Controller of Estate Duty, Gujarat Vs.
Kantilal Trikamlal  INSC 155 (19 July 1976)
KHANNA, HANS RAJ GOSWAMI, P.K.
CITATION: 1976 AIR 1935 1977 SCR (1) 9 1976
SCC (4) 643
CITATOR INFO :
R 1989 SC 611 (6) RF 1992 SC 224 (11)
Estate Duty Act (34 of 1953), ss. 2(15), 5, 9
and 27--Scope of.
'Other rights', in Explanation 2 to s. 2(15),
Interpretation of statutes--Estate Duty Act
and other taxing statutes-Principles.
Practice--Costs in tax matters when there is
conflict among High Courts.
Section 5 of the Estate Duty Act, 1953,
authorises the levy of duty upon all property which passes on the death of a
person. Section 9 provides that property taken under a disposition made by the
deceased purporting to operate as an immediate gift whether by way of transfer,
delivery etc., 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.
Explanation 2 to s. 2(15), which defines 'property', provides that the
extinguishment at the expense of the deceased of a debt or other rights shall
be deemed to have been a disposition made by the deceased in favour of the
person for whose benefit the debt or right was extinguished and in relation to
such a disposition the expression 'property' shall include the benefit
conferred by the extinguishment of a debt or right. Section 27 deems all
dispositions made by the deceased person in favour of his relations as gifts,
for the purposes of the Act, unless such disposition was made for full
consideration or the deceased was concerned in a fiduciary capacity with the
A member of a joint Hindu family, within two
years before his death entered into a partition of family properties bona fide,
not as a colourable or sham transaction, whereby, he received towards his share
an allotment substantially lower in value than would be his legal entitlement,
with a view to relieve himself of a part of his wealth and 7 3 who is a
relative within the meaning of the Act.
HELD: The relative, as the accountable person
under the Act, is liable to pay estate duty, on the difference between the
share that the deceased was legally entitled to and the share that the deceased
actually took, that is, to the extent of the benefit received by the
accountable person. [14 G, 12 .A.] (1) Death duties are imposed on richer
estates, the fiscal policy being, (a) collection of revenue, and (b) reduction
of the quantum of inheritance on a progressive basis towards equalisation by
diminishing glaring disparities of wealth. Therefore, the Act uses words of the
widest import, legal fictions and deeming devices to. rope in all kinds of dealings
with property for inadequate or no consideration within the statutory proximity
of death. If the words, however cannot apply to a particular species of
property, courts. cannot supply words to fulfill the unexpressed wishes of the
legislature. In a taxing statute one has to look merely at what is clearly
said. There is no room for any intendment. There is no equity about a tax. [13
D] (2) The definition of 'property' in s. 2(15) has to inform and must be read
along with ss. 9 and 27. It is not a substantive rule of law operative by
itself. Similarly, the expression 'disposition' in s. 9 must be read with the
definition in Explanation 2 to s. 2(15) since that is the whole purpose of a
'deeming provision' is the shape of a definition. [17 B-C] 3--1003 SC1/76 10
(3) The definition of 'property' in s. 2(15) is not exhaustive but only
inclusive and the supplementary operation of Explanation 2 takes in what is not
conventionally regarded as 'disposition'. The expression "other
right" in the Explanation is of the widest import and cannot be read
ejusdem generis with 'debt'. The process of extinguishment of a right and the
creation of a benefit thereby is statutorily deemed to be a disposition in the
nature of a transfer. Therefore, the definition of 'disposition' covers the
diminution in the share taken by one coparcener and augmentation of the share
taken by the other and impresses the stamp of property on this process by the
deeming provision. [18 F-G; 19 C] (4) The case of Getti Chettiar [(1971) 82 ITR
599] dealt with the expression 'transfer of property' in s. 2(xxiv) of the Gift
Tax Act, 1958. This Court held that 'transaction' 7 3 and it must be a
'transfer' of property; and that since a partition is not a transfer in the
ordinary sense of law, a mere partition with unequal allotments cannot be
covered by s. 2(xxiv). But the language of Explanation 2 to s. 2(15) of the Estate
Duty Act is different and wider and so the reasoning of this case cannot
control its amplitude. [20 C] (5) This Court in Kancharla Kesava Rao [(1973) 89
ITR 261] placed on 'disposition' in s. 24 of the Estate Duty Act the same
interpretation as was put in the case of Getti Chettiar. But, whatever might be
the interpretation of 'disposition' in s. 24, under s. 27, a disposition in
favour of a relative not for full consideration, shall be treated as a gift and
under s. 9 if the disposition made by the deceased is more than 2 years before
death, the property covered thereby shall not pass on the death unless it shaH:
not have been bona fide to say, even if the
transaction were more than 2 years before the death, if it were entered into in
bad faith, estate duty may Still attach to that property.
But so far as dispositions made within two
years of the death of the deceased are concerned there is no question of mala
fides or, bona fides, and all such transactions would be liable to estate duty.
[22 G; 23 F-G] Valliammi Achi  73 ITR 806, approved.
In re. Stration's Disclaimer  34 ITR 27
Grimwade v. Federal Commissioner of Taxation
 78 C.L.R. 199 referred to.
[Principles for awarding costs in matters of
general public importance where there is conflict in the High Courtís on a
question of Law, reiterated.]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1095 of 1970. and 1677 of 1973.
