CONTROLLER OF ESTATE-DUTY Vs. V LALITHAMANI

JUDGEMENT

(1.) THIS reference has been made under s. 64(1) of the E.D. Act, 1953, at the instance of the Controller of Estate Duty, Madras, raising the following two questions "(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the sum of Rs. 35, 000 received from the Life Insurance Corporation is not includible in terms of section 14 of the Estate Duty Act ? and(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the payment made by the Life Insurance Corporation was only ex gratia and not with reference to the insurance policy of the deceased ?" *The estate duty assessment came to be done on the death of one L. Viswanathan, who was a planter and businessman. He had taken out a policy of life insurance for a sum of Rs. 50, 000 on 4th October, 1954, with the Oriental Government Security Life Assurance Company. Subsequently, he submitted a proposal for life insurance on 11th September, 1959, for an endowment policy for Rs. 50, 000 covering a period of fifteen years., The Life Insurance Corporation agreed to accept the risk commencing from 18th November, 1959, and quoted also a higher premium for four years having regard, perhaps, to the state of his health. The insured passed away on 20th September, 1961, within two years of the policy becoming effective. With reference to the policy for Rs. 50, 000 which had been taken from the Oriental Government Security Life Assurance Company on 4th October, 1954, there was no dispute and the amount was actually paid in accordance with the terms of the said policy. However, with reference to the policy which became effective from 18th November, 1959, as the death took place within a period of two years of the policy, the LIC disputed its liability to pay the amount.

(2.) THERE was some correspondence between the LIC and the widow of the deceased insured, in which the Corporation denied liability to pay the money under the policy on the ground that the policy was ab initio void as the deceased had not made certain disclosures about the state of his health at the time when he took the policy. THERE was a detailed letter on 10th August, 1965, addressed to the Chairman, Life Insurance Corporation of India, Bombay, by the advocate for the accountable person, placing all the facts relating to the disclosure of the state of health of the deceased at the time when he took the policy of insurance in 1959. Subsequent to the receipt of this letter, the LIC paid a sum of Rs. 35, 000 and it is this amount which is the subject-matter of dispute between the accountable person and the estate duty authoritiesThe accountable person, while admitting receipt of the sum of Rs. 35, 000, put forward the pleas that the amount was received as a result of protracted discussions and correspondence with the Life Insurance Corporation, that the amount was paid on a compromise basis long after the death of the deceased-insured and that there was no enforceable right in respect of the policy because the Corporation had rejected her claim as void. The Asst. CED did not accept these pleas and he held that the moneys received under the insurance policy had to be included in the value of the estate and, applying s. 14 of the E.D. Act, brought the sum of Rs. 35, 000 to tax. The appeal to the Appellate Controller on this point was not successful.

(3.) THE words 'ex gratia' or 'without admission of liability' are used simply to indicate-it may be as a matter of amour propre, or it may be to avoid a precedent in subsequent cases-that the party agreeing to pay does not admit any pre-existing liability on his Part but he is certainly not seeking to preclude the legal enforceability of the settlement itself by describing the contemplated payment as 'ex gratia'." *THE unilateral use of the word 'ex gratia' by the LIC in this case cannot thus invest the payment with any quality other than that of a payment under the policy of insurance. Further, but for the fact that the LIC characterised the payment as ex gratia, in the light of the undisputed averments in the letter of Mr. Venkatarama Iyer dated 10th August, 1965, the LIC would have no answer but to pay the entire amount of Rs. 50, 000. It is, in these circumstances, that the LIC chose to describe the payment as ex gratia as, if it described the payment as under the policy, it would have to pay more. THE description, by itself, does not take the payment outside the policy or scope of s. 14 of the E.D. ActEven assuming that the contract of insurance was void because of non disclosure of material facts, the position may be examined. Learned standing counsel for the Commissioner drew our attention to a decision in Attorney-General v. Murray 1904 (1) KB 165 1 EDC 428 (CA). In that case, a policy of insurance had been effected by the father on the life of the son. This policy was not valid under the provisions of the Life Assurance Act 1774. However, the amount had been received on the death of the son and the question arose in the estate duty proceedings as to whether the said sum was liable to be taxed under the corresponding provisions of the estate duty law in the United Kingdom. THE Court of Appeal, speaking through Cozens-Hardy L.J. observed at pages 171-172 (1 EDC 428, 435) "THE statute made the contract of insurance void as between the office and Sir Henry, but no further. If the office, though not bound so to do, in fact paid the money, the payment must be treated as made in respect of the policy, and all the same consequences must follow as if the statute had not been passed.