Raj Kumar Goyal vs Controller of Estate Duty

M.C. Agarwal, J.—Two cases shown in the cause list as Estate Duty References Nos. 53 of 1979 and 54 of 1979 were listed for hearing but when they were taken up for hearing only one statement of case was available though there were two files bearing the above case numbers and two order sheets. On the statement of case that is available firstly ITR No. 53 of 1979 seems to have been written which has been changed to E. D. R. No. 54 of 1979. The paper book that was used at the hearing showed the number of the case E.D.R. No. 53 of 1979. No other paper book was available. We asked the reader to enquire from the office if there is any other record and he reported that no other record was available. In the institution register R. A. Nos. 1001 and 1002 are mentioned against the entry at Serial No. 53 and R. A. Nos. 921 to 923 have been mentioned against the entry at Serial No. 54. In our view the entry at Serial No. 54 was wrongly made as there was no separate reference in respect of R. A. Nos. 921 to 923. We, therefore, treat this case as E. D. R. No. 53 of 1979 and proceed to dispose of the same accordingly.

This is a consolidated reference by the Income Tax Appellate Tribunal, Delhi Bench "D", Delhi, arising out of an order dated August 6, 1977, passed by the said Tribunal in Estate Duty Appeals Nos. 4, 8 and 9 (Delhi) of 1976-77 and the reference has been made at the instance of the account- able person, Raj Kumar Goyal, as well as the Controller of Estate Duty, Meerut, who had made Reference Applications Nos. 1001 and 1002 (Delhi) of 1977-78 and Reference Applications Nos. 921, 922 and 923 (Delhi) of 1977-78, respectively.

At the instance of the accountable person, the following questions have been referred for the opinion of this court :

"1. Whether, on the facts and in the circumstances of the case, Section 34(1)(c) became inoperative and ineffective in view of the decision of the Madras High Court in V. Devaki Ammal v. Asst. CED [1975] 91 ITR 24, in face of the contrary decisions of the Andhra Pradesh High Court in N. V. Somaraju v. Government of India 1974 ITR 97 and of the Punjab and Haryana High Court in Hari Ram Vs. Assistant Controller of Estate Duty-cum-Income Tax and Others, ?

Whether, on the facts and circumstances of the case and having regard to the provisions of the proviso and the Explanation I of Section 6 of the Hindu Succession Act, the Tribunal was justified in holding that the interest of the lineal descendants of the deceased in the coparcenary property was liable to be aggregated for rate purposes u/s 34(1)(c) of the Estate Duty Act, 1953 ?

Whether, on the facts and in the circumstances of the case, the estate duty chargeable u/s 5 of the Estate Duty Act, 1953, was deductible in computing the principal value of the estate of the deceased?"

At the instance of the Controller of Estate Duty, the following questions have been referred :

"1. Whether, on the facts and in the circumstances of the case, the two firms, namely, Jugal Kishore Jai Prakash and Jai Prakash Goyal and Bros, and Co. had any goodwill ?

Whether, on the facts and in the circumstances of the case, the lineal descendants of the deceased had any share in the goodwill of the firm, Himpine Industries, and the same was includible in the principal value of the estate of the deceased for rate purposes of Section 34(1)(c) of the Estate Duty Act ?''

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the marriage expenses of the two unmarried daughters of the deceased should be excluded in determining his 1/6th share in the Hindu undivided family properties which passed on his death ?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the credit balance in the account of Shri Jugal Kishore was the property of the Hindu undivided family of the deceased and his brother, Shri Baij Nath, and only 1/6th share in 1/2 share in the sum of Rs. 18,447 should be included in the principal estate of the deceased ?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the annuity deposit of Rs. 12,700 was the property of the Hindu undivided family of the deceased and only l/6th share therein was liable to be included in the principal value of the estate of the deceased ?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 82,144 standing to the credit of Smt. Champa Devi, mother of the deceased, reverted to the two Hindu undivided families of the deceased and his brother, Baij Nath, and only 1/6th share of 1/2 share of Rs. 82,144 was includible in the estate of the deceased ?"

We have heard Sri P. K. Mishra, advocate holding brief from Sri Bharat Ji Agarwal, counsel for the assessee, and Sri Shambhu Chopra, learned standing counsel, for the Controller-respondent.

