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TMI Blog1986 (7) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... hiah continued to be a member of the natural family. We do not find much merit in such contentions and these need not be dealt with. These have been dealt with by the High Court and we accept them. Not much serious argument in support of the appeal on this aspect by the Revenue was advanced before us. Appeal is answered by saying that amount of ₹ 2 lakhs, if assessable, would have been assessed as a separate estate and the share of the deceased in the property of the joint family at the time of death was one-third and not one-half. In the premises, this appeal fails and is dismissed. - - - - - Dated:- 17-7-1986 - Judge(s) : R. S. PATHAK., SABYASACHI MUKHERJEE JUDGMENT The judgment of the court was delivered by SABYASACHI MUKHARJI J.-These two appeals are from the judgment and order of the Madras High Court dated September 20, 1973, by certificate of fitness granted by the High Court under section 65 of the Estate Duty Act, 1953 (hereinafter called " the Act "). Civil Appeal No. 2086 of 1974 is by accountable persons and Civil Appeal No. 67 of 1975 is by the Revenue. The judgment under appeal is reported in M. Ct. Muthiah v. CED [1974] 94 ITR 323 (Mad). The accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 lakhs which was the benefit stipulated to be paid, in such an event, under the terms of the policy. At the time of his death, the deceased had other properties and interests. One was his interest as an undivided coparcener in his joint family which consisted after the adoption away of his first son, Muthiah, of the deceased and his second son, Pethachi. In the assessment under the Estate Duty Act, 1953 (hereinafter called "the Act "), the Deputy Controller of Estate Duty was of the view that the personal accident insurance money of Rs. 2 lakhs paid by the insurance company should be charged to estate duty and further that it had to be aggregated with the rest of the properties passing on the deceased's death. He held further that the insurance money of Rs. 2 lakhs was property which the deceased was competent to dispose of by will. Before the Deputy Controller, it was urged that the amount of Rs. 2 lakhs could not, in any case, be aggregated with the rest of the properties, but must be brought to charge independently as a separate estate in itself, the contention being that the deceased had no interest at all in the said insurance money. The Deputy Controller rejected this cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... never had any interest in the said insurance money. On the terms of the accident policy, the Board was of the view that the deceased did have the power of disposition over the insurance money both by the exercise of the power of nomination under the policy and also independently by the exercise of any testamentary power. On the point relating to the exact quantum of the deceased's interest in the coparcenary property, the Board accepted the genuineness of the " muri ". Before the Board, an I agreement in writing dated August 19, 1956, between Muthiah and Pethachi, the two sons of the deceased, was produced to further support the claim that Muthiah retained his coparcenary interest in the family of his birth despite his adoption into another family. The Board, however, held that under the Hindu law, adoption makes the adopted son lose his property interests in the family of his birth and that the " dwyamushyayana " form of adoption pleaded by the accountable persons had become obsolete in Madras. The Board rejected the claim that there was a custom prevailing in the Nattukottai Chettiar community to which the deceased belonged, under which the adopted son never loses his propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount would be payable either to the nominee or the legal representatives and not to the assured. It was thus in the nature of a provision made by the deceased for such persons. The deceased had no interest in the money as such because that came into existence the moment after his death and was payable to the nominee or legal representatives. But he had a right in the payment on his death to his legal representatives. In other words, he had interest over the payment of money and not in the money itself. He had a right to take away that right of the legal representatives to receive the money and to vest it in some other person by will. He could nominate a person to whom the amount should be paid. Nomination in such a case was in the nature of a disposition by will, and as such till he breathed his last, he could cancel such nomination and nominate another. The nominee, unlike an assignee of life policies, got title to the money on death, for the property itself came into existence by reason of the death and was payable to the nominee by virtue of the power of disposition by will which the deceased had over the sum. The High Court further held that the money paid on death was pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The High Court held that though the deceased was competent to dispose of the moneys payable under the policy and the sum of Rs. 2 lakhs was includible in the principal value of the estate, the same was not liable to be aggregated with the other properties and had to be assessed as an estate by itself. Regarding adoption, the High Court was of the view that the type of adoption set out by the accountable person was recognised by the custom of the Nattukottai Chettiar community, the terms of the muri formed part of the adoption and the