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TMI Blog1981 (7) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... n question could be sold ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the brokerage of Rs. 32,406 paid on the sale of the land was not deductible in computing the value of the property ? " These questions arise on the facts and in the circumstances narrated hereinbelow The said Maniben died on January 12, 1962, leaving a will dated February 20, 1936, and a codicil dated January 1, 1962 . The accountable person-the applicant herein-submitted; the estate duty account on July 12, 1962. In the said account, the accountable person valued plots of land belonging to the deceased bearing s. Nos. 600 and 601 within the revenue limits of village Wadaj, within the City of Ahmedabad, admeasuring about 12,614 sq. yards at Rs. 2,00,000 as on the relevant date of the death of the deceased, that is, January 12, 1962. It appears that the deceased had entered into an agreement on December 7, 1959, for sale of the said land with Satyavadi Co-operative Housing Society Ltd. to sell the said plot for Rs. 3,56,708 at the rate of Rs. 22 per sq. yard. According to the said agreement, the deceased-vendor agreed to convey the said proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal was of the opinion that the valuation of the land sought to be acquired under the Land Acquisition Act, 1894, could not be assessed as on January 1, 1948, as prescribed under the Bombay Amendment Act inasmuch as the said Act was declared to be void from its inception since the Legislature had no competence to enact such statute. The Tribunal further held that the principal value of any property is to be estimated at the price which it would fetch " if sold in the open market " at the time of the deceased's death as prescribed under s. 36 of the E.D. Act. This method of estimating the principal value does not postulate that there should be an actual sale in the open market. What is envisaged under the said s. 36 is that there is an open market and the property could be sold in such market. The Tribunal found as a common ground that if the land was not under acquisition, and if the Bombay Amendment Act was not operative, the land in question would have certainly fetched the price of Rs. 3,56,708 and the fact that it was in fact sold for that amount to Satyavadi Co-operative Housing Society Ltd. after the cancellation of the notification under s. 4 of the Land Acquisition Act, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 4 of the Land Acquisition Act, 1894, declaring that the land was likely to be needed for the public purpose of construction of houses for the Haridwar Co-operative Housing Society was very much in force. It was dated December 21, 1959. It should be recalled that Maniben died on January 12, 1962. It should be further stated that the aforesaid notification was cancelled by the Govt. of Gujarat by its subsequent notification of February 17, 1962. We must also not lose sight of the fact that on the crucial date of the demise of Maniben, the Land Acquisition (Bombay Amendment) Act, 1948, was in force. The Bombay Amendment Act was placed on the statute book with effect from 18th March, 1948, and it extended to the whole State of Bombay and was to remain in force for a period of 20 years. The effect of the amendments made by s. 3 of the Bombay Act was that if any land is acquired under the Land Acquisition Act, 1894, during the continuance of the Bombay Act, in determining the amount of compensation to be awarded for such land, the court would take into consideration, inter alia, the market value of the land at the date of the publication of the notification under s. 4, sub-s. (1) or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o provided, it affected the competency of the appropriate Legislature to make the said law. If it did not have power, the law so made was a nullity. It is as if it did not exist on the statute book." (Emphasis supplied). The court thereafter proceeded to consider the question whether the Act provided for compensation within the meaning of s. 292 of the Government of India Act. The court ruled that having regard to the extension given to the Bombay Amendment Act from time to time it was in effect and substance a permanent legislation. The court thereafter proceeded to hold as under (p. 1101) : " (9) The Amending Act in the matter of fixing compensation demonstrably contravened the provisions of s. 299 of the Government of India Act, 1935. Under the Amending Act, as we have already noticed, though a land may be acquired subsequent to the said Act, the compensation payable in respect thereof will be the value of it as on January 1, 1948. Under the Amending Act the said dating back has no relevance to the matter of fixing the compensation for the land. It is not a 'just equivalent' of what the owner has been deprived of, for the value of the land on that date may be far less than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h they could have acquired by reasonable diligence and not what could have happened as a result of the subsequent declaration of law by the Supreme Court.The learned Advocate-General emphasised that as a matter of fact the Bombay High Court upheld the validity of the legislation by its decision in First A peals Nos. 318 and 611 of 1954 pronounced on March 26, 1958. It, would be more reasonable to proceed, in the actual state of affairs, on the basis that the notional bidders would make their offers as if the Bombay, Amendment Act was very much in force. In support of his contention, the learned Advocate-General relied on the decision of the House of Lords in Lynall v. IRC [1972] AC 680; 83 ITR 563 (HL). Though apparently these two contentions seem to be very forceful, in our opinion, they do not have much substance in them If the legal position is clear that the effect of the