The matter relates to the levy of estate duty on the death of one Jai Prakash Goyal who died on May 22, 1973, leaving behind a widow, four sons and two daughters. He was admittedly a member of the Hindu undivided family and, therefore, the Assessing Officer aggregated the value of the shares of the lineal descendants of the deceased for determining the rate of estate duty to be paid on the property on the death of the deceased. It was contended on behalf of the accountable person that in view of a decision of the Madras High Court in V. Devaki Ammal Vs. Assistant Controller of Estate Duty, , by which Section 34(1)(c) of the Estate Duty Act was held to be discriminatory and violative of Article 14 of the Constitution of India, the value of the share of the lineal descendants cannot be aggregated for determining the rate of duty. The Tribunal did not accept this contention because of contrary decisions of the Anclhra Pradesh High Court and Punjab and Haryana High Court. The controversy has since been settled by the Supreme Court in Asstt. Collector of Estate Duty, Madras Vs. V. Devaki Ammal (Smt), Madras, , by which the aforesaid judgment of the Madras High Court has been upset and the provisions of Section 34(1)(c) have been held to be valid. Therefore, in view of the aforesaid judgment of the Supreme Court, question No. 1 referred by the Tribunal at the instance of the accountable person is answered by saying that Section 34(1)(c) was operative and effective.

The other contention of the accountable person was that in view of the proviso and Explanation 1 to Section 6 of the Hindu Succession Act, 1956, the share of the deceased in the coparcenary property stood partitioned and, therefore, what devolved on the heir was not a coparcenary interest in the joint property of a Hindu family and, therefore, Section 34(1)(c) was not applicable. This contention too was negatived observing that the proviso and Explanation 1 to Section 6 wore limited to the determination of the interest that would devolve and these provisions did not bring about the actual partition. The proviso to Section 6 stales that if the deceased had left him surviving a female relative specified in class I of the Schedule or a male relative specified in that class who claims through such female relative, the Interest of the deceased in the Mitakshara coparcenary property shall devolve by testamentary or intestate succession, as the case may be, under this Act and not by survivorship. Explanation 1 then says that for the purposes of this section, the interest of a Hindu Mitakshara coparcener shall be deemed to be the share in the property that would have been allotted to him if a partition of the property had taken place immediately before his death, irrespective of whether he was entitled to claim partition or not. These provisions came up for consideration before the Supreme Court in Gurupad Khandappa Magdum Vs. Hirabai Khandappa Magdum and Others, in which it was observed as under (page 447) :

"In order to ascertain the share of heirs in the property of a deceased coparcener it is necessary in the very nature of things, and as the very first step, to ascertain the share of the deceased in the coparcenary property. For, by doing that alone can one determine the extent of the claimant''s share. Explanation I to Section 6 resorts to the simple expedient, undoubtedly fictional, that the interest of a Hindu Mitakshara coparcener ''shall be deemed to be'' the share in the property that would have been allotted to him if a partition of that property had taken place immediately before his death. What is, therefore, required to be assumed is that a partition had in fact taken place between the deceased and his coparceners immediately before his death. That assumption, once made, is irrevocable. In other words, the assumption having been made once for the purpose of ascertaining the share of the deceased in the coparcenary property, one cannot go back on that assumption and ascertain the share of the heirs without reference to it. The assumption which the statute requires to be made that a partition had in fact taken place must permeate the entire process of ascertainment of the ultimate share of the heirs, through all its stages. To make the assumption at the initial stage for the limited purpose of ascertaining the share of the deceased and then to ignore it for calculating the quantum of the share of the heirs is truly to permit one''s imagination to boggle. All the consequences which flow from a real partition have to be logically worked out, which means that the share of the heirs must be ascertained on the basis that they had separated from one another and had received a share in the partition which had taken place during the lifetime of the deceased. The allotment of this share is not a processual step devised merely for the purpose of working out some other conclusion. It has to be treated and accepted as a concrete reality, something that cannot be recalled just as a share allotted to a coparcener in an actual partition cannot generally be recalled. The inevitable corollary of this position is that the heir will get his or her share in the interest which the deceased had in the coparcenary property at the time of his death, in addition to the share which he or she received or must be deemed to have received in the notional partition."

The aforesaid observations were explained by the Supreme Court in State of Maharashtra Vs. Narayan Rao Sham Rao Deshmukh and Others, , by observing as under (p. 330) :