From the Judgment and Order dated
26/27-9-1968 of the Gujarat High Court in Estate Duty Reference No. 3/67.
S.C. Manchanda and R.N. Sachthey, for the
Appellant (In CA 1095/70).
K.B. Kazi and 1. N. Shroff, for the
Respondents in CA 1095/70.
S.T. Desai and J. Ramamurthi, for the
S.T. Desai and J. Ramamurthi, for the
Appellants in CA 1677/73.
S.P. Nayar, for the Respondent in CA 1677/73.
73 KRISHNA IYER, J. Is it permissible for
judges to speculate on the philosophical edge of a human problem hidden by the
litigative screen before settling down to examine its forensic facet ? If it
is, we may make an observation about the question posed in this case without
pejorative implications. For many men in advancing age arrives a stage in life
when to be or not to be stampedes them into doing things 11 dubious before God
and evasive before Caesar--and we have a hunch both the appeals before us smack
of such a disposition as will be evident when the narration of facts and discussion
of law unfold the story.
A brief statement of the circumstances
leading to the single critical legal issue, proliferating into a plurality of
points, may now be made. We begin with the facts in the Gujarat Appeal
[Kantilal Trikamlal(1)] since the Madras Appeal [Ranganayaki Ammal(2)] raises
virtually the same question, is plainer on the facts and may conveniently be
narrated immediately after. To appreciate the complex of facts we choose to
enunciate the principal proposition of law canvassed before us by the Revenue
in the two appeals.
Does a relinquishment by a decedent of a
slice of a share or a partition of joint property in such manner that he takes
less than his due effected within two years of his death with a view to relieve
himself of a part of his wealth and pro tanto to benefit the accountable
person, a near relation have to suffer estate duty under the Estate Duty Act,
1953 (for brevity, the Act) ? One Trikamlal Vadilal (hereinafter referred to as
the deceased) and his son Kantilal (referred to later as the accountable
person) constituted a Hindu undivided family.
They continued as members of a joint and
undivided Hindu family until November 16, 1953 when an instrument styled
'release deed' was executed by and between the deceased and Kantilal.
Considerable controversy between the parties turns on the interpretation of
this instrument and it will therefore be necessary for us to refer to its terms
briefly later. Suffice it to state for the present that, under this instrument,
a sum of rupees one lakh out of the joint family properties was taken by the
deceased in lieu of his share in the joint family properties and he
relinquished his interest in the remaining properties of the joint family which
were declared to belong to Kantilal as his sole and absolute properties and
Kantilal also, in his turn, relinquished his interest in the amount of rupees one
lakh given to the deceased and declared that the deceased was the sole and
absolute owner of the said amount. Within two years from 7 3 died and on his
death the question arose as to what was the estate duty chargeable on his
estate. Kantilal, who is the accountable person before us, filed a return
showing the status of the deceased as individual and the principal value of the
estate as Rs. 1,0.6,724. The Assistant Controller was, however, of the view
that the instrument dated November 16, 1953 operated as relinquishment by the
deceased of his interest in the joint properties in favour of Kantilal and that
the consideration of rupees one lakh for which the one-half share of the
deceased in the joint family properties at the date of the said instrument was
3,44,058 and there was, therefore, a
disposition by the deceased in favour of a relative for partial consideration
and it was, accordingly by reason of s. 27, sub-s. (1 ), liable to be treated
as a gift for the purpose of s. 9, sub-s. (1), and its value, viz., Rs.
3,44,058 after deducting Rs. 1,06,724 (being the amount received by the
deceased together with interest) was includable in the principal value of the
estate of the (1) (1969) I.T.R. 353. (2) (1973) 88 I.T.R. 96.
12 deceased. The Assistant Controller,
accordingly, included a sum of Rs. 2,37,334/being the difference between Rs.
3,44,058/and Rs. 1,06,724/in the principal
value of the estate of the deceased.
On appeal by the accountable person, the
assessment made by the Assistant Controller was confirmed by the Central Board
of Revenue. Though the main ground on which the Central Board based its
decision was the same as that which found favour with the Assistant Controller,
viz., that under the instrument there was a disposition by the deceased of his
interest in the joint family properties in favour of Kantilal for partial
consideration and it was therefore by reason of s. 27, sub-s. (1 ), liable to
be treated as a gift for the purpose of s. 9, sub-s. (1). Another argument also
appealed to the Central Board and that was one based on s. 2(15), Explanation
2. The 'Board held that, in any event, under the instrument there was
extinguishment at the expense of the deceased of his interest in the joint
family properties and there was therefore a deemed disposition by the deceased
of the benefit which accrued to Kantilal as a result of such extinguishment and
the charge to estate duty was accordingly attracted under s. 9, sub-s. (1),
read with s. 27, sub-s. (1).
On reference, the High Court held in favour
of the assessee and the Revenue has appealed hopefully, relying on a ruling of
the Madras High Court which itself is the subject matter of the sister appeal.
Here the tables were 7 3 High Court as contrary to the ratio of this Court's pronouncements.
