Controller of Estate Duty vs Smt. Mookammal

Sethuraman, J.—This reference is u/s 64(1) of the Estate Duty Act. The following question of law has been referred for the opinion of this

court:

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that neither Section 10 nor Section of

the Instate Duty Act, 1953, was applicable to include the entire value of the properties of Rs. 7,50,912 under ''free estate'' in the dutiable estate of

the deceased, M. Kalyanasundaram Pillai ?

One Draviam Pillai and Thayamanaswami Pillar were sons of two brothers. They continued to be joint even after the death of their respective

fathers. Draviam Pillai had a wife by name Ponnammal. Thayamanaswami Pillai was married thrice. The first wife''s name is not known.

But she died long ago. By his second wife, Mangayarkarasi, he had a daughter by name Pichammal. His third wife was Kanni Ammal. Picham-

mal, the daughter of Thayamanaswami Pillai, was married as the second wife to one Muthusami Pillai, a brother of Mangayarkarasi Ammal.

Muthusami Pillai had a son by name Kalyanasundaram Pillai by his first wife and these estate duty proceedings arose consequent upon the demise

of Kalyanasundaram Pillai on 13th July, 1959. This Kalyanasundaram Pillai was treated as the foster-son of Thayamanaswami Pillai and

Thayamanasami Pillai had desired some provisions being made for this foster-son.

Thayamanaswami Pillai died on 9th May, 1935, leaving behind him surviving his second and third wife, viz., Mangayarkarasi Ammal and Kanni

Ammal. They continued to live jointly with Draviam Pillai till he died on 18th March, 1939. Draviam Pillai was the sole surviving coparcener of the

joint family. Draviam Pillai left a will dated April 28, 1937. He directed provision being made for Mangayarkarasi Ammal and Kanni Ammal, the

widows of his brother, and also for Pichammal, his brother''s daughter. Further, he directed provision being made for his wife, Ponnam-mal also.

He contemplated taking a son in adoption and in case he failed to do so, he authorised his widow to adopt one Kasturi, his sister''s daughter''s

grandson. In Clause 11 of the will he directed that his wife, before she made any adoption, should make provision for herself and for the two

widows of Thayamanaswami Pillai and for Pichamal and with reference to the balance of the properties, she was directed to execute a document

under which one-half thereof would go to the said Kalyanasundaram Pillai, subject to the condition that the said Kalyanasundaram Pillai had no

power to alienate in any manner the said properties during his lifetime and that he would enjoy only the income thereof. After his lifetime the said

properties would go to the heirs of Kalyanasundaram Pillai absolutely. The said Kalyanasundaram Pillai also was to have a share in the properties

which were set apart for the maintenance of Ponnammal and others after the respective lifetimes of the said persons. He appointed his wife,

Ponnammal, as executrix and he appointed three advisers to advise Ponnammal.

On 14th December, 1945, Ponnammal executed a settlement under which certain properties were settled on Kalyanasundaram Pillai without

any power of alienation during his lifetime, and on his heirs absolutely after his lifetime. Kalyanasundaram Pillai treated the properties in which he

had a life interest as joint family properties. Accordingly, he submitted wealth-tax and Income Tax returns with reference to the said properties or

their income, as the case may be, right from the year 1949 on the footing that they were joint family properties. The assessments to Income Tax

were made accordingly. The Income Tax Officer, in making the assessment for 1957-58, however, treated the income from the said properties as

the individual income of Kalyanasundaram Pillai rejecting his claim for assessment on the basis of a Hindu undivided family as before.

Kalyanasundaram Pillai appealed to the Appellate Assistant Commissioner of Income Tax. Having been unsuccessful before him, he took up the

matter on further appeal to the Income Tax Appellate Tribunal. The Tribunal upheld his claim and observed as follows :

The position in this case is that in respect of the properties bequeathed, the assessee has the life estate and his sons the vested remainder. Such a

limited interest can be property. It is open to a coparcener who has separate property to waive his separate rights in the property and to throw it

into the common stock. The result of his doing so is that the property becomes coparcenary property and is subject to all incidents of such

property. We are of opinion that this is what exactly happened in this case. The assessee by returning his income from the property in the status of

karta of the Hindu undivided family during the past several years had unequivocally declared his intention to treat the property, (that is, his life

estate) as belonging to the joint family consisting of himself and his sons. In other words, he has thrown the property into the common stock and

hence the property became coparcenary property. In our opinion, the Appellate Assistant Commissioner has erred in making the assessment in the

status of an individual. The Income Tax Officer is directed to make the assessment in the status of Hindu undivided family.

