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TMI Blog1977 (5) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... ly upheld in regard to the inclusion of the value thereof by the Tribunal ? " The reference arises out of proceedings in respect of assessment to estate duty of the estate of one Ratilal Lallubhai Shah (hereinafter referred to as " the deceased ") who died on March 9, 1968. It would be convenient to set out the relevant facts pertaining to each question separately while dealing with the said question. Question No. 1 : The deceased was a member of a HUF consisting of himself, his wife, two sons and wives and children of the said two sons. In the beginning of S.Y. 2021, that is to say, at the commencement of the period between November 5, 1964, and October 24, 1965, the deceased was a debtor of the HUF to the extent of Rs. 1,24,831. On December 15, 1964, the deceased threw Rs. 50,000 out of his self-acquired property in the common hotchpot of the HUF. For this purpose the deceased made a havala entry in his personal books of account. Be it noted that the HUF did not maintain any books of account and that the transaction in question was evidenced by the havala entry made by the deceased in his personal books in the aforesaid loan account. As a consequence of the aforesaid transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccountable person in so far as it related to the transaction in question being not one of gift. However, he concurred in the decision of the Asst. CED that the provisions of s. 46 of the Act were attracted and that the debt was liable to abatement to the extent of Rs. 50,000. On further appeal, the Income-tax Appellate Tribunal found that the modus operandi adopted by the deceased revealed that at a point of time when he was indebted to the HUF to the extent of Rs. 1,24,831 in S. Y. 2021, he credited a sum of Rs. 50,000 by way of havala entry on December 15, 1964, in the said loan account maintained by him in his own books of account and that, consequently, the debt of the deceased to the HUF swelled to Rs. 1,86,003 in the course of the same year. The whole transaction, in the opinion of the Tribunal, amounted to giving a sum of Rs. 50,000 to the HUF and then borrowing it back from the HUF and, under such circumstances, s. 46 was clearly applicable and it was rightly applied. The appeal of the accountable person was, therefore, dismissed. At the instance of the accountable person, however, a case was stated as to the first question for the opinion of the court. The contention on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... included, any property derived from the deceased : 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. (2) Money or money's worth paid or applied by the deceased in or towards satisfaction or discharge of a debt or incumbrance in the case of which sub-section (1) would have had effect on his death if the debt or incumbrance had not been satisfied or discharged, or in reduction of a debt or incumbrance in the case of which that sub-section has effect on his death shall, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of estate duty, allowance has to be made, inter alia, for debts incurred and incumbrances created by the deceased. In order, however, that such allowance may be made, it must be shown, amongst other things, that such debts or incumbrances were incurred or created bona fide for full consideration in money or money's worth and that such consideration in money or money's worth was for the deceased's own use and benefit. Any allowance which is otherwise to be made for a debt incurred or incumbrance created by the deceased as aforesaid is, however, subject to abatement in two cases:--(a) where the whole or a part of the consideration for the debt or encumbrance consisted of the property derived from the deceased, and (b) where the consideration did not consist of the property derived from the deceased but such consideration was paid by a person who was at any time entitled to, or amongst whose resources there was at any time included, any property derived from the deceased. It is apparent that in order that a case may fall in category (a), the property derived from the deceased must itself constitute the whole or part of the consideration for the loan. It must, therefore, be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the borrowing of loan remained in the realm of mere havala entries. As regards the second submission advanced on behalf of the assessee, we are of the view that it is difficult to hold, in the facts and circumstances of the case, that there was no nexus between the loan transaction and the property derived from the deceased by the HUF. The Tribunal has found as a matter of fact that the whole transaction amounted to giving a sum of Rs. 50,000 to the HUF and then borrowing it back from the HUF. In other words, the finding is that the sum of Rs. 50,000, which was the property derived from the deceased, itself constituted the consideration for the loan advanced by the HUF to the deceased and that this was a part of the arrangement of the transaction of loan. The case would, therefore, seem to fall within the purview of s. 46(1)(a). In any case, the Tribunal's finding clearly amounts to saying that the resources of the HUF were augmented by derivation from the deceased of the property in the shape of Rs. 50,000 at some point of time prior to his death and that such disposition was made by him with a view to enabling or facilitating the provision of the consideration for the deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the interpretation of the provisions of s. 46(1)(b) therein made was approved in a subsequent decision of the Madras High Court in Mrs. Ratnakumari Kumbhat v. CED [1975] 101 ITR 572 (Mad). Both the aforesaid decisions of the Madras High Court, which have made reference to the relevant case law under the English Estate Duty Act, support the construction of s. 46(1) adopted by us. The first question referred to us must, therefore, be answered in the affirmative, that is to say, in favour of the revenue and against the assessee. Question No. 2.--The deceased was the proprietor of a business run in the name and style of M/s. Ratilal Lallubhai Bros. up to S.Y. 2004. On and with effect from S.Y. 2005, the proprietary firm was converted into a partnership firm comprising of the deceased and his son, Yashvantrai. There was a further change in the constitution of the firm between S.Y. 2005 and S.Y. 2019 and yet another son of the deceased, namely, Bipinchandra was taken up as a partner. After the said change was effected, the deceased had 44% share and his two sons between themselves had 56% share in the firm. In S.Y. 2020, that is to say, in the year commencing from October 18, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC). In that case, the deceased was the sole proprietor of two business concerns. With a view to converting the business of the two concerns into a partnership with his four major sons, the deceased transferred a sum of Rs. 45,000 from his personal account to the credit of each of the four sons on September 12, 1955. A partnership deed was executed on September 15, 1955, and the sum of Rs. 45,000 transferred to each of the sons was treated as their share capital. On September 18, 1955, two minor sons of the deceased were also admitted to the benefits of the partnership and the deceased similarly transferred a sum of Rs. 45,000 from his personal account in the firm to each of his minor sons. Upon the death of the deceased on November 18, 1960, the question arose whether the sum of Rs. 2,70,000 being the aggregate of the amounts transferred by the deceased from his personal account to the credit of his six sons could be included in the estate passing on his death under s. 10 of the E.D. Act, 1953. The matter went ultimately to the Supreme Court and it was held that the transfer of Rs. 45,000 by book entries in favour of each of the four major sons and in favour of each of the minor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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