Vildirect: IncomeTax-caselaws-1990-VIL-534-BOM-DT

1990-VIL-534-BOM-DT

Equivalent Citation: [1990] 186 ITR 29, 86 CTR 231, 52 TAXMANN 234

BOMBAY HIGH COURT

Estate Duty References Nos. 21, 24, 30 and 34 of 1976

Date: 05.07.1990

CONTROLLER OF ESTATE DUTY

BIPINCHANDRA N. PATEL, SETH RASESH N. MAFATLAL, ASHOK CHHOTALAL GANDHI, KISHORE MANEKLAL

BENCH

Sujata Manohar And T. D. Sugla, JJ.

JUDGMENT

T. D. Sugla. J.

The main question of law involved in these four Estate Duty references at the instance of the Department is common. For the sake of convenience, all these references are disposed of together. The questions of law referred to this court in the individual references are :

Estate Duty Reference No. 21 of 1976 :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the estate duty liability should be deducted in the computation of the principal value of the estate of the deceased?"

Estate Duty Reference No. 30 of 1976 :

" 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that, in the computation of the principal value of the estate of the deceased, the estate duty payable in respect of the estate of the deceased should be deducted ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that tax liability with reference to annuity deposit was not a burden and/or charge on such annuity deposit ?"

Estate Duty Reference No. 24 of 1976:

" 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in admitting an additional ground of appeal filed by the accountable person claiming deduction on account of estate duty liability from the principal value of the estate of the deceased which was never raised by the accountable person before the Assistant Controller of Estate Duty or the Appellate Controller of Estate Duty in the course of the assessment or the appeal proceedings before them ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that, in the computation of the principal value of the estate of the deceased, the estate duty payable in respect of the estate of the deceased should be considered?"

Estate Duty Reference No. 34 of 1976:

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in admitting an additional ground of appeal filed by the accountable person claiming deduction on account of estate duty liability from the principal value of the estate of the deceased which was never raised by the accountable person before the Assistant Controller of Estate Duty or the Appellate Controller of Estate Duty in the course of the assessment or the appeal proceedings before them ?

3. Whether, on the facts and in the circumstances of the case, the Tribunal's interpretation that the words 'amount of tax so paid' in section 50B of the Estate Duty Act, 1953, mean the difference between the tax payable by the accountable person on the total income including the capital gain arising from the sale of any property on which estate duty is leviable and the tax payable by him on the total income excluding such capital gain is correct ?"

Since the first question of law in Estate Duty References Nos. 24 and 34 of 1976 raises a preliminary issue as to the admission of an additional ground which pertains to the main question in all the four references, the said question of law is taken up first. The admitted facts in this regard are that no claim was made for deduction of estate duty liability from the principal value of the estate by the accountable persons while filing the estate duty returns. The claim for such a deduction was not made either before the Assistant Controller or before the Appellate Controller. These authorities passed their respective orders, naturally, without dealing with and/or referring to this aspect of the matter. The ground regarding the claim for deduction in respect of the estate duty liability from the principal value of the estate was raised for the first time before the Tribunal as an additional ground. Observing, inter alia, that the ground raised a pure question of law, the adjudication of which required no further material, the Tribunal admitted the additional ground.

Placing reliance on the Supreme Court decision in the case of Addl. CIT v. Gurjargravures P. Ltd. [1978] 111 ITR 1, Shri Jetley, learned counsel for the Revenue, submitted that the ground having not been raised before the Assistant Controller nor before the Appellate Controller, the accountable person could not be heard to say that he was aggrieved by their orders in so far as deduction in respect of the estate duty liability from the principal value of the estate was not allowed. Fairly admitting that this court had taken a view that legal questions could be raised for the first time before the Tribunal in cases referred to and relied upon by the Tribunal in its order, he pointed out that the situation had materially changed in view of the Supreme Court decision (See [1978] 111 ITR 1 ).

