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TMI Blog1976 (7) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... e daughter of Thayamanaswami Pillai, was married as the second wife to one Muthusami Pillai, a brother of Mangayarkarasi Ammal. Muthusami Pillai had a son by name Kalyanasundaram Pillai by his first wife and these estate duty proceedings arose consequent upon the demise of Kalyanasundaram Pillai on 13th July, 1959. This Kalyanasundaram Pillai was treated as the foster-son of Thayamanaswami Pillai and Thayamanaswami Pillai had desired some provisions being made for this foster-son. Thayamanaswami Pillai died on 9th May, 1935, leaving behind him surviving his second and third wife, viz., Mangayarkarasi Ammal and Kanni Ammal. They continued to live jointly with Draviam Pillai till he died on 18th March, 1939. Draviam Pillai was the sole surviving coparcener of the joint family. Draviam Pillai left a will dated April 28, 1937. He directed provision being made for Mangayarkarasi Ammal and Kanni Ammal, the widows of his brother, and also for Pichammal, his brother's daughter. Further, he directed provision being made for his wife, Ponnammal also. He contemplated taking a son in adoption and in case he failed to do so, he authorised his widow to adopt one Kasturi, his sister's daughter' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng so is that the property becomes coparcenary property and is subject to all incidents of such property. We are of opinion that this is what exactly happened in this case. The assessee by returning his income from the property in the status of karta of the Hindu undivided family during the past several years had unequivocally declared his intention to treat the property, (that is, his life estate) as belonging to the joint family consisting of himself and his sons. In other words, he has thrown the property into the common stock and hence the property became coparcenary property. In our opinion, the Appellate Assistant Commissioner has erred in making the assessment in the status of an individual. The Income-tax Officer is directed to make the assessment in the status of Hindu undivided family." This order of the Tribunal dated 11th March, 1959, was accepted by the income-tax authorities. Based on the Tribunal's order, the Appellate Assistant Commissioner, Wealth-tax, directed the assessments for 1957-58 and 1958-59, being made on a Hindu undivided family as claimed by Kalyanasundaram Pillai. There was no further appeal against this order also. On the death of Kalyanasundaram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m. The Appellate Controller, however, took the view that the said act of the deceased in throwing into the hotchpot his life estate could be termed as disposition and that even after the gift, the deceased, as karta of the joint family, had possession and enjoyment of the properties in common with the rest of the coparceners, viz., his two sons. As the donees could not be said to have enjoyed the gifted properties to the entire exclusion of the donor, the gift was, in his view, clearly hit by section 10 of the Estate Duty Act. In the alternative he upheld the assessment by reference to section 11 of the Estate Duty Act. The accountable person appealed to the Tribunal. Before the Tribunal it was not controverted on behalf of the estate duty authorities that Kalyanasundaram Pillai had treated the properties covered by the settlement as belonging to a Hindu undivided family. The Tribunal held that the properties had all along been treated as joint family properties and that it was not as if at any particular point of time the properties were thrown into the hotchpot. In the view of the Tribunal there was no gift so as to bring the properties within the scope of section 10 of the Est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be deemed to pass on the donor's death to the extent that bona fide possession and enjoyment of it was not immediately assumed by the donee and thenceforward retained to the entire exclusion of the donor or of any benefit to him by contract or otherwise." The question as to whether where there is blending there is a gift within the meaning of section 10 has been the subject of consideration by this court in A. N. K. Rajamani Ammal v. Controller of Estate Duty [1972] 84 ITR 790 (Mad). In that case the deceased had thrown certain of his properties into the common stock, and in the income-tax assessment proceeding, prior to 1955-56, the status of the deceased was accepted as a Hindu undivided family. He died on 19th October, 1957, two years after the relevant assessment. In the estate duty proceedings the Assistant Controller was of the view that throwing of his self-acquired properties into the common stock of the joint family properties would amount to disposition so as to be covered by the provisions of section 9 of the Estate Duty Act. The validity of this assessment was questioned before this court on a reference. In the course of the judgment the learned judges observed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is court, after examining the said provisions came to the conclusion that there was no disposition within the meaning of section 27(1) or within the two Explanations mentioned above. To the same effect is an earlier decision of the Kerala High Court in Controller of Estate Duty v. Arunachalam Chettiar [1968] 67 ITR 607 (Ker). In that case also the coparcener impressed his self-acquired property with the character of joint family property. The assessment to estate duty, applying section 10 of the Act, was the subject of reference to the Kerala High Court. It was held therein that