1964-VIL-19-KAR-DT

Equivalent Citation: [1964] 53 ITR 64

MYSORE HIGH COURT

Civil Revision Petition No 384 of 1963

Dated: 11.03.1964

MRS. BLANCHE NATHALIA PINTO

Vs

STATE OF MYSORE

For the Petitioner: K. R. Karanth  and  K. R. D. Karanth

For the Respondent: G. D. Shirgurhar, Government Pleader

Bench

A. R. Somnath Iyer And B. M. Kalagate JJ.

JUDGMENT

SOMNATH IYER J.-

On July 8, 1958, one Joachim Bernard Pinto died and his wife who is the petitioner before us applied for the probate of his will. That application was presented on August 16, 1960. She valued the estate of the deceased which was likely to come to her hands at Rs 44,064.16 nP., and the probate was granted on that basis.

On June 7, 1961, an application was presented by "the State of Mysore represented by the Deputy Commissioner of South Kanara" under section 56(5) and section 59 of the Mysore Court-Fees and Suits Valuation Act, 1958. The power of the District Judge who had granted the probate was invoked so that the true value of the estate might be estimated. All that was stated in that application was that the true value of the estate was Rs 76,329.24 nP. The District Judge was of the opinion that the value of the estate was Rs 99,750.16 nP.

In reaching the conclusion, the District Judge altered the value of many of the items of properties which belonged to the deceased and was of the view that Rs 1,05,592 was the value of those items. From this, he deducted a sum of Rs 5,841.84 nP., which represented allowable deductions and deduced the net value of the estate to be Rs 99,750.16 nP.

It was on this basis that the petitioner was called upon to amend her valuation and to pay the deficient court-fee, and, in doing so, the District Judge recorded a finding which was not sought by the State in its application. When the petitioner estimated the value of the estate, she deducted from that value a sum of Rs 30,000 which had been paid towards the estate duty payable in respect of that estate. That this was a legitimate deduction claimable by the petitioner was not disputed by the State. But the District Judge nevertheless thought that that deduction was an illegitimate deduction and that he had the power to disallow it in the exercise of the power conferred on him by section 57 of the Mysore Court-Fees and Suits Valuation Act,

In this revision petition presented by the petitioner, the only two submissions made are these:

(a) that the estimate of the value of item 3 made by the District Judge was excessive; and

(b) that the disallowance of the estate duty was without jurisdiction and impermissible.

The estimate made by the petitioner of the value of her husband's share in item 3 was Rs 10,000. But the District Judge estimated it at Rs 33,686. In the opinion of the District Judge, the aggregate rent realised from item 3 in the year 1960 was Rs 415 and that rent was capitalised by the adoption of the twenty-year rule, and, it was on that basis that the District Judge determined the value of the testator's interest in item 3 to be Rs 33,686.

The District Judge was quite right in observing that the material date for the determination of the market value of the testator's interest in item 3 was August 16, 1960, when the application for a probate was made by his wife. That became the material date by virtue of the provision of section 53(1)(b) of the Mysore Court-Fees and Suits Valuation Act, which provides that where an application for the grant of a probate is made after the expiry of one year of the date of death of the deceased, the fee chargeable is on the market value of the estate on the date of the application.

That August 16, 1960, was the date on which the market value of the estate has to be determined is not disputed by Mr. Karanth appearing for the petitioner. What he, however, assails is the estimation made by the District Judge that a sum of Rs 415 in the aggregate was the rent realised on August 16, 1960, from item 3.

The only witness who gave evidence before the District Judge was a clerk of the petitioner. His evidence was that in the months of November and December, 1958, and January, 1959, a sum of Rs 9,150 was expended by the petitioner over improvements to item 3. He proceeded to state that in the condition in which item 3 was before those improvements were made, the aggregate rent realised from that item was Rs 96 a month, while the aggregate rent realised after those improvements were made was Rs 415 a month. In corroboration of this evidence he produced exhibit B-4, an extract from the account books maintained, and he stated that those entries had been shown not only to the Deputy Commissioner but also to the estate duty authorities. This part of the evidence given by the clerk was not subjected to any cross-examination. All that was elicited in the cross-examination of this witness was that, in the year 1943, a sum of Rs 21,014 was paid to a certain Gillant Pinto and that there was a sale deed in 1944.