Were it so, it were bad; but judgments, even of the summit court, are not
scriptural absolutes but relative reasonings and there is in them, read as a
human whole, more than meets the legal eye which looks at helpful lines here
and there. We will examine them closely, especially because several High Courts
are split on the construction of 'disposition' in the Act, and seek to resolve
the conflict of views and values. Behind everyone's attitude to tax is an
unspoken value judgment! Before we move into the arena of argument we may
silhouette the facts of the Madras case. The deceased, Bheema Naidu, and his
predeceased son's widow and children constituted a Hindu undivided family. A
little within the two-year pre-mortem line drawn by the Act he effected a
partition and turnnig abnegator took a smaller share instead of his legal half,
benefiting the others to the extent of the difference. This difference was
taxed as disposition of property under the Act and fiscal hierarchy was upheld
by the High Court. The assessees assail that decision before us.
The forensic focus has been rightly turned on
the interpretation of the critical provisions in the Act bearing on this
controversy. The social design, the legislative intent and the grammar of
statutory construction visa vis the Act may have to be briefly surveyed while
studying the language of the text and the impact of the context.
The scheme and spirit of the Act need to be
understood first, for every social legislation has a personality and taxing
statute a fiscal 13 philosophy without a feel of which a correct perspective to
gather the intent and effect of the separate clauses cannot be gained. Over
four centuries ago Plowden said: "Each law consists of two parts viz., of
body and soul; the letter of the law is the body of the law and the sense and
reason of the law is the soul of the law." It is well known that death
duties imposed on richer estates have a socialistic savour being motivated by
the State's policy of paring of unearned accumulation of inheritances and of
diminishing glaring disparities of wealth. This comprehensive but slow egalitarian
purpose fulfils itself fully only when it operates on property at death and
near death; nor is there any rational ground to save some types of disposition
or subtle transference of wealth from exigibility, having due regard to the
plain language of estate duty measures. The broad object also includes
inhibition of dispositions, unsupported by reasonable consideration, made on
the eve of death or within 7 3 or manoeuvres, though sincere, being manifestly
likely to defeat death duties posthumously flowing from properties covered
thereby. The fiscal policy is dual: (i) the collection of revenue; and (ii)
reduction of the quantum of inheritance on a progressive basis directed towards
a gentle process of equalisation. The draftsman's efforts have been exerted to
use words of the widest import and, where the traditional use of words is
likely to limit, to use legal fictions, by deeming devices, to expand the
semantics thereof and to rope in all kinds of dealings with property for
inadequate or no consideration within the statutory proximity of death. The
sweep of the sections which will be presently set out must therefore be
informed by the language actually used by the legislature. Of course, if the
words cannot apply to any recondite species of property, courts cannot supply
new logos or invent unnatural sense to words to fulfill the unexpressed and
unsatiated wishes of the legislature. Law, to a large extent, lives in the
language even if it expands with the spirit of the statute.
It is good to remember that the Indian Act
has some English genetic touch, being largely based on the English Finance Acts
of 1854 Onwards. This historical factor has current relevance for one reason.
'We may usefully refer to, although we may not be blindly bound by, English
authorities under the corresponding statute and both sides have sought
trans-Atlantic light on this footing.
A skletal projection of the Act to the extent
that concerns us here may now be made. This Act exacts estate duty. The
charging section (s. 5) authorizes the levy of a duty upon all property which
passes on the death of a person dying after the commencement of the Act. Two
questions immediately arise. What is property as envisaged in the charging
section ? When does property pass on the death of a person ? The answer to the
first question is furnished in an inclusive definition of 'property' in s.
2(15). It is a wide-ranging definition supplemented by two expansive
definitions. Of immediate moment is Explanation 2 which reads:
"Explanation 2.--The extinguishment at
the expense of the deceased of a debt or other rights shall be deemed to have
been a disposition made by the deceased in favour of the 14 person for whose
benefit the debt or fight was extinguished, and in relation to such a
disposition the expression 'property' shall include the benefit conferred by
the extinguishment of a debt or 7 3 What property passes on the death of a person
is indicated in an inclusive definition set out in s.
2(15). It covers property passing either
immediately on the death or after any interval and 'on the death' includes 'at
a period ascertainable only by reference to the death'. A glance at ss. 9 and
27 gives more comprehension. Section 9, among other provisions, introduces a
legal fiction and since the meaning and implication of this section has been
the subject of some disputation we had better allow the provision, in the first
instance, to speak for itself:
"9. Gifts within a certain period before
death :-(1 ) Property taken under a disposition made by the deceased purporting
to operate as an immediate gift inter vivos whether by way of transfer,
delivery, declaration of trust, settlement upon persons in succession, or
otherwise, 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." Both the
appeals deal with deceased persons who are members of joint Hindu families and
the subject matter of the disposition was linked up with their share in the HUF
(acronymically speaking). For this reason our attention has to be rivetted to
ss. 7 and 39 which resolve a likely difficulty in ascertaining the interest in
property which' passes on the death of a deceassed coparcener in the joint
family property the pristine rule of Hindu law being his share lapses in favour
of the survivors and is not a descendible estate or a predictable fraction.