This order of the Tribunal dated 11th March, 1959, was accepted by the Income Tax authorities. Based on the Tribunal''s order, the Appellate

Assistant Commissioner, Wealth-tax, directed the assessments for 1957-58 and 1958-59, being made on a Hindu undivided family as claimed by

Kalyanasundaram Pillai. There was no further appeal against this order also.

On the death of Kalyanasundaram Pillai on 13th July, 1959, in the estate duty proceedings, the accountable person claimed that the properties

covered by the settlement deed belonged to a Hindu coparcenary consisting of the deceased and his two minor sons and that, therefore, the cesser

of interest of the deceased, viz., 1/3rd share alone, should be subjected to estate duty. The Assistant Controller of Estate Duty held that the settled

property which was the subject-matter of the estate duty assessment had not been impressed with the characteristics of the joint family properties

for the simple reason that Kalyanasundaram Pillai was not competent to do so. He was of the view that the persons beneficially interested in the

settled properties before and after the death of Kalyanasundaram Pillai were different, viz., the Hindu undivided family and the remaindermen, and

that in terms of Section 5 the settled property had passed in toto to the remaindermen. Alternatively, he rested the charge for estate duty u/s 7 on

the basis that there was a cessation of interest in the said properties on the death of Kalyanasundaram Pillai. The Assistant Controller valued these

properties at Rs. 7,50,912 and treated them as ""free estate"". With reference to the interest which Kalyanasundaram had in the other properties set

apart for the maintenance of Ponnammal and others, he made the valuation and added the said value in the assessment. There were certain further

properties also which formed part of the assessment to the estate duty.

The accountable person appealed to the Appellate Controller of Estate Duty. The inclusion of the interest in expectancy of Kalyanasundaram

Pillai in the properties set apart for the maintenance of Ponnammal and others and also the assessment of the properties in full over which the

deceased originally had a life interest were the subject of challenge before the Appellate Controller of Estate Duty. The Appellate Controller

deleted the inclusion of the valuation of the interest in expectancy of Kalyanasundaram Pillai in the properties set apart for the maintenance of

Ponnammal and others. We are not concerned with the said properties any further. With reference to the properties settled on Kalyanasundaram

Pillai as mentioned above, the Appellate Controller accepted the claim that the deceased had thrown into the hotchpot the life interest in the

properties settled on him. The Appellate Controller, however, took the view that the said act of the deceased in throwing into the hotchpot his life

estate could be termed as disposition and that even after the gift, the deceased, as karta of the joint family, had possession and enjoyment of the

properties in common with the rest of the coparceners, viz., his two sons. As the donees could not be said to have enjoyed the gifted properties to

the entire exclusion of the donor, the gift was, in his view, clearly hit by Section 10 of the Estate Duty Act. In the alternative he upheld the

assessment by reference to Section 11 of the Estate Duty Act.

The accountable person appealed to the Tribunal. Before the Tribunal it was not controverted on behalf of the estate duty authorities that

Kalyanasundaram Pillai had treated the properties covered by the settlement as belonging to a Hindu undivided family. The Tribunal held that the

properties had all along been treated as joint family properties and that it was not as if at any particular point of time the properties were thrown

into the hotchpot. In the view of the Tribunal there was no gift so as to bring the properties within the scope of Section 10 of the Estate Duty Act.

It held that this was not a case of surrender, assurance, forfeiture or divesting as contemplated by. Section 11 of the Estate Duty Act and that it

was not also a disposition coming within the scope of that provision. It was of the view that neither Section 10 nor Section 11 of the Estate Duty

Act would apply. It is against this order of the Tribunal, at the instance of the Controller of Estate -Duty, the aforesaid question has been referred

to this court.

