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TMI Blog1983 (2) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... Krishna Murthy, who was the karta of an HUF consisting of himself and his three sons, died on October 23, 1971. The Asst. Controller of Estate Duty determined the total value of the Hindu joint family properties, of which the deceased was the karta, at Rs. 2,66,705 and determined the deceased's 1/4th share at Rs. 66,676. The balance of Rs. 2,00,028 representing the value of the shares of the lineal descendants was aggregated under s. 34(1)(c) for rate purposes. The properties of the joint family, valued as above, included a residential house valued at Rs. 88,000. The said house is situate in Secunderabad, the population of which exceeds ten thousand. The accountable person contended that while determining the total value of the joint family properties the entire sum of Rs. 88,000 representing the value of the residential house was exempt under s. 33(1)(n) of the Act. It was further contended that for ascertaining the lineal descendants' share for the purpose of aggregation, the entire value of the residential house should be exempted under s. 33(1)(n) of the Act. This contention was rejected by the Asst. Controller on the ground that exemption was due only in respect of the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of the residential house belonging to the joint family should have been exempted under s. 33(1)(n) of the Act, whereas for the Revenue, it was contended by Sri M. Suryanarayana Murthy that the exemption under s. 33(1)(n) is only limited to the value of the share of the deceased in the residential house, and no exemption can be allowed for the value of the shares of the lineal descendants in the said residential house, and that the shares of the lineal descendants in all the joint family properties including the residential house have to be aggregated with the interest of the deceased in the joint family property. In order to decide this question, it is necessary to refer to the relevant provisions of the Act. The object of the E.D. Act, 1953, is to impose an estate duty on property passing or deemed to pass on the death of a person. Section 2(15) defines " property " as including any interest in the property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale and also includes any property converted from one species into another. Part II, containing ss. 5 to 20, deals with the imposition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns.-(1) To the extent specified against each of the clauses in this sub-section, no estate duty shall be payable in respect of property of any of the following kinds, belonging to the deceased, which passes on his death... (n) one house or part thereof exclusively used by the deceased for his residence, to the extent the principal value thereof does not exceed rupees one lakh if such house is situate in a place with a population exceeding ten thousand, and the full principal value thereof, in any other case." Part IV contains two sections which deal with aggregation of property and rates of duty. Section 34 which provides for aggregation of property including the interests of the lineal descendants in the joint family property, reads as follows: " 34. Aggregation.-(1) For the purpose of determining the rate of the estate duty to be paid on any property passing on the death of the deceased, (a) all property so passing other than property exempted from estate duty under clauses (c), (d), (e), (i), (j), (1), (m), (mm), (n), (o) and (p) of sub-section (1) of section 33 ; (b) agricultural land so passing, if any, situate in any State not specified in the First Schedule; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. Under s. 5, in the case of every person dying after the commencement of the Act, there shall (save as hereinafter expressly provided) be levied and paid upon the principal value, ascertained as hereinafter provided, of all property which passes on the death of such person, a duty called " estate duty " at the rates fixed in accordance with s. 35 read with the Second Schedule. This section provides for the extent of charge in the following manner: (1) Firstly, the person must have died after the commencement of the Act. (2) The estate duty shall be levied and paid "as hereinafter expressly provided ". (3) The estate duty shall be levied and paid on the principal value ascertained as hereinafter provided of all property settled or not settled, including agricultural land. (4) The estate duty shall be paid at the rate fixed in section 35. Under this section, the levy and payment of estate duty as well as the ascertainment of the principal value of all property passing on the death of a person shall be in accordance with the provisions of the Act hereinafter provided. Section 7 deals with cesser of interest, including coparcenary interest ceasing on the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have taken place immediately before the death of such coparcener, for the purpose of determining the principal value of his share in the joint family property. Thirdly, under s. 39(3) the whole of the joint family property shall be deemed to have belonged to the deceased for the purpose of estimating the principal value of the joint family property to arrive at the share of the deceased on the date of his death. Section 33 provides for the exemption of certain kinds of property from payment of estate duty. Section 34 of the Act provides for an aggregation of property for determining the rate of estate duty