M.Ct. Muthiah & ANR Vs. The
Controller of Estate Duty, Madras [1986] INSC 144 (17 July 1986)
MUKHARJI, SABYASACHI (J) MUKHARJI, SABYASACHI
(J) PATHAK, R.S.
CITATION: 1986 AIR 1863 1986 SCR (3) 315 1986
SCC Supl. 375 1986 SCALE (2)54
ACT:
Estate Duty Act 1953-Sections 2(15), 5, 6,
15, 34(3)- Estate duty-Property liable to estate duty-Personal accident
Insurance policy-Money received by heirs of deceased under the policy-Whether
forms part of estate of deceased, passes on death-Accident policy and life policy-Distinction
between.
Jurisprudence-Custom-Prevalence of-Matter of
evidence- 'Dwyanamanushyana' form of adoption-Prevalence of in Madras State.
HEADNOTE:
The deceased was the Karta of a Hindu
undivided family.
He had two sons. He gave his first son in
adoption to his divided paternal uncle. He was joint with his second son
throughout his life. He took out a personal accident insurance policy with the
Insurance Company and effected a nomination in favour of his first son. During
the currency of the policy, the deceased died following the crash of the
airliner in which he had travelled, and the Insurance Company paid the nominee
a sum of Rs.2 lakhs, the benefit stipulated under the terms of the policy. At
the time of his death, the deceased had other properties and interests. one was
his interest as an undivided copartner in his joint family which consisted of
himself and his second son.
In the assessment proceedings under the Estate
Duty Act 1953, the accountable persons urged before the Deputy Controller of
Estate Duty: (i) that the amount of Rs.2 lakhs could not be aggregated with the
rest of the properties, but must be brought to charge independently as a
separate estate in itself, because the deceased had no interest at all in the
insurance money, and (ii) that the adoption in 1931 was on the basis that
notwithstanding adoption into another family, the adoptee must continue to
retain his interest in the properties belonging to the family of his birth and,
therefore, he was entitled, as on the date of the de- 316 ceased's death, to an
equal interest in the deceased's family properties, so that the quantum of the deceased's
coparcenary interest was not one-half but only one third of the total value of
the family properties. A "Muri" (deed of adoption) that was executed
was produced in this regard.
The Deputy Controller rejected these
contentions and held: (i) that the personal accident insurance money of Rs.2
lakhs paid by the Insurance Company should be charged to estate duty and it had
to be aggregated with the rest of the properties passing on the deceased's
death; (ii) that the insurance money of Rs.2 lakhs was property which the
deceased was competent to dispose of by will; (iii) that the deceased did have
an interest in the insurance money; (iv) that the deceased's interest in the
coparcenary property, which had to be included in the dutiable estate, extended
to one half share of the joint properties on the basis that the deceased and
his second son were alone entitled as coparceners to the said properties; (v)
that the document produced in support of the plea of adoption was not genuine
and even otherwise it had no legal effect on the continued rights of the
adopted son in the family of his birth subsequent to his adoption. He,
therefore, included in the dutiable estate, one-half of the joint family
properties as being the measure of the deceased's coparcenary interest.
The accountable persons appealed against the
above assessment to the Central Board of Revenue. The Board held:
(i) that the insurance money of Rs.2 lakhs
was chargeable to estate duty under s. 6; (ii) that the deceased had interest
in the insurance money; (iii) that the deceased did have the power of
disposition over the insurance money both by the exercise of power of
nomination under the policy and also independently by the exercise of any
testamentary power;
(iv) that the Hindu law of adoption makes the
adopted son lose his property interests in the family of his birth and that the
"dwyamanushyana" form of adoption had become obsolete in Madras, and
no such custom was prevailing in the Nattukottai Chettiar community, under
which the adopted son never loses his property rights in the family of his
birth and, therefore, upheld the assessment of one-half of the value of the
whole of the joint family property as the measure of the deceased's dutiable
interest.