On this part of the testimony, the argument constructed by Mr. Government Pleader was that the sale deed referred to by the clerk was the sale deed under which item 3 was purchased, and that if in the year 1944, item 3 was purchased for Rs 21,014 it was surely three times as valuable in the year 1960. But of that there is no evidence.

The evidence given by the witnesses was that in the years 1958 and 1959 improvements were made to the property which was fetching only a rent of Rs 96 a month. It is clear that the rents realised after such improvements can have no relevance since the estate to be valued for court-fee is the estate left by the deceased and in the condition in which he left it, and not what it became after it was improved by his heirs. Since higher rents were paid only after improvements, we should assume that if no improvements had been made, no more than the old rents could have been realised. If a sum of Rs 960 is taken as the net aggregate annual rent realised, after excluding from consideration two months' rent for repairs and taxes, and, if it is capitalised by the adoption of the twenty year rule, it would follow that even on August 16, 1960, the interest of the deceased in item 3 was worth not more than Rs 19,200. Since the deceased had only a half share in the property, the petitioner's estimate of that half share at Rs 10,000 could not therefore have been considered by the District Judge to be for any reason faulty or defective.

On the contrary, the great infirmity in the finding of the District Judge is that he entirely missed the importance of the evidence given by the petitioner's clerk. Although in one part of his order the District Judge did refer to some part of the evidence given by that clerk, there was no adequate discussion of that evidence or of its importance such as what I have referred to in this order.

We must, therefore, in my opinion, reverse the finding of the District Judge that the half share of the testator in item 3 was of the value of Rs 33,686, and substitute a finding in its place that that half share was properly valued by the petitioner in her application for the grant of probate.

What I should next consider is the correctness of the view expressed by the District Judge that in the determination of the value of the estate of the deceased, the estate duty paid in respect of such estate must be excluded from consideration. It was not disputed that a sum of Rs 30,000 had been paid as estate duty by the petitioner who was the executor under her husband's will. But the District Judge was of the view that the value of the estate relevant for the purpose of computation of the court-fees is its value on the date of the death of the deceased which did not diminish by reason of the payment of the estate duty on it.

The correctness of this view depends upon the interpretation to be placed upon the relevant provisions of the Court-Fees and Suits Valuation Act and the Estate Duty Act. Chapter VI of the Court-Fees and Suits Valuation Act contains the provisions regulating the computation of the court-fee payable on an application for the grant of probate. Section 52 reads:

"52. Application for probate or letters of administration.--(1) Every application for the grant of probate or letters of administration shall be accompanied by a valuation of the estate in duplicate in the form set forth in Part 1 of Schedule III."

Section 53 states that the fee chargeable for the grant of probate is the fee prescribed by article 6 of Schedule 1 computed in manner specified in clauses (a) and (b) of sub-section (1) of that section. The relevant part of section 53 is:

"53. Levy of fees.--(1) The fee chargeable for the grant of probate or letters of administration shall comprise--

A fee at the rate or rates prescribed in article 6 of Schedule 1, computed--

(a) where the application is made within one year of the date of death of the deceased, on the market value of the estate on such date; or

(b) where the application is made after the expiry of one year from such date on the market value of the estate on the date of the application:..."

Since clause (b) is the clause applicable to the case before us, the courtfee which the petitioner was required to pay was that payable on the market value of the estate on the date of the application. Although the word "estate" occurring in section 53 is not described with any particularity in that section, what that estate is is ascertainable from section 52 which says that there shall be a valuation of the estate in duplicate in the form set forth in Part 1 of Schedule III. So, it becomes clear that the market value relevant for clause (b) of section 53(1) is the market value of the estate whose valuation has to be made in the form set forth in Part 1 of Schedule III.

Part I of Schedule III consists of four paragraphs and the first paragraph is what is of importance. That paragraph reads:

"SCHEDULE III.

PART I

1. I (A-B.).........solemnly affirm/make oath and say that I am the executor (or one of the executors or one of the next-of-kin) of.............. deceased and that I have truly set forth in annexure 'A' to this Form of Valuation all the estate of which the abovenamed deceased died possessed or to which he was entitled at the time of death, and which has come, or is likely to come, to my hands..."

