CHERUKURI ESWARAMMA SMT Vs. CONTROLLER OF ESTATE DUTY

JUDGEMENT

(1.) The Income-tax Appellate Tribunal, Hyderabad, has referred the following question for our decision :

(2.) Cherukury Kutumbaiah died on October 26, 1958, leaving his widow, Smt. Cherukury Eswaramma, and three sons. The deceased and his three sons constituted a Hindu undivided family which was partitioned by and under a registered partition deed dated November 17, 1957, and in that partition, the net value of the estate which fell to the share of the deceased was Rs. 98,103 out of a total wealth of Rs. 8,26,774. The accountable person, viz., Smt. Cherukury Eswaramma, filed a statement of account showing the principal value of the estate on the date of the death of the deceased as Rs. 95,550. The Assistant Controller of Estate Duty made various adjustments and arrived at the principal value as Rs. 3,75,376 on which estate duty was levied. Out of the various adjustments made, the only one relevant for the purposes of this reference was the item of Rs. 1,08,591 which was included as a gift in terms of section 9 read with section 27 of the estate Duty Act, which item is the difference between the one-fourth share of the net value of the family properties, because of the difference due to unequal allotment of the shares to the deceased in partition. The deceased, it was stated, was entitled to receive on partition a share of the value of Rs. 2,06,694 : but, in fact, was allotted only a share of Rs. 98,103 the difference being Rs. 1,08,591 which was treated as a gift under section 9 of the Estate Duty Act. An appeal was filed (among other grounds) challenging this inclusion, and the Appellate Controller held that what is required for purposes of section 9 of the Estate Duty Act is a disposition made by the deceased purporting to operate as a gift. Section 3(1)(b) of the Act lays down that, a disposition taking effect out of the interest of the deceased shall be deemed to have been made by him..... Section 27 of the Act further lays down that any disposition made by the deceased in favour of a relation of his shall be treated as a gift. It is clear from the foregoing provisions of the Act, that when a member of a joint family takes on partition a lesser share in the family properties than what his is entitled to and if such partition takes place within two years of his death, the result would be a gift in terms of section 9 read with section 27 of the Act. Before the Tribunal in appeal, it was contended that no transfer of property was involved; as such, there is no question of any gift. The Tribunal held that if the deceased has taken his full share and later parted with a part of it to his sons leaving himself only with what was allotted to him, that would certainly be a gift in favour of the three sons. Inasmuch as the unequal partition has secured the same effect, the net result being that a part of the property which was due to the father had indirectly been transferred to the sons, it may be described as a constructive disposition which falls within the mischief of section 27.

(3.) In our view, the Tribunal has grievously erred in spelling out a disposition where there was none, on an unwarranted assumption that the transaction was similar in nature and contrary to what actually happend, that is that there was an equal partition between the four coparceners and thereafter the deceased returned a portion thereof retaining only a share of the value of Rs. 98,103. It is not permissible in interpreting any statute, much less a taxing statute, to presume a state of things to have happened, which in fact did not happen. If this process of reasoning is permitted to arrive at a conclusion, it would lead to dangerous results. What we have to consider, is whether what in fact took place at the time of the partition, would amount to a gift within the meaning of section 9 of the Act. If so, section 27 is attracted; otherwise not.