adoption could not be considered de hors the agreement and hence the deceased had only one-third share in the joint family properties at the time of his death. In order to appreciate the question involved in Civil Appeal No. 2086 of 1974, it is necessary to bear in mind the scheme of the Act. Section 5 deals with levy of estate duty. It states that there shall be levied and paid upon the principal value ascertained in the manner provided of all property which passes on the death of such person. Therefore, three factors are important: (1) there must be passing, (2) of such property, and (3) such passing must be on the death of a person. Section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable in respect of the principal value thereof. " Sree C. Ramakrishna, learned counsel for the accountable persons, in the first appeal before us and who was the advocate who had appeared before the High Court, made various submissions. He submitted that it was a condition precedent for the attraction of the duty that (a) the estate holder must have possessed or enjoyed a property or an interest in property; (b) the interest in property might be either vested or contingent; (c) but that interest should be with regard to either an immovable property or a movable property or an interest in immovable or movable property which was capable of being ascertained during the lifetime or at the time of the death of the estate holder; (d) a contingent interest could fall within the purview of the Act only if the interest was of a tangible nature and was capable of being ascertained, that is to say, the estate holder must always be having a possibility to enjoy or possess that interest either actually or constructively during his lifetime itself. He cited the example of a life insurance policy. According to counsel, if the above tests were satisfied, then there had to be a passing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... knew precisely the value of the contingent interest that would mature at a future date. Consequently, even a contingent interest which did not get crystallised during the lifetime of the deceased but which interest would, with certainty, accoe asfter the demise of the estate holder will be caroughby section 6 as a property passing from the deceased to the beneficiary. Thus, only a future interest that crystallised after the death of the estate holder would be deemed as a property of the estate holder. Learned counsel submitted that an accident policy is not property, because it lacks the well known characteristic of property, namely, that it should be capable of being mortgaged or pledged as a security. It lacked the characteristics of a security. Consequently, an accident policy was not a property, according to counsel. Since the benefit in accident policy could only accoe asfter the death of the estate holder, it became property for the first time sfter the demise of the estate holder. There was, according to the counsel for the accountable person, no element of property during the lifetime of the estate holder. Therefore, there could not be any passing of property in a case l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h resulted, the beneficiary of the insurance policy or the nominee of the assured does not get any benefit. In other words, the birth of the property and the right to get it accoe s on the death of the deceased. The property which the legatee or the nominee receives was not property until the accident during the lifetime of the deceased. In Words and Phrases Legally Defined-Vol. 4, at page 200, " property has been defined as " what belongs to a person exclusively of others and can be the subject of bargain and sale ". It includes goodwill, trade marks, licences to use a patent, book debts, options to purchase, life policies and other rights under a contract. An annuity secured only by a personal undertaking was not, however, treated as property; nor was a revocable licence, according to that dictionary. The decision in Attorney-General v. Quixley (1929] All ER (Rep) 696, has coloured many of the decisions of both English courts and our courts on this aspect. It is necessary, therefore, to appreciate that decision properly, if possible. Briefly, the facts in that case were that on April 11, 1927, a school teacher died and her legal representative became entitled to receive a " d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ators were given in return for the compulsory contribution a right to receive the gratuity. Considering sub-section (1)(a) of section 2 of the relevant Act, which is similar to our section 6 of the present Act, and which read as follows: " Property which the deceased was at the time of his death competent to dispose of shall be deemed to pass on his death " Rowlatt J. gave judgment for the Crown. There was an appeal and the appeal was dismissed. Lord Hanworth M.R., sfter stating the facts and analysing the provisions, noted that in 1925, there came sn important Act under which the gratuity became payable to the deceased's representatives. The Master of Rolls further went on to observe that, from and after the operation of the Act of 1925 referred to in the judgment, there was a definite right on the part of the school teacher who fulfilled certain conditions-as the teacher before the Court of Appeal did, by dying at the time when she was still in contributory service-to be paid a sum which was to be estimated and calculated under the provisions of the statute. The Master of Rolls further observed: the statute, therefore, gave at once a right to the person who fulfilled the