Sections 7 and 39, by a deeming process, circumvent this contretemps and
crystallize a clear share in the coparcener at the point immediately before
death. Had the properties of the coparcener been partitioned immediately before
the death what share in the joint family property would have been allowed to
the deceased represents the principal value of such share for the purposes of
computation of death duty. Section 27 is a strategic provision which deems as a
gift all dispositions made by the deceased person in favour of his relations
unless such disposition was made for full consideration or the deceased was
concerned in a fiduciary capacity with the property. 'Relative' means, in this
context, near relations set out in s. 27(2) and it is sufficient, for our purpose,
to know that in both the appeals the accounting persons are relatives failing
within the statutory compass.
One more provision is pertinent to our
enquiry and that deals with gifts within a certain period before death.
While there are other provisions dealing with
gifts before 7 3 already been read and will later be explained.
Now to the boxing ring. The bout has been
fought over the import and amplitude of 'property' as widened by s.
2(15), especially Explanation 2 thereto. Sri
S. T. Desai, appearing for the accountable per15 son in the Madras case, and
Shri Manchanda, arguing for the Exchequer in the Gujarat case, have levelled
multi-pointed attacks, but the crucial issue which is decisive of both cases is
the same. What is 'property' for the purpose of this fiscal law ? Is it a
misfortune for any legal system that a battle of semantics, where able judges
and erudite advocates fundamentally disagree on meanings of words pivotal to
the very levy, should be a bonanza of the draftsman ? Simplicity and certainty
is basic to the rule of law but is a consummation devoutly to be wished in our
corpus juris. Here we find ranged on both sides more than one High Court taking
contrary but scholarly views. A radically new legislative art is the urgent
contemporary need if comprehensibility to the laity is to be a democratic
virtue of law.
We will first unlock Explanation 2 to s.
2(15), discover the signification of 'property' expanded by the deeming clause
and then read it in that wider sense along with the comprehensive provisions of
ss. 9, 27 and 5. The key concept that underlies this fasciculus of sections is
property, the tax being charged on property passing on death. Considerable
controversy has raged not only on the boundaries of the notion of 'disposition'
as specially defined, by importing a legal fiction, but on the slightly
ticklish and tricky placement in s. 9 of the expression 'bona fide made two
years or more before the death of. the deceased'.
If we surmount these constructional
difficulties, the answer to the core question arising in these appeals follows
without much ado.
In fairness to counsel we must, at the
threshold, set out the seven propositions formulated by Shri Desai for
pin-pointing the discussion. They are:
"1. Partition is merely a process in and
by which joint enjoyment is transferred into an enjoyment in severalty. Since
in such a case each one of the coparceners had an antecedent title which
extended to the whole of the joint family properties and had therefore full
interest 7 3 his share, no creation of right or interest in such specific
property takes place in his favour nor does any extinguishment of any right or
interest in the other property take place to his detriment.
2. Sections 9(1) and 27(1) form part of a
single scheme. The word 'disposition' in section 27 (1 ) cannot be treated in
isolation and must take its colour and meaning from the sense in which the word
has been used in sec. 9 (1).
3. 'Disposition' means 'giving away or giving
up by a person of something which was his own (82 ITR 599, 606 SC). No meaning
howsoever wide and comprehensive of the expression 'disposition' can possibly
take in its ambit or coverage, partition (89 ITR 261, SC).
4. The mere fact that on a partition a coparcener
takes a lesser share than he could have demanded does not mean 16 that there is
'disposition' as contemplated in Explanation 2 to s. 2(15) which defines
'property'. In such a partition, there is no extinguishment, at the expense of
such coparcener of any 'debt' or 'other right'. In a partition whether equal or
unequal, there is no disposition by a coparcener in favour of any relative nor
can it be said that there is any purported gift nor can it be treated as a
gift. Of course, the partition must be bona fide and not to evade duty.
5. The scope and ambit of Explanation 2 to s.
2(15) becomes more clear when it is read in juxtaposition with Explanation 1.
The 'extinguishment' contemplated in Explanation 2 can be only in respect of
any debt or other right which could have been created by the deceased and could
have been enforced against him. In a partition, no such thing takes place.
6. A definition is not a substantive rule of
law operative by itself. The definition of 'property' in section 2(15) has to
be read along with sections 9 and 27 and not in isolation. 73
7. Disposition, in s. 9, even if read along
with Explanation 2 to s. 2(15), can only be of something the disponer had as
his own at the time of the alleged extinguishment. If it is of any interest in
property it must be of an interest which was already vested in the disponer at
the time of the disposition. If of any other right, it must be of a right which
had vested in him even when he gives it up." This 7-point programme of
submission really brings out all the issues and sub-issues, legal and factual,
and the last two, over-lapping in some respects, deserve first attention.
Before that, we must state, in precis form, the facts with reference to which
the statute must speak. The life of the law is not idle abstraction or transcendental
meditation but fitment to concrete facts to yield jural results--a synergetic
action, not isolated operation. Our discussion will therefore be conditioned by
the material facts found in the two cases. They are, tersely, though
simplistically put, that the deceased person, being a member of a joint Hindu
family, within two years before his death, entered into a partition of family
properties bona fide, not as colourable or sham transaction, whereby he
received towards his share an allotment substantially lower in value than would
be his legal entitlement thus gladly suffering a diminution which would to that
extent benefit the accountable person by giving him a larger slice of the joint
cake than was his due.
