CONTROLLER OF ESTATE DUTY Vs. NISSAR AHMED A

JUDGEMENT

(1.) ON the death of one Haji Mohammed Ismail Sahib on April, 4, 1971, an account was filed by the accountable person declaring the principal value of the estate at Rs. 4,63,165. In completing the assessment under the provisions of the Estate Duty Act, 1953 (hereinafter referred to as "the Act"), the Assistant Controller of Estate Duty brought to duty Rs. 3,92,700 as dutiable estate under section 17 of the Act. It was found that the deceased had transferred by way of sale a property at Tiruvottiyer High Road, Madras, in January, 1961, to Taj Flour Mills (P.) Ltd. (hereinafter referred to as "Taj Flour Mills" for short) for Rs. 50,000. Taking note of the shares held by the deceased as well as his relatives in Taj Flour Mills, the Assistant Controller of Estate Duty considered that company to be a "controlled company" within the meaning of section 17 of the Act. While considering the benefits derived by the deceased from the controlled company for the purpose of computing the value of the estate, it was found that the benefits derived by the deceased and the assessed profit and loss of the company were as under: <FRM>JUDGEMENT_188_ITR183_1990Html1.htm</FRM>

(2.) SINCE the remuneration was found to be reasonable, that was not taken into consideration, though the rent of Rs. 2,040 was regarded as a benefit under rule 5 of the Estate Duty (Controlled Companies) Rules, 1953. The average adjusted income for the three years ending with the death of Haji Mohammed Ismail Sahib was a negative figure, i.e., Rs. 1,11,376. The Assistant Controller of Estate Duty was of the view that 100% of the net assets of the company shall be deemed to have passed on the death of the deceased. In that view, he subjected to duty Rs. 3,92,700. On appeal by the accountable person to the Appellate Controller of Estate Duty, it was held that the very term "slice" used for ascertaining the amounts to be included, would refer to a fraction of the total value of the assets of the company and in a case where the aggregate amount of the net income of the company for three years was a loss, there cannot be any slice and in the absence of profits, the question of working out any proportion cannot also arise and, therefore, the addition of Rs. 3,92,700 as forming part of the dutiable estate was deleted. On further appeal by the Revenue before the Tribunal, it was contended on behalf of the Revenue, relying on proviso (a) to section 17(2), that even in a case where there were no profits for the compay, the entire value of the assets of the company should be deemed to pass. But the Tribunal repelled this contention, holding that in a case where the net income of the company is "nil", the slice rule cannot be worked out and that the operation of proviso (a) to section 17(2) of the Act would be limited to cases where there is an income in one year and loss in another year and the net result was an income and that cannot be applied to a case where the net result of the income computation of the company is a loss. It was also pointed out that section 17 is a deeming provision and should receive a strict interpretation and in that view, the Tribunal dismissed the appeal.

(3.) PROVISION (a) to section 17(2) is designed only to compute the aggregate net income of the company in the three years ending with the death of the deceased in a case where the company had sustained loss in one or more of the said accounting years. All that is contemplated by the proviso is that, in the process of ascertaining the aggregate net income of the company, if, in any year, the company had sustained a loss, that loss shall be deducted in ascertaining the aggregate net income. The proviso only indicated how the aggregate net income of the company should be computed and ascertained if the company has sustained loss in one or more of the three accounting years. Even so, the application of the slice rule under section 17(2) of the Act is possible, only if the proportion could be arrived at as a fraction, so that that fractional part of the assets of the company can be deemed, for purposes of estate duty, to be included in the property passing on the death of the deceased. If, for some reason, the proportion cannot be worked out or is unworkable, it follows that the slice rule cannot be applied. In the instant case, if the slice is worked out, i.e., <FRM>JUDGEMENT_188_ITR183_1990Html3.htm</FRM>