Learned counsel for the assessee, on the other hand, besides strongly relying on the order of the Tribunal, submitted that the Supreme Court decision was not applicable in this case and, in any event, the ratio thereof supported the view taken by the Tribunal. In this context, counsel referred to the observations made by their Lordships of the Supreme Court in the penultimate paragraph of the judgment. Reference was also made to an Andhra Pradesh High Court decision in the case of CIT v. Gangappa Cables Ltd. [1979] 116 ITR 778, in which it was held that, in a case where there was practically all material necessary for deciding the additional ground taken before the Tribunal for the first time, the Tribunal was justified in admitting such a ground and that, the Supreme Court decision in Addl. CIT v, Gurjargravures P. Ltd. [1978] 111 ITR 1, was not applicable in such a case. The special leave petition filed by the Department against the Andhra Pradesh decision, it was pointed out, was rejected by the Supreme Court. Unlike under the Income-tax Act, under the Estate Duty Act, the Tribunal had, it was stated, even powers of enhancement under section 63(5) so much so that the powers of the Tribunal in an appeal under section 63(1) of the Estate Duty Act were conterminous with those of the Appellate Controller and the Assistant Controller.

In order to appreciate the rival contentions, it is desirable to refer to the facts in the Supreme Court case. The assessee in that case had not claimed relief under section 84 before the Income-tax Officer. The Income- tax Officer had naturally no occasion to consider such a claim. The assessee claimed the relief for the first time before the Appellate Assistant Commissioner who refused to entertain the ground as no claim was made by the assessee before the Income-tax Officer. In second appeal, the Tribunal held that the Appellate Assistant Commissioner should have entertained the ground and the view taken by the Tribunal was upheld by the Gujarat High Court on reference. Reversing the decision of the Gujarat High Court, the Supreme Court held that where neither any claim as to relief under section 84 was made before the Income-tax Officer nor was there any material on record supporting the claim, the Appellate Assistant Commissioner was justified in not entertaining the ground or in not directing the Income-tax Officer to consider the assessee's claim for such a relief. Apart from the fact that the emphasis in that case was on the absence of material in support of the claim, the Supreme Court specifically observed as under (at page 5 of 111 ITR):

"As we have pointed out earlier, the statement of case drawn up by the Tribunal does not mention that there was any material on record to sustain the claim for exemption which was made for the first time before the Appellate Assistant Commissioner. We are not here called upon, to consider a case where the assessee failed to make a claim though there was evidence on record to support it, or a case where a claim was made but no evidence or insufficient evidence was adduced in support. In the present case neither any claim was made before the Income-tax Officer, nor was there any material on record supporting such a claim."

Thus, to say the least, the question of admissibility of a ground for the first time before the appellate authority where the material in support of the ground is already on record or a ground which raises a pure question of law, the adjudication of which does not require any material at all was left open by the Supreme Court. Considering the question in this background, it appears to us that the Tribunal's reliance on this court's decisions in CIT v. Breach Candy Swimming Bath Trust [1955] 27 ITR 279, New India Life Assurance Co. Ltd. v. CIT/CEPT [1957] 31 ITR 844, CIT v. Hazarimal Nagji and Co. [1962] 46 ITR 1168, Beharilal Ramcharan Cotton Mills Ltd. v. CIT [1966] 62 ITR 212 and J. S. Parkar v. V. S. Palekar [1974] 94 ITR 616 in support of the admission of the additional ground was fully justified. In this connection, it is desirable to note that the Andhra Pradesh High Court in CIT v. Gangappa Cables Ltd. [1979] 116 ITR 778 distinguished the Supreme Court decision in Addl. CIT v. Gurjargravures P. Ltd. [1978] 111 ITR 1 on the ground that unlike the facts in the Supreme Court case, in the case before it, practically all the material in support of the claim was already on record. On the same logic, we see full justification in the Tribunal's admitting the additional ground as the ground raised herein is a pure question of law, the adjudication of which does not require reference to any facts.

The first question in Estate Duty References Nos. 24 and 34 of 1976 is, accordingly, answered in the affirmative and in favour of the accountable person.