We assume, for the purpose of argument, that
the division in status and the partition made by metes and bounds have taken
place simultaneously on the execution of the deed in question. We also take it
that the release, relinquishment or division in the cases on hand has been bona
rule made in the sense that one sharer has not over-reached the other or played
fraud or together the sharers have not gone through a mere simulacrum of a
partition or exercise in colourable division. We proceed on the further
footing--and that is law well-established 16 now--that 'partition is really a
process in and by which a joint enjoyment is transformed into an enjoyment in
severalty. Each one of the sharers had an antecedent title and, therefore, no
conveyance is involved in the process, as a conferment of a new title is not
Now to the 7 points of Shri Desai. The 6th
point is a shade platitudinous and the other side does not dispute its
soundness. Certainly the' definition of 'property' in s. 2(15) has to inform
and must be read along with s. 9 and s. 27 and cannot be functional in
isolation. It is not a substantive rule of law operative by itself. Similarly,
point no. 7, stated the way it has been, may not be and has not been disputed
before-us, for the expression 'disposition' in s. 9 must be read with the
definition in Explanation 2 to s. 2(15) since that is the whole purpose of
a"deeming provision' in the shape of a definition. Granting that, the
disponer cannot extinguish or part with what is not his--rather a trite
statement though--since A can give or give up only what he has at the time of
alienation or abnegation. Shri Desai contends, and rightly, that the deceased
could not dispose of any interest in property which did not earlier vest in him
or at least at the time of the disposition. No right can be given up without
its being vested in him when he gives up. This hypothesis in law turns the
searchlight on the existence, at the time of the release or partition, of what
has been disposed of under that deed. What then was disposed of ? And did the
deceased own at the time of disposition what he thus made over or extinguished
? An answer to these twin questions may be readily given, once we clear the
confusion that has crept in at certain stages of the argument, by a process of
inept importation and imperfect understanding of the rule of Hindu law
The proposition is trite that in an undivided
Hindu family coparceners have no predictable or defined shares but each has an
antecedent title in every parcel of property and is jointly the owner and in
enjoyment with the others. But surely it is well-established that at the very
moment members decide upon a partition eo instanti, a division in status takes
place whereupon the share of the demanding members gets crystallised into a
definite fraction and if there is division by metes and bounds the allotment of
properties vivifies and specifies such shares in separate ownership. These two
processes or stages may often get telescoped when by consensus the coparceners jointly
divide the properties. Unequal divisions of properties knowingly made may not
spell invalidity and mathematical equality may not be maintained always in a
partition while, ordinarily, substantial fairness in division is shown.
Granting these legal positions, the more serious question which has been
agitated before us is as to whether a willing, albeit' bona fide, arrangement
whereby a substantially reduced share is taken by the decedent consequentially
vesting a proportionately larger estate in the recipient is a disposition
falling within Explanation 2 to s. 2(15) and therefore 'property' within the
substantive definition. In this context we may have to read ss. 9 and 27 for
property taken under a disposition made. by the deceased may be deemed to be a
gift in favour of the accounting person in the circumstances mentioned in s. 9.
Similarly, s. 27 also tracks down certain dispositions made by deceased 18
persons in favour of relatives by treating them as 'gifts'.
The basic concept of disposition looms
important in such circumstances.
This introductory statement of the law takes
us to the other points of Shri Desai which we will tackle together, guided by
the text of the sections aforesaid read in the light of the citations, aplenty,
of cases-Indian and English. We may compendiously state, forgetting for a
moment the complication in the Gujarat Case of the release deed executed by the
decedent being either a relinquishmere or a partition that in both the appeals,
the decedents and the recipients were members of an undivided Hindu family and
within the two years proximity of death the partition arrangement was effected
where under a lesser share than due was allotted to the latter. And indeed, it
is this difference between what was due to the right of the deceased and what
was actually taken that was treated as a 'gift' by the Revenue based on the
definition in s. 2 (15 ), Explanation 2, plus ss. 9 and 27. The cornerstone of
the whole case of the Revenue is thus the concept of 'disposition' which we may
point out, right at the outset, is not a term of art not legalese but plain
English with wide import. What is more, this word has acquired, beyond its
normal ambit, an abnormal semantic expansion on account of a special definition
with an Explanation super added. In short, 'disposition' in the Estate Duty law
of India enjoys an extended meaning. Even so, does it go so far as to cover a
mere taking of a lessthan-equal share by the deceased, the benefit on account
of which has gone to the accountable person ? Before we enter the thicket of
judicial conflict regarding the meaning of 'property' as extended by
Explanation 2 to s. 2(15), we may remind ourselves as courts that in a taxing
statute one has to look merely at what is clearly said. There is no room for
any intendment. There is no equity about a tax. While the rulings on the point
in the Act and in the allied Gift Tax Act will be adverted to presently, we may
begin an incisive understanding of the Explanation 2 aforesaid. The spirit thereof
The framers of the Act desired by a deeming
provision regarding 'disposition' to cover extinguishments of debts and all
other rights at the expense of and made by the deceased in favour of the
beneficiary. The substantive definition of 'property' in s. 2(15) is not
exhaustive but only inclusive and the supplementary operation of Explanation 2
takes in what is not conventionally regarded as 'disposition'. Indeed,
'disposition', even according to law dictionaries, embraces 'the parting with,
alienation of, or giving up property...a destruction of property' (Black's
Legal Dictionary). The short question before us is whether the dispositive fact
of giving up by a coparcener of a good part of what is due to him at the time
of division to his own detriment and to benefit of another coparcener, can be
called 'disposition' in law. Undoubtedly this operation, to use a neutral
expression, is made up of simple jural facts that modify and extinguish jural
relations and create in their place new rights whereby one gives or gives up
and another gains. This legal result, produced by voluntary 'action, is
'disposition' within the scope of Explanation 2 to s. 2(15).
