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TMI Blog1974 (11) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... ks of account of the deceased his capital account was debited with a sum of Rs. 1,50,000 and corresponding credits were given in the accounts of the three minors. The deceased also executed three promissory notes promising to repay the deposits with interest at 7 1/2 per cent. By another declaration dated April 7, 1955, the deceased also affirmed the transactions. Interest due on these amounts were credited and withdrawals also were made. The entries in the minors' accounts as appearing in the books of the deceased were as under : --------------------------------------------------------------------------------------------------------------------------------------------------- Account of ---------------------------------------------------------------------------------------- Sumanth Rajkumar Suresh Total kumar kumar --------------------------------------------------------------------------------------------------------------------------------------------------- Rs. Rs. Rs. Rs. Amount initially credited on1-4-55 50,000 50,000 50,000 1,50,000 Interest credited from 1-4-55 to 31-3-1962 36,335 39,935 39,935 1,16,205 --------------- ---------------- ---------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a further appeal to the Tribunal, the accountable person did not question the disallowance of the debt to the extent of the sum originally gifted amounting to Rs. 1,50,000 but contended that the disallowance of Rs. 1,16,205 representing the interest accrued was not in order. The Tribunal was of the view, though the revenue did not found its case on section 46(1)(b), that the instant case would fall within section 46(1)(b) itself and the entire amount of Rs. 1,16,205 in addition to the sum of Rs. 1,50,000 conceded by the accountable person had to be disallowed. But the Tribunal also considered the revenue's case and expressed the view that both the amount gifted and the interest payable on the deposits would constitute " property derived from the deceased " within the meaning of section 46(1)(a), read with section 16(2), and that, therefore, the disallowance of the debt to the extent of the interest amount of Rs. 1,16,205 was also in accordance with law. It may be added that the Tribunal also held that it cannot be said that the gift was not made with a view to enable or facilitate the loan. At the instance of the accountable person, the above question has been referred. It wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t any time entitled to, or amongst whose resources there was at any time 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 incumbra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or benefit, or (b) a disposition by any other person operating to reduce the value of the property of the decease ; then, in considering whether estate duty should be charged the said first mentioned disposition shall be left out of account as if this provision did not apply in relation to it ; (b) " disposition " includes any trust, covenant, agreement or arrangement ; and (c) " subject-matter " includes, in relation to any disposition, any annual or periodical payment made or payable under or by virtue of the disposition." It would be seen from the above definitions that the words " property derived from the deceased " would include not the property which was the subject-matter of a disposition made by the deceased but also any annual or periodical payment made or payable under or by virtue of a trust, covenant, agreement or arrangement. In the instant case, the deceased had gifted a sum of Rs. 1,50,000 to his minor children. It has also been found that the gift and the deposit or taking of loan for interest are all associated operations forming part of an arrangement entered into by the deceased with his children. It is this arrangement that necessitated the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which time the amount gifted might have yielded in come and thus the entire money including the income would form part of the property derived from the deceased. In such a case, if the consideration paid consisted of the whole or part of that property, it is with reference to that consideration abatement will have to be made. The consideration for the debt had to proceed from the promisee and what proceeded from the promisee could be only that which was in his possession on the date of loan. We have, therefore, no doubt that what comes within the scope of section 46(1)(a) is that portion of consideration for the debt which consisted of property which was derived by the promisee from the deceased prior to the principal transaction of loan. In the instant case, on the date when the loan was given to the deceased no accretions had happened to the amount of Rs. 1,50,000 derived by the minors from the deceased. The consideration for the debt therefore consisted of only this sum of Rs. 1,50,000 and not any future interest paid by the deceased. It is only necessary now at this stage to refer to the few cases which generally considered the scope of section 46(1)(a) of the Act. In A. Kan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f death to the events of the past. If any of the consideration given for a debt consisted of property derived from the deceased, an abatement is to be made from the allowance proportionate to the value of the property derived from the deceased. This is designed to meet the case where A gives property to B, and B lends the value of the property to A. If, in such a case, A's executors were allowed to deduct the amount of the loan from A's estate for estate duty purposes, a devise would have been found for avoiding the provision that gifts must bear estate duty, if the donor dies within five years of the date of the gift, since the debt would rank for deduction from the deceased's estate, if the debtor died at any time after the gift was made and the debt incurred. The above is case (a) of section 31(1)." From the foregoing discussions, it will be seen that the original consideration of Rs. 1,50,000 would come within the purview of section 46(1)(a), but as we have