9911796707
TMI Blog1981 (3) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... Ameen Khaleeli, hereinafter referred to as the deceased, died on June 5, 1970. On August 29, 1963, the deceased made a gift of a vacant site of the extent of 4 grounds and 30 sq. ft. in Nungambakkam, Madras City, to his son, Afsur. The son constructed a building on the plot. The construction was begun in 1963 and completed in 1964. The building was a residential building. The son was unable to obtain a suitable tenant to occupy the house. At the same time, the deceased having disposed of his residential properties, also wanted to have a house to live within the same locality. In these circumstances, the son let-out the building to the deceased with effect from February 1, 1965. Subsequently, in January 1966, the deceased himself purchased the entire property, land and building together, from his son for a sum of Rs. 2 lakhs which was equivalent to the market value of the property as on that date. Subsequent to the purchase of the property, the deceased took a loan from his son of Rs. 70,000 on April 1, 1969, and another loan of Rs. 10,000 on March 13, 1970. In course of time, the deceased made repayments amounting to Rs. 50,000 to his son just before his death, the deceased owed Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the property which the deceased had purchased from his son was included in the dutiable estate, the entire borrowings effected by the deceased from his son was disallowed partly under s. 46(1)(b) of the Act and partly under s. 46(2) of the Act. Against the assessment done in this manner, the accountable person appealed to the Appellate Controller of Estate Duty. The Appellate Controller found that there was no intention on the part of the deceased at the time when he gave a gift of the vacant land in Nungambakkam to his son that, the latter should at some time in the future grant him loans without interest. The Appellate Controller also paid regard to the conduct of the parties which according to him did not lead to the inference that the transaction of gift in 1963 was in any way related to the borrowings effected by the deceased subsequently in 1969 and 1970. The Appellate Controller pointed out that after obtaining from the deceased a gift of the house site, the son built a superstructure thereon paying for the cost of construction entirely from out of his own independent funds. The Appellate Controller also took note of the fact that the reason why the deceased first becam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was only subsequent to the sale by the son of the built up property that the deceased, in turn, obtained loans from his son, and even those loans had been discharged to a substantial extent before the deceased's death. It was on a consideration of all these facts that the Tribunal came to the conclusion that s. 46(1)(b) of the Act had no application to the case. On the basis of this finding, the Tribunal made a consequential determination that even the repayment of Rs. 50,000 by the deceased to his son cannot be brought to charge under the provisions of s. 46(2) of the Act. In the result, the Tribunal upheld the order of the Appellate Controller. In this reference made by the Tribunal at the instance of the Controller of Estate Duty, his learned counsel, Mr. Jayaraman, submitted that the provisions of s. 46(1)(b) of the Act should not have been ruled out, but ought to have been properly applied by the Tribunal in the present case. He cited in support a decision of a Bench of this court in A. Kandaswami Pillai v. CED [1969] 73 ITR 564. In the course of the argument, another Bench decision of this court reported in Mrs. Ratnakumari Kumbhat v. CED [1975] 101 ITR 572, was also cite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following terms: " Provided that if, where the whole or a part of the consideration given consisted of such consideration as is mentioned in clause (b) of this sub-section, it is proved to the satisfaction of the Controller that the value of the consideration given, or of that part thereof, as the case may be, exceeded that which could have been rendered available by application of all the property derived from the deceased, other than such (if any) of that property as is included in the consideration given or as to which the like facts are proved in relation to the giving of the consideration as are mentioned in the proviso to sub-section (1) of section 16 in relation to the purchase or provision of an annuity or other interest, no abatement shall be made in respect of the excess. " In the present reference, it is not the case of either side that the borrowings effected by the deceased from his son can properly be brought in and " abated " under s. 46(1)(a) of the Act. Nevertheless, a construction of this particular clause too cannot be avoided in understanding the scope of the limitations imposed by the statute on the deductibility of bona fide debts. Broadly stated, the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n other words, the argument was that apart from what the section required, namely, that the property derived from the deceased must be consideration for this debt there must be a further element of intention. Repelling the contention, Veeraswami J., who spoke for the court, observed thus (p. 569): " 'Debt' to come within the ambit of section 46(1)(a) should be debt which satisfies section 44(a). That means it must be a debt bona fide, for full consideration and such consideration in money or money's worth should be for the deceased's own use and benefit. If for such a debt consideration constitutes property derived from the deceased to the extent of such consideration, allowance of the debt will not be made. In other words, there should be a nexus between a debt which falls under section 