A reading of the order of the Tribunal will show that the Tribunal rested its conclusion on two alternative grounds, viz., (1) that from the very

beginning Kalyanasundaram Pillai treated the interest created in his favour as interest created in favour of the joint family consisting of himself and

his two sons, and (2) that even if the interest was created in favour of Kalyanasundaram Pillai, he later threw that interest into the hotchpot of '' the

joint family. The fact that the first ground also was relied upon by the Tribunal will be obvious from its observation that there was no evidence as to

at what particular point of time the properties were thrown into the hotchpot. Consequently, if the finding of the Tribunal is that Kalyanasundaram

Pillai, from the very commencement of the execution of the settlement deed in 1945, treated the interest created in his favour as an interest created

in favour of the joint family consisting of himself and his two sons, obviously there cannot be any passing of the entire interest created under the

settlement deed to his sons on his death and, therefore, there is no question of any provision of the Estate Duty Act becoming applicable to that

entire interest. This position was not disputed before us by the learned counsel on both sides. However, we do not propose to rest our conclusion

on this ground only and we propose to consider the question even on the alternative ground that Kalyanasundaram Pillai threw the interest created

in his favour under the settlement deed into the hotchpot, namely, the common stock of the joint family consisting of himself and his two sons and,

in that context, we shall consider the provisions of the Estate Duty Act.

The question as to the validity of the assessment by reference to Section 10 of the Estate Duty Act can be easily disposed of. Section 10

provides as follows:

Property taken under any gift, whenever made, shall be deemed to pass on the donor''s death to the extent that bona fide possession and

enjoyment of it was not immediately assumed by the donee and thenceforward retained to the entire exclusion of the donor or ""of any benefit to

him by contract or otherwise,

The question as to whether where there is blending there is a gift within the meaning of Section 10 has been the subject of consideration by this

court in A.N.K. Rajamani Ammal Vs. Controller of Estate Duty, . In that case the deceased had thrown certain of his properties into the common

stock, and in the Income Tax assessment proceedings prior to 1955-56, the status of the deceased was accepted as a Hindu undivided family. He

died on 19th October, 1957, two years after the relevant assessment. In the estate duty proceedings the Assistant Controller was of the view that

throwing of his self-acquired properties into the common stock of the joint family properties would amount to disposition so as to be covered by

the provisions of Section 9 of the Estate Duty Act. The validity of this assessment was questioned before this court on a reference. In the course of

the judgment the learned judges observed as follows (pages 795, 796):

The separate property of a member of a joint Hindu family may be impressed with the character of joint family property, if it is voluntarily thrown

by him into the common stock with the intention of abandoning, waiving or surrendering his separate right or exclusive right therein. The act by

which the coparcener throws his separate property into the common stock is a unilateral act. There is no question of either the family rejecting or

objecting to it. By his individual volition he renounces his right in that property and treats it as property of the family. When a coparcener throws his

separate property into the common stock he makes no gift under Chapter VII of the Transfer of Property Act. Thus the two essential requisites for

the conversion are --(1) the existence of coparcenary and (2) the deliberate intention formed by the coparcener owning separate property to treat

the same as joint family property. The intention may manifest itself in any form, such as by a statement in a deposition, an affidavit, execution of a

document as a declaratory deed, or by course of conduct. What transforms the separate property into joint family property is not the outward act

or the conduct or the public declaration of the coparcener owning the separate property, but his intention to so treat it. The property does not

cease to be the separate property and become joint family property by any physical act, but by the owner''s volition and intention to surrender his

exclusive right. No formalities are necessary in order to bring about the change in character. It is voluntary and without consideration in money or

money''s worth. When separate property is converted into joint family property, the property vests in the family as an entity by itself. It will be

inaccurate to say that the father owns the property jointly with the family. These principles are deducible from the decisions in Goli Eswariah Vs.

Commissioner of Gift Tax, Andhra Pradesh, , The Commissioner of Gift Tax, Madras Vs. N.S. Getty Chettiar, , Alladi Kuppuswami Vs.

Controller of Estate Duty, and The Commissioner of Gift Tax, Madras Vs. P. Rangasami Naidu, .

In that case reference was made to Section 27(1) of the Estate Duty Act and also to the two Explanations to Section 2(15) of the said Act on

behalf of the Controller of Estate Duty. This court, after examining the said provisions came to the conclusion that there was no disposition within

the meaning of Section 27(1) or within the two Explanations mentioned above.