For the purpose of considering the main question of law referred in all the four references, it is desirable to refer to section 5 of the Estate Duty Act which is the charging section. The section provides that estate duty shall be levied upon the principal value of all property which passes on the death of a person. The expressions "property" and "property passing on the death" are defined in clauses (15) and (16) of section 2. The crucial event is the death. Its effect is the passing on of the property and estate duty is leviable on the principal value of the property so passing.

How the principal value of all properties passing on death is to be computed is provided in Parts V and VI of the Estate Duty Act. The relevant sections for the purpose of the question herein are sections 36 and 44. How the principal value of any property is to be estimated is found in section 36 whereas what deductions are to be made therefrom for ascertaining the principal value of the estate liable to estate duty is found in section 44. Section 44, it may be further stated, expressly provides for deductions on account of debts and liabilities for determining the chargeable value of the estate.

In our judgment, there is no question of taking into account the estate duty liability at the stage of estimation of the principal value of the property under section 36 itself for more than one reason. Section 36 refers to the estimate of the principal value of any property. Any property would mean any and every property. It is nobody's case that section 36 contemplates valuation of all the properties of the deceased in one lump sum. Unless that is done, it will not be possible to know the exact extent of the estate duty liability in the total estate duty liability pertaining to a particular property. That apart, if what is contended by counsel for the assessee is accepted, section 44 may, to that extent, become redundant. In any event, that was not the case of the accountable person before the Tribunal nor has the Tribunal referred to this court such a question of law. Though reference is not made to any section in the question, the question raised clearly is whether estate duty payable in respect of the estate of the deceased should be deducted from the principal value of the estate.

Thus, the answer to this question will have to be decided with reference to section 44 or at best section 74 of the Estate Duty Act. In this context, reference may usefully be made to the two Supreme Court decisions in the case of Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767 and H. H. Setu Parvati Bayi v. CWT [1968] 69 ITR 864, strongly relied upon by counsel for the accountable person. In both the cases, the provision involved was section 2(m) of the Wealth-tax Act, 1957. Wealth-tax is payable on net wealth. This expression is defined in section 2(m) as meaning the aggregate value of all assets reduced by the aggregate value of all the debts owed by the assessee. The question in Kesoram Industries and Cotton Mills Ltd.'s case [1966] 59 ITR 767 (SC) was whether provision is made for income-tax payable in the balance-sheet of the assessee, and in H. H. Setu Parvati Bayi's case [1968] 69 ITR 864, it was whether wealth-tax payable on the net wealth on a particular valuation deed, was deductible under section 2(m) for computing the net wealth of the assessee chargeable to wealth-tax. It was held that liability to pay income-tax as well as wealth-tax crystallize on the valuation date or the last day of the previous year and not on the first day of the assessment year and, therefore, such liabilities were debts owed by the assessee and, therefore, deductible under section 2(m). These two decisions, in our view, are not applicable in this case, the purport and scope of section 44 of the Estate Duty Act being materially different from that of section 2(m) of the Wealth-tax Act. Read carefully, section 44 leaves no scope for doubt that debts and encumbrances deductible under that section are those which are incurred or created by the deceased. This is clear from the language of the section itself which reads as under :

"44. In determining the value of an estate for the purpose of estate duty, allowance shall be made for funeral expenses (not exceeding rupees one thousand) and for debts and incumbrances ; but an allowance shall not be made-

(a) for debts incurred by the deceased, or incumbrances, created by a disposition made by the deceased, unless, subject to the provisions of section 27, such debts or incumbrances were incurred or created bona fide for full consideration in money or money's worth wholly for the deceased's own use and benefit and take effect out of his interest, or

(b) for any debt in respect whereof there is right to reimbursement from any other estate or persons, unless such reimbursement cannot be obtained, or

(c) more than once for the same debt or incumbrance charged upon different portions of the estate, or

(d) for debts incurred by or on behalf of the deceased by way of dower, to the extent to which such debts are in excess of rupees five thousand,

and any debt or incumbrance for which an allowance is made shall be deducted from the value of the property liable thereto."

