CONTROLLER OF ESTATE DUTY Vs. T M NANAIAH

JUDGEMENT

(1.) This reference raises a short, but important question for consideration, whether the extinguishment of a debt or any other right amounts to a disposition in terms of Explanation-2 to sub-sec (15) of S.2 of the Estate Duty Act, 1953 (hereinafter referred to as 'the Act') only if such extinguishment is brought about or suffered by the deceased consciously.

(2.) The determination of the question posed has to be approached in the light of facts which are not in dispute and can be stated thus: One Sri T.M.Madappa dies on 5th Novr, 1969, prior to his death, he had purchased an estate in the names of his sons for a sum of Rs.1,62,500. He treated Rs.62,500 as a gift to his sons and the remaining amount of Rs.1,00,000 as a loan to them under a pro-note dt.5th Octr, 1965. The gift tax assessment regarding the amount of Rs.62,500 which was taken on hand by the taxing authorities in the year 1966 was completed in March, 1969. The authorities acting on the affidavit d.7th Feby, 1969, filed by the said Madappa, the deceased, and the said pronote regarding the loan of Rs.1,00,000, excluded the said sum of Rs. 1,00,000 from the assessment of gift tax. The said deceased had included the said sum of Rs. 1,00,000 in his wealth tax as on 31st March, 1969 and had also paid income tax on interest accrued on the said amount upto 31st March, 1969, although the said loan had already become time barred on 15th October, 1968.

(3.) The Asst Controller of Estate Duty acting in accordance with the provisions of Expln-2 to S.2(15) and Ss.9 and 27 of the Act held that the amount represented by the said loan i.e., Rs.1,00,000 was a gift to the sons by the deceased and since the date of the said disposition fell within 2 years of the death of the deceased, the same had to be included in the estate of the deceased that passed after his death, and therefore he subjected the same to estate duty. Appeal against the said decision at the instance of the accountable person was dismissed by the Appellate Controller of Estate Duty, though on a ground different from the one which had found favour with the Asst Controller. The Appellate Tribunal differing both from the Asst Controller as also the Appellate Controller held on the strength of a Divn Bench decision of the Madras High Court in Controller of Estate Duty, Madras v. Estate of late V. K. Ethiraj, 1969 72 ITR 861. that before the extinguishment of a debt or any other right can be held to be a disposition by the deceased in terms of Expln-2 to S.2(15) of the Act, the said extinguishment should have been brought about by the deceased consciously.