On reference, the High Court held that as the
deceased was competent to dispose of the monies payable under the accident
policy, the sum of Rs.2 lakhs was includible in the principal value of the
estate but the same was not liable to be aggregated with the other properties
and 317 had to be assessed as an estate by itself and that the type of adoption
pleaded by the accountable person was recognised by the custom of the
Nattukottai Chettiar community, the terms of the 'muri' formed part of the
adoption and the adoption could not be considered de hors the agreement and
hence the deceased had only one-third share in the joint family properties at
the time of his death. R In the appeal to this Court, on behalf of the
accountable persons it was contended: (i) that it was a condition precedent for
the attraction of the duty that (a) the estate holder must have had possessed
or enjoyed a property or an interest in property; (b) the interest in a
property might be either vested or contingent; (c) but that interest should be
with regard to either an immovable property or a movable property which was
capable of being ascertained during the lifetime or at the time of the death of
the estate holder; (d) a contingent interest could fall within the purview of
the Act only if the interest of a tangible nature and was capable of being
ascertained (ii) that there had to be a passing of property or interest as
contemplated by s. 2(16). There has also to be a change in the beneficial
possession and enjoyment of property of the interest in that property; (iii)
that an accident insurance policy could not be construed as a movable property
unlike a life insurance policy or an annuity since a person who possessed it
could not also be said to have a contingent interest because there was every
possibility of the accident policy getting extinguished or rendered worthless
during his lifetime; (iv) that in the case of a life insurance policy, there is
always a tangible continuing interest only that the value of that interest
might be subjected to a change at the time of passing of the property; (v) that
it was not necessary that during the lifetime of the deceased the property in
question should have 'attained' the full value e.g. 'Annuity'. Only a future
interest that crystalised after the death of the estate holder; (vi) that since
the benefit in accident policy could only accrue after the death of the estate
holder, it became property for the first time after the demise of the estate
holder.
Allowing the appeal by the accountable
persons and dismissing the appeal of the Revenue, the Court, G ^
HELD: 1.1. Under the personal accident
insurance policy in question the insurance money became property only on
happening of a specified contingency. That property arose on the death of the
deceased during the subsistence of the accident policy. The property is the sum
of Rs.2 lakhs which became receivable by the nominee or the legal rep- 318
resentative of the deceased because of the death of the deceased in the air
accident during the subsistence of the policy. That right to the sum arose
because (a) the deceased died; (b) in air accident; (c) during the subsistence
of the policy. The property came into being on that contingency after death. No
property can, therefore, be deemed to pass on the R death of the deceased.
[342D-F]
1.2 During the lifetime of the deceased, an
interest was vested totally and irretrievably in the hands of the beneficiary
or the legatee or the nominee. The death did not cause property to change
hands. The fact that a person can nominate a beneficiary will not tantamount to
a disposition of the property. [342F-G]
1.3 Whether a particular custom prevails in a
particular community or not is a matter of evidence. [343C]
2.1 Section 5 of the Estate Duty Act, 1953
provides that there shall be levied and paid upon the principal value
ascertained in the manner provided of all properties which passes on the death
of a person. Three factors are important: (1) there must be passing (2) of such
property and (3) such passing on must be on the death of a person. [326F]
2.2 Section 3(1)(a), (b) & (c) provides
for certain situations in which a person is deemed competent to dispose of
property. Section 6 deals with property within disposing capacity and provides
that property which the deceased was at the time of his death competent to
dispose of shall be deemed to pass on his death. [327A-B]
3.1 It was a condition precedent for the
application of the Act that the estate holder must have possessed or enjoyed
the property or interest in property, the interest in property might be either
vested or contingent but interest should be that with regard to which either
immovable property or movable which was capable of being ascertained during the
lifetime or at the time of the death of the estate holder. The property vested
or contingent must be one which was capable of being ascertained. Even if these
tests were satisfied then there has to be a passing of that property or
interest as contemplated under s. 2(16) of the Act. Even if a person might have
power to dispose of a property or interest in property, he cannot or his estate
cannot be brought within the purview of the Act solely because of that factor.
In order for an estate to be liable to estate duty, the power of disposition
must be with regard to a property capable of being ascertainable during the
lifetime 319 of the deceased or at the time of his death. There had to be a
change in A the beneficial possession and enjoyment of the property or the
interest in that property. In other words, the property or interest which is
liable to estate duty has to pass through the estate of the deceased. [340B-E]
3.2 Though the deceased might have a right of
disposition as and when the property would be available in case the contingency
happens, namely, the death of the deceased in an accident, but that right is
different from the right to the money accruing or arising because of the death
due to accident. [340E-F]
3.3 An accident insurance policy cannot be
construed as a movable property unlike a life insurance policy or an annuity
because as laid down in s. 2(15) of the Act it is not only necessary for the
person to have property or interest in property but that interest must be in
regard to a movable property and his interest should also be capable of being
ascertainable during his lifetime or at the time of his death in that f movable
property. Secondly, an accident insurance policy could not be construed as a
property or an interest in property since a person who possessed it cannot also
be said to have a contingent interest because there was every possibility of
the accident policy getting extinguished or rendered worthless during his
lifetime; on the other hand, in the case of a life insurance policy, there was
always a tangible continuing interest only that the value of that interest
might be subjected to change at the time of passing of the property. [340H;
341A-C]
3.4 A contingent interest which did not get
crystalised during the lifetime of the deceased but which interest would, with
certainty, accrue after the demise of the estate holder will be caught by s. 6
of the Act. The accident policy could only accrue after the death of the estate
holder. It became property for the first time after the demise of the estate holder.
