CONTROLLER OF ESTATE DUTY Vs. A V FERNANDO

JUDGEMENT

(1.) AT the instance of the Revenue, the following question has been referred to this Court for its opinion under S. 64(1) of the ED Act, 1953 :

(2.) UNDER a settlement deed dt. 3rd Feb., 1966, the deceased's husband settled certain properties on the deceased for her lifetime. After the death of the deceased, the properties are to be enjoyed by the deceased's son for his life time and after his death, the properties are to vest absolutely on the son's sons. On the death of the deceased, the Asstt. CED came to the conclusion that, there was a change in the beneficial ownership of the properties, the properties passed from her hand to her son, the next life estate holder of the properties. He there fore considered them as having passed on the deceased's death under S. 5 of the ED Act,. Alternatively, he took the view that even if the properties as such has not passed under S. 5, the entire value of the properties is includible in the dutiable estate of the deceased under S. 7 r/w S. 40(2), since the deceased's interest as per the terms of the settlement deed extended to the whole income of the properties.

(3.) AGGRIEVED by the decision of the Tribunal, the Revenue, has come before us. According to the Id. Counsel appearing for the Revenue, the life interest which has ceased on the death of the deceased will fall under S. 7 and S. 7 read with S. 40(1) will enable the Revenue to equate the value of cessor of interest and the principal value of the property hand while determining the principal value the subsequent life interest cannot at all the taken into account. The Id. Counsel points out that S. 40 provides for a special method of determining the principal value of the property in the circumstances, referred to under that section and that the cessor of interest should be taken to have occurred a moment before death and the coming into existence of the subsequent life interest is a moment after death. Therefore, while valuing the principal value of that property, the coming into existence of the subsequent life interest later cannot be taken into account. It cannot be disputed in this case that there is a cessor of life interest on the death of the deceased and the benefit of that cessor of interest has passed on to the son of the deceased who is the subsequent life interest holder. Therefore, the benefit by the cessor of interest on the death of the deceased has resulted in a benefit which is accruing to the son. It is also not in dispute that under the terms of the settlement deed the life interest created in favour of the deceased had extended to the whole income of the properties. The Id. Counsel for the Revenue is right in his submission that S. 40 enables the Revenue to take the value of the interest ceasing on death, as the principal value of that property. Sec. 40 is applicable where the cessor of interest is dutiable under S. 5 or s. 7.