The assessee's contention, effectively
presented by counsel, takes a legalistic course, ignoring the purpose, language
and amplitude of 19 Explanation 2. Argues Shri Desai, in a partition, equal or
unequal, there is no element whatsoever of consideration, partial or full,
since in a partition there is only an adjustment of rights and substitution of
joint enjoyment by enjoyment in severalty. In his view it is a confusion to mix
up unequal partition with inadequate consideration and it is a worse confusion
to talk in terms of bona fide and main fide partition where the shares are
merely unequal by choice. What is forgotten in this chain of reasoning is the
office of Explanation 2 which-is deliberately designed to take into its embrace
what otherwise may not be 'disposition'. Once we reconcile ourselves to the
enlargement of sense imported by the Explanation, we part company with the
traditional concept. We have also to stress the expression 'other right' in the
Explanation which is of the widest import and cannot be constricted by reading
it ejusdem generis and 'debt'. 'Other right', in the context, is expressly
meant considerably to widen the concept and therefore suggests a somewhat
contrary intention to the application of the ejusdem generis rule. We may
derive instruction from Green's construction of the identical expression in the
English Act Is. 45(2). The learned author writes:
"A disclaimer is an extinguishment of a
right for this purpose. Although in the event the person disclaiming never has
any right in the property, he has the right to obtain it, this inchoate right
is a 'right' for the purposes of s. 45(2), The ejusdem generis rule does not
apply to the words 'a debt or other right' and the word 'right' is a word of
the widest import. Moreover, the expression 'at the expense of the deceased' is
used in an ordinary and natural manner; and is apt to cover not only cases
where the extinguishment involves a loss to the deceased of a benefit he
already enjoyed, but also those where it prevents him from acquiring the
The words 'the person for whose benefit the
debt or other right was extinguished' do not necessitate a conscious intention
to benefit some person; it is sufficient that some person was in fact
benefited. 'The motive or purpose of the deceased appears to me to be
immaterial', provided the transaction was gratuitous and did in fact benefit
the other person concerned.
The extinguishment of a right may also cover
the release of his interest by one joint tenant in favour of another."
(Green's Death Duties, 7th Ed., Butterworths, p. 149) Shri Desai and also Shri
Kazi, appearing for the 'accounting persons' in the respective cases, urged
that this expansive interpretation taking liberties with traditional jural
concepts is contrary to this Court's pronouncement in Getti Chettiar(1). That
was a case under the Gift Tax Act, 1958 and the construction of s. 2(xxiv) fell
Certainly, many of the observations there,
read de hors the particular statute, might reinforce the assessee's stand.
This Court interpreted the expression
'transfer of property' in s. 2(xxiv) and held that the expression 'disposition'
used in that provision should be read in the (1)  82 I.T.R. 599.
20 context and setting of the given statute.
The very fact that 'disposition' is treated as a mode of transfer takes the
legal concept along a different street, if one may use such a phrase, from the
one along which that word in the Estate Duty Act is travelling. Mr. Justice
Hegde rightly observed, if we may say so with respect that 'Words in the
section of a statute are not to be interpreted by having those words in one
hand and the dictionary in the other. In spelling out the meaning of the words
in a section, one must take into consideration the setting in which those terms
are used and the purpose that they are intended to serve." (p. 605-606)
The word 'transaction' in s. 2(xxiv) of the Gift Tax Act takes its The word
that is it must be a 'transfer' of property colour from the main clause that is
, it must be a 'transfer' of property in some way. Since a partition is not a
'transfer' in the ordinary sence of law, the Court reached the conclusion that
a mere partition with unequal allotments not being a transfer, cannot be
covered by s. 2(xxiv). A close reading of that provision and the judgment will
dissolve the mist of misunderstanding and discloses the danger of reading
observations from that case for application in the instant case. The language
of s. 2 (15 ), Explanation 2, is different and wider and the reasoning of Getti
Chettiar (supra) cannot therefore control its amplitude. It is perfectly true
that in ordinary Hindu law a partition involves no conveyance and no question
of transfer arises when all that happens is a severance in status and the
common holding of property by the coparcener is converted into separate title
of each coparcener_as tenant-in-common. Nor does subsequent partition by metes
and bounds amount to a transfer. The controlling distinction consists in 'the
difference in definition between the Gift Tax Act [s. 2(xxvi)] and the Estate
Duty Act is. 2(15).