44(a) and the consideration, which must consist of property derived from the deceased. We are unable to spell out any further element necessary for the application of section 46(1)(a), in the form of the intention, as contended for." The above passage, with respect, brings out the essence of the provision in s. 46(1)(a). We would only observe that when the learned judge spoke about a nexus as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the deceased received a gift of Rs. 1,40,000 and when they subsequently discharged the father's debt due to the firm, they brought into application the provisions of s. 46(1)(b) of the Act. The difference between the provisions of s. 46(1)(a) and s. 46(l)(b) may be broadly stated as the difference between a direct nexus and nexus which is somewhat less direct. In cases to which cl. (a) applies, the debt is to be abated because the consideration for the debt incurred by the deceased happens to be directly and undisguisedly property derived from the deceased. In the cases provided for by s. 46(1)(b), however, the consideration is not directly any property derived by the creditor from the deceased. The debt to be abated under this clause is one which a person who was at some time entitled to, or amongst whose resources there was at some time included, any property derived from the deceased. In the present case, the contention of Mr. Jayaraman, learned counsel for the Controller of Estate Duty, was that the person from whom the deceased obtained the loan, namely, his son, Afsur, was the person to whom the deceased had earlier given the gift of the vacant land in 1963. Learned c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce balancing of the connection between the debt advanced by the creditor to the deceased and the property derived from the deceased by the creditor remaining at one time or another as part of his resources. This balancing of considerations has been brought in the proviso to s. 46(1)(b) by reference to the proviso to s. 16(1) of the Act. The provisions of s. 46(1)(b) either alone or in association with the proviso to s. 16(1) do not make for easy reading or understanding. But an attempt was made and, with respect, a very successful one by a Bench of this court in Mrs. Ratnakumari Kumbhat v. CED [1975] 101 ITR 572. Although the facts in that case had greater reference to s. 46(1)(a) of the Act than to s. 46(1)(b), the discussion inevitably covered the whole section, including the proviso to s. 46(1)(b). Incidentally, the judgment of the Bench in that case was rendered by my learned brother, Ramaswami J. By a quirk of law reporting, his name does not appear in the reported judgment as the learned judge who had spoken for the court. My learned brother, in the course of his discussion, referred to the earlier judgment of this court in A. Kandaswami Pillai v. CED [1969] 73 ITR 564 (Mad) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipulation that the amount borrowed together with the interest shall not be repayable so long as he lived but can be recovered only from his estate after his death. To this transaction the comparable provisions of s. 31 of the United Kingdom Finance Act, 1939, were applied by the Commissioners of Inland Revenue. The assessment was questioned by the accountable person. In the Court of Session of Scotland, out of three of the learned judges who heard the case, Lord Mackay, in a minority opinion, expressed the view that cl. (b) had application only in cases where a third party comes in, for, the words of the section are apt to refer only to a person other than the deceased's creditor, who has among his resources, property derived from the deceased. According to Lord Mackay it is only when we find in such third party a resource either by way of gift or by way of inheritance derived from the deceased debtor that the provisions of cl. (b) can be attracted. According to the learned judge, since in that case there was no such third party and since the gift was to the City of Edinburgh and the borrowing from the deceased was again for the City of Edinburgh, the provisions of cl. (b) cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his sense, therefore, it could not be said that the expression of views in A. Kandaswami Pillai v. CED [1969] 73 ITR 564 (Mad), is in any way inconsistent with the view expressed in McDougal's Trustees v. IRC (1952) 31 ATC 153 or the construction placed on s. 46(1)(b) of the Act in Mrs. Ratnakumari Kumbhat v. CED [1975] 101 ITR 572 (Mad), for that matter. Before us, however, the attempt of Mr. Jayaraman for the Revenue was to say that the view expressed by the learned judges of this court in A. Kandaswami Pillai v. CED [1969] 73 ITR 564, with reference to s. 46(1)(a) must also be applied to an interpretation of s. 46(1)(b). It may be recalled that what the learned judges observed in A. Kandaswami Pillai v. CED, about s. 46(1)(a), was to repel the argument that only where there is an intention on the part of the donor at the time of the making of the gift to get back the property comprised therein at a later date in the form of a liability, that s. 46(1)(a) would apply. It is in that connection that they had observed that it is enough that there is nexus between the property derived from the assessee and the debt advanced to the assessee as consideration therefor and it was not nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever long after. An unrestricted meaning if given to this phrase " at any time " may even refer to the property derived from the deceased by way of inheritance or testamentary succession. It is obvious, however, that it must only refer to the derivation of property prior to the advance of the debt. This is because at the time at any rate when the property becomes part of the creditor's resources, there may be some nexus between