to be paid on any property passing on the death of the deceased. There is no dispute as to the aggregation of the interests in a joint family property of the lineal descendants of the deceased under s. 34(1)(c) for the purpose of determining the rate of estate duty. The difficulty arises in determining the principal value of the Hindu joint family property and arriving at the shares of the deceased and his lineal descendants in the joint family property. The question then for consideration is, at what stage the residential house exempted under s. 33(1)(n) should be e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med to have belonged to the deceased and the provisions of the Act have to be applied for determining the principal value of such property, all the relevant provisions of the Act which make estate duty leviable and payable on property passing on the death, or on property deemed to pass on the death of a person as mentioned in Pt. II as well as the provisions of, the Act which provide for exceptions or exemptions under Pt. III including s. 33, and the provisions of Pt. VI, which provide for deductions and allowances, have to be applied. Take a case where the karta of a Hindu joint family and his lineal descendants made a gift of joint family property which falls within the purview of s. 9(1) of the Act. If the fiction introduced by s. 39(3) is not given its full effect, only the share of the karta in the property gifted will be deemed to pass on his death, and not the shares of the other lineal descendants in the gifted property, and the value representing the shares of lineal descendants cannot be taken into consideration in determining the principal value of the joint family property. To illustrate further, let us look at the exemptions provided under s. 33. Certain properti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt family property as belonging to the deceased as an individual immediately before his death, all the concomitant provisions of the Act which apply to an individual deceased with regard to inclusions or exemptions, allowances or deductions should be applied to the whole of the joint family property. If such full effect is not given to the legal fiction created by s. 39(3), it amounts to a failure to give effect to the expression " the provisions of the Act so far as may be, shall apply as they would have applied if the whole of the joint family property had belonged to the deceased ". An interpretation which will give full effect to the words of the statute must, be adopted and normally words or expressions occurring in a statute cannot, be ignored or treated as surplusage or redundant. Now, under s. 33(1)(n), one house or part thereof, exclusively used by the deceased for his residence to the extent the principal value thereof does not exceed rupees one lakh, if such house is situated in a place with a population exceeding ten thousand, the full principal value thereof, in any other case, is exempt from payment of estate duty. By applying the fiction under s. 39(3) and treating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t clear that subject to the limitations introduced by the various clauses regarding the quantum of the exemption, properties of the kinds mentioned in the various clauses of sub-section (1) of section 33 will not come into the picture at all in reckoning the value of the property that passed on the death of an individual. This section has to be applied in the case of individuals in their exclusive right as well as in the case of members of a joint Hindu family who by virtue of the fictions introduced by sections 7 and 39(1) are taken to have passed on properties on their death for the purpose of the Estate Duty Act. Naturally, it follows that in determining the total value of the properties of the Hindu family, these properties that are left out of account by the clear provisions under section 33(1) must also be left out for the purpose of determining the total value of the properties of the joint family. To make it clear, we would like to state that there is no charge at all on the exempted properties. It is as though these properties are not taken into account at all for the purpose of the Act. In the light of the above, for the purpose of determining the value of the share of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In another decision of the Madras High Court in CED v. Lakshmanan Chettiar [1982] 134 ITR 677, the estate of the deceased coparcener of an HUF consisting of himself, his wife and an adopted son, included a residential house valued at Rs. 1,40,000. The Asst. Controller gave exemption under s. 33(1)(n) to the extent of Rs. 70,000 representing the value of the half share of the deceased in the residential house, On appeal, the Appellate Controller held that the residential house being situated in a place where the population was less than ten thousand, the entire value of Rs. 1,40,000 was exempt under s. 33(1)(n). On appeal by the Revenue, the Tribunal held that the value of the house property liable to be exempted under s. 33(1)(n) read with s. 39(3), had to be deducted from the principal value of the property of the joint family, for ascertaining the share of the deceased as well as the shares of the lineal descendants. At the instance of the Revenue, the following question was referred to the High Court: " Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the exemption provided in section 33(1)(n) of the Estate Duty Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... family property, the relief available