N SASTHA Vs. CONTROLLER OF ESTATE DUTY

JUDGEMENT

(1.) ONE S. Nelliappan died on July 18, 1961. In the course of assessment proceedings under the Estate Duty Act, 1953, the Assistant Controller of Estate Duty found that the deceased, who was carrying on motor transport business, has transferred that business to M/s. Pioneer (P.) Ltd. in 1946. In consideration of the transfer, the deceased was allotted 4,000 shares in the said company and his son, Sastha, was allotted 1,000 shares. The three accounting years previous to the death of Nelliappan ended on August 15, 1958, August 15, 1959, and August 15, 1960. the deceased had received an amount to Rs. 10,000 on August 15, 1958, as dividend from M/s. Pioneer Motors (P.) Ltd. Admittedly, this dividend was payable in respect of the year ending on August 15, 1958. The Tribunal has recorded a finding that the business which was transferred to M/s. Pioneer Motors (P.) Ltd. did not belong to the deceased in his individual capacity, but only to the Hindu undivided family of the deceased and his sons. The Assistant Controller held that since it was the deceased who had transferred the motor transport business, section 17(1) of the Estate Duty Act was attracted and the sum of Rs. 10,000 having been received within a period of three years preceding his death, that must be treated as benefit received by the deceased. Finding that the assets of the company as per its balance-sheet amounted to Rs. 78,336, the Assistant Controller deducted a sum of Rs. 7,835 being the value of the shares held by the deceased in accordance with rule 11(3)(b) of the Controller Companies Rules and arrived at the figure of Rs. 70,501 as the value of the slice to be included in the estate of the deceased.

(2.) THE Appellate Controller upheld the view that section 17 of the Estate Duty Act was attracted to the facts of the case. But the took the view that since the company did not make any profits during the three year period before the death of the deceased and did not have any income, the sum of Rs. 70,501 had to be excluded from the computation. THE matter was taken in appeal to the Income-tax Appellate Tribunal by the Assistant Controller in so far as this question was concerned. THE Tribunal took the view that the condition precedent for the applicability of section 17(1) of the Estate Duty Act was that the deceased must have made a transfer to the transport company and since, in the instant case, the transfer in law was only by the Hindu undivided family represented by the karta, there was no scope for the application of section 17(1) at all. THE Tribunal took the view that there was nothing in section 17 of the Estate Duty Act to show that it would be applicable to a transfer made by the deceased not in his individual capacity but in a representative capacity. THE Tribunal, therefore, held that section 17 of the Estate Duty Act would not be applicable to a case of transfer of property by a karta of a Hindu undivided family to a controlled company. jTHE deceased, Nelliappan, also held some shares in Messrs. Palkulam Estate (P.) Ltd. THE valuation of those shares was done in accordance with the decision of the Tribunal in the connected appeals which arose out of the proceedings for assessment to estate duty in respect of the estate of the deceased brother of Nelliappan. Following that decision, the Tribunal took the view that the value of the shares held by the deceased in M/s. Palkulam Estate (P.) Ltd. should be arrived at by the application of rule 15 of the Estate Duty (Controlled Companies) Rules and had to be further discounted by 15 per cent. THE Revenue was dissatisfied with the relevant findings recorded against it. A finding was also recorded by the Tribunal negativing the contention of the accountable persons that estate duty payable was to be deducted in computing the principle value of the estate. Arising out of this order of the Tribunal, three questions were referred to this court for the opinion of this court :

(3.) SO far as question No. 2 is concerned, the argument of learned counsel for the Revenue is that even though the transport business, which was transferred to M/s. Pioneer Motors (P) Ltd. belonged to the Hindu undivided family, so long as the joint family continued, the manager, in this case the deceased, has wide powers to alienate the business and in so far as the provisions of section 17(1) of the Estate Duty Act were concerned, the interest of the deceased in the business which was transferred must necessarily attract the provisions of section 17(1) of the Estate Duty Act. Reliance was placed on the definition of "property", in section 2(15) of the Act which undoubtedly includes any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale and also includes any property converted from one species into another by any method. Reference was then made to the provision in section 39 of the Estate Duty Act which deals with valuation of interest in coparcenary property ceasing on death. Under section 39, it is provided that the value of the benefit accruing or arising from the cesser of a coparcenary interest in any joint family property governed by the Mitakshara school of Hindu law which ceases on the death of a member thereof shall be the principal value of the share in the joint family property which would have been allotted to the deceased had there been a partition immediately before his death. Learned counsel contends that the principle of section 39 should also be applied for the purpose of computing the value of the share for the purpose of section 17(1) of the Estate Duty Act. Therefore, according to learned counsel for the Revenue, at least the interest of the deceased must be taken into account for the purposes of section 17(1) of the Estate Duty Act.