decision of the Supreme Court holding an Act to be void is, to render that Act as " still-born ", " dead " and " nonexistent.", it is tantamount to saying that the statute did not exist on the statute book at all (vide B. Shama Rao v. Union Territory of Pondicherry [1967] 20 STC 215 AIR 1967 SC 1480 and Dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's case [1972] AC 680; 83 ITR 563 (HL). The facts in that case were that following the death of Mrs. Lynall, estate duty became payable on 67,980 ordinary shares in a private limited company. The shares were a minority holding. The financial results of the company were impressive having regard to its profit record, liquidity position, dividend returns and cash flow. The accounts for the year ending July 31, 1962, disclosed a substantial increase in profits though they were not adopted in the annual general meeting. Private documents of the directors indicated that they were considering floatation of a part of capital, though it was doubtful and remote about the likelihood of the public issue. In the context of estimating the principal value of such shares under s. 7(5) of the Finance Act, 1894, expert evidence was adduced on behalf of the Crown that it was an invariable practice amongst the board of directors to answer reasonable questions put by the purchaser or his adviser when substantial blocks of shares in private companies were placed in market for sale. The executors of the will of the deceased valued the shares at pound 5-10s a share. In an appeal by the executors under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of this case turns on the question what knowledge the hypothetical bidders must be supposed to have had about the affairs of Linread. One solution would be that they must be supposed to have been omniscient. But we have to consider what would in fact have happened if this imaginary sale had taken place, or at least if we are looking for general rule-what would happen in the event of a sale of this kind taking place. One thing which would not happen would be that the bidders would be omniscient. They would derive their knowledge from facts made available to them by the shareholder exposing the shares for sale. We must suppose that, being a willing seller and an honest man, he would give as much information as he was entitled to give. If he was not director he would give the information which he could get as a shareholder. If he was a director and had confidential information, he could not disclose that information without the consent of the board of directors. In the present case if we are to suppose that the bidder only had information which he could obtain himself or which could be given without the consent of the board then admittedly pounds 3-10s. is the correct estimate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are concerned is altogether different and here the question of availability of the information or knowledge by diligent efforts of the purchaser or his adviser does not arise. We are confronted With a fictional situation arising as a result, of the declaration by the Supreme Court about the invalidity of the. Bombay Amending Act freezing the prices of the land sought to be acquired as on the relevant date of the death of the estate owner. In other words, the situation is not the availability of information as a result of voluntary and diligent efforts of a purchaser and his adviser who is out to purchase the shares of a private limited company and the consequent and corresponding obligation of the directors of such company to furnish the information. Even in that context the court has considered the knowledge of the purchaser or his adviser acquired out of his experience in such transactions of transfer of shares of a private company. It would not be wholly correct in law to urge that in no circumstances the subsequent events are of any consequence at all and that it is only the actual state of affairs existing on the relevant date which can be considered for purposes of ascerta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the new legislation. The main question before the valuation court was the proper measure of compensation. One of the contentions urged on behalf I of the trustees of the estate was that the compensation should be assessed in accordance with the principles approved by the High Court in Commonwealth v. Arklay [1952] 87 CLR 159, while on behalf of the Minister it was contended that the price should be determined at the figure at which the Treasurer would have consented to the purchase of the land at the date of resumption. In this context Lord Tucker after referring to the lest laid" down in. Arklay's case, observed as under (p. 847 of [1954] 2 All ER) "Their Lordships can find nothing to question in this approach to a novel situation created by the existence of emergency legislation of a temporary nature rendering wholly inappropriate the time-honoured test of, market value at a particular date in terms of a willing seller and willing buyer without further qualification. It must not be forgotten that it is the value of the land to the owner that has to be ascertained, and that the willing seller and purchaser is merely a useful and conventional method of arriving at a basic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailing at the date when control ceased were so different from those which must be deemed to have existed at the time of the hypothetical sale assumed in the Arklay formula [1952] 87 CLR 159, as to render the evidence inadmissible as irrelevant. It is, of course, true that any figure so obtained will require to be discounted by the circumstance that the hypothetical purchaser will be prevented from re-selling above the control price if he should be minded so to do during the continuance of control. On the other hand, there was the reasonable prospect that, by the time he had developed the land