under s. 33(1)(n) would have to be taken into account, and in the balance that remains as the principal value, the share of the deceased would, have to be worked out. " The learned judges referred to an unreported decision of the same High Court rendered by Ramanujam and Ratnavel Pandian JJ., in CED v. Estate of Late S. B. Rajarathnam Chettiar, judgment in T.C. No.. 399/71, dated 7-3-79 (since reported in [1983] 142 ITR 260), and their own earlier decision in Sundaresa Mehta (T). v. CED [1981] 127 ITR 107, and observed that (p. 686) : " What was meant was that the value of the joint family properties would have to be worked out in accordance with the provisions of the Act, and the value of the property to the extent exempted under s. 33(1)(n) would, at that stage, have to be deducted and the share of the deceased ascertained accordingly. A combined reading of s. 39 and s. 33 can produce no other result. " Having thus held, the learned judges answered the question referred in the following manner (p. 686): " The exemption provided under s. 33(1)(n) of the E.D. Act should be allowed in respect of the dwelling house only to the extent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shares belonged to coparceners other than the lineal descendants of the deceased, but not with regard to shares of lineal descendants of the deceased, which have to be aggregated under s. 34(1)(c) for rate purposes. The view taken by the Appellate Tribunal that by reason of the legal fiction introduced by s. 39(3), the entire residential house of the joint family should be treated as belonging to the deceased, and the exemption under s. 33(1)(n) applied as if the whole of the house belonged to the deceased, in which case, the entire value of the house was liable to be exempted, appears to us to be correct. The decision in CED v. Estate of Late Durga Prasad Beharilal [1979] 116 ITR 692 (AP), was followed without any discussion by this court in a later decision in ITAT v. Estate of Late Nuli Lakshminarayana [1979] 116 ITR 739 (AP). In an unreported decision of this court in Vanajakshi Venkata Rao v. CED (R.C. No. 109 of 1977, dt. 8-12-82), decided by Punnayya and Jeevan Reddy JJ., on the death of deceased member of an HUF consisting of himself and his two sons, exemption was claimed for the entire value of the residential house of the joint family under s. 33(1)(n) read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of aggregation of the shares of the lineal descendants under s. 34(1)(c), the learned judges disagreed with the view taken by this court in CED v. Estate of Late Durga Prasad Beharilal [1979] 116 ITR 692 (AP), and followed the view taken by the High Courts of Karnataka, Madras and Gujarat and upheld the aggregation of the shares of the lineal descendants of the deceased with the share of the deceased for the purpose of rate. We are not concerned in this case with the question of the validity of the aggregation of the shares of the lineal descendants with the share of the deceased under s. 34(1)(c). We are mainly concerned with the question as to the extent of exemption to be granted under s. 33(1)(n) in respect of the residential house of the joint family property in determining the principal value of the share of the deceased in the joint family properties and also determining the value of the shares of the lineal descendants for aggregation under s. 34(1)(c) for rate purposes. The aforesaid decision of this court in Vanajakshi Venkata Rao v. CED did not fully consider the import of ss. 33(1)(n) and 39(1) and (3). The learned judges proceeded on the footing that several High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Act but s. 33(1)(n) was introduced in 1964, with effect from September 23, 1963. 2. The items of property which are exempt from payment of estate duty under s. 33 are not like items of property which are not to be treated as part of the estate passing on the death of the deceased referred to in ss. 21 to 24 of the Act. Properties referred to in ss. 25, 26, 27, 28, 29, 32 and 33(1)(a) to (p) do pass on the death of the deceased but only estate duty is not payable in respect of them. 3. The words 'property of any of the following kinds belonging to the deceased which passes on his death, in s. 33(1), which are decisive in this case, make it very clear that exemption can be claimed under that sub-section only in respect of that property, (1) which belongs to the deceased, and (2) which passes on the death of the deceased." The learned judges further observed as follows (p. 774) : " In view of the foregoing, even though 'a house' is referred to in s. 33(1)(n), exemption can be claimed only in respect of the interest of the deceased in that house and not in respect of the whole house in which the surviving coparceners also have interest. Hence exclusion of the entire va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the interests of the lineal descendants in the house which is referred to in s. 33(1)(n) should be excluded while applying s. 34(1)(c). It follows from the above discussion that only the value of the interest of the deceased in a house which forms part of his coparcenary is exempted from estate duty under s. 33(1)(n) and for purposes of aggregation under s. 34(1) whereas under cl. (a) thereof the value of the interest of the deceased in such house is excluded, under cl. (c) thereof the value of the interest of all the lineal descendants in such house has to be added for the purposes of rate of estate duty. Such a construction will not do any violence to s. 33(1)(n) also as