The Madras High Court in Valliammai Achi(1)
took the correct view when it said on similar facts:
"The facts of this case, in our opinion,
seem to square with the second Explanation to section 2(15). That, no doubt, is
an Explanation to the inclusive definition of property. But the language of it
seems to go further and coins a deemed disposition in the nature of a transfer.
The mechanics of the transfer for the
purposes of Explanation 2 consist in the extinguishment at the expense of the
deceased of a right and the accrual of a benefit in the form of the right so
given up in favour of the person benefited. Transfer in a normal sense and as
understood with reference to the Transfer of Property Act connotes a movement
of property or interest or right therein or thereto from one person to another
in praesenti. But in the kind of disposition contemplated by the second
Explanation, one can hardly trace such a transfer because of the mere fact of
extinction of a certain right of the deceased which does not involve a
movement, a benefit is  73 I.T.R. 806, 808.
21 created in favour of the person benefited
In the present case the son who was a quondam
coparcener had a pre-existing right to every part of the coparcenary property,
and if by a partition or a relinquishment on the part of one or more of the
coparceners, the joint ownership is severed in favour of severalty, the
process, having regard to the peculiar conception of a coparcenary, involves no
transfer .... But Explanation 2 is concerned not with that kind of situation,
but an extinguishment of a right and creation of a benefit thereby and this
process is statutorily deemed to be a disposition which is in the nature of a
transfer." This line of reasoning has our general approval.
From what we have said, the bold lines of
opposing views emerge and they hinge on the connotation of 'disposition'. The
High Courts, in their divergent stands, have lined up before both strands of
reasoning. Madras, a Full Bench of the Punjab High Court, and the classic
observations in In re Stratton's Disclaimer(1) support the point of view
championed in Ranganayaki Ammal. The contrary thinking finds support in Andhra
Pradesh and Punjab as welt as in Gujarat (Kantilal). The sense of our statutes
modelled as they are on a series of English Acts, is best expressed so far as
the concept of 'disposition' is concerned, by Jenkins L.J., in In re:
Stratton's Disclaimer(1) relating to s. 45 of the Finance Act, 1940 [which runs
similar in strain to s.2(15). Noting the strength of the sweeping and
unparticularized reference to 'a debt or other right', Jenkins L.J., repelled
the application of the ejusdem generis rule and imparted to the word 'right'
the widest import:
"Mr. Russel did not seek to limit the
effect of the words 'debt or other right 'by an application of the ejusdem
generis rule, and, in my view, it would not be possible to do so. In the
absence of any such restriction on its meaning the word 'right' is a word of
the widest import, and if, in accordance with my view, Mrs. Stratton can
properly be held to have had a right in respect of the specific bequest and
devise pending disclaimer, I see no ground for holding that it was not a right
within the meaning of section 45 (2)." * * * * "I confess that I am
disposed to deprecate recourse in revenue legislation to sweeping generalities
of this kind, but the mere fact that an enactment is couched in general and
comprehensive terms affords no ground for excluding from its operation
transactions falling fairly within its provisions, general though they may be.
Roxburgh J., emphasized the impact of the
legal fiction and observed:
"A certain state of facts is to be
deemed to be a different state of facts, and the line between fact and
hypothesis seems to me to be drawn by the word 'deemed'. If this be (1) 
34 I.T .R. (Estate Duty) 47.
22 so, only three actual facts are expressed
to be necessary in order to involve the hypothetical situation, (1) the
existence of a right, (2) its extinguishment, (3) its extinguishment at the
expense of the deceased. When those three facts concur, the hypothesis goes
into action, and the hypothesis is that these facts are equivalent to a
disposition made by the deceased in favour of the person for whose benefit the
right was extinguished. These words, ill my opinion, all form part of the
hypothesis and the concluding words are necessary to define the hypothetical
disponee." The conventional construction of 'disposition' has to submit to
the larger sweep of the hypothetical extension by definition.
The Gujarat High Court has gravitated towards
the narrower construction of 'disposition' and 'or right'. It makes no specific
reference to Stratton's Disclaimer (supra) and the learned judges have insisted
on transfer of interest as a necessary indicium of every disposition. Partition
does not involve a transfer and therefore, cannot be a disposition, runs the
logic of the Gujarat judgment. Likewise, 'other right', in Explanation (2), it
is argued, cannot cover the case of partition as in the learned Judges' view a
transfer is a sine qua non. We cannot agree, for reasons already stated, with
this approach which defeats the intendment of the Act and the express object of
Explanation 2 to s. 2(15). The peculiar definition of 'disposition' injecting a
triple hypothesis and fictional expansion covers the diminution in the share
taken by the coparcener and augmentation of the share taken by the other and
impresses the stamp of property on this process by the "deeming'
provision. Sections 9 and 27 strengthen this conclusion.
We were confronted by Shri Desai with
Kancharla Kesava Rao(1) for contending that giving away or giving up could not
in all cases be disposition where the transaction is a partition. This Court,
in the above ruling, held that a partition in a coparcenary was just an
adjustment of rights, not a transfer in the strict sense. Shri Justice Hegde,
speaking for the Court, placed on s. 24 of the Act more or less the same
intepretation as was put in Getti Chettiar (supra) by this Court. Whatever
might be the interpretation 'disposition' in s. 24 of the Act, we are satisfied
that the only straight-forward construction of that expression in s. 27 is as
we have explained at length above. Section 9, dealing with gifts takes in
property under a disposition made by a deceased, throwing up the question 'What
is a gift?'. Section 27 supplies the answer:
'an dispsition made by the deceased in favour
of a relative of his shll be treated for the purposes of this Act as a gift'.