There was no element of property during the lifetime of the estate holder.
[341C-D]
3.5 The interest in an accident insurance
policy did not pass through the estate of the deceased as in the case of a life
insurance policy or annuity and in the instant case, the interest directly went
to the beneficiaries in the case of death by accident of the estate holder.
[341E]
3.6 In the instant case, the property is
really born on the death of the deceased in an accident. The sum of Rs.2 lakhs
was non-existent before the death. There might have been some right of
disposition in 320 respect of the property which might accrue on the death of
the deceased. That right is different from the right to the movable property of
Rs.2 lakhs that is taking place. [340F- G] Attorney-General v. Quixley, 1929
All England Reports Reprint 636 and Controller of Estate Duty v. A.T. Sohani,
New Delhi, 78 I.T.R. 508, distinguished.
Controller of Estate Duty v. Kasturi Lal
Jain, 93 I.T.R. 435 and Controller of Estate Duty, Patiala v. Smt.
Motia Rani Malhotra, I.T.R. 42, approved.
Bharatkumar Manilal Dalal v. Controller of
Estate Duty, Gujarat, 99 I.T.R. 179, over-ruled.
Westminster Bank Ltd. v. Inland Revenue
Commissioners [1957] 2 All E.R. 745 = 16 I.T.R. (ED) 3, Smit. Amy F. Anti v.
Assistant Controller of Estate Duty, Bombay 142 ITR 57, P. Indrasena Reddy
& Pingle Madhusudhan Reddy v. Controller of Estate Duty, 156 ITR 45, Shri
H. Anraj etc. v. Government of Tamil Nadu etc. [1986] (1) SCC 414, Smt.
Sarabati Devi & Anr. v. Smt. Usha Devi, 1984(1) SCR 992 and Public Trustee
v. Inland Revenue Commissioners, [1960] A.C.398, referred to.
CIVIL APPELLATE JURISDICTION: Civil appeal
No. 2086 of 1974 and 67 of 1975 From the Judgment and order dated 20th
September, 1973 of the Madras High Court in Tax Case No . 310 of 1967.
C. Rarnakrishna, Mohan Parasaran and Mrs.
Janaki Rama chandran. for the Appellants in C.A. No. 2086 of 1971 and for the
Respondent in C.A. No. 67 of 1975.
S.C. Manchande, Dr. Gauri Shankar, K.P.
Bhatnagar and Miss A. Subhashini, for the Appellant in C.A. No. 67 of 1975 and
for the Respondent in C.A. No. 2086 of 1974.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. These two appeals are from the judgment and order of
the Madras High Court dated 2oth September, 321 1973 by certificates of fitness
granted by the High Court under section A 65 of the Estate Duty Act, 1953,
hereinafter called the Act.
Civil Appeal No. 2086 of 1974 is by
accountable persons and Civil Appeal No. 67 of 1975 is by the revenue. The
judgment under appeal is reported in 94 I.T.R. at page 323.
The accountable persons are the sons of one
late M.
Chindermbara Chettiar hereinafter called the
deceased. The deceased was the Karta of a Hindu undivided family. He gave his
first son Muthiah, in adoption to his divided paternal uncle Pethachi Chettiar,
and adoption ceremony was held on 7th June, 1931. Subsequently his second son,
also called Pethachi, was born in 1933, with whom the deceased was joint
throughout his life.
On 21 February, 1954, prior to proceeding to
Malaya by air, the deceased took out a personal accident insurance policy with
the United India Fire and General Insurance Company Ltd. (hereinafter cal- led
the Insurance Company).
Under the terms of the said policy which was
to be in force for one month, the Insurance Company had agreed that if at any
time during the currency of the said policy, the deceased should sustain any
accident resulting in any injury or injury leading to his death, then, the
Insurance Company undertook to pay to the assured or to the legal
representative of the assured in case of the assured's death, such sum as might
be appropriate in the Table of Benefits appended to the Policy. The Table of
Benefits mentioned that in case of death or total disablement the benefit
payable was R.S.. 2 lakhs, in case of partial disablement, R.S.. 1 lakh., in
case of temporary disablement, a weekly payment of Rs.1200 or Rs.300 according
to the nature of the disablement. The policy, inter alia, provided that
"the policy is unassignable and the company shall not be affected by
notice of any trust or purported to be imposed upon assignment of or of any
charge or lien imposed or purported or any dealing with the policy and the
receipt of the insured or the executors or administrators of the insured for
any moneys payable thereunder shall in all cases be any effectual discharge to
the company". A sum of Rs.250 was paid or credited as paid by the deceased
as and towards the premium and other charges for the aforesaid personal
accident insurance policy. It also appeared that in the proposal Form dated
20th February, 1954 filed by the deceased with the Insurance Company, the
deceased had effected a nomination in favour of his son M. Ct. Muthiah.