for sub-divisional sales, the control would have been lifted. The judgment of Sugerman J. shows that he gave full weight to such considerations in arriving at his final figure. " The contention of the learned Advocate-General that under no circumstances the court is entitled to consider any evidence or material subsequent to the relevant date does not appear to be well founded since what the law requires in estimating the principal value of the estate is what price it would have fetched " if sold in the open market ". In other words, the test would be what price a willing vendor who is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either of whom was anxious so to do. The best evidence of such a price is that of comparable sales of other lands on the date of resumption. The Economic Organisation Regulations which were enacted during the hostilities with view to preventing inflation, though did not directly fix the sale price, of the land, required the consent of the Treasurer for sale, which was to be granted on an application accompanied by a valuation by an independent valuer specifying the amount which would: have been a fair and reasonable price for the land at the specified date, that is, 10th February, 1942. Though there was no specific regulation to prevent the Treasurer allowing a higher price than the one prevailing on the aforesaid date, the obvious purpose of the Regulations was of pegging the prices in the vicinity of those valuations. The said Regulations ceased to be effective in 1948. In other words, on the date of the acquisition, the Control Regulations were in force. The High Court ruled in that background as under: " The particular question upon which we are asked to express an opinion on this appeal is the question of principle already mentioned. On this question we have no doubt that unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct enjoins that it should be estimated to be the price which the estate would fetch if sold in the open market at the time of the deceased's death. The learned Advocate-General invited our attention to the material para. at p. 486, under the caption " Principal Value" from Green's Death Duties, 7th Edn., which reads as under: "The sale postulated by s. 7(5) is a hypothetical one which must be assumed to take place on the day on which the death occurs, and not within some reasonable but undefined time thereafter." He also invited our attention to a similar passage from Dymond's Death Duties, 15th Edn., 1973, from Chap. XV of the value for Estate Duty at-p. 721 where the paragraph appears under the caption: At the time of the death of the deceased ". It reads as under "All the learned law Lords in the Buccleuck case.[1967] 1 AC 506 (HL), agreed that the words at the time of the death point to a definite time the day on which the death occured and do not mean within a reasonable time after the death..." We do not think that these passages can be of much assistance to the cause espoused by the learned Advocate-General since s. 7(5) of the Finance Act, 1894, or for that matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the satisfaction of such conditions as would have to be satisfied to enable such a sale to take place." In Dymond's Death Ditties, 15th edn., 1973, at p. 717, the following principles have been digested from different cases under the title " If sold " : " It makes no difference that an actual sale may be necessary, e.g, to raise the duty (as in Buccleuch [1967] 1 AC 506 (HL)) because a compulsory sale is prescribed by the articles of association of a company in which the deceased held shares (as happened to Sir William Paulin's estate in the Crossman case [1937] AC 26; 2 EDC 537 (HL)). Nor does it matter that an actual sale would fetch much lower, price (as in Crossman or a much higher price (as in Lynall[1972] AC 680; [1972] 83 ITR 563 (HL), where the executors had confidential information which would have added some pounds 70,000 to the value of the deceased's shares). Finally, it is irrelevant that a sale in the open market is forbidden, e.g., by restrictions in a company's articles of association (as in Crossman and Lynall) or even by statute. Thus, where a German national, domiciled in Germany, died there in 1915, possessed of securities in this country which were un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the support, maintenance and advancement in life and, therefore, incapable of being transferred to a third party. Kotval J., speaking for the court, in that case held that the Tribunal committed an error of law in utilising the provision contained in s 7(1) of the W.T. Act which provides a machinery for determining the value of the asset; so as to nullify the effect of the charging section, and pointed out the fallacy in the contention as under p. 190): " What has been done in the present case is that, utilising the provisions of the Act which only provides a machinery for determining the value of the asset, a conclusion has been reached that the asset in this case has no value whatever, in other words, that it is not an asset at all. The fallacy of this reasoning lies in this that it was not clearly realised that the purpose of section 7 was not to indicate what is not an asset but merely to indicate how it has to be valued if it is an asset." In Ahmed G. H. Arrive v. CWT [1970] 76 ITR 471 (SC), the question arose as to what would be the valuation of the right to an aliquot share in the net income of the properties settled as Wakf Alal-Aulad under s. 7(1) of the W.T. Act, 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have, therefore, no doubt in our mind that the contention of the learned Advocate-General about the actual state of affairs existing at the relevant date should only be considered irrespective of the subsequent decision of the Supreme Court, must obviously be rejected since the decision of the Supreme Court does not enact