Unless: of course, it is made for full consideration. There is no limitation,
environmental or by the society of words, warranting the whittling down of the
unusually wide range of explanation 2 to s. 2(15).
Kesava Rao (supra) cannot cut back on the
liberality of s. 27. In the realm of legal fiction, law cannot be confined
within traditional (1)  89 I.T.R. 261.
23 concepts. It is pertinent that as between
the Gift Tax Act and the Estate Duty Act there is basic difference in that the
tax effect in the first is on transaction inter vivos and in the second on the
generating source of transmission by death. Comparisons in construction cannot
therefore be pushed too far.
Before winding up this part of the
discussion, we may refer to Grimwade v. Federal Commissioner of Taxation (1)
where Williams J., dealing with the expression 'disposition of property'
defined somewhat in similar lines as in our Act, observed:
"The whole emphasis of paragraph (f) is
upon' a transaction entered into by one person, which seems to me to mean that
where there is an act done by one person with the requisite intent, and as a
result there is a transfer of value from any property of that person to the
property of another person, the conditions of liability are satisfied.
Each statute has its own mint and the coinage
of words bears a special stamp. That is our only comment when we depart
semantically from other judicial' annotations of the expression 'disposition'.
If A is entitled to a moiety in property worth rupees five lakhs (or let us
assume that much of cash in the till belongs jointly to A and B) and by a
partition relinquishment, disclaimer or otherwise A accepts something
substantially less than his due, say rupees one lakh as against rupees
two-and-a-half lakhs and the remainder goes to. the benefit of B who gets four lakhs
as against two-and-a-half lakhs, commonsense, concurrently with Explanation 2,
draws the inference that A has made over at his expense and to the benefit of B
a sum of rupees oneand-ahalf lakhs which may be designated a 'disposition' by
him in favour of B. Shri Desai rightly stressed in construing s. 9 we should
not confess between a mala fide transaction and unequal partition. He is right.
But the simpIe scheme of s. 9 may be stated to erase misapprehension. What the
provision declares is that if the disposition made by the deceased is more than
two years before death.,, the property covered thereby shall not pass on the
death unless it shall not have been bona fide. That is to say, even if the
transaction were more than two years before the death, if it were entered into
in bad faith, estate duty may still attach to that property. So far as
dispositions made within two years of the death of the deceased are concerned,
there is no question of mala fides or bona fides. All such transactions are
caught within the coils of s. 5 read with ss. 9 and 27. The requirement of
'bona fides' has nothing to do. with dispositions within 2 years and has much
to do with those beyond 2 years. The marginal obscurity in s. 9 is due perhaps
to compressed draftsmanship.
Now to costs. We have already indicated how
serious arguments have appealed in contrary ways to several fudges of the High
Courts and certain observations of this Court have themselves been capable of
different shade of sense from what we have read into them. Indeed the point
involved in the case is of general public importance which (1)  78 C.L.R.
24 on account of the conflict in the High
Courts, needs to be decided by the Supreme Court. One of the major functions of
this Court is to declare the law for the country under Art.
141 of the Constitution, although under our
adversary system it is only when litigation spirals up the Court acts and
declares the law.
While dealing with a similar situation, this
Court in Trustees Port, Bombay(1) observed:
"Is it fair in these circumstances that
one party, albeit the vanquished one, should bear the burden of costs
throughout for providing the occasion--not provocation--for laying down the
correct law in a controversial situation ? Faced with a similar moral-legal
issue, Lord Reid observed:
"I think we must consider separately
costs in this House and costs in the Court of Appeal.
Cases can only come before this House with
leave, and leave is generally given because some general question of law is involved.
In this case it enabled the whole vexed matter of non est factum to be
reexamined. This seems to be a typical case where the costs of the successful
respondent should come out of public funds.
The Evershed Committee on Supreme Court
Practice and Procedure had suggested in England that the Attorney-General
should be empowered to issue a certificate for the use of public funds in
appeals to the House of Lords where issues of outstanding public importance are
involved." Maybe, a scheme for a suitors' fund to indemnify for costs as
recommended by a Sub-Committee of Justice is the answer, but these are matters
for the consideration of the Legislature and the Executive. We mention them to
show that the law in this branch cannot be rigid. We have to make a compromise
between pragmatism and equity and modify the loser-pays-all doctrine by
exercise of a flexible discretion. The respondent in this case need not be a
martyr for the cause of the certainty of law under section 87 of the Act,
particularly when the appellant wins on a point of limitation. (The trial Court
had even held them. appellant guilty of negligence). In these circumstances we
direct that the parties do bear their costs throughout." We adopt the same
course and while. Allowing Civil Appeal No. 1095 of 1970, and dismissing Civil
Appeal No. 1677 of 1973 the parties in both the appeals are directed to bear
their respective costs throughout.
C,4. 1095 of 1970 allowed. CA 1677 of 1973
(1)  4 S.C.C. 710, 738.