On the 13th March, 1954, the deceased died
following the crash of the airliner in 322 which he had travelled. On his death
the Insurance Company paid the nominee, the appellant No. 1 herein a sum of
R.S..
2 lakh which was the benefit stipulated to be
paid, in such an event, under the terms of the policy. At the time of his death
the deceased had other properties and interests. One was his interest as an
undivided coparcener in his joint family which consisted (after the adoption
away of his first son A. Muthiah) of the deceased and his second son Pethachi.
In the assessment under the Estate Duty Act,
1953 (hereinafter called the 'Act'), the Deputy Controller of Estate Duty was
of the view that the personal accident insurance money of R.S.. 2 lakhs paid by
the Insurance Company should be charged to estate duty and further that it had
to be aggregated with the rest of the properties passing on the deceased's
death. He held further that the insurance money of R.S.. 2 lakhs was property
which the deceased was competent to dispose of by will. Before the Deputy
Controller, it was urged that the amount of R.S.. 2 lakhs could not, in any
case, be aggregated with the rest of the properties, but must be brought to
charge independently as a separate estate in itself, the contention being that
the deceased had no interest at all in the said insurance money.
The Deputy Controller rejected this
contention as untenable, holding that the deceased did have an interest in the
insurance money. As in respect of the deceased's interest in the coparcenary
property, which had to be included in the dutiable estate, the Deputy
Controller took the view that such interest extended to 1/2 share of the joint
properties on the basis that the deceased and his second son Pethachi were
alone entitled as coparceners to the said properties.
He rejected the contention that M. Ct.
Muthiah who had been adopted away from this family in 1931 was nevertheless
entitled, as on the date of the deceased's death, to an equal interest in the
deceased's family properties, so that the quantum of the deceased's coparcenary
interest was no one-half but only-one-third of the total value of the family
properties. It was urged before the Deputy Controller that the adoption of M.
Ct. Muthiah in 1931 was on the basis that notwithstanding his adoption into
another family, M. Ct. Muthiah must continue to retain his interest in the
properties belonging to the family of his birth. A "Muri" in Tasil in
curdgeon-leaf purported to have been executed on 7th June, 1931 was produced
before the Deputy Controller in support of the above plea. The Deputy
Controller did not accept the genuineness of the said document. But even
otherwise, the Deputy Controller proceeded to hold that the "Muri"
had no legal effect on the continued rights of adopted son in the family of his
birth subsequent to his adoption. He accordingly included, in the dutiable
estate, one-half of the joint family properties as being the measure of the
deceased's coparcenary interest.
The accountable persons appealed against the
above assessment to the Appellate authority which at that time, as the law then
was, the Central Board of Revenue.
The Central Board held that the insurance
money of R.S.. 2 lakh was chargeable to estate duty under section 6 of the Act.
The Board took the view that under the terms of the policy, the deceased had
the right to nominate a person to take the moneys on the deceased's death and
also the capacity to dispose of the amount by testamentary disposition.
On the question as to whether the amount of
R.S.. 2 lakhs must, in any event, be charged as a separate estate in itself,
segregated from the rest of the properties, the Central Board rejected the
accountable persons' contention that the deceased never had any interest in the
said insurance money. On the terms of the accident policy, the Board was of the
view that the deceased did have the power of disposition over the insurance
money both by the exercise of the power of nomination under the policy and also
independently by the exercise of any testamentary power.
On the point relating to the exact quantum of
the deceased's interest in coparcenary property, the Board accepted the
genuineness of the "Muri". Before the Board, an Agreement in writing
dated 19th August, 1976 between A.
Muthiah and Pethachi. the two sons of the
deceased, was produced to further support the claim that Muthiah retained his
coparcenary interest in the family of his birth despite his adoption into
another family.
The Board however held that the Hindu law
adoption makes the adopted son lose his property interests in the family of his
birth and that the "dwamushayana" form of adoption pleaded by the
accountable persons had become obsolete in Madras. The Board rejected the claim
that there was a custom prevailing in the Muttukttsi Chettiar community, to
which the deceased belonged, under which the adopted son never loses his
property rights in the family of his birth. On these findings, the Board upheld
the assessment of one-half of the value of the whole of the joint family
property as the measure of the deceased's tiahle interest.
