contention, it is necessary to refer to section 22 of the Estate Duty Act which is as follows: " Property passing on the death of the deceased shall not be deemed to include property held by the deceased as trustee for another person under a disposition not made by the deceased or under a disposition made by the deceased where (whether by virtue of the original disposition or of a subsequent surrender of any benefit originally reserved to the deceased or otherwise) possession and enjoyment of the property was bona fide assumed by the beneficiary at least (two years) before the death and thenceforward retained by him to the entire exclusion of the deceased or of any benefit to the deceased by contract or otherwise. " The ingredients of this section are that the property must be held by person in a fiduciary capacity, that he must be holding it as a trustee under a disposition made by him or by any person and in the case of the former category, the beneficiary must assume possession and enjoyment to the total exclusion of the deceased at least two years before his death. These ingredients are absent in this case. Even if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion debt was considered in a number of decisions. In Banchharam Majumdar v. Adyanath Bhattacharjee [1909) ILR 3 Cal 936 [FB], Jenkins C.J., defined the word " debt " as (at pp. 938 939): " I take it to be well established that a debt is a sum of money which is now payable or will become payable in future by reason of a present obligation." This principle was approved by the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767. The late Nizam was under an obligation to pay back the amount to his grandson. Even accepting the argument advanced on behalf of the accountable person that he was holding the money in trust for his grandson, he was answerable for the payment of the amount to the grandson in respect of the sale proceeds of the gifted property, i.e., even as a trustee, he was obliged and answerable to pay back this amount. Hence, the contention that it is not debt cannot be accepted. Then the question is whether this is a debt which is subject to abatement under section 46 of the Estate Duty Act. Section 46 of the Estate Duty Act is as follows : " 46. Further limitations.-(1) Any allowance which, but for this provision, would be made un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved as follows : "It should be taken, therefore, particularly having regard to the definition of 'property', that because sale proceeds represent property, viz., the lands, and the property was derived from the family, the nexus required between the debt and the consideration of the particular type, in order to apply the limitation under section 46(1)(a) is satisfied." It is contended that such a harsh construction may not be placed upon section 46(1)(a) and an equitable approach would be more reasonable. Even this aspect of the matter was dealt with by the Madras High Court and the learned judges observed at page 569 as follows: " We must confess that, at first sight, we felt some difficulty in appreciating the real scope of section 46(1). This is because, while the policy of the provision is obvious, viz., to avoid evasion of estate duty, the section seems to overstep that mark, and in its abundant caution, appears to do injustice by disallowing even debts not intended to escape tax. But we can only interpret the statutory provision, having regard to the actual words it has employed. Making that approach, it seems to us that the debt in the first reference seems to square ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of the amount as loan with the deceased was the result of the same arrangement while in respect of the payment of interest to two sons by the deceased, as the same was paid within two years prior to his death, section 46(2) would be attracted. In this view, the entire sum of Rs. 2,66,205 was included in the assessment. This was confirmed in appeal. In the further appeal, the assessment of Rs. 1,50,000 being the amount gifted was not questioned. Regarding the assessment of the interest of Rs. 1,16,205, the Tribunal held that the case would be governed by section 46(1)(b) and hence had to be disallowed. The Tribunal further held that the entire amount of interest as well as the principal would constitute " property derived from the deceased " within the meaning of section 46(1)(a) read with section 16(2) and hence the disallowance of the debt to the extent of the interest amount of Rs. 1,16,205 was in accordance with law. On a reference to the High Court, it was held that: (i) though the interest payable by the deceased and credited to his sons' accounts would be "property derived from the deceased " within the meaning of section 46(1), that will not be sufficient to hold that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter of such a disposition, whether directly or indirectly, and whether by virtue of one or more intermediate dispositions and whether any such intermediate disposition was or was not for full or partial consideration ....... [Provided ... (Proviso is not material for the issue before us)] (b) 'disposition' includes any trust, covenant, agreement or arrangement; and (c) 'subject-matter' includes, in relation to any disposition, any annual or periodical payment made or payable under or by virtue of the disposition. " The definition of property in section 2(15) includes sale proceeds of the property and any property converted from one species to another by any method. It is, therefore, not correct to say that this definition of property does not cover property mentioned in the expression property derived from the deceased ". If the property of " Persi Polis was " property derived from the deceased ", the sale proceeds thereof also would come within the meaning of " property derived from the deceased ". The facts, in our case, are identical with the facts of the case of A. Kandaswami Pillai v. CED [1969] 73 ITR 564 (Mad). Of course, in Mrs. Ratnakumari Kumbhat v. CED [1975] 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not made with reference to or with a view to enabling or facilitating the provisions of the consideration for the debt. In otherwords, the loan transaction must have been in the contemplation of the parties at the time of making the gift. This view has been expressed in view of the proviso to clause (b). But this court in A. Kandaswami Pillai v. CED [1969] 73 ITR 564 (Mad), did not favour this construction of the proviso and held that it was not possible or permissible to construe the section as being confined to a debt which was incurred pursuant to an intention evinced by the deceased at the time of making the gift to incur the debt. All the same, this court expressed the view that there should be a nexus between the incurring of the debt and the gift. " Thus, not only the learned judges of the Madras High Court have not departed from their earlier decision in Kandaswami Pillai's case [1969] 73 ITR 564 (Mad), but they have also explained the ratio in that case. We are in full agreement with the view expressed in Kandaswami Pillai's case and since the facts are identical with the facts before us, we have no hesitation in holding that the said decision practically governs this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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