It is clear from this paragraph of Part I of Schedule III read with sections 52 and 53 of the Act that the estate on the basis of whose market value the court fee has to be computed is the estate of which the deceased died possessed or to which he was entitled at the time of his death and which has come or was likely to come to the hands of the executor. The estate whose market value has to be determined is not merely of the estate of which the deceased died possessed or to which he was entitled when he died, but of the estate which has come or was likely to come to the hands of the executor. So, even if there was some estate which was in the possession of the deceased or to which he was entitled at the time of his death if that estate had not come or was not likely to come to the hands of the executor, it is not necessary for him to include that estate in the valuation which he is required to make by section 52 of the Act.

It is thus plain that under the provisions of section 53 of the CourtFees Act, the only court fee payable by the executor who applies for a probate is that payable on the market value of the estate which has come or was likely to come into his hands provided that estate either belonged to the deceased or was in his possession when he died. The estimated value to which annexure "A" in Schedule III refers is, it is clear, the estimated value of only that estate.

It is not disputed that the estate duty paid by the petitioner was that payable in respect of the estate which came or was likely to come to her hands. But the more important question is what was the market value on August 16, 1960, of the estate which came into her hands. It is in the determination of this question that the provisions of the Estate Duty Act become relevant.

Section 2(7) defines "estate duty" as the estate duty under the Act. Section 5 which is the charging section states that in the case of every person dying after the commencement of the Act, a duty called "estate duty" at the rates fixed in accordance with section 35, shall be exigible in respect of all property which passes on the death of such person. The expression "property passing on the death" is defined by section 2(16) of the Act, and, section 16 declares that property which the deceased was at the time of his death competent to dispose of shall be deemed to pass on his death.

The Second Schedule to the Act prescribes the rates of the estate duty. Section 74(1) reads:

"74. Estate duty a first charge on property liable thereto.--(1) Subject to the provisions of section 19, the estate duty payable in respect of property, movable or immovable, passing on the death of the deceased, shall be a first charge on the immovable property so passing (including agricultural land) in whomsoever it may vest on his death after the debts and incumbrances allowable under Part VI of this Act; and any private transfer or delivery of such property shall be void against any claim in respect of such estate duty..."

Section 53 provides that where any property passes on the death of the deceased every legal representative to whom such property so passes for any beneficial interest in possession or in whom any interest in the property so passing is at any time vested, shall, among others, be accountable for the whole of the property so passing. Section 2(12) defines a "legal representative" as including an executor.

The argument maintained by Mr. Karanth was that if from these provisions it is clear that the estate duty paid by the petitioner was a charge on the properties which vested in her in her capacity as an executor under the will of her husband, and that estate duty became payable on the passing of the property by death, the property which vested in the executor was the property burdened with the liability to pay the estate duty and its market value which is relevant for the purpose of section 53 of the Court-Fees and Suits Valuation Act must necessarily be the value of the estate at the time of death reduced by the sum payable by way of estate duty. The competing argument pressed on us by Mr. Government Pleader was that on the death of the deceased, there was the passing of the property and the vesting of it in the executor and that the market value of the property which so vested was the market value at the time of death and not its value which abated by reason of the charge created by section 74 of the Estate Duty Act in respect of the liability for the payment of estate duty.

It seems to me that sustenance for the conclusion that the market value of the estate which is relevant for the Court-Fees and Suits Valuation Act is the market value which takes into account the liability to pay the estate duty is what can be derived from the provisions of sections 52 and 53 of the Court-Fees and Suits Valuation Act when they are read with Part 1 of Schedule III. As already noticed, the determination of the market value which section 53 enjoins is the determination of the market value of the estate which has come or was likely to come into the hands of the executor and I have no doubt in my mind that when it comes to the hands of the executor it is an estate which is already burdened with the liability to pay the estate duty. That, in my opinion, is the clear meaning of the reference to property "which passes on the death of" the deceased, contained in the charging section which is section 5 of the Act. The scheme of the Estate Duty Act and of its provisions makes it clear that immediately on the death of a person, estate duty becomes exigible in respect of his property which passes on his death. The liability comes into being even before it passes and what brings into existence that liability is the death of the person to whom the property belongs. In that situation, to whomsoever the property may pass, the property which so passes is the property on which the liability for the payment of estate duty had already become fastened, and it is that property with the burden whose market value has to be determined under the provisions of section 53 of the CourtFees and Suits Valuation Act. When the market value is so determined, it becomes clear that the market value would plainly be less than the market value at the time of the death of the deceased to the extent of the estate duty which it is liable to pay.