"10. We have carefully considered the above decision and we feel that this case has to be treated as an authority for the position that when a female member who inherits an interest in the joint family property u/s 6 of the Act files a suit for partition expressing her willingness to go out of the family she would be entitled to get both the interest she has inherited and the share which would have been notionally allotted to her, as stated in Explanation I to Section 6 of the Act. But it cannot be an authority for the proposition that she ceases to be a member of the family on the death of a male member of the family whose interest in the family property devolves on her without her volition to separate herself from the family. A legal fiction should no doubt ordinarily be carried to its logical end to carry out the purposes for which it is enacted but it cannot be carried beyond that. It is no doubt true that the right of a female heir to the interest inherited by her in the family property gets fixed on the death of a male member u/s 6 of the Act but she cannot be treated as having ceased to be a member of the family without her volition as otherwise it will lead to strange results which could not have been in the contemplation of Parliament when it enacted that provision and which might also not be in the interest of such female heirs. To illustrate, if what is being asserted is accepted as correct it may result in the wife automatically being separated from her husband when one of her sons dies leaving her behind as his heir. Such a result does not follow from the language of the statute. In such an event she should have the option to separate herself or to continue in the family as long as she wishes as its member though she has acquired an indefeasible interest in a specific share of the family property which would remain undiminished whatever may be the subsequent changes in the composition of the membership of the family. As already observed the ownership of a definite share in the family property by a person need not be treated as a factor which would militate against his being a member of a family. We have already noticed that in the case of a Dayabhaga family, which recognises unity of possession but not community of interest in the family properties amongst its members, the members thereof do constitute a family. That might also be the case of families of persons who are not Hindus. In the instant case the theory that there was a family settlement is not pressed before us. There was no action taken by either of the two females concerned in the case to become divided from the remaining members of the family. It should, therefore, be held that notwithstanding the death of Sham Rao the remaining members of the family continued to hold the family properties together though the individual interest of the female members thereof in the family properties had become fixed".

It, therefore, means that the notional partition contemplated by Explanation I to Section 6 does not bring about an actual partition and, therefore, what devolved on the legal heirs on the death of Jai Prakash Goyal was his share in the coparcenary property determined immediately before his death. The asset being a share in the coparcenary, Section 34(1)(c) was attracted and we, therefore, answer question No. 2 in the affirmative, i.e., in favour of the Controller and against the accountable person.

The third question referred by the Tribunal at the instance of the accountable person deals with his contention that estate duty chargeable u/s 5 of the Estate Duty Act should be deducted in computing the principal value of the estate of the deceased. This controversy has been set at rest by the Supreme Court in Nawab Mir Barkat Ali Khan Bahadur Vs. Controller of Estate Duty, , in which it has been held that the estate duty leviable is not deductible from the value of the estate. In view of this judgment, question No. 3 is answered accordingly holding that the estate duty chargeable u/s 5 of the Act is not deductible in computing the principal value of the estate duty.

Question No. 1 referred at the instance of the Controller is whether the two firms, namely, Jugal Kishore Jai Prakash and Jai Prakash. Goyal and Bros, and Co. had any goodwill. The Tribunal has for the reasons mentioned in its order held that the two firms aforesaid had no goodwill. This is a finding of fact and, therefore, question No. 1 does not raise any legal controversy and we decline to answer the same.

As regards question No. 2, the same also raises a factual controversy. The Tribunal has held that Jai Prakash Goyal deceased was a partner in the firm, Him Pine Industries, in his individual capacity and there was no coparcenary interest involved in the share. This finding of fact is not challenged and, therefore, we answer question No. 2 holding that the lineal descendants of the deceased had no share in the goodwill of the firm, Him Pine Industries and nothing was includible in the estate of the deceased u/s 34(1)(c) of the Estate Duty Act on that account.

