Controller of Estate Duty vs K. Hilal

Sethuraman, J.—In this reference arising under the E.D. Act, 1953, the following question has been referred u/s 64(1) of the Act :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the exemption u/s 33(1)(n)

should be granted in computing the dutiable estate of the deceased ?

The deceased owned a property in Madras consisting of a building and 16 grounds of land. He had a son and three daughters. By a gift deed

dated 1st March, 1970, he divided the property into four lots and gifted each lot to the son and three daughters, respectively. Part of the property

in which the building was situated fell to the lot of one of the daughters and the deceased continued to live in that property till his death on 7th

December, 1970. The accountable person claimed exemption with reference to this property u/s 33(1)(n) and the Asst. Controller granted the

exemption. The accountable person had some other grievance against the assessment and took the matter in appeal to the Appellate Controller.

The Appellate Controller considered that the exemption given by the Asst. Controller u/s 33(1)(n) was erroneous and he, therefore, issued an

enhancement notice and for the reasons given in his order enhanced the dutiable estate by Rs. 1,00,000 by withdrawing the exemption granted.

The accountable person appealed to the Tribunal and contended that the exemption u/s 33(1)(n) was properly granted by the Asst. Controller.

The Tribunal was of the opinion that as on the date of the gift the property was exclusively used by the deceased for his residence the exemption

u/s 33(1)(n) was available to the accountable person. In the course of its order, the Tribunal pointed out in para. 8 :

Since the date of the gift the property belongs to someone else and although the deceased was by-preference (sufferance) allowed to stay there,

there is nothing before us to show that it was exclusively used by him as his residence. But the difficulty created is easily resolved if we remember

that we have to give full play to the legal fiction created in Section 9 read with Section 3(3). As we have pointed out earlier., in order to hold that

the property passes, we have to ignore the gift and its consequence which would mean that we have to look at the property as on the date of gift.

There is no dispute that as on the date of the gift, the property was exclusively used by the deceased for his residence. Viewing the provisions from

this angle, we have no hesitation in holding that the deceased is entitled to the exemption.

It is this order that is challenged by the Controller by raising the question extracted earlier.

Section 9 of the E.D. Act provides that property taken under a disposition made by the deceased purporting to operate as an immediate gift

inter vivos which shall not have been, bona fide, made two years or more before the death of the deceased shall be deemed to pass on the death.

As the gift in the present case was on 1st March, 1970, and as the deceased died on 7th December, 1970, Section 9 was clearly attracted so that

the property had to be deemed to pass on the death. Section 33 gives certain exemptions and to the extent relevant to the facts here the provision

runs as follows :

To the extent specified against each of the clauses in this sub-section, no estate duty shall be payable, in respect of property of any of the

following kinds belonging to the deceased which passes on his death.--......

(n) one house or part thereof exclusively used by the deceased for his residence, to the extent the principal value thereof does not exceed rupees

one lakh if such house is situate in a place with a population exceeding ten thousand, and the full principal, value thereof, in any other case.

There is no dispute that in this case the house was situated in a place with a population exceeding ten thousand. Therefore, in principle the

accountable person would be entitled to the exemption to the extent of a sum of Rs. 1,00,000, even though the value of the property deemed to

pass was apparently much larger. The learned counsel for the revenue contended that in order to attract the provisions of Section 33(1)(n) the

property must have belonged to the deceased at the time of his death and that it must also have been exclusively used by him for his residence. In

his submission in the present case, neither of these two conditions is satisfied. For the accountable person, the submission was that having regard to

the provisions of Section 3(3) and reading it along with Section 9 and Section 33 the property which passed on the death should be taken as

belonging to the deceased till his death and in view of the finding that the deceased was residing in the said premises the accountable person was

entitled to the exemption. According to the learned counsel, Section 9 created a fiction and as a result of the said fiction, the date of gift merged

with the date of death. His further submission was that if on the date of gift the deceased was in possession, he must be deemed to be in

possession on the date of death so as to attract Section 33(1)(n). Relying on Section 3(3) it was argued that whatever applied to passing on death

would apply to deemed passing and that as in this case the exemption would have been available if the property actually passed on death, it should

be available even if it is deemed to pass on death.

It is unnecessary to go into the wider question as to the effect of Section 9(3) and Section 9 in considering the exemption u/s 33(1)(n) as far as

the present case is concerned. In the present case we have already extracted the finding of the Tribunal that since the date of the gift the property

belonged to someone else and that although the deceased was by sufferance allowed to stay there, there was nothing to show that he was

exclusively using it as his residence. The Tribunal attempted to get over the difficulty of the absence of exclusive user as residence at the time of

death by considering that the gift itself had to be ignored and that the property alone as on the date of gift would have to be taken into account. We

are unable to accept this construction of the provision. We may for our present purpose proceed even on the basis that the gift is to be ignored for

purposes of the Act and that the deceased continued to be the owner of the property.

From the language of Section 33(1)(n), it appears that the house or part thereof which belongs to the deceased must have been exclusively used

by the deceased for his residence at the time of his death. Mere user as residence for any earlier period at the time of or before the gift is really

immaterial. What is required by the provision is exclusive user by the deceased for his residence at the time of his death. In the present case the

Tribunal''s finding is that the building belonged to someone else and the deceased was by sufferance allowed to stay there. The fact that the building

belonged to someone else cannot be in dispute. In view of the deceased or the donor being a Mohammedan, delivery of possession was essential

in order to effectuate the gift. In the gift document, delivery of possession is referred to. Therefore, the deceased had delivered possession to the

donee on 1st March, 1970. Thereafter, the deceased could not have any right of user in the said building unless he had, under the terms of the

document, reserved such a gift. There is no such reservation in the present case. Consequently, the deceased would have been there only as a

permissive user of the building. The expression ""exclusively used by the deceased for his residence"" would postulate the existence of a right of user

and not a mere permissive user or user otherwise than under a right. Even assuming that permissive user or user otherwise than under a right is

enough to satisfy the requirements of the provision, the user as residence in the present case is not exclusive because it is not stated that the donee

after taking delivery of the building did not occupy the building. In the absence of proof of any exclusive user of the building by the deceased as of

right, the requirement of the provision is not fulfilled in the present case. In this view, it is unnecessary to go into the other contentions advanced

before us.

The result is that the question referred has to be answered in the negative and against the accountable person. There will be no order as to costs.