exemption is given in respect of one house or a part thereof exclusively used by the deceased for residence under it. Even though certain items of property are mentioned in cls. (a) to (p) of s. 33(1) we have to construe them as having reference to the interest of the deceased in those items of property and not to interests of others. Property under s. 2(15) includes interest in property also." Referring to the decision of this court in CED v. Estate of Late Durga Prasad Beharilal [1979] 116 ITR 692, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) to (p). It is no doubt true as observed by the learned judges that the exemption could be claimed under s. 33(1)(n) only in respect of property which belonged to the deceased and which passed on the death of the deceased. But the fiction under s. 39(3) of the Act should be given full effect, and the whole of the joint family properties should be treated as belonging to the deceased, and the provisions of the Act so far as may be applicable, should be applied in giving exemptions allowable under s. 33(1)(a) to (p). Construing the provisions of s. 39, we have held that the statutory fiction introduced by s. 39(3) should be given full effect both for the purposes of inclusions and exclusions or exemptions allowable under the Act. The Allahabad High Court took, the view in Income-tax Appellate Tribunal v. Madan Mohan [1979] 119 ITR 781, that in view of the provisions of s. 39, only the share of the deceased in the residential house belonging to the joint family which passed on his death could be exempted from payment of estate duty under s. 33(1)(n), and that the share of the sons should be aggregated under s. 34(1)(c) for rate purposes. This decision was followed in the later ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operate in altogether different spheres. One of the two concerns itself with the question of identifying the 'dutiable estate'. The other operates in the sphere of identifying the rate at which the dutiable estate is to be subjected to duty. These two need not be mixed up lest fusion should result in confusion and a resultantly fallacious conclusion. While s. 33(1)(n) aims at the exclusion of residential house valued at less than rupees one lakh, the object of s. 34(1)(c) is to apply a higher rate of estate duty by the inclusion of the value of the interest of the lineal descendants of the deceased in the HUF property. What is exempt under s. 33(1)(n) is the property of the deceased. What is included in the dutiable estate for rate purpose under s. 34(1)(c) is not that property which is exempt from payment of estate duty under s. 33.(1)(n) but the value of the interest of the lineal descendants of the deceased in the HUF property. Under s. 33(1)(n) what is exempt is not the value of the entire residential house of the HUF but only the value of the interest which the deceased had in the house. Therefore, that which is exempt under s. 33(1)(n) is not included in the dutiable estate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 265): " Section 34 permits aggregation of the interest in the joint family property of all the lineal descendants of the deceased for rate purposes. This is clear by a reading of s. 34(1)(c) and s. 34(2). But s. 34 nowhere provides that in making the aggregation of the interest in the joint family property of the lineal descendants the aggregation would not cover such property of the descendants which would have qualified for exemption had any one of them died. There is no room for applying the provisions dealing with exemption at the stage of aggregation of the interest in the joint family property of the lineal descendants. Section 39(1) provides for the mode of valuation of interest in coparcenary property which ceases on the death of a member. This interest is to be valued by determining the principal value of the share in the joint family property which would have been allotted to the deceased had there been a partition immediately before his death. Section 39(3) on which great reliance has been placed by the accountable person provides that for the purpose of estimating the principal value of the joint family property of a Hindu family governed by the Mitakshara law in or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t family property is merely for rate purposes as is clear from s. 34(2). In our opinion, the Tribunal was wrong in applying the fiction contained in s. 39(3) to extend the exemption under s. 33(1)(n) so as to cover the value of the interest of the lineal descendants in the residential house." With great respect, we are unable to agree with the aforesaid reasoning, firstly because s. 34 provides only for aggregation of the interest of the lineal descendants in the joint family property and does not deal with exemption. The question of exemption has to be considered with reference to, the provisions of s. 33(t)(n) read with s. 39 of the Act. Secondly, the legal fiction created by s. 39(3) even for the purpose of estimating the principal value of the joint family property of the Hindu family should be given full effect and all the provisions of the Act including the exemption provided under s. 33(1)(n) should be applied by deeming the whole of the joint family house as belonging to the deceased and giving exemption in respect of the value of the entire house but limited to the extent of the amount allowed under s. 33(1)(n). In another case, Smt. Gunvantibai v. CED [1981] 130 ITR 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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