A KANDASWAMI PILLAI Vs. CONTROLLER OF ESTATE-DUTY

JUDGEMENT

(1.) THESE two references have been heard together, because they turn on the interpretation of section 46(1) of the Estate Duty Act and its application to the facts in each. In the first of the references, the questions are "(1) Whether, on the facts and in the circumstances of the case, the liability of Rs. 5, 548 claimed as a deduction. from the value of the properties of the Hindu undivided family in which the deceased had one-third share, were rightly disallowed under section 46(1)(a) of the Estate Duty Act, 1953 ?(2) Whether, on the facts and in the circumstances of the case, in computing the value of the properties of the Hindu undivided family, a sum of Rs. 11, 510 was rightly added under section 46(2) of the Estate Duty Act, 1953 ?" *On January 21, 1959, A. Arunchalam Pillai died. He was one of the members of a Hindu undivded family, the others being his two brothers.

(2.) THE Assistant Controller of Estate Duty, Coimbatore, valued the properties of the family at Rs. 14, 30, 822 and the one-third share of the deceased at Rs. 4, 75, 941, for purposes of levy of estate duty. THE estate duty payable was assessed at Rs. 49, 983.13. Several years prior to the death of Arunachalam Pillai, the family had made a gift of certain agricultural lands to three female members of the family: (1) Nagarathnammal, (2) Saraswathi Ammal and (3) Sivakami Ammal. THE family managed the properties for the ladies, and receipts and outgoings were exhibited in a separate account. In May, 1957, the agricultural lands were sold and a sum of Rs. 16, 500 was realised and credited in favour of the three ladies. THEreafter, a sum of Rs. 5, 500 was paid to each of the two ladies, Nagarathnammal and Sivakami Ammal, towards their share of the sale proceeds. At the death of Arunachalam Pillai, the balance due to Saraswathi Ammal remained with the family to her credit. This amount was claimed as a liability eligible for deduction under section 44(a).

(3.) THIS is because, while the policy of the provision is obvious, viz., to avoid evasion of estate duty, the section seems to overstep that mark, and in its abundant caution, appears to do injustice by disallowing even debts not intended to escape tax. But we can only interpret the statutory provision, having regard to the actual words it has employed. Making that approach, it seems to us that the debt in the first reference seems to squarely fall within and satisfy the words therein. It is not in dispute that the debt is one within section 44(a). It is not also in controversy that the gift of lands was made by the family to the three ladies and that they were sold and the sale proceeds remained with the family for some time and that thereafter two-thirds of which were paid out towards two-thirds share of two of the ladies. It should be taken, therefore, particularly having regard to the definition of "property", that because sale proceeds represent property, viz., the lands, and the property was derived from the family, the nexus required between the debt and the consideration of the particular type, in order to apply the limitation under section 46(1)(a) is satisfied. We are unable to see what further requirement is to be satisfied, in order to apply section 46(1)(a). Sub-section (3) of section 46 attracts, for its purpose, the provisions of section 16(2). Section 16(2) defines "property derived from the deceased". The expression means "...... any property which was the subject-matter of a disposition made by the deceased, either by himself alone or in concert or by arrangement with any other person, notwithstanding that the disposition was made for full consideration in money or money's worth paid to him for his own use or benefit, or which represented any of the subject-matter of such a disposition, whether directly or indirectly, and whether by virtue of one or more intermediate dispositions and whether any such intermediate disposition was or was not for full or partial consideration." *THIS makes it abundantly clear, to our minds, that "property" in section 46(1) is one which would be the subject-matter of a disposition made by the deceased and that, in this case, was the gift made to the three ladies of the family properties. Reading section 46(1) with the other provisions of the Act which we have referred to, we have not found possible or permissible to construe the section as being confined to a debt which was incurred pursuant to an intention evinced by the donor at the time of making the donation, to incur the debtIn the other case, the revenue, as the question under reference reflects, relies on section 46(1)(b). We think the revenue is right in doing so. Actually, the Board of Direct Taxes thought that section 46(1)(a) would apply only if the deceased at the time of making the gift intended that he should borrow it back in the form of a liability. Having formed that view as to the scope of section 46(1)(a), it referred to the facts and reached the conclusion that they justified the finding that the donor had such an intention. We are unable to accept this view of either the effect of section 46(1)(a) or of the facts in the second reference. But it is indisputable that the sons of the deceased having received the gift of Rs. 1, 40, 000 and discharged the father's debt due to the firm, section 46(1)(b) would be attracted.