condit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dian Airlines Corporation (Flying Crew) Services Rules, a member of the flying crew was entitled to a compensation at specified rates in the event of his death or an injury caused by an accident during or as a result of an air journey performed as such in the Corporation's service. The compensation payable under the said rule was in addition to the compensation which the Corporation bad agreed to pay under an agreement described as the Pilot Agreement entered into with the Corporation whereby it was provided that the Corporation shall pay compensation for the death of a pilot at a maximum of 36 times his monthly basic pay if such death occurred in the circumstances mentioned in the above-mentioned service rules, or while travelling on duty in surface transport provided by the Corporation or its nominated agents. In accordance with the terms of the aforesaid agreement between the deceased and his employer, a sum of Rs. 68,300 was received by his widow as compensation. The High Court under reference in that case held that the right to get compensation as condition of one's service was as much an interest in property as any other interest which a person might have in incorporeal prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the deceased but accrued for the first time after his death and that too because his death took place in certain mode. It was further held that under the provisions of the Carriage by Air Act, 1934, the compensation enured for the benefit of the members of the passenger's family and had nothing to do with the estate of the deceased. As none of the above said conditions for the passing of property on death under section 5 of the Act was fulfilled, the estate duty could not be levied on such compensation. The learned Chief justice observed that the connotation of the words " passes on the death of such person " was important. He referred to Webster's International Dictionary. He observed that " passing " involved some actual change in the title or possession of the property which must result on death. The Division Bench, therefore, negatived the Revenue's contention. The Punjab and Haryana High Court in the case of CED v. Smt. Motia Rani Malhotra [1975] 98 ITR 42 (P H), had to deal with this problem though in a different context. It was held by the High Court in that case that the amount of compensation received by the heirs of person who died in an air crash comes into being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st risk of air travel for his journey from USA to India and back, for a maximum sum of pounds 75,000. Similarly, the deceased had purchased in July, 1965, a personal accident policy from company B insuring himself for a maximum of Rs. 1,00,000 against risk of loss of life or limb arising as a result of accident in the course of one year. The deceased had paid only one premium of Rs. 255 under the said policy to the company B. The father of the deceased, the accountable person, was nominated as the beneficiary in both the insurances for receiving the claim amount payable under the policies in case of death of the insured. M died on January 24, 1966, in plane accident on his way to the USA. Rupees 1,00,000 and Rs. 3,57,808 were received from company B and company A, respectively, by the accountable person as a sequel to the accident. The Appellate Tribunal held that the said two sums were liable to be included in the dutiable estate of the deceased, M, under section 15 of the Estate Duty Act but not under any other section. On a reference at the instance of both the accountable person and the Revenue, the question was whether the amounts were liable to estate duty under section 5, 6, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court felt, was beside the point for the time being. The deceased had an interest in the contractual right under the two relevant policies of insurance to exact a particular sum, if and when there was loss of life or limb arising as a result of accident. The very fact that the deceased had a contractual right to exact a particular sum in case of loss of life or limb was an interest in expectancy and it would have been an interest in praesenti the moment the accident occurred resulting in loss of life or limb. The contract of insurance contained in the two relevant policies conferred on the deceased the benefit of the policies, namely, the right to exact a particular amount of damage depending on the loss of limb or life, as the case might be. The contention that the deceased had no interest in the policies, according to the High Court, was not well-founded. It was further held that on the death of the insured, the beneficial interest of the accountable person was generated. Therefore, section 15 of the Act was applicable. As regards the applicability of sections 5 and 6 of the Act, the deceased had property in the nature of interest to receive the sums assured on the happening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the premiums which had been paid. It must be held that the valuation must be ascertained on the date immediately succeeding the date of the death, which, in the present case, would be the aforesaid two sums. Therefore, the High Court allowed the two sums received from the insurance company to be included in the estate duty under section 5 and section 6 and section 15 of the Act. The Bombay High Court in Amy F. Antia v. Asst. CED [1983] 142 ITR 57, was confronted with a situation where an engineer in the employment of M. N. Dastur Co. died in an air crash on May 28, 1968. The question which