To the same effect is an earlier decision of the Kerala High Court in Controller of Estate Duty Vs. Arunachalam Chettiar, . In that case also the

coparcener impressed his self-acquired property with the character of joint family property. The assessment to estate duty, applying Section 10 of

the Act, was the subject of reference to the Kerala High Court. It was held therein that when the deceased impressed his separate property with

the character of joint family property he did not transfer them in favour of any person and that there could, therefore, be no question of any gift, for

no gift could be conceived without there being a transfer. When there was no gift, it was held that Section 10 was not attracted. In taking this view

the Kerala High Court has applied the law laid down by this court in M.K. Stremann, Madras Vs. Commissioner of Income Tax, Madras, and

also the decisions of the Bombay and Andhra Pradesh High Courts which had followed the same view. Following the above decisions we hold that

there was no gift so as to attract Section 10 of the Estate Duty Act when Kalyanasundaram Pillai threw his interest in the properties covered by the

settlement into the common hotchpot. Therefore, the Tribunal rightly held that Section 10 did not apply.

As the applicability of Section 27 and the Explanations to Section 2(15) have been dealt with in the decision of this court in A.N.K. Rajamani

Ammal Vs. Controller of Estate Duty, , we do not think it necessary to cover the same ground again. The applicability of those provisions has also

to be ruled out.

We have now to consider the applicability of Section 11 of the Estate Duty Act. Section 11, in so far as it is material, runs as follows :

(1) Subject to the provisions of this section, where an interest limited to cease on a death has been disposed of or has determined, whether by

surrender, assurance, divesting, forfeiture or in any other manner (except by the expiration of a fixed period at the expiration of which the interest

was limited to cease), whether wholly or partly, and whether for value or not, after becoming an interest in possession, and the disposition or

determination (or any of them if there are more than one) is not excepted by Sub-section (2) then--.....

(b) if, had there been no disposition or determination as aforesaid of that interest and no disposition of any interest expectant upon or subject to

that interest, the property in which the interest subsisted would have been deemed by virtue of Section 7 to be included to a particular extent in the

property passing on the death, the property in which the interest subsisted shall be deemed by virtue of this section to be included to that extent in

the property passing on the death.

(2) Where a disposition or determination of an interest limited to cease on the death was bona fide effected or suffered not less than (two years)

before the death (or, if it was effected or suffered for public charitable purposes, not less than six months before the death), the disposition or

determination shall be excepted by this sub-section-

(a) if bona fide possession and enjoyment of the property in which the interest subsisted was assumed immediately thereafter by the person

becoming entitled by virtue of or upon the disposition or determination and thenceforward retained to the entire exclusion of the person who

immediately before the disposition or determination had the interest and of any benefit to him by contract or otherwise ; or

(b) in the case of a partial determination, if the conditions specified in the preceding paragraph were not satisfied by reason only of the retention or

enjoyment by the deceased of possession of some part of the property, or of some benefit, by virtue of the provisions of the instrument under

which he had the interest:...

The contention for the Controller was that this is a case where an interest limited to cease on the death of Kalyanasundaram Pillai had been

created by the settlement and that the said interest had been disposed of or had determined, at any rate, by surrender when there was blending by

Kalyanasundaram Pillai. The contention was that the exemption contemplated by Section 11(2) under certain circumstances did not apply and that,

therefore, the liability u/s 11(1) was attracted. As contemplated by this provision there was, on the facts herein, interest limited to cease on the

death of Kalyanasundaram Pillai. The first question is whether it has been disposed of in any manner at the time when Kalyanasundaram Pillai

threw his interest into the hotchpot. We have already pointed out that there was no disposition as contemplated by the provisions of the Estate

Duty Act in this case when Kalyanasundaram Pillai impressed his interest in the properties covered by the settlement with the joint family character.

The same consideration would apply with reference to the construction of Section 11(1)(a) in order to examine whether an interest limited to cease

on death had been ""disposed of "".

