JAMNABEN G MISTRY Vs. CONTROLLER OF ESTATE DUTY

JUDGEMENT

(1.) THE question canvassed at the time of hearing of this matter is limited to what would be the consideration to a purchaser of the property if it is sold in the open market in the context of s. 36 of the ED Act, 1953. Sec. 36 provides that the principal value of any property shall be estimated to be the price which, in the opinion of the Controller, 'it would fetch if sold in the open market at the time of the deceased's death'. It is contended that a prudent willing purchaser before offering the price would estimate the value of the property by taking into consideration all the relevant factors including the contingent payments which are required to be made to the employees such as gratuity, bonus, etc.

(2.) THE question is required to be decided in the context of an order passed by the Tribunal that the provision of gratuity is contingent claim and it cannot be said to be enforceable on the deceased's death. THE Tribunal considered that the claim for gratuity is not a debt and, therefore, not deductible under s. 44 of the ED Act. THE Tribunal further rejected the claim of deduction of estate duty in the computation of taxable estate.

(3.) FOR determining this question, Mr. Shah, learned counsel appearing for the applicant, has vehemently submitted that he was not contending that the provision for gratuity should be deducted as a debt. He submitted that the Tribunal as well as the Authorities below ought to have determined the value of the estate on the basis of criteria provided by s. 36, that is to say, the value of the estate would fetch in the open market. It is his contention that a prudent purchaser while purchasing an industrial undertaking or business where there are employees covered by the provisions of Payment of Gratuity Act or by any voluntary scheme for payment of gratuity or by any awards passed by the Industrial Tribunal directing the employer to pay gratuity, would always take into consideration the contingent liabilities for gratuity which he would be required to provide. As against this, Mr. Shelat, learned counsel for the respondent, vehemently submitted that the question with regard to the deduction on the ground of provision for gratuity is already covered by two decisions of the Supreme Court, viz., Standard Mills Co. Ltd. vs. CIT (1967) 63 ITR 470 (SC) and Bombay Dyeing and Mfg. Co. Ltd. vs. CWT (1974) 93 ITR 603 (SC) and, therefore, the Tribunal has rightly held that provision for gratuity cannot be deducted in computing the estate. He further submitted that the aforesaid two decisions are affirmed by the Supreme Court in the case of P. Sathrughan Pillai vs. CWT (1993) 199 ITR 7 (SC).