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TMI Blog1982 (1) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... id all outgoings in respect of the said property including the cost of all repairs during the joint lives of the said sons, Rustom and Dinshaw. Under the will the trustees were, subject to the above-referred provisions, entitled to recover the rent and income of the said property and to pay out of the same all outgoings including the insurance premia and the cost of repairs. If there was any balance of the income, it was to be paid in equal parts to each of the two sons during their lives and in case of the death of any one of them, the moiety of such income was to be paid to the other. If the two sons could not reside in the said property together or any of them pre-deceased the testator or his wife or on the death of any one of them, the trustees had a right in their absolute discretion to let out the said property to any one of the said sons at such reasonable rent and on such terms and conditions as the trustees in their absolute discretion deemed fit. The recitals in the will provided that the property shall not be sold : (i) during the lifetime of the wife, without her consent. (ii) after the death of the wife, without the written consent of both the sons, and (iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y could not be included in the dutiable estate and that only a portion thereof, being the actual value of the said right of residence, could be included. On behalf of the Department, reliance was placed on the decision of the Madras High Court referred to above and on s. 40(a) of the E.D. Act. The Tribunal took the view that the right of residence was the absolute and exclusive right of the deceased, Bachubai, and in such a case, the property clearly passed on the death of the person enjoying such a right. According to the Tribunal, the only question which then remained was about the valuation of that right in the light of the provisions of ss. 40(a) and 40(b) of the E.D. Act. Reference was made by the Tribunal to s. 7 of the E.D. Act under which, according to the Tribunal, as in the present case a property is deemed to pass only to the extent to which the benefit accrues or arises by the cesser of such interest. The Tribunal noticed the contention that, according to the Department, s. 40(a) applied to the facts of the present case, while, according to the accountable person, if at all any provision was applicable, it was s. 40(b). The Tribunal accepted the contention of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed under s. 40(a) of the E.D. Act, the principal value of the half share of the property must be taken into account for the purposes of computation of estate duty. We may at the outset mention that the learned counsel for the Revenue wanted to canvass the argument that the present was squarely covered by s. 5 of the E.D. Act on the basis of the authority of the Supreme Court in CED v. Hussainbhai Mohamedbhai Badri [1973] 90 ITR 148, and the learned counsel wanted to contend that the words." property passing on the death of the deceased " occurring in s. 5 of the Act meant change in the beneficial interest and not title and to ascertain whether the property has passed, a comparison must be made between the persons beneficially interested the moment before the death and the persons so interested the moment after the death. On this test laid down by the Supreme Court, according to the learned counsel, as a result of the death of Mrs. Bachubai, the beneficial interest in the property passed on to the two sons and, therefore, there was a passing of property as contemplated by s. 5 of the E.D. Act and there was, therefore, no reason for the Department to place reliance on the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclusive portion in s. 7(1). The word " property " has been defined in s. 2(15) of the Act as follows : " 'Property' includes any interest in 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 by any method." The definition of property is an inclusive definition and any interest in property is to be treated as property for the purposes of S. 7(1). It would, therefore, be difficult to accept the argument made on behalf of the accountable person that a right of residence is not an interest in property merely because the clauses of the will did not provide for any monetary benefit. Now, S. 7(1) specifies the extent of the property which must be treated as having passed in a case where an interest ceases on the death of the deceased. Under that section the property in which the deceased had an interest ceasing on his death shall be deemed to pass on the death of the deceased to the extent to which a benefit accrues or arises by a cesser of such interest. There is no doubt that as a result of the cesser of the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest extended to the whole income of the property. Now, it is not in dispute that when the deceased, Bachubai had a right of free residence in the property, her interest did not relate to the whole income of the property or for the matter of that any income of the property at all. What is, however, contended by Mr. Joshi is that we must so read cl. (a) of s. 40 that where there is a right of free residence in property, that right must be equated with a right to receive income from that property if the property would have been let out. We see no warrant for this kind of construction of the provisions of s. 40(a). There is no ambiguity at all in cl. (a) of s. 40. It is obvious that s. 40, cl. (a), was intended to provide only for that kind of case where the interest, which had ceased, extended to the whole income of the property. When we read cl. (b) we find that it is intended to deal with the valuation of the benefit accruing from the cesser of an interest in a case where the interest extended to less than the income of the property. Therefore, one of the essential requirements for invoking the provisions of s. 40 when one wants to compute the value of the benefit, accruing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt did not arise out of any construction of the provisions of s. 40(a) at all. The facts in that case were that by a will, provision was made that the wife of the testator would be entitled to live in the separated and demarcated main building, namely, Mangala Vilas, for her life and the testator had expressly desired that his two sons with their family should live with the wife amicably but that if for any reason differences arose between them, they should remove themselves to the houses separately allotted. After the lifetime of the wife, the bungalow was to be enjoyed by the two sons for life in equal shares. The two sons were given a power to sell the bungalow if a good price would be offered, but previous consent and concurrence of the wife was necessary for the sale. The sale proceeds were to be invested in the purchase of other houses or in approved securities and the dispositions made in the will " as to the original property shall govern the substituted property or other investment made out of the proceeds of the original property ". The testator died on 10th January, 1949. His widow died on 25th October, 1954. The Asst. Controller held that there was passing of property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding part of the observations in the judgment will clearly show that even according to the Division Bench, the question as to whether the interest of the widow extended to the whole income of the property and whether the valuation in such a case could be made under s. 40(a) of the Act did not arise out of the question which was referred. This decision, therefore, cannot be treated as an authority, as the Tribunal has done, for the proposition that where there is a right of free residence, such interest must be treated as extending to the whole income of the property. In the view which we have taken, that if the value of the benefit arising out of cesser of interest cannot be computed in terms of S. 40(a) of the E.D. Act, then no liability to estate duty arises on such cesser of interest, we are supported by a Division Bench decision of this court consisting of Madon and Mrs. Sujata Manohar JJ in Estate Duty Reference Nos. 2 of 1973, 2 of 1974 and 9 of 1979 (CED v. Fakirchand Fatehchand Sachdev, CED v. Rikabchand Ratnaji and CED v. Ahilya Kashinath Sawant, decided on 14/18th August, 1981-[1982] 134 ITR 268). One of the propositions laid down by the Division Bench in that case was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause, unless it is so capable, the interest, which has ceased, cannot be said to be extending either to I he whole or to less than the whole of the income within the meaning of section 40. In other words, if the property in which the interest has ceased to exist has no inherent potentiality to yield any income, standing by itself, it would not be possible to evaluate the benefit accruing or arising from the said cesser under any of the provisions of the Act including section 40. To put it differently, the cesser of such interest is not made exigible to duty. " It, therefore, appears to us that the Tribunal was not justified in relying on the decision of the Madras High Court in Manian Natesan's case [1965] 56 ITR (ED) 5, and on the view which we have taken, even though there was a cesser of interest,, the benefit arising therefrom was not exigible to duty because the provisions in S. 40(a) of the E.D. Act did not contemplate a computation of the value of such a benefit. Accordingly, question No, (1) referred to us is answered by holding that though there was a cesser of interest and property could be said to be deemed to pass, the benefit accruing therefrom would not be liabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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