The next question is ""whether an interest limited to cease on a death has been disposed of or has determined"". There can be no dispute about

the need for a voluntary act on the part of some person in order to show that an interest has been disposed of. The words occurring in the section

has been disposed of"" would, in other words, contemplate a case where there is a conscious act on the part of some person disposing of his

interest. When Parliament has used the expression ""has determined"" after the words ""has been disposed of or"", it would appear that Parliament

contemplated determination of the interest independently of any action on the part of the person having an interest limited to cease on a death, i.e.,

an involuntary cessation of interest. If the idea was to cover a case of a determination of life interest by an act on the part of a person with that

limited interest, then the words ""has been disposed of"" would themselves cover it, or at any rate one would have expected Parliament to use the

words ""has been determined"". It may be that there can be determination of a limited interest either by an act on the part of a person having a limited

interest or by any other circumstances contemplated in the settlement. For instance, ""an interest limited to cease on a death"" can be determined if

the person to whom such an interest was given became a bankrupt (if such a contingency was thought of in the deed), or similarly such an interest

could also come to an end on the basis of a forfeiture clause, say in a case where a property is given to ""A"" subject to his marrying ""B"" or given to

C"" a widow, subject to her remaining unmarried. In such a case, as a result of the marriage not taking place between A and B, or of a remarriage

of C, there would be a forfeiture of the interest. There could also be other cases of determination of the limited interest on account of supervening

circumstances not relat-able to any act on the part of the person owning the interest. In the context of the words used in the provision, we are not

satisfied that the expression ""has determined"" can be construed as ""has been determined"". The section is intended to cover a case where there has

been a disposition of the interest limited to cease on a death by surrender, etc., as a result of an act on the part of a person having an interest and

also a case of termination of the interest by an involuntary act. The expression ""has determined"" does not, in the context, appear to be apt,

however, to cover a case where there has been a determination of an interest, say, by a deliberate act on the part of the person concerned. If the

intention was to cover such a case, then the words ""has been determined"" would also have been used.

Assuming that the expression ""has determined"" comprehends a case where the determination of the limited interest is due to any reason

whatsoever, including some act on the part of a person having such an interest, we may examine whether there has been a surrender of such an

interest on the facts herein. The learned counsel for the Controller did not rest his case on the words ""assurance"", ""divesting"", ""forfeiture"", used in

the provision. He was also conscious of the fact that the words ""or in any other manner"" used in the provision would have to be understood in the

ejusdem generis sense. Therefore, the only aspect canvassed was whether there has been a surrender on the facts herein. The learned counsel

relied in this connection on the following sentence in A.N.K. Rajamani Ammal Vs. Controller of Estate Duty, in the passage extracted already :

The property does not cease to be the separate property and become joint family property by any physical act, but by the owner''s volition and

intention to surrender his exclusive right."" (Underlined by us) It was argued that the words ""to surrender"" in the said passage showed that in a case

where a person threw into common stock his separate property, there was surrender. We have carefully gone through this passage and we do not

understand the learned judge to have laid down that there was a ""surrender"" as known to law in a case where any person threw into common

hotchpot his separate property.

The U. K. counterpart of this provision is Sections 43 of the Finance Act of 1940. The House of Lords had occasion to go into the construction of

Section 43 in Inland Revenue Commissioners v. Holmden [1969] 71 ITR 521 . In that case by a settlement made in 1927, the settlor conveyed a

fund to trustees on trusts, giving them an unfettered discretion, by Clause 2(a), ""during the lives of the settlor and his wife, and the life of the

survivor"", to apply the income for the benefit of a class consisting of his wife, his children and their issue and Clause 2(b) declared trusts as to

income and capital, after the death of the survivor, for the benefit of the children and their issue. The settlor died in 1945. His widow aged about

84 applied to the court under the Variation of Trusts Act, 1958, for an order approving an arrangement agreed to by the trustees and all the adult

members of the class of beneficiaries at a time when her first greatgrandchild was expected. Clause 2 of the arrangement as agreed to by the

parties provided that as from the operative date, viz., January 12, 1960, the 1927 settlement would be subject to the variations set forth in the

application to the court. Clause 3 of the arrangement provided that ""the discretionary trusts of income declared by Clause 2(a) of the 1927

settlement should have effect ""during the life of the widow or the period of 21 years from 12th January, 1960, whichever shall be longer"". In other

words, the discretionary trusts got extended up to 1981 or the death of the widow, whichever was later. The court approved the arrangement on

behalf of the infant and unborn beneficiaries. The widow died on December 22, 1962. Estate duty was claimed on the trust fund u/s 2(1)(b) of the