324 After the decision of the Board, the
following questions of law were referred to the High Court.
"1. Whether the deceased was competent
to dispose of the moneys payable under the accident policy and whether the sum
of Rs.2,00,000 is includible in the principal value of the estate?
2. If the sum of R.S.. 2 lakhs was liable to
be assessed to duty whether the said amount could be aggregated with the other
properties or should be assessed as an estate by itself?
3. Whether the share of the deceased
Chindambaram Chettiar in the property of the joint family at the time of his
death was one half or one third of the property?" The High Court by the judgment
under appeal answered the first question in favour of the revenue and against
the accountable person and the second and third questions were answered against
the revenue and in favour of the accountable person.
Being aggrived by the answer against the
first question, the ac countable person has preferred the appeal being appeal
No. 2086 of 1974 and on the certificate granted by the High Court and on the
subsequent two questions, the revenue obtained the certificate of fitness to
appeal to this Court which is appeal No. 67 (NT) of 1975.
The High Court in the judgment under appeal
held that under section 5 of the Act, all properties which passed on the death
of the person were liable to estate duty. Under section 6 of the Act, property
which the deceased was at the time of his death competent to dispose of should
be deemed to pass on his death and under section 3(1)(a), a person was deemed
competent to dispose of property if he has such an estate or interest therein
or such general power as would, if he were suijuris, enable him to dispose it
of. General power included every power of authority enabling the holder thereof
to appoint or dispose of property as he thought fit, whether exercisable by
instrument inter vivos or by will or both. A personal accident policy was not a
contract of indemnity. The amount payable on death of the insured was fixed in
the policy itself. It was in the contemplation of the parties even at the time
of the contract that in the case of death the amount would be 325 payable either
to the nominee or the legal representative and not to A the assured. It was
thus in the nature of a provision made by the deceased for such person. The
deceased had no interest in the money as such because that came into existence
the moment after his death and was payable to the nominee or legal
representative. But he had a right in the payment on his death to his legal
representatives. In other words, he had interest over the payment of money and
not in the money itself. He had a right to take away that right of the legal
representatives to receive the money and to vest it in some other person by
will. He could nominate a person to whom the amount should be paid. Nomination
in such a case was in the nature of a disposition by will and as such till he
breathed his last he could cancel such nomination and nominate another. The
nominee, unlike an assignee of life policies, got title to the money on death,
for the property itself came into existence by reason of the death and was
payable to the nominee by virtue of the power of disposition by will which
deceased had over the sum. The High Court further held that the money paid on
death was property and that was clear. This property, according to the High
Court, came into existence at the time of death. The High Court further held
that though the property was not in existence before his death, since it came
in at the time of his death, the deceased was competent to dispose of the same
by will.
It was this power, according to the High
Court, of disposal that attracted the provisions and made it property which was
deemed to pass on his death under section 6 of the Act. The beneficial interest
in the policy which accrued or arose on death was the sum paid out under the
policy and this beneficial interest having been purchased by the deceased, the
provisions of section 15 of the Act were also attracted.
Further, the estate had been depleted to the
extent of the premium paid and the beneficial interest purchased and the
deceased not having received a full equivalent for what he has paid and having
regard to the nature of the policy, the intention from the beginning was to
make a provision. The principal value of the estate that was deemed to pass
under section 6 and which accrued or arose under section 15 was that sum which
was paid out under the policy. As there was no devolution of interest from the
deceased to another person and from the very inception the amount was payable
only to the nominee or legal representative, section 5 of the Act was not
applicable.
It was further held by the High Court that in
the case of a personal accident policy, the property was not the policy but the
ultimate money that was paid and that should be deemed to pass on death of the
deceased because of his competency to dispose of the same by 326 will and the
holder of the policy had a light to have the amount paid to his legal
representative or nominee. The right was with respect to the disposition of the
money payable under the policy and not a right in the money itself. But in case
of a life insurance policy, both the policy and the money payable thereon was
property which could be settled during the lifetime of the insured. As the
deceased never had any interest during his lifetime in the money paid on death
under the personal accident policy, though he was competent to dispose of the
same by will, the sum paid under the policy was not aggregatable with the other
estate of the deceased and was to be treated as an estate by itself under
section 34(3) of the Act. The High Court held that though as the deceased was
competent to dispose of the moneys payable under the policy, the sum of R.S.. 2
lakhs was includible in the principle value of the estate but the same was not
liable to be aggregated with the other properties and had to be assessed as an
estate by itself.