In the premises, even if it is assumed that the liability to estate duty, the passing on of the property on death and the death occur at the same moment, the estate duty liability cannot be allowed as deduction as the estate duty liability cannot certainly be said to have been created by the deceased. Section 74, to our mind, has also no application. As stated earlier, the principal value of the estate liable to estate duty is computed under Parts V and VI. The method of collection of duty is provided in Part VII. In case of difficulty in collection of duty, a charge on the property is created under Part VIII. Section 74 falls in Part VIII. In the scheme of things, estate duty payable within the meaning of section 74 would be one about which a demand notice under section 73 has been served. No action for recovery of the estate duty can be taken against an accountable person unless a demand notice in the prescribed form is served. This event must, of necessity, occur after the death. Besides, the estate duty is a first charge on immovable property after adjustment of all debts and encumbrances. The charge is, thus, an event subsequent to the death.

Counsel are agreed that there is no decision of our High Court on the point at issue. While learned counsel for the accountable person had strongly relied on the Mysore High Court decision in the case of Mrs. Blanche Nathalia Pinto v. State of Mysore [1964] 53 ITR (ED) 64, learned counsel for the Department stated that that decision was distinguishable and the Karnataka High Court itself took a contrary view in the case of Smt. V. Pramila v. CED [1975] 99 ITR 221 . He further stated that the Gujarat High Court, the Andhra Pradesh High Court, the Madras High Court and the Allahabad High Court have all, in a number of cases, also taken the same view as has been taken by the Karnataka High Court in V. Pramila's case [1975] 99 ITR 221.

In our judgment, the Mysore High Court decision in [1964] 53 ITR (ED) 64 is clearly distinguishable as pointed out by learned counsel for the department. The question involved in that case pertained to the determination of the market value of the estate of the deceased under clause (b) of section 53(1) of the Mysore Court Fees and Suits Valuation Act, 1958. Referring to the provision which has been reproduced at page 68, it was held that the valuation date for that purpose was the date on which the application for grant of probate was filed. This event was admittedly subsequent to the death of the deceased. It was in these circumstances that the Mysore High Court held that, for the purpose of the valuation of the estate of the deceased for the purpose of the Mysore Court Fees and Suits Valuation Act, estate duty liability is to be taken into account. In the case before us, we are concerned with the determination of the principal value of the estate for the purpose of estate duty itself.

An identical question which is before us came up for consideration before the Karnataka High Court in the case of Smt. V. Pramila v. CED [1975] 99 ITR 221 . It was held (headnote) :

"Section 44 of the Estate Duty Act, 1953, is the only section which provides for deductions allowable in computing the value of property passing on death. Estate duty payable on the estate of a deceased does not fall within section 44 and this is clear from sub-section (1) of section 74 of the Act. Section 74(1) provides that after the debts and encumbrances allowable under Part VI of the Act, the estate duty shall be a first charge on the immovable property passing on the death of the deceased. The debts and encumbrances allowable under Part VI of the Act take priority over the estate duty payable. If estate duty is either a debt or encumbrance allowable under section 44, section 74(1) could not have stated that the debts and encumbrances allowable under Part VI shall rank above estate duty for which charge is created. Therefore, it is clear that estate duty payable on the estate of a deceased person is not liable to be deducted under section 44 of the Act."