That this is the correct way of understanding the provisions of the Estate Duty Act is what can be seen from the pronouncement of the House of Lords in Winans v. Attorney-General [1910] A.C. 27, 30; 1 E.D.C. 546, 550 in which Lord Loreburn L.C. observed:

"Estate duty falls upon the property passing upon a death, apart from its destination."

Lord Atkinson made a clearer elucidation, and he said this [1910] A.C. 27, 31; 1 E.D.C. 546, 551:

"Being physically situated in England at the time of their owner's death, they were subject to English law and the jurisdiction of English Courts, and taxes might therefore prima facie be leviable upon them. The property in them undoubtedly passed out of the deceased at the time of his death. To whom it passed, who is to succeed to it, or who is to enjoy it, are matters to which the 1st section of the Finance Act of 1894 is not directed."

It should be pointed out that the first section of the English Finance Act of 1894 was the statutory provision under which estate duty was imposed in the same way in which our Estate Duty Act imposes it.

Lord Shaw of Dunfermline made a further exposition, and this is what he said [1910] A.C. 27, 47; 1 E.D.C. 546, 564:

"Estate duty is of a different character; the levy and payment thereof occur not at the point of accession to property, but of the passing of property by the death of a testator. The statute provides for graduation of rate according to the magnitude of the estate thus passing at death."

It is a well settled principle that an executor is a person in whom the property of the deceased vests for administration which is confided to him by the will. When the property vests in him in that way under the provisions of the will, if there is a liability for the payment of estate duty, that liability descends to the executor whose duty it is to discharge the obligation. As Lord Atkinson pointed out in Winan's case [1910] A.C. 27, 34; 1 E.D.C. 546, 553.

"The Finance Act of 1894, like the Victorian statute considered in the case of Blackwood v. The Queen [1882] 8 App. Cas. 82, 97 imposes a 'tax payable by an executor as a condition precedent to the issue and efficacy of the probate necessary for his action, out of the estate while it is in bulk, and before distribution or administration has commenced'."

It is thus clear that the property which vests in the executor for distribution or administration is a property which is burdened with the liability to pay estate duty, and it is the market value of that property which should constitute the basis for the computation of the court-fee payable under section 53 of the Act. It is difficult to understand how the determination of such market value can discard or ignore the liability on the property or how the determination of the market value can refuse to take into account that liability or the charge for its enforcement.

It is seen from section 44 of the Estate Duty Act that even in the determination of the estate duty, incumbrances on the property created by the deceased cannot be excluded from consideration. Although that section of the Estate Duty Act has really no relevance to the computation of the court-fee payable on an application for the grant of a probate, there is implicit in section 53 the duty to exclude from the market value of the estate at the time of the death of the deceased the estate duty payable in respect of it. No satisfactory or accurate determination of the market value can ever be possible without such attenuation.

What is required to be done for the ascertainment of such market value is to ascertain the price which a willing purchaser would pay for the property which is burdened with the liability to pay the estate duty. It being clear that no willing purchaser would pay a price which refuses to take into account the liability on the property, it should necessarily follow that the estate duty payable in respect of the property must necessarily be deducted from the market value at death.

I do not see anything in section 50 of the Estate Duty Act on which Mr. Government Pleader placed reliance supporting the contrary view. All that it provides is that if court-fees has been paid for obtaining probate, letters of administration or a succession certificate in respect of property on which estate duty is payable under the Act, the estate duty so payable shall be reduced by an amount which is equal to a moiety of the court-fees so paid. This statutory provision has no other effect than to clothe the person who has paid the court-fee to claim a refund of half the court-fee paid by him out of the estate duty payable under the Act. There is nothing in this section justifying the view that in the determination of the market value of the estate, the estate duty payable in respect of it is an irrelevant factor.

There is likewise, nothing in Annexure B to Part I of the Schedule III to Court-Fees and Suits Valuation Act which authorises an executor who applies for a probate to deduct from the valuation to be made by him, the debts of the deceased from the value of the estate in order to arrive at the net value of estate. On the basis this part of Schedule III and on the basis of the provisions of section 53(2) of the Court-Fees and Suits Valuation Act, what was pressed on us was that the only items which could be deducted from the gross value of the estate of the deceased when he died are those specified in annexure B, and, in support of this proposition our attention was drawn to the following portion of section 53(2) which reads:

"53. (2) For the purpose of the computation of fee,--

(a) the value of the items mentioned in annexure B to Part I of Schedule III shall be deducted from the value of the estate:..."

