CONTROLLER OF ESTATE DUTY Vs. LALITHAMANI V

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

(2.) 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. 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. There was an appeal to the Tribunal by the accountable person with reference to the taxation of this amount as property passing on the death of Viswanathan, and the Tribunal, by its order dated 25th February, 1974, held that the amount paid by the LIC was not a payment received by her under a policy of insurance effected by the deceased on his life and that the amount was not includible under s. 14 of the Act. The revenue, feeling aggrieved by this finding of the Tribunal, has obtained this reference, raising the questions which have already been extracted

(3.) THE plaintiff in that case was a pilot employed by the company and he was declared redundant and had, therefore, to leave the company's service. Having been informed by the assistant secretary of the company of the approximate amount of what his pension would be, if he chose to draw it, and what he would receive on a refund of his contributions and the ex gratia payment, he informed the company that he had decided to have the ex gratia payment and also the refund of his own payments. The company, however, paid only his own contributions and resolved not to make the ex gratia payment to the redundant air -crew. This attitude of the company led to a suit for recovery of the amount of the ex gratia payment. The contention of the airline was that the use of the phrase "ex gratia" by itself as part of the promise to pay, showed that the parties contemplated that the promise would have no binding force in law, and that, therefore, there was no legal relationship requiring the company to pay the amount. In dealing with this submission, Megaw J. at page 356 observed