Regarding adoption, the High Court was of the
view that the type of adoption set out by the accountable person was recognised
by the custom of the Nattukottai Chettiar community, the terms of the muri
formed part of the adoption and the adoption could not be considered de hors
the agreement and hence the deceased had only one-third share in the joint
family properties at the time of his death.
In order to appreciate the question involved
in Civil Appeal No. 2086 of 1974, it is necessary to bear in mind the scheme of
the Act. Section 5 deals with levy of estate duty.
It states that there shall be levied and paid
upon the principal value ascertained in the manner provided of all properties
which passes on the death of such person.
Therefore, three factors are important; (1)
there must be passing, (2) of such property and (3) such passing on must be on
the death of a person. Section (2)(15) of the Act defines 'property' as
inclusive of any interest in property movable or immovable, the proceeds of
sale thereof and any money or investment for the time being representing the
proceeds of sale and also includes any property converted from one species into
another by any method. There are two Explanations which are not necessary to be
set out in detail.
Section 2(16) deals with 'property passing on
the death' and includes any property passing either immediately on the death or
after any interval, either certainly or contingently, and either originally or
by way of substitutive limitation, and 'on the death' includes 'at a period
ascertainable only by reference to the death'.
327 Section 3(1)(a), (b) & (c), inter
alia, provides for certain situations in which a person is deemed competent to
dispose of property. Section 5 as we have noted before deals with the levy of
estate duty. Section 6 deals with property within disposing capacity and
provides that property which the deceased was at the time of his death
competent to dispose of shall be deemed to pass on his death.
Section 14 deals with policies kept up for a
donee. It is not necessary to set out the actual terms of the said provisions.
Section 15 deals with annuity or other interest purchased or provided by the
deceased and provides that any annuity or other interest, purchased or provided
by the deceased, either by himself alone or in concert or by arrangement with
any other person shall be deemed to pass on his death to the extent of the
beneficial interest accruing or arising, by survivorship or otherwise, on his
death.
Section 34 of the Act provides for
aggregation and stipulates that for purposes of determining the rate of the
estate duty to be paid or D any property passing on the death of the deceased,
what kinds of property should be aggregated. Except sub-section (3) of section
34, nothing is material for our present purpose. Sub-section (3) of section 34
reads as follows:
"(3) Notwithstanding anything contained
in sub- section (1) or sub-section (2), any property passing in which the
deceased never had an interest, not being a right or debt or benefit that is
treated as property by virtue of the Explanation to clause (15) of section 2,
shall not be aggregated with any property, but shall be an estate by itself,
and the estate duty shall be levied at the rate or rates applicable in respect
of the principal value thereof." Sree C. Ram Krishan, learned counsel for
the accountable persons in the first appeal before us and who was the advocate
who had appeared before the High Court made various submissions. He submitted that
it was a condition precedent for the attraction of the duty that (a) the estate
holder must have had possessed or enjoyed a property or an interest in
property; (b) the interest in a property might be either vested or contingent;
(c) but that interest should be with regard to either an immovable property or
a movable property or an interest in immovable or movable property which was
capable of being ascertained during the lifetime or at the time of the death of
the estate 328 holder; (d) a contingent interest could fall within the purview
of the Act only if the interest was of a tangible nature and was capable of
being ascertained, that is to say, the estate holder must always be having a
possibility to enjoy or possess that interest either actually or constructively
during his lifetime itself. He cited the example of a life insurance policy.
According to counsel, if the above tests were
satisfied then there had to be a passing of that property or interest as
contemplated by section 2(16) of the Act. Even though a person might have a
power to dispose of a property or interest in property, he could not or his
estate could not be brought within the purview of the Act solely because of the
above factors. Because over and above this, in order for an estate to be liable
for estate duty the power of disposition must be with regard to a property
capable of being ascertainable during his lifetime or at the time of his death.
It was urged that a property or interest in property has necessarily to change
hands in order to attract estate duty. There has also to be a change in the
beneficial possession and enjoyment of the property or the interest in that
property. In other words, it was submitted, the property of interest which was
liable for estate duty under the Act has to pass through the estate of the
deceased.
According to the counsel, applying the above
principles it could not be said that an accident insurance policy had the
characteristics of a property or interest in property and therefore was not
liable for estate duty because an accident insurance policy could not be
construed as a movable property unlike a life insurance policy or an annuity
because as laid down in section 2(15) it was not only necessary for a person to
have property or interest in property but that interest must be in regard to a
movable property and his interest should also be capable of being ascertainable
during his lifetime or at the time of his death in that movable property. An
accident insurance policy, according to him, could not be construed as a
property or an interest in property since a person who possessed it could not
also be said to have a contingent interest because there was every possibility
of the accident policy getting extinguished or rendered worthless during his
lifetime; on the other hand in the case of a life insurance policy, there is
always a tangible continuing interest only that the value of that interest
might be subjected to a change at the time of passing of the property. Further
it was submitted that it was not necessary that during the lifetime of the
deceased the property in question should have 'attained' the full value e.g.
