Controller of Estate Duty vs Estate of Late R. Ramanujam

Ramaprasada Rao, J.—This reference arises under the Estate Duty Act of 1953. At the instance of the department, the Income Tax

Appellate Tribunal has referred the following question for our decision :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sum of Rs. 65,000 received by the

legal heir of the deceased on the group policy personal accident insurance scheme provided by the deceased''s employer, was not chargeable to

estate duty ?

The relevant facts which are necessary to be noticed to answer the question are as follows : Ramanujam was an employee of M/s. Shardlow

India Ltd., Madras. While he was on an air flight between Delhi and Paris, he met with an accident on the 24th of January, 1966, and he lost his

life thereby. The company in which he served has a peculiar practice of its own. It takes out what is known as personal accident insurance policy

with a reputed insurance company in respect of the lives of each of their employees. It pays the premium and the recitals in the policy admittedly

are that the policy has been taken by the company for and on behalf of their employees specified in the policy and/or their legal heirs. On receipt of

this sum of Rs. 65,000 under the insurance policy as above, the accountable person claimed that the said amount cannot be deemed to be an

estate which passed on the death of Ramanujam and is, therefore, not includible as assessable estate within the meaning of the provisions of the

Estate Duty Act, 1953. In particular, the contention was that this was not an annuity or an interest provided by the deceased either by himself alone

or in concert or by arrangement with any other person and that, therefore, this sum of Rs. 65,000 is not includible in the estate which has passed

on the death of Ramanujam. The Tribunal accepted this contention. The department, therefore, sought for a reference. Hence the question. The

short point to be answered is, whether the sum of Rs. 65,000 which was paid to the heirs of Ramanujam should be considered and treated as a

part of the estate of the deceased which passed or was deemed to have passed on his death.

Learned counsel for the revenue initially pointed out that he was in a handicap since the assessment made by the revenue at a stage prior to the

one when it came before the Tribunal is supportable with reference to Section 5 and other provisions of the Act. The handicap, according to him,

is that no such venture was made before the Tribunal and the assessment was not supported by reference to any other provisions of the Estate

Duty Act, 1953. He has to, therefore, necessarily fall back upon the only contention which was raised before the Tribunal, whether the sum of Rs.

65,000 which was admittedly received by the heir of Ramanujam could be said to be an estate which shall be deemed to have passed on his death

to his heirs and, in particular, in the hands of the accountable person.

Section 15 of the Act runs as follows :

Any annuity or other interest, purchased or provided by the deceased, either by himself alone, or in concert or by arrangement with any other

person shall be deemed to pass on his death to the extent of the beneficial interest accruing or arising, by survivorship or otherwise, on his death.

The essential limb or nexus which would connect the asset with the element of taxation is that the deceased should have provided either by

himself or in concert or by arrangement with any other person for getting that part of the estate or money which is under surveillance and

examination. If, therefore, on the facts of each case it is established that there is no such nexus, to wit, no concerted act, either overt or covert, on

the part of the deceased or an arrangement, either expressed or implied, on his part with any other person which resulted in the creation of that

estate on his death, then it follows that such estate shall not be deemed to pass on his death. What is argued by the revenue is that the company,

when it took the personal accident insurance policy on a group basis, intended to advance the interest of their employees and in that sense there

was, there should be, deemed to be an arrangement as between the employer and the employee in the matter of securing of that policy and the

subsequent resultant interest on the death of the insured. This is a far-fetched contention. The Tribunal has noticed the correspondence and the

terms of employment in and by which the company secured the services of Ramanujam. It does not spell out any obligation on the part of. the

company to take out such a policy as a condition precedent for the entertainment of its employee. But, on the other hand, this policy can, in the

circumstances, be stated to be an additional advantage provided by the employer on its own volition and without reference to its employee. The

Tribunal, therefore, rightly said that the contract shows that the taking of this policy was not a part of the scheme of the contract of service.

Reliance, however, was placed upon the recitals in the policy itself. The policy says that it was entered into on behalf of the employees and/or their

legal heirs. This is again a statement made by the employer so as to demonstrate that they were interested not only in their employees but also in

the heirs of such employees and was once again made by them without reference to their employee or without consulting him. It is that element of

screening of the employee from the field of consultation and arrangement that makes the policy exclusively the result of a voluntary act on the part

of the employer with which the employee has no concern. The general impression gained by the disclosed facts is that it would be unreasonable to

say or to suggest that it was at the instance of Ramanujam that this interest has been created. The essential limb or the forging link which would

make the interest referred to in Section 15 and the benefit of that interest on the death of the person concerned, viz., that he was responsible for

the creation of such an interest either by an arrangement or by reason of a concerted act on his part with any other person is absent in this case.

The Tribunal, therefore, rightly accepted the accountable person''s case that this sum of Rs. 65,000 secured by reason of the company paying the

benefits of the policy on the death of Ramanujam cannot be said to be an interest which shall be deemed to have passed on his death.

In these circumstances, therefore, we answer the question against the revenue and in the affirmative. The reference is, therefore, answered in

favour of the assessee with costs. Counsel''s fee Rs. 250.