arose in the course of estate duty proceedings on his death was whether an amount of Rs. 68,400 which was payable on the death of the deceased in pursuance of a group insurance policy taken out by the employer, Dastur Co., was liable to be included as part of the property which passed on the death of the deceased. The Bombay High Court was of the view that personal accident insurance was one of the three main types of insurance. The object of personal accident insurance was to make a provision in case an accidental injury happens which may sometimes disable a person and affect his empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncerned was : what was the right the deceased had in the personal accident policy. The question No. in that case was whether, on the facts and in the circumstances of the case, the sum of Rs. 68,400 payable on the death of the deceased in pursuance of the insurance policy was liable to estate duty. It would thus appear that each case is decided on the peculiar facts in terms of the policy. Reliance was also placed on certain observations in the case of Indrasena Reddy Pingle Madhusudhan Reddy v. CED [1985] 156 ITR 45 (AP). There, the court was dealing with the test of " disclaimer ". The court observed that the test of " disclaimer " has to be adopted to determine whether the deceased had any interest in the insurance policies. If the facts showed that the beneficiaries disclaimed, the resulting interest would be in favour of the deceased and the policy amount would pass to the legal representatives. It was a condition precedent for the application of the Act that the estate holder must have possessed or enjoyed the property or interest in property, the interest in property might be either vested or contingent but the interest should be that with regard to either immovable p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring his lifetime or at the time of his death in that movable property. Secondly, an accident insurance policy could not be construed as property or an interest in property since a person who possessed it cannot also be said to have a contingent interest because there was every possibility of the accident policy getting extinguished or rendered worthless during his lifetime; on the other hand, in the case of a life insurance policy, there was always a tangible continuing interest and only that the value of that interest might be subjected to change at the time of passing of the property. A contingent interest which did not get crystallised during the lifetime of the deceased but which interest would, with certainty, accrue after the demise of the estate holder will be caught by section 6 of the Act. property which passed from the deceased to the beneficiary, though only future interest what crystallised after the death of the estate holder, would be deemed as a property of the estate holder. The accident policy could only accrue after the death of the estate holder. It became property for the first time after the demise of the estate holder. There was no element of property duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the policy. The right to the sum arose because (a) the deceased died, (b) in air accident, (c) during the subsistence of the policy, that property was not there before. Therefore, the property came into being on that contingency after death. In our opinion, therefore, no property can be deemed to pass on the death of the deceased. In any event, during the lifetime of the deceased, an interest was vested totally and irretrievably in the hands of the beneficiary or the legatee or the nominee. The death did not cause property to change hands. The fact that a person can nominate a beneficiary will not tantamount to a disposition of the property. In any event, that disposition vested in the nominee or the legal representative a right in the property. It did not pass on the death of the deceased. In the premises, we are unable to accept the High Court's conclusion on the first question and we are in agreement with the views of the High Court of Jammu and Kashmir in CED v. Kasturi Lal lain [1974] 93 ITR 435 (J K). The first Appeal No. 2086 of 1974 is allowed and question No. 1 is answered in the negative. In that view of the matter, question No. 2 which is the subject matter of Civil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . " In Mulla's Principles of Hindu Law, 3rd edition, p. 393, dwyamushyayana, the effect of partition has been described. These have been set out in the judgment of the High Court. It is not necessary to reiterate them again. In any event, we accept the reasoning of the High Court that if the adoption was not valid as contended for by the Revenue, then Muthiah continued to be a member of the natural family and, as such, his share in the joint family would have passed on the death of the deceased. In this background, it is, however, difficult to appreciate the stand of the Revenue that the adoption was valid but no effect could be given to the terms of the muri. The muri, according to the Revenue, stood by itself. The High Court found it not possible to accept this argument. We are of the same view. The agreement properly read could not be taken as a post-adoption agreement. In that view of the matter, certain factual aspects were urged before the High Court for contending that the accountable person was not free to urge that there was no valid adoption and Muthiah continued to be a member of the natural family. We do not find much merit in such contentions and these need not be ..... 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