'Annuity'. An annuity could mature even after the death of the estate holder.
But it must be noted that the 329 estate holder in the case of an annuity
deposit knew precisely the value of the contingent interest that would mature
at a future date. Consequently even a contingent interest which did not get
crystalised during the lifetime of the deceased but which interest would, with
certainty, accrue after the demise of the estate. holder will be caught by
section 6 as a property passing from the deceased to the beneficiary. Thus
though only a future interest that that crystalised after the death of the
estate holder would be deemed as a property of the estate holder. Learned
counsel submitted that an accident policy is not property, because it lacks the
well known characteristic of property namely, that it should be capable of
being mortgaged or pledged as a security. It lacked the characterists of a
security.
Consequently an accident policy was not a
property, according to counsel.
Since the benefit in accident policy could
only accrue after the death of the estate holder, it became property for the
first time after the demise of the estate holder. There was, according to the
counsel for the accountable person, no element of property during the lifetime
of the estate holder. Therefore, there could not be any passing of property in
a case like this. A possession of accident policy could not be construed as a
property in the hands of the estate holder. It was further submitted that in
the case of an accident insurance policy, there cannot be passing because there
was no change in the beneficial possession or enjoyment of the property or
interest in the policy. The interest in accident insurance policy did not pass
through the estate of the deceased as in the case of a life insurance policy or
annuity. But here the interest directly went to the beneficiary in the case of
the death by accident of the estate holder. It was in the premises submitted
that it cannot be accepted that the deceased had any power of disposition over
the accident policy during his lifetime because the interest in an accident
policy could not also be elevated to that of a contingent interest since there
is always the chance for the accident policy being rendered worthless during
the lifetime of the deceased. There is also no chance for the deceased to bear
the fruition of the policy during his lifetime because in the case of an accident
policy the condition of the policy itself was to the effect that the policy
would bear fruition only if the estate holder did not die due to natural causes
but in an accident .
A large number of authorities both Indian and
English and a large number of dictionaries relevant for this purpose were
relied upon.
330 So far as the first appeal is concerned,
namely, Civil Appeal No. 2086 of 1974, the question of assessability to estate
duty of the amount received as a result of the death of the assured is
involved. This question has been examined by various authorities to some of
which our attention was drawn.
Before we do so, it may be worthwhile to
refer to the dictionary meaning of certain words to which our attention was
drawn.
In Words and Phrases Legally Defined-Vol. 1
1969 (second Edn.) at page 332, it has been said that "Contingent
Liability" is a phrase with no settled meaning in English law because
Danckwerts, J. thought it necessary to resort to dictionary used. The Court of
Appeal regarded its meaning as an open question. A conditional obligation, it
has been said there, or an obligation granted under a condition which is
uncertain, had no obligatory force till the condition was purified. All this
was relied in aid of the submission that until the accident happened or death
resulted, the beneficiary of the insurance policy or the nominee of the assured
does not get any benefit. In order words, the birth of the property and the
right to get it accrues on the death of the deceased. The property which the
legatee or the nominee receives was property until the accident during the
lifetime of the deceased.
In Words and Phrases Legally Defined-Vol. 4
at page 200, "Property" has been defined as to what belongs to a
person exclusively of others and can be the subject of bargain and sale. It
includes goodwill, trade marks, licences to use a patent, book debts, options
to purchase, life policies and other rights under a contract. An annuity
secured only by a personal undertaking was not, however, treated as property;
nor was a revocable Licence, according to that dictionary.
The decision in Attorney-General v. Quixely,
1929, All England Law Reports, Reprint, 696, has coloured many of the decisions
of both English and our courts on this aspect. It is necessary, therefore, to
appreciate that decision properly, if possible. Briefly the facts in t-hat case
were that on 11th April, 1927, a school teacher died and her legal
representative became entitled to receive a "death gratuity" under
the School Teachers (Superannuation) Act, 1925-section 5(1). on 11th August,
1927, the gratuity was paid and the estate duty was claimed in respect of it.
It was held by the Court of Appeal in England that the gratuity was property of
which the teacher was "competent to dispose" within the meaning of
the Finance Act, 1894 of England and, 331 therefore, estate duty was exigible
in respect of it by virtue of section A 2(1)(a) of that Act.