the resources and the consideration for the debt. But where the property, irrespective of any distance of time, becomes part of the resources of the creditor of the deceased, that nexus cannot be established merely because of the subsequent relation between the deceased and the creditor. Apart from this aspect, the expression " resources " itself indicates a particular fund or feeder or source and it is from that fund that the debt should have been advanced. " Resource " means that which supplies some deficiency or some want. " Resource " does not merely refer to the source of finance, without any antecedence. This also shows that there must be a precedence of the property first and the advance of loan to the deceased subsequently. Quite apart from the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... link between the loan to the deceased and the property gifted by the deceased to the creditor, as one being the consideration for the other, the abatement would have to be done under s. 46(1)(a) and not under s. 46(l)(b). The second class of properties which will have to be excluded in reckoning the excess of the creditor's resources (derived from the deceased) over the debt owed by the deceased must be ascertained by reference to the proviso to s. 16(1), which stands incorporated, in a manner of speaking, in the proviso to s. 46(1)(b). On a combined reading of the two provisos, the following properties cannot be taken into account in ascertaining the deceased's debts over the resources which, at some time or other, the creditor holds and which are traceable to the deceased : (i) property which was not given by the deceased to the creditor with a view to " enable " the loan to be given to the deceased; (ii) property which was not given by the deceased to the creditor with view to "facilitating" the loan to be granted to the deceased; and (iii) property which was not given by the deceased to the creditor with view to " recouping " by the creditor of the cost of the loan advanced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is not shown that the sale proceeds of the house were kept by the son or meant by the son to any extent as some kind of a cover for the loan. Apart from all these considerations, it could not be stated that there is otherwise by any stretch of language or imagination, any " nexus " between the loans borrowed in the years 1969 and 1970 and the gift of the vacant land effected in 1963 when all the subsequent transactions between the parties with reference to the subject-matter of the gift was as was described by the Appellate Controller purely at arm's length, in the first instance as landlord and tenant and later as vendor and purchaser. It has been found both by the Appellate Controller and the Tribunal that the deceased took the tenancy of the building at a rent, and it was let out to him at a time when the son was on the look out for a suitable tenant. This shows that the tenancy was a bona fide one. Again, the record shows that a sum of Rs. 2 lakhs for which the property was sold by the son to the deceased represented just the market value of the property as on the date of sale. Having regard to all these considerations, we are satisfied that the Tribunal was right in holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he abatement under s. 46(1)(b) on account of any consideration which could be invoked by reference to the proviso to s. 16(1) of the Act, then the onus is entirely on the accountable person to prove those facts to the satisfaction of the Controller. Learned counsel particularly relied on the words " it is proved to the satisfaction of the Controller ", occurring in the proviso to s. 46(1)(a) as well as the proviso to s. 16(1) of the Act. According to learned counsel, the accountable person in the present case had failed to discharge this onus. We would not like to understand the proviso to s. 46(1)(b) as merely enunciating a rule of evidence. On the contrary we hold that the proviso has to be read as part and parcel, or the summum bonum of the entire object of Parliament contained in s. 46(1)(b) as respects the extent of the abatement of the debt and the extent of the cutting down of the abatement, both put together. It is true that some kind of emphasis has, perhaps, to be made on the words " it is proved to the satisfaction of the Controller ". But we can easily overemphasize the importance of these words and hold that what the proviso enacts is only a rule of evidence laying do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that could be made available having already been made available during the assessment and during the appeal, the question hardly arises as one of application of the rules as to burden of proof. When we are called upon to express our opinion as to the correctness of the decision in law of the Tribunal, the question of onus of proof recedes into the background and all we have to address our minds to is to find out if, on the facts found by the Tribunal, their determination in the point of law is correct or not. We have earlier referred to the grounds on which the Tribunal had come to the conclusion that there was no nexus whatever between the disposition of the property by the deceased in favour of his son in 1963 and the borrowing effected by the deceased from his son after an interval of six or seven years. The house site was certainly not one of the resources from which the deceased's son could have advanced the loan to his father. It was not one of the properties available to him which the son could look to for the recoupment of the loan. There was no other kind of relation which could be established between the outstanding debt of Rs. 30,000 and the gift of the house site 7 year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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