when the deceased impressed his separate property with the character of joint family property he did not transfer them in favour of any person and that there could, therefore, be no question of any gift, for no gift could be conceived without there being a transfer. When there was no gift, it was held that section 10 was not attracted. In taking this view the Kerala High Court has applied the law laid down by this court in M. K. Stremann v. Commissioner of Income-tax [1961] 41 ITR 297 (Mad) and also the decisions of the Bombay and Andhra Pradesh High Courts which had followed the same view. Following the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the person who immediately before the disposition or determination had the interest and of any benefit to him by contract or otherwise ; or (b) in the case of a partial determination, if the conditions specified in the preceding paragraph were not satisfied by reason only of the retention or enjoyment by the deceased of possession of some part of the property, or of some benefit, by virtue of the provisions of the instrument under which he had the interest:.." The contention for the Controller was that this is a case where an interest limited to cease on the death of Kalyanasundaram Pillai had been created by the settlement and that the said interest had been disposed of or had determined, at any rate, by surrender when there was blending by Kalyanasundaram Pillai. The contention was that the exemption contemplated by section 11(2) under certain circumstances did not apply and that, therefore, the liability under section 11(1) was attracted. As contemplated by this provision there was, on the facts herein, interest limited to cease on the death of Kalyanasundaram Pillai. The first question is whether it has been disposed of in any manner at the time when Kalyanasundaram Pi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not relatable to any act on the part of the person owning the interest. In the context of the words used in the provision, we are not satisfied that the expression "has determined" can be construed as "has been determined". The section is intended to cover a case where there has been a disposition of the interest limited to cease on a death by surrender, etc., as a result of an act on the part of a person having an interest and also a case of termination of the interest by an involuntary act. The expression "has determined" does not, in the context, appear to be apt, however, to cover a case where there has been a determination of an interest, say, by a deliberate act on the part of the person concerned. If the intention was to cover such a case, then the words "has been determined" would also have been used. Assuming that the expression "has determined" comprehends a case where the determination of the limited interest is due to any reason whatsoever, including some act on the part of a person having such an interest, we may examine whether there has been a surrender of such an interest on the facts herein. The learned counsel for the Controller did not rest his case on the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lared by clause 2(a) of the 1927 settlement should have effect "during the life of the widow or the period of 21 years from 12th January, 1960, whichever shall be longer". In other words, the discretionary trusts got extended up to 1981 or the death of the widow, whichever was later. The court approved the arrangement on behalf of the infant and unborn beneficiaries. The widow died on December 22, 1962. Estate duty was claimed on the trust fund under section 2(1)(b) of the Finance Act, 1894, corresponding to section 7 of the Indian Estate Duty Act. The contention was that the 1927 trusts were unaffected by the 1960 order and came to an end on the death of the widow ; or, alternatively, under section 43 of the Finance Act, 1940, in that the effect of the 1960 order was to determine or dispose of an interest limited to cease on the death of the widow. It was held that section 43 did not impose a liability to estate duty, since none of the beneficiaries affected by the arrangement lost anything thereby and the disposal was not in favour of any other person. In construing section 43 the unanimous view of the House was that in the context of the section what was contemplated was a dispo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operative verbs being 'surrender and yield up'. The term is usually applied to the giving up of a lease before its expiration: it generally means the giving up of a lesser estate to a greater; a release is the giving up of a greater to a lesser interest, enlarging the latter. The effect of a surrender is to pass and merge the estate of the surrenderor to, and into, that of the surrenderee." There is no surrenderee in the present case and there is no such merging of estate in the hands of the surrenderee to construe the act of throwing into common stock as "surrender". Therefore, when Kalayanasundaram Pillai threw into the hotchpot his interest in the properties covered by the settlement, he had not put an end to the life interest as such, nor had the interests of any one got accelerated or enlarged. He had only converted the asset into a joint family asset. The result of the conversion is not to define or limit his interest in the properties with reference to any fraction of what he previously had. His right to the interest which was so impressed could not be described in any fractional terms. It would not strictly be proper to say on the facts herein that there has been a dimi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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