CONTROLLER OF ESTATE DUTY Vs. SUBRAMANYAM P

JUDGEMENT

(1.) IN this reference case, the problem relates to the impact of s. 46 of the ED Act on the interest payable by the deceased to the donees to whom he had earlier made cash gifts. The question framed at the instance of the Revenue by the Tribunal reads thus :

(2.) THE estate belonged to one Pasumarthi Subrahmanyam, who died on 24th April, 1973. His wife, as the accountable person, rendered an account of the estate disclosing net principal value of Rs. 1,84,428. During the course of the assessment proceedings, the accountable person claimed deduction of a sum of Rs. 82,034.55, which represents the debts of the deceased. During the lifetime of the deceased, the deceased made certain cash gifts to his foster daughter, her husband, and his own wife. He gave cash gifts to his foster daughter of Rs. 5,000 each on 1st April, 1954, and 30th May, 1957. THE interest on these amounts up to the date of the death of the deceased came to Rs. 14,355.89. With interest, the amount due to the foster daughter aggregated to Rs. 24,355.89. Likewise, the husband of the foster daughter was also given cash gifts by the deceased of Rs. 10,000, Rs. 5,000, Rs. 5,000 and Rs. 5,000 on four occasions. THE interest on these amounts by the date of his death amounted to Rs. 12,863.70. With interest, the aggregate amount payable to the son-in-law was Rs. 37,863.70. To his wife, the deceased gifted a sum of Rs. 10,283.16 by making her the beneficiary under his life insurance polices. THE interest on this amount by the date of the death of the deceased came to Rs. 9,432.27. THE total amount due to the wife aggregated to 19,834.96 as on the date of the death of the deceased. All these amounts had aggregated to Rs. 82,034.55, which amount included not only the principal amounts, but also the interest accrued. THEse were claimed as deduction by the accountable person. THE Asst. CED and the Appellate CED disallowed the totality of these debts claimed by the accountable person. On further appeal, the Tribunal held that the principle of s. 46 of the Act was applicable to the principal amount of the debts. However, it held that the interest accrued on the amounts totalling to Rs. 36,631.86 did not come within the mischief of s. 46. On the basis of these conclusions, the Tribunal allowed deduction to the extent of Rs. 36,631.86 and modified the decision of the authorities accordingly. THE revenue succeeded in persuading the Tribunal to refer the above question for our opinion. Before we take up for consideration the legal aspect of the case, we will have to note that there is no dispute at all about the bona fides of the transactions between the deceased on the one side and his wife, the foster daughter and foster daughter's husband on the other. THE truth and genuineness of the gifts made by the deceased in favour of these three individuals are not doubted. It is also not doubted that the deceased utilised these amounts for his own purpose, as a consequence of which interest accrued on these amounts. THE accounts disclosed that these three individuals were being credited with interest that accrued on these amounts periodically. In the light of these facts as found by the Tribunal, we will now consider the claim of the accountable person for deduction. Even at the outset, we must point out that the accountable person has not sought any reference in regard to the amounts of principal, which the Tribunal also held as coming within the ambit of s. 46(1). Consequently, the subject-matter of the reference before us, which calls for our opinion, is about the deduction of the amounts of interest which accrued on the principal amounts.

(3.) AT the same time, Sri Rama Rao, revenue's learned standing counsel, refers us to sub-s. (3) of s.46 which lays down that the provisions of sub-s. (2) of s. 16 shall have effect for the purpose of this section as they have effect for the purpose of that section. But s. 16 is concerned only with annuities or other interest purchased or provided out of property derived from the deceased. By no stretch of imagination could the interest accrued and the principal amounts be called annuities or other interests provided out of the property of the deceased. Particular emphasis is laid by Sri Rama Rao on the definition contained in s. 16(2)(c) of the expression "subject-matter". It is an inclusive definition and says that in relation to any dispute, any annual or periodical payment made or payable under or by virtue of the disposition is also a "subject-matter" within the meaning of s. 16. It is argued that by virtue of sub- s. (3) of s. 46, the same meaning has to be adopted for the purpose of s. 46 as well. The periodical interest which accrued to the donees are not annual or periodical payments made or payable by virtue of the dispositions, so that the inclusive definition of "subject-matter" could be applied to the interest accrued on the gifted amounts. "Interest" accrued in favour of the donees not by virtue of any disposition made by the deceased but by virtue of his borrowing those amounts from the donees and utilising them for his benefit. Therefore, s. 16 and the definition of the "subject-matter" contained in s. 16(2)(c) are of no use to the Revenue's contention. The answer to the question referred to us, therefore, is that the interest accrued on the principal amounts of the debts is allowable as deduction from the estate of the deceased.