The third question referred at the instance of the Controller is about a deduction allowed for the marriage expenses of the two unmarried daughters of the deceased for determining the 1/6th share of the deceased in the Hindu undivided family properties which passed on his death. u/s 44 of the Estate Duty Act, 1953, the value of debts and incumbrances has to be allowed as a deduction in determining the chargeable value of the estate. The question, therefore, is whether the expenses that might be incurred on the marriage of the two daughters that remained unmarried at the time of the death of Jai Prakash Goyal could be treated as a debt or an incumbrance. The Tribunal has placed reliance on Article 440 in Mulla''s Commentary on Hindu Law and observed that the right to maintenance arose out of the fact that the deceased had no right to any share in case of partition. Article 440 in the said book deals with the law as it stood before the codification of Hindu law. The commentary says that when there is no joint family property in the hands of the father, there is no legal obligation on his part to marry his daughter and bear the expenses of marriage. This legal position does not exist after the enactment of the Hindu Adoptions and Maintenance Act. Section 3(b) defines "maintenance" to include, in the case of an unmarried daughter, also the reasonable expenses of and incident to her marriage. Maintenance also includes provision for food, clothing, residence education and medical attendance and treatment. Section 18 of the Act provides that a Hindu wife shall be entitled to be maintained by her husband during her lifetime. Section 20(3) creates an obligation on a person to maintain his unmarried daughter if she is unable to maintain herself out of her own earnings or property and Section 22(1) provides that the heirs of the deceased Hindu are bound to maintain the dependents of the deceased out of the estate inherited by them from the deceased. Section 23 says that it shall be in the discretion of the court to determine whether any, and if so what, maintenance shall be awarded under the provisions of this Act. Thus, while there is an obligation on a father to maintain his unmarried daughter, the obligation does not amount to a debt or an incumbrance as contemplated in Section 44 of the Act. The obligation to bear the marriage expenses is a highly contingent and inchoate one. The obligation is dependent on the inability of the minor to maintain himself or herself out of her own property. The daughter may not marry at all or may not survive to marriageable age. Therefore, unless the right to maintenance is exercised and is converted into a debt by an agreement or a court decree, the mere legal obligation which is highly contingent cannot in our view amount to a debt or an incumbrance on the estate of the deceased. In CED v. Dr. B. Kamalamma 1984 ITR 454 , the Madras High Court held that the marriage expenses of an unmarried daughter are allowable as a deduction in determining the value of the estate of the deceased. This decision was, however, not followed in a later judgment in G. Shenbagammal Vs. Controller of Estate Duty, , in which it was held that the liability of the husband to maintain his wife does not by itself create any charge on his property and, therefore, no deduction can be allowed on that account. A similar view was taken by the Andhra Pradesh High Court in Controller of Estate Duty Vs. Smt. P. Leelavathamma, . Our view finds support from the aforesaid two decisions. We may also mention that the daughters succeeded to the estate of the deceased as heirs of class I by virtue of Section 8 of the Hindu Succession Act. Therefore, they became the owners of the properties so inherited and there is nothing to show that the property so inherited by them was insufficient to meet the expenses of their marriage. In our view, therefore, the estimated marriage expenses of the two unmarried daughters cannot be allowed as a deduction in determining the value of the estate of the deceased. We, therefore, answer question No. 3 in favour of the Controller of Estate Duty and against the accountable person.

Now we come to question No. 4. The controversy is whether the credit balance in the account of Sri Jugal Kishore, the father of the deceased, was the property of the Hindu undivided family of the deceased and his brother, Sri Baij Nath, or not. The Tribunal has held that the said amount was ancestral property of the deceased and was, therefore the property of the Hindu undivided family. This is basically a finding of fact and no reason has been shown to us for taking a contrary view. Question No. 4 is, therefore, answered in the affirmative, i.e., against the Controller of Estate Duty and in favour of the accountable person.

Similar is the situation regarding the controversy raised in question No. 5. This annuity deposit of Rs. 12,700 was also made by Sri Jugal Kishore the father of the deceased and for reasons already given in relation to question No. 4, we answer this question too in the affirmative, i.e., in favour of the accountable person and against the Controller of Estate Duty.

Now we come to question No. 6. A sum of Rs. 82,144 stood in an account standing in the name of Smt. Champa Devi, the mother of the deceased, in the books of Jugal Kishore Jai Prakash. Smt. Champa Devi had died long ago. The Appellate Controller of Estate Duty had held that the said amount was carved out of the Hindu undivided family funds of Sri Jugal Kishore. This was not disputed before the Tribunal and, therefore, it held that the amount reverted to the Hindu undivided family on the death of Smt. Champa Devi. There is nothing to show whether she died after the commencement of the Hindu Succession Act, 1956, so as to attract Section 14 thereof. The finding by the Tribunal that the amount in question was carved out of the Hindu undivided family funds of Sri Jugal Kishore is a very vague finding as the mode of carving out is not mentioned. Whether the amount was given to her as share in a partition or was given to her only for her maintenance to belong to her exclusively as her stridhan has not been clarified. As is mentioned in paragraph 20 of the statement of the case the contention of the accountable person was that the amount in question was the stridhan of Smt. Champa Devi and even if the amount came from the Hindu undivided family funds the character of the amount as the stridhan of the lady has''not been displaced. Patently, Smt. Champa Devi died before the deceased Jai Prakash Goyal. On her death, therefore, the amount devolved on her legal heirs, i.e., her two sons, Jai Prakash Goyal and Baij Nath, in equal shares and, therefore, half of the same, i.e., Rs. 41.057, was includible in the principal value of the estate of the deceased. We, therefore, answer question No. 6 in the negative and hold that the amount of Rs. 82,144 did not revert to the Hindu undivided family on the death of Smt. Champa Devi and was inherited by her two sons, namely, the deceased Jai Prakash Goyal and Baij Nath, and half of the said amount was includible in the principal value of the deceased for levy of estate duty.

All the aforesaid questions stand answered accordingly.

An authenticated copy of this judgment be transmitted to the Tribunal in accordance with law.