COMMISSIONER OF ESTATE DUTY Vs. S M SHAREEF

JUDGEMENT

(1.) This is a reference under Section 64(1) of the Estate Duty Act, 1953, by the Income -Tax Appellate Tribunal, Patna, stating the following case for the opinion of this Court: Whether on the facts and in the circumstances of the case the full value, of the four properties, i.e. Holding Nos. 26, part of Nos. 27, 27A, and 42 in Circle No. 36 of the Patna Municipal Corporation could be included in the principal value of the estate ?

(2.) The estate on which estate duty was payable belonged to one Bibi Mahmuda Begum, wife of Sri S.M. Shareef, who died on 28th December, 1960. By a document dated the 27th January, 1942, registered on 30th January, 1942, Sri S.M. Shareef transferred life interest in the said holdings in favour of his wife, In the document, original Holding Nos. 13, 14 and 16 in Circle No. 36 were mentioned, but it is conceded that the new numbers allotted to those holdings are Nos. 26, 27, 27A, 28 and 42. So far as Holding No. 28 is concerned, there is no controversy and it need not be referred to in this order. On 10th February, 1956, during the lifetime of Bibi Mahmuda Begum Shri S.M. Shareef gifted his reversionary interest in the property to his children subject however to the life interest already granted in favour of his wife.

(3.) On these facts, the question for consideration before the taxing authorities was as to how the value of the aforesaid estate of Mahmuda Begum should be computed. The material Section s are Section 7(1), 40(a) and 36(1) of the Act. Section 7(1) says (omitting immaterial particulars) that the property in which the deceased had an interest ceasing on the death of the deceased shall be deemed to pass on the deceased's death to the extent to which a benefit accrues or arises by the cesser of such interest. Clause (a) of Section 40, however, says that where the interest of the deceased extended to the whole income of the property, the principal value of that property will be taken to be the vlaue of the benefit accruing or arising from the cesser of an interest ceasing on the death of the deceased. Thus, on a construction of Section 7(1) with Section 40(a) of the Act it is clear that where the deceased had life interest in the property and that interest extended to the whole income of the property, the principal value of the property will be deemed to pass on his death. The expression "principal value of the property" has been explained in Section 36(1) of the Act which says that the principal value shall be estimated to be the price which, in the opinion of the Controller it would fetch if sold in the open market at the time of the deceased's death. Thus, though as popularly understood where a person has life interest in a property, on his death that interest is completely extinguished yet by a fiction introduced in the said taxing statute, the market value of the entire property is deemed to have passed on the death of the person though having life interest, provided that his interest extended to the whole income of the property. This legal position has not been challenged in any of the lower courts. But the learned Tribunal, on a construction of the deed dated 27th January 1942 held it to be not a deed of gift of life interest to Mahmuda Begum but darmokarrari or a lease deed by Sri S.M. Shareef in favour of his wife. Having construed the said document in that manner, the learned Tribunal observed that it is the value of the leasehold interest based on certain actuarial principles recommended by the Central Board of Revenue which should be ascertained and not the market value of the property.