H C KHANNA Vs. CONTROLLER OF ESTATE DUTY

JUDGEMENT

(1.) THIS is a reference under Section 64(1) of the Estate Duty Act, 1953, made by the Income-tax Appellate Tribunal, Madras Bench, and the question of law referred for the opinion of this court runs as follows :

(2.) THE reference arises consequent on the demise of one Mr. Killick, who was a senior staff official of Parry & Company Ltd. He died on 13th April, 1963. Parry & Co. Ltd. had created a trust fund by a deed dated 7th December, 1955, for making provision for the employees on retirement or for their dependants in the event of death, by way of assurances on the lives of the employees. THE arrangement was called the Parry & Co. Ltd. Executive Staff Pension and Assurance Scheme. THE scheme was effective from 1st January, 1955. THE sole object of the scheme was to provide, on behalf of the company, each member with a pension or annuity from the time of his retirement, payable during the remainder of his life and to provide pensions or annuities to the dependants of deceased members. Membership of the scheme was optional to all members in the senior grade who were on the company's service on the effective date and was made a condition of service for all future entrants into this grade. On the effective date, Mr. Killick was an employee of the company and he was eligible to join the scheme as from that date, which he did. On applying to enter the scheme, each employee had to sign the necessary application form. THEreupon, policies were effected on the life of each eligible member and those policies were assigned immediately after issue to the company by each individual assured and the policies were to be reassigned by the company when the employee retired, died or left the company. THEre was a master policy issued by the insurance company to the trustees under which assurances on the lives of the members were effected. Each member received a certificate of membership stating the particulars of his benefits. THE premiums were paid by the company, but the employee added the annual premium paid on his behalf to his income when making his income-tax return (presumably in accordance with Section 7, Explanation 1, Clause (iv) of the Indian Income-tax Act, 1922) resulting in increased personal income-tax liability to that extent. He got also the tax benefit available for payment of premium on the insurance policy taken on his life.

(3.) AS in the present case the premium has been provided by the employer, the point to be considered is whether this is a case which comes within the scope of the expression "annuity or other interest, purchased or provided by the deceased, either by himself alone or in concert or by arrangement with any other person". By reason of the deceased having executed the necessary letters and joined the scheme and by reason of the company having provided the necessary amounts for the purpose of payment of the insurance premium, this is a case which comes within the scope of the aforesaid expression. The deceased was actually taking the relevant amount paid by the company as one having been paid on his behalf and returning the amounts for the purpose of assessment to income-tax in the respective years. This was only on the basis that the company provided the relevant amount on his behalf and for his benefit. The arrangement to pay the amount being thus traceable to. an agreement between the company and himself, the case squarely falls within the scope of Section 15 of the Estate Duty Act, 1953. The assessee would not have obtained the tax concession available for payment of insurance premium but for the fact that the amount was paid by the employer on his behalf. There can thus be no dispute on the facts that the policy belonged, to him and that the amount of premium was paid only on his behalf by the employer. This is not a case where the payments contemplated under the scheme were gratuitous. The benefits which the employee, his wife and children become entitled to, become part of his contract of service. There was a legal right which the beneficiaries can enforce against the trustees and it is, therefore, a case of interest or benefit provided by the deceased by arrangement with his employer. In terms of Section 15, pensionary benefits of the widow of the deceased contemplated under Rule 11 of the scheme constituted an interest in property which can be deemed to pass on his death to the extent of the beneficial interest accruing or arising on his death.