The Andhra Pradesh High Court, in the case of CED v. Estate of Late Omprakash Bajaj [1977] 110 ITR 263 followed the Karnataka decision and took the same view. The Gujarat High Court also, in Smt. Shantaben Narottamdas v. CED [1978] 111 ITR 365 followed the Karnataka decision and took the same view. The Madras High Court in CED v. Dr. Rajah Sir M. A. Muthiah Chettiar [1984] 149 ITR 510 also held that the estate duty payable on the estate of the deceased was not the liability of the deceased. It was the liability of the accountable person and that, under section 44 of the Estate Duty Act, the liability of the deceased alone was deductible. The Allahabad High Court also, in Govind Prasad v. CED [1981] 127 ITR 642, took a similar view. We do not consider it necessary to refer to these cases in detail. This court has already held in a number of cases that where there is even one High Court decision on a point of law on a statute concerning the whole country, it would not like to take a view different from the one taken by that High Court except for compelling reasons. In the present case, there are not only no compelling reasons, we are quite satisfied about the view taken by these High Courts and in fact we have given our own reasons for coming to the conclusion that the estate duty liability cannot be taken into account at the time of estimating the principal value of the property under section 36 and that the principal value of the property determined under section 36 cannot also be reduced by the estate duty liability as debts and encumbrances of the deceased under section 44. As the estate duty liability is an event subsequent to the passing on of the property on the death of the deceased, it is not a liability owed or created by the deceased. Accordingly, the estate duty liability cannot be allowed as a deduction from the principal value of the estate under section 44. For the reasons stated earlier, it cannot also be considered as a charge on the property at the time of the death as this charge is created only after the estate duty payable is determined and a demand notice is issued and that too when the duty is not paid by the accountable person. All that certainly happens long after the death of the deceased. Accordingly, the main question involved in all the four references is answered in the negative and in favour of the Department.

This takes us to the third question involved in Estate Duty Reference No. 34 of 1976 only. In order to appreciate the rival contentions in this behalf, it is desirable to refer to the provisions of section 50B of the Estate Duty Act. The section reads thus :

"Where any property on which estate duty is leviable under this Act is transferred within a period of two years following the death of the deceased and tax under the Income-tax Act, 1961 (43 of 1961), has been paid in respect of the capital gains arising from such transfer, the estate duty payable shall be reduced by a sum which bears to the total amount of tax so paid the same proportion as the amount paid towards estate duty out of the proceeds of the transfer bears to the gross proceeds of such transfer."

There is no dispute that certain properties had to be sold to enable the accountable person to discharge the estate duty liability and that income under the head "Capital gains" arising from the transfer of such property was assessed to tax. However, income-tax is leviable on the total income of an assessee. This being so, the accountable person, as an assessee, was charged to tax on the basis of his total income which included income under the head "Capital gains." The question that arose for consideration was how the tax paid on capital gains should be determined for the purpose of claiming deduction from the estate duty payable under section 50B of the Estate Duty Act. It was the case of the accountable person that the proper method would be to first determine the tax payable by the assessee on his total income other than income under the head "Capital gains" and to reduce the income-tax so payable from the total income-tax payable determined by the Income-tax Officer on his total income including the income under the head "Capital gains". In fact, the Income-tax Officer had certified that such an amount was payable as income-tax on the income under the head "Capital gains". The case of the Department, on the other hand, is that the tax ought to be worked out at the average rate of tax.

In our opinion, the manner in which the accountable person computed the tax payable on the capital gains income is quite reasonable. The fact cannot be ignored that the properties had to be transferred for making payment of the estate duty. If the properties were not sold, the accountable person would have been assessed on his total income other than the "Capital gains". In any event, it cannot be disputed that this method is also reasonable. In the absence of any method provided in the Act, either of the two methods could have been adopted for determining the amount of tax paid on capital gains income. The method adopted by the accountable person is reasonable. The Income-tax Officer himself had certified it. Under the circumstances, we find nothing wrong in the view taken by the Tribunal. Accordingly, this question is answered in the affirmative and in favour of the Accountable person.

Question No. 2 in Estate Duty Reference No. 30 of 1976 is at the instance of the assessee in an application for reference filed by the Department. The question is in no way connected with the question of law referred by the Tribunal at the instance of the Commissioner. In the circumstances, following the Supreme Court decision in the case of CIT v. V. Damodaran [1980] 121 ITR 572, we hold that the Tribunal should not have reffered the question to this court under section 64(1) of the Estate Duty Act, 1953. Accordingly, the question is returned unanswered.

No order as to costs.

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