CONTROLLER OF ESTATE DUTY Vs. DESIKACHARI A C

JUDGEMENT

(1.) THIS is a reference under the E.D. Act, 1953 . The deceased's estate included, among other properties, 101 shares in a private limited company. In the same company, the deceased's brother, who figures as the accountable person in this case, held 16 shares. The share capital of the company comprised, in the aggregate, only 250 shares. The deceased was all in all in the company as a director. The Assistant Controller of Estate Duty accordingly considered this company as a "controlled company" within the meaning of s. 17 of the E.D. Act. There is no dispute now about this determination. The Asst. Controller found that for a number of years past, the deceased had been maintaining a current account with this company. This current account remained to the deceased's credit right from the beginning unto the last. During the period of three years before his death and even earlier, the deceased had been withdrawing various sums of money at one time or another from this current account for making investments outside. The Asst. Controller took up for consideration the nature of the deceased's current account with the company and also the character of the withdrawals therefrom. This inquiry was undertaken by the Asst. Controller while examining the prospects for applying s. 17 to this case and with a view to finding out whether estate duty liability can be foisted to any extent on the assets of this company as a controlled company, having regard to the relationship between the deceased's current account on the one hand and the company's resources on the other. The Asst. Controller gave thought to these matters, and ultimately came to the conclusion that the amount to the credit of the deceased in his current account must be treated as a "transfer" of property by the deceased to the company, and the withdrawals from the current account must be regarded as "benefits" accruing to the deceased from the company. On these findings, the Asst. Controller proceeded to fix the quantum of liability for estate duty on the company's assets in accordance with s. 17 of the Act and by following the procedure laid down in the relevant Rules made under the Act for the purposes of that section The accountable person objected to the levy of estate duty on the company's assets under s. 17 of the Act. His principal contention was that the maintenance of a current account by the deceased even with a controlled company cannot be treated as a "transfer" nor could the withdrawals therefrom be regarded as "benefits". At a later stage, however, when the matter was in appeal before the Tribunal, the accountable person reconciled himself to the position that the deceased's current account did amount to a transfer of property by the deceased to the company. This was done presumably out of respect for the very wide sense in which the term "transfer" and other cognate expressions were found defined in the statute and in the Rules made thereunder. However, on the other aspect of the Asst. Controller's determination, the accountable person held fast to his objection that the withdrawals of money from the deceased's current account cannot be regarded as "benefits" within the statutory meaning of that expressionFor holding that the deceased's withdrawals from his current account were benefits which accrued to him from the company, the Asst. Controller relied on r. 5(1)(a) of the Estate Duty (Controlled Companies) Rules, 1953. This rule defines a benefit as "any periodical payment" out of the resources of the company which the deceased receives for his own benefit. There was no dispute in this case that the money in the current account, although it undoubtedly remained to the credit of the deceased, was nevertheless part of the company's resources. There was also no dispute about the position that the withdrawals from the current account were utilised by the deceased for his own investments elsewhere, and, therefore, very much to his benefit. The only controversy was whether every time the deceased withdrew money from his current account, that involved a periodical payment by the company within the meaning of r. 5(1)(a) of the Controlled Companies Rules. On this aspect of interpretation, the Asst. Controller's view was that each and every one of the withdrawals must be considered as a periodical payment. He relied for this view on r. 5(2) of the Controlled Companies Rules, which carried an elaborate meaning of the expression "periodical payment" in the following fashion

(2.) THE departmental view of r. 5(2) has always been that practically all payments must be treated as periodical payment, the only exception being "a single lamp sum payment", as an exception expressly excluded from the definition. In their order under reference, the Tribunal would seem to have fallen in with the departmental understanding of the scope of this rule. For, without going into any other question, the Tribunal straightaway entered upon the task of finding out whether the deceased's withdrawals could be regarded as a single lump sum payment. The record shows that the deceased's current account with the company wag opened on November 16, 1966, and remained right through till his death on August 23, 1972. The total of the credits in the account during this period amounted to Rs. 5, 76, 369 and all but Rs. 1, 574 had been withdrawn therefrom by the time the deceased died, the withdrawals were many and various, and at different times. The Tribunal nevertheless addressed itself seriously to the question whether what wag involved in this case was a "single lump sum payment". Their view was that notwithstanding the multiplicity of withdrawals, they all amounted only to a single lump sum paymentThe relevant part of the Tribunal's order containing their reasoning is extracted below

(3.) THE learned counsel on both sides said that on this aspect of interpretation there is dearth of case law. It would seem that these provisions in the estate duty law are a bugbear to courts of interpretation as well as textbook writers. Acknowledged writers on this branch of the law have desisted from assigning any fixed connotation or meaning to the expression "series of payments". Understandably enough, Dymond had rest content only with referring to a departmental practice prevailing in the United Kingdom under which the authorities do not consider fewer than two payments as forming a "series" of payments within the meaning of this phrase. While referring to the departmental view, Dymond has merely added the comment that the expression "series" is not defined by the statute. Hanson alone, among the text book writers, has something tangible to say on the subject. In Hanson's Death Duties, 9th Edn., at p. 408, the matter is dealt with as follows"