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TMI Blog1998 (7) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... l estate of the deceased or out of the insurance money does not now survive. In the premises, we hold that the amounts under the three life insurance policies form a part of the general estate of the deceased and that the amounts under the three life insurance policies have to be aggregated with the general estate of the deceased for the purpose of determining the rate of estate duty. The appeals are, therefore, dismissed. In the circumstances, however, there will be no order as to costs. - - - - - Dated:- 20-7-1998 - Judge(s) : MS. SUJATHA V. MANOHAR., D. P. WADHWA JUDGMENT The judgment of the court was delivered by MRS. SUJATA V. MANOHAR J.---These appeals arise out of the estate duty proceedings in respect of the estate of the deceased P. Madhusudhan Reddy (sic). During his lifetime, the deceased had taken out three life insurance policies of Rs. 50,000 each. Two policies were from the Phoenix Assurance Company, Bombay, and one policy was taken from the Standard Life Insurance Company, Calcutta. During his lifetime, the deceased had obtained loans on the security of his two life insurance policies taken out from Phoenix Assurance Company, Bombay. It seems that the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the two insurance policies taken out from Phoenix Insurance Company formed a part of the general estate of the deceased while the third policy constituted a separate estate. The Appellate Tribunal, however, rectified its order as a mistake and ultimately held that all the three policies formed a part of the general estate of the deceased and could not be separately assessed. In respect of these various proceedings, depending on the view then taken, three sets of questions were framed by the Tribunal and referred to the High Court in three reference applications which arose from these proceedings. The three sets of questions are as follows (page 53 of 156 ITR) : Set No. 1: "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that there should be separate assessments in respect of each of the three insurance policy amounts assigned by the deceased in favour of his grandchildren (at the instance of the Revenue)? 2. Whether the loan amount of Rs. 78,400 taken on the insurance policies by the deceased is liable to be deducted as a debt under section 44 of the E.D. Act from the general estate as distinct from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... answered by the High Court against the assessee in view of the two decisions of this court, one in the case of P. Leelavathamma v. CED [1991] 188 ITR 803 and the other in the case of Nawab Mir Barkat Ali Khan Bahadur v. CED [1996] 222 ITR 612. The remaining questions deal with two issues : (1) whether after the assignment of the three insurance policies by the deceased in favour of his grandchildren, it could be said that the deceased had any interest in the life insurance policies which passed on his death; and (2) if the three insurance policies are held to pass on the death of the deceased whether (i) each of the three insurance policies should be separately assessed to estate duty; or (ii) the three insurance policies taken together should be separately assessed to estate duty; or (iii) whether the three insurance policies have to be aggregated with the main estate of the deceased for the purposes of estate duty. Under section 2(15) of the Estate Duty Act, 1953, "property" includes any interest in property, movable or immovable, and also includes, inter alia, any property converted from one species into another by any method. The Explanations to section 2(15) are not relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "14. (1) Money received under a policy of insurance effected by any person on his life, where the policy is wholly kept up by him for the benefit of a donee, whether nominee or assignee, or a part of such money in proportion to the premiums paid by him, where the policy is partially kept up by him for such benefit, shall be deemed to pass on the death of the assured. Explanation.---A policy of insurance on the life of a deceased person effected by virtue or in consequence of a settlement made by the deceased shall be treated as having been effected by the deceased."' The remaining part of section 14 is not relevant for the present purpose. By virtue of section 14(1) money under a life insurance policy which is kept up by the assured for the benefit of his nominee or assignee is deemed to pass on the death of assured. This is a clear deeming provision whereby even after the assignment of his policy by the assured, if the assured keeps up the policy for the benefit of his assignee, the insurance policy will constitute a part of the estate of the deceased. From the statements of case which are before us in the three references, as also the facts found, the assignees have not con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee M a sum of Rs. 2 lakhs which was the benefit stipulated to be paid. The question was whether the sum of Rs. 2 lakhs should be included in the estate of the deceased as property passing on the death of the deceased for the purposes of estate duty. This court held that the insurance amount became property only on the death of the deceased in an accident during the subsistence of the policy. During the lifetime of the deceased an interest was vested totally and irrevocably in the hands of the nominee. The death did not cause the property to change hands. Therefore, the sum of Rs. 2 lakhs was not includible in the principal value of the estate of the deceased for the purpose of estate duty. This court also observed that though it was not necessary to decide the point, had it become necessary to decide, it would have held that the sum of Rs. 2 lakhs was a separate estate from the other estate of the deceased. The same view has been taken by this court in the subsequent case of Bharat Kumar Manilal Dalal [1987] 164 ITR 231 (SC). Both these cases deal with policies of accident insurance where the amount became payable only on the death of the insured in an accident. In such a situation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellants that even if the life insurance policies constitute a part of the estate of the deceased, they should be separately assessed under section 34(3). Now, only such property passing on the death of the deceased in which the deceased "never had an interest" will constitute a separate estate under section 34(3) for the purpose of determining the rate of estate duty. What is meant by the phrase "in which deceased never had an interest"? The language of section 34(3) is similar to the language of section 4 of the English Finance Act of 1894 as amended by the Finance Act of 1900. Section 4 of the Finance Act, 1894, is as follows : "For determining the rate of estate duty to be paid on any property passing on the death of the deceased, all property so passing in respect of which estate duty is leviable shall be aggregated so as to form one estate, and the duty shall be levied at the proper graduated rate on the principal value thereof : Provided that any property so passing in which the deceased never had an interest.... shall not be aggregated with any other property, but shall be an estate by itself and the estate duty shall be levied at the proper graduated rate on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 4 of the Finance Act of 1894 to decide whether the amount under the settlement could be aggregated with the other estate of the deceased-settlor, formulated a test to decide when it could be said that the property was such that the deceased never had an interest in it. The court observed that in different circumstances, different tests may well be applicable. However, there was one test which was properly applicable to the facts of the case before it. "That test is to ask in whose favour there would be a resulting trust of the accumulations fund in case all the beneficiaries under the disposition under which the property passes were to disclaim the benefits conferred on them by the disposition." If the answer is that the resulting trust would be in favour of the deceased or in favour of his representatives as such representatives, the court would be bound to hold that the property is property of which it would be untrue to say the deceased never had an interest in it. The test so laid down in this case has been repeatedly applied by the English courts. In the case of Tennant v. Lord Advocate [1939] 1 All ER 672 (HL), the deceased effected a policy of insurance on his own lif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on absolutely. From the date of that appointment the premiums previously paid by the settlor were paid by his son. To the extent of the income from the freehold, premiums thereafter were paid by the son from such income. The premiums so paid were, by the Finance Act, 1939, section 30, attributed to the settlor. The settlor died and his son received under the policy pound 48,765. The court, for purposes of section 2(1)(d) of the Finance Act, 1894, came to the conclusion that the money received by the son under the policy did not form part of the estate of the deceased. The question, therefore, of the aggregation of this amount with other properties of the deceased did not arise for consideration before the House of Lords in that case. In fact, the decisions in Attorney-General v. Pearson [1924] 2 KB 375, Tennant [1939] 1 All ER 672 (HL), and Westminster Bank Ltd. [1939] 1 Ch 610 (CA), were referred to and it was observed that the issue in those cases was one of aggregation and, therefore, none of these three cases were directly in point. The decision, therefore in D'Avigdor-Goldsmid v. IRC [1953] AC 347, is not directly relevant to the issue in the present case. Applying the test ..... X X X X Extracts X X X X X X X X Extracts X X X X
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