already seen that out of this Rs. 1,50,000, a sum of Rs. 3,665, in the account of Sumanthkumar, and Rs. 2,565, in the account of Rajkumar, had already been paid before the death and, therefore, these amounts were not subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowable under the foregoing provisions, the allowance must nevertheless be abated if and to the extent that, the consideration given for it consisted of property derived from the deceased. Further, a like abatement must be made where the consideration was given 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. In this latter case, however, if it can be proved that the consideration given by such a person exceeded the amount which could have been rendered available by the application of all the property derived from the deceased, no abatement may be made in respect of the excess. In ascertaining the amount which could have been rendered available, the following property derived from the deceased may be excluded (1) any such property actually included in the consideration given; (2) any such property as to which it is proved that the disposition of which it, or the property which it represented, was the subject matter, was not made with reference to, or with a view to enabling or facilitating the giving of the consideration, or to its recoupment ill any manner." Now, clause (b) is in two p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on July 31, 1952, by drawing the amount from the credit balance in his favour with a firm in Bombay in which the sons and four other persons were partners. The sons invested the amounts gifted to them in a different firm in which they alone were partners. As a result of continuous operation on his account with the Bombay firm, the deceased had incurred liability to that firm to an extent of Rs. 1,29,068. The sons discharged this liability of their father and claimed the sum of Rs. 1,29,068 as a debt due from their father to them. When this debt due from the deceased was sought to be deducted as an allowance under section 44(a) the estate duty authorities disallowed the claim on the ground that the debt clearly fell within the ambit of section 46(1)(b). Dealing with this question this court observed: " But it is indisputable that the sons of the deceased having received the gift of Rs. 1,40,000 and discharged the father's debt due to the firm, section 46(1)(b) would be attracted. The sons answer the description of de any person who was at any time entitled to, or amongst whose resources there was at any time included, any property derived from the deceased The two sons were entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the park. By a majority judgment the Court of Sessions (Scotland) held that the transaction is covered by the provisions of section 31(1)(b). Regarding the scope of section 31(1)(b) the learned Lord Patrick observed : " Case (b) under the section is where any of the consideration given for the debt, not being property derived from the deceased, which is case (a), was given 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. The emphasis is mine. In such a case there is to be a similar abatement from the allowance made in respect of the debt. There is an important proviso to case (b) where the whole or any part of the consideration given for the debt was given by any person, who was at any time entitled to or amongst whose resources there was at any time included, any property derived from the deceased, that is to say in any (b) case, the Commissioners are set to do another sum in arithmetic. They have to compare A, the value of the consideration given for the debt, with B, the value of the consideration which could have been rendered available by application of all the property derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estate for the purpose of estate duty. It is true that the true meaning of the words in the provision has to be found in relation to the objects sought to be achieved or the mischief sought to be prevented. But this rule of interpretation does not warrant bringing in of something which was not covered by the plain words used in the provision. As we have already stated, abatement is only with reference to the consideration given for the debt, which would have otherwise been entitled to an allowance under section 44 and not the value of the property derived from the deceased. If a person could avoid the payment of duty even now that would amount to a lacuna in the Act which would have to be remedied only by the legislature and the courts are not entitled to bring in something which was not covered by the provision on the supposed intention or object of the provision as an anti-tax avoidance measure. We are also unable to agree with the learned counsel that in the Mc Dougal's Trustees case, above referred to the entire sum of pound 13,364 7s.8d. was disallowed. It is seen by the answers given by the Inland Revenue in those proceedings, which are extracted in the dissenting judgment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsisted of the property derived from the deceased whereas clause (b) would apply to a case 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 included any property derived from the deceased. Secondly, clause (a) would apply to a case only where the property was derived from the deceased prior to or as part of the arrangement of the principal transaction of loan while for the applicability of clause (b) the principal transaction of the loan and payment of consideration need not necessarily be prior to the creditor becoming entitled to the property derived from the deceased. The derivation of the property of the deceased by the person providing the consideration could be at any time prior to the death of the deceased. In both cases of clause (a) and (b) the abatement of the consideration was only to the extent of the value of the property derived from the deceased and any excess of consideration would be outside the purview of that section. If we apply these principles to the instant case we find that no part of the interest accrued could ..... X X X X Extracts X X X X X X X X Extracts X X X X
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