Mr. Shirgurkar very forcefully contended before us that if sub-section (2) of section 53 specified the only deductions to be made from the value of the estate and those deductions were of the amounts which represented the debts of the deceased, it was impossible for the petitioner to sustain the contention that the estate duty which was not a debt payable by the deceased could be deducted from such value.

But this submission overlooks the provisions of section 53(1) which contain the plainest indication that the deductions to be made under sub- section (2) are the further deductions to be made from the market value of the estate which has come or was likely to come to the hands of the executor and that that estate is an estate burdened with the liability to pay the estate duty.

It is thus clear that the first step to be taken in the determination of the market value for the purpose of section 53(1) is to deduct from the value of the estate the estate duty payable and the second is to make the further deductions authorised by section 53(2). That section 53(2) authorises the second, does not mean that there can be no other.

In my opinion, when an executor applies for the grant of probate, the court-fee payable under section 53 of the Court-Fees and Suits Valuation Act should be computed in the following manner. The market value of the estate of the deceased on the relevant date specified in clause (a) or clause (b) of sub-section (1) of that section should first be estimated. If any estate duty is payable under the Estate Duty Act in respect of such estate, the estate duty so paid or payable should be deducted from the estimate so made and what remains after such deduction is the amount on which court-fee is payable. It is not right to think that the Court-Fees and Suits Valuation Act imposes a liability to pay court-fee on estate duty which does not come into the hands of the executor for distribution. Section 56 of the Estate Duty Act which forbids a grant of representation except on a certificate that the estate duty has been paid or will be paid or is not payable at all, does not support a contrary view.

In my opinion, the District Judge was not right in taking the view that in the computation of the court-fee, the estate duty paid by the petitioner should be disregarded.

In the view that I take, it is not necessary to discuss the validity of the postulate that the District Judge did not have the competence under section 57 of the Act to investigate into a question which was not properly before him. We were asked to say that the limited enquiry which the Deputy Commissioner sought from the District Judge was an enquiry into the true market value of the properties and that since the Deputy Commissioner himself had recognised deduction of the amount paid by way of estate duty as a legitimate deduction, it was not open to the District Judge to investigate into a matter which was not even pleaded by the State.

It is true that in the application presented under sections 56(5) and 59 of the Court-Fees and Suits Valuation Act, it was not asserted by the State which was represented by the Deputy Commissioner that there could be no deduction of the estate duty. But the question still remains whether in the enquiry which the District Judge is authorised to make under section 57 it is not open to him to determine the true value of the estate not only on the basis suggested in an application presented under section 56(5) but also on other grounds which the District Judge himself might discover or which might otherwise be available to him during the enquiry. But since the petitioner has succeeded in this revision petition on other grounds, it is really not necessary, in my opinion, for us to say anything about this matter in this revision petition.

Before concluding, I should refer to one matter. It is seen from the provisions of section 56(5) of the Court-Fees and Suits Valuation Act, that the only person who can seek an enquiry into the true value of the estate is the Deputy Commissioner. But, by some inadvertence, as I consider it to be, the application was presented by the State represented by the Deputy Commissioner. What the Deputy Commissioner should have done was to make an application in his own name and not as the representative of the State. But it is however clear that, in substance, the application is one made by the Deputy Commissioner, and so was not liable to be rejected by the District Judge on that ground.

This revision petition is allowed and the order made by the District Judge is set aside to the extent indicated. The only amendment which the petitioner should now make of the valuation is to alter the valuation from Rs 44,064.16 nP. to Rs 46,064.16 nP. since it is admitted that she is bound to make this alteration. We direct the petitioner, in modification of the order of the District Judge, to pay the deficient court-fee only on this basis and no other. A month's time is granted for the payment of this court-fee if the enhanced court-fee directed by the District Judge has not already been paid. If the court-fee has already been paid pursuant to the order of the District Judge, the excess court-fee shall be refunded to the petitioner.

In regard to costs, we direct each party to bear her or its own costs in both the courts.

KALAGATE J.--I agree.

Petition allowed.