Finance Act, 1894, corresponding to Section 7 of the Indian Estate Duty Act. The contention was that the 1927 trusts were unaffected by the

1960 order and came to an end on the death of the widow ; or, alternatively, u/s 43 of the Finance Act, 1940, in that the effect of the 1960 order

was to determine or dispose of an interest limited to cease on the death of the widow. It was held that Section 43 did not impose a liability to

estate duty, since none of the beneficiaries affected by the arrangement lost anything thereby and the disposal was not in favour of any other

person. In construing Section 43 the unanimous view of the House was that in the context of the section what was contemplated was a disposition

or determination in favour of some other party. For example, Lord Hodson at page 540 observed as follows :

Assuming that there is a relevant interest the whole language of Subsection (1) of Section 43 is consistent with a shifting of the interest to another

person for the benefit of that other, rather than with the adding to that interest some additional benefit derived from the same source."" (Underlined

by us).

There is no determination of interest here in favour of some other person to the exclusion of the deceased. A Hindu family is not like a

corporation which is independent of its members.

In Earl Jowitt''s Dictionary of English Law, the meaning of the word ""determine"" is shown as ""to come to an end, as, e.g., as estate or interest

in land"". There must be a cessation of an interest. In the present case there is no question of any cessation of interest. No coparcener is entitled to

exclusive possession of any part of the property of a joint family. There is community of interest and unity of possession between all the members

of the family. See Katama Natchiar v. Rajah of Sivaganga [1863] 9 MIA 539 . In a case involving consideration of the question whether a person

taking a smaller allotment on partition of a Hindu undivided family was liable to gift-tax under the Gift-tax Act, the Supreme Court explained the

legal position of a member of a Hindu undivided family in The Commissioner of Gift Tax, Madras Vs. N.S. Getty Chettiar, , as follows:

.....according to the true notion of an undivided Hindu family, no individual member of that family, whilst it remains undivided, can predicate of the

joint and undivided property, that he, that particular member, has a certain definite share, namely, a third or a fourth. All the coparceners in a Hindu

joint family are the joint owners of the properties of the family. So long as the family remains joint, no coparcener can predicate what his share in

the joint family is. His share gets determined only, when there is a division of status or a division by metes and bounds. Therefore, it is not correct

to assume that a coparcener in a Hindu joint family has any definite share in the family property, before its division.

The meaning of the word ""surrender"" has been given in Earl Jowitt''s Dictionary of English Law as follows:

An assurance restoring or yielding up an estate, the operative verbs being ''surrender and yield up''. The term is usually applied to the giving up of

a lease before its expiration : it generally means the giving up of a lesser estate to a greater ; a release is the giving up of a greater to a lesser

interest, enlarging the latter. The effect of a surrender is to pass and merge the estate of the surrenderor to, and into, that of the surrenderee."" There

is no surrenderee in the present case and there is no such merging of estate in the hands of the surrenderee to construe the act of throwing into

common stock as ""surrender "".

Therefore, when Kalayanasundaram Pillai threw into the hotchpot his interest in the properties covered by the settlement, he had not put an

end to the life interest as such, nor had the interests of any one got accelerated or enlarged. He had only converted the asset into a joint family

asset. The result of the conversion is not to define or limit his interest in the properties with reference to any fraction of what he previously had. His

right to the interest which was so impressed could not be described in any fractional terms. It would not strictly be proper to say on the facts herein

that there has been a diminution of his interest in his properties. For instance, in a partition between him and his sons, the entire properties in which

he originally obtained a life interest could well have been allotted to him, since the family admittedly had other properties. Similarly, in a given case,

the person who impressed the individual interest with the joint family character might become a sole surviving coparcener so that he became

entitled to the whole of the family properties. Therefore, it is difficult to say on the facts herein that there was a determination of his interest in the

sense that he lost the whole of the interest in favour of another person or that there was a kind of partial surrender in the sense that his interest

became limited to any particular fraction of the totality of the interest. We are, therefore, of the opinion that Section 11 is not also satisfied on the

facts herein. The Tribunal is right in holding that the assessment based on Section 11 cannot also stand. We, therefore, answer the question

referred to us in the affirmative and in favour of the accountable person, who will be entitled to her costs. Counsel''s fee Rs. 500.