or make the law but merely interprets and states." what the law had always been and must always be understood to have been " (vide Parshuram Pottery Works Co. Ltd. v. D. R. Trivedi, WTO [1975] 100 ITR 651 (Guj). Apart from the effect of the subsequent declaration by the Supreme Court about the Bombay Amending Act being still-born and non est as held in Jeejeebhoy's case, AIR 1965 SC 1096, the significant governing words " if sold in the open market ", negative the entire reasoning of the learned Advocate-General as formulated in his first two contentions. The learned Advocate-General attempted to persuade us that the fiction arising as a result of the decision of the Supreme Court must be confined within its limit and must not be allowed to travel beyond its scope so as to override the provisions contained in s. 36 of the E.D. Act. We do not think in the first pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court observed as under (p. 313): " But considering the admission made by the accountable person that the market rate of gold on the relevant date was Rs. 115 per tola, the valuation made by the Appellate Controller did not require any interference. It is obvious that when section 36 of the Estate Duty Act provides that the principal value of any property shall be estimated to be the price which in the opinion of the Controller it would fetch if sold in the open market, it obviously refers to sale of property in an open market in legal manner. If at the time of death of a person there is a law providing that the goods cannot be sold in an open market at a price higher than particular price they cannot be valued at a price higher than that which could be legally charged for it notwithstanding that persons may be available who may be willing to pay a price higher than its controlled price. Accordingly, the price which could be legally charged, if the gold had been sold in the open market on the date of the death of Sri Babu Lal Kedia, could alone be taken into consideration. The authorities under the Estate Duty Act would not be concerned with the illegal sale of gold or its illeg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parcels of land a total compensation of Rs. 4,29,360 was awarded and paid to the heirs of the said Rashid Shapoor, viz., his widow and son. The widow of the deceased being an accountable person filed accounts of the properties passing on the death of her husband and the assessment was completed in March, 1966. The values of the land acquired were shown in the account at the respective figures of compensation amount, namely, Rs. 20,000 and Rs. 4,29,360. Within two years of Rashid Shapoor's death his son, Shapoor Rashid, died in May, 1965. The widow of the deceased son being an accountable person filed accounts of the properties passing on the death of her husband and the assessment was completed in December, 1966. She also adopted the values of the land acquired by the Government as per the awards awarding compensation. A reference was sought by the heirs of the deceased, Rashid, under s. 18 of the Land Acquisition Act which was accordingly granted and the civil court enhanced the compensation to Rs. 1,90,000 for the first two parcels of land and Rs. 20,45,000 for the other two parcels of land. The Government carried the matter in appeal before the High Court. Pursuant to the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the civil court's evaluation of this right done subsequently would be its valuation as at the relevant date either under the E.D. Act or the W.T. Act. It will be the duty of the assessing authority under either of the enactments to evaluate this property (right to receive compensation at market value on the date of relevant notification) as on the relevant date (being the date of death under the E.D. Act and valuation date under the W.T. Act). Under s. 36 of the E.D. Act the assessing authority has to estimate the value of this property at the price which it would fetch if sold in the open market at the time of the deceased's death. In the case of the right to receive compensation, which is property, where the Collector's award has been made but has not been accepted or has been accepted under protest and a reference is sought or is pending in a civil court at the date of the deceased's death, the estimated value can never be below the figure quantified by the Collector because under s. 25(1) of the Land Acquisition Act, the civil court cannot award any amount below that awarded by the Collector, the estimated value can be equal to the Collector's award or more but can never be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing compensation in the sum for which the property in question was agreed to be sold under the agreement of December 7, .1959, for Rs. 3,56,708 and for which amount the said land was sold to Satyavadi Co-operative Housing Society Ltd., after the notice of withdrawal of acquisition. The Asst. Controller was, therefore, justified in estimating the principal value of the property at the said amount for which the land was agreed to be sold and in fact was sold. We, therefore, do not think that the decision of the Supreme Court in Mrs. Khorshed Shapoor's case [1980] 122 ITR 21 is of any assistance to the cause represented by the learned Advocate-General. No other contentions have been urged in this reference. The result is that this reference should be rejected and we answer the questions referred to us as under : Question No. 1 : In the affirmative, that is, in favour of the Revenue and against the assessee. Question No. 2 : In the affirmative, that is, in favour of the Revenue and against the assessee. Question No. 3 : Does not survive since it has not been pressed. The assessee shall pay the costs of this reference to the Controller of Estate Duty. - - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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