The information filed on behalf of the
Attorney-General alleged that Margaret Louis Quixley died intestate on 11th
April, 1 1927. Letters of administration to her estate were 5th July, 1927
granted to her sister, the defendant, out of the Principal Probate Registry.
The deceased was at the time of her death in the service of the Girls' Public Day
School Trust as a secondary school teacher at the Blackheath High School and
had been in such service for a period of upwards of five years. Such service
was "recognised service" within the meaning of the School Teachers
(Superannuation) Acts, 1918 to 1925, and "contributory service"
within the meaning of the Schools Teachers (Superannuation) Act, 1925, and the
contributions prescribed by the School Teachers (Superannuation) Acts, 1922,
1924 and 1925 were duly paid by and in respect of the deceased down to the time
of her death. In the above circumstances a death gratuity became payable by the
Board of Education to the defendant as the legal personal representative of the
deceased under the School Teachers (Superannuation) Act, 1925. Rowlatt, J.
Observed that the question involved was not
free from difficulty. He narrated the facts as such. The lady was a teacher
under circumstances which under the School Teachers (Superannuation) Act, 1918,
entitled her to the prospect of- brought within the ambit of a power in the
Board of Education to grant a gratuity of this kind on her death.
Rowlatt, J. Observed that she had no right,
she made no contribution, but there was a power conferring a gratuity.
Then the effect of the School Teacher
(Superannuation) Act, 1922, was that she remained without any further advantage
than being in the category of persons who might receive such a grant, but she
was compelled to make a contribution. Under the School Teachers
(Superannuation) Act, 1925, matters were carried a step further because she or
her executors or administrators were given in return for the compulsory
contribution a right to receive the gratuity. Considering sub-section (1)(a) of
the relevant Act which is similar to our section 6 of the present Act reads as
follows:
"Property which the deceased was at the
time of his death competent to dispose of shall be deemed to pass on his death.
" Rowlatt, J. gave judgment for the Crown. There was an appeal and the
appeal was dismissed. Lord Hanworth, M.R. after stating the H 332 facts and
analysing the provisions noted that in 1925 there came an important Act under
which the gratuity became payable to the deceased's representatives. Master of
Rolls further went on to observe that from and after the operation of the Act
of 1925 referred to in the judgment, there was a definite right on the part of
the school teacher who fulfilled certain conditions-as the teacher before the
Court of Appeal did, by dying at the time when she was still in contributory
service-to be paid a sum which was to be estimated and calculated under the
provisions of the statute. Master of Rolls further observed: the statute,
therefore, gave at once a right to the person who fulfilled the conditions of
service, and equally a right to the board to insist on the contributions being
paid. Master of Rolls found as a fact that all the conditions required were
fulfilled, therefore, the teacher had an absolute right to be paid. It is this
significant factor that has to be borne in mind. Therefore, it was held that
there was a right which the deceased could dispose of by will, therefore, it
was property passing on the death of the deceased.
It was a comprehensive Act providing for
superannuation benefit for teachers on retirement and gratuity to legal heirs
in the case of death in service. Section 5 provided that death gratuity to be
paid to legal heirs if teacher died while in service. Section 9 provided for
contribution compulsory at a certain fixed percentage both by the teacher and
by the employer. Section 12 provided for repayment of contributions on teacher
creasing to be eligible. See in this connection Halsbury's Statutes of England,
2nd Edn., Vol. 8, page 388. In that context, in our opinion, this question of
liability arising on the death of accident policy has to be understood in a
different perspective. In Quixley's case, there was a vested right in the
teacher during her lifetime and the teacher could dispose of that right in the
manner she liked. But in case of death by accident in aircrash, the deceased
had only a right of nomination for his heirs to get the money but the money
would arise or the property would be born only on the contingency of the death
happening. We have examined the nature of the right-in the light of the
submissions made.
The interest in accident policy does not pass
through the estate of the deceased. It was always a chance so far as the
deceased was concerned in the instant case. Sankey, C.J. found in Quixley's
case that the deceased had a right-only quantification was not there. But in
the instant case before us the deceased had no right in his lifetime.
Undoubtedly the right to nominate and right of the nominee or legal
representative to get the money was there in case 333 of death of the deceased
but the deceased had no right to the money A which was dependent on happening
of an uncertain event.
In Controller of Estate Duty v. A. T. Sahani,
New Delhi, 78 I.T.R. 508, the Delhi High Court had to consider slightly
different question. There under Rule 159 of the Indian Airlines Corporation
(Flying Crew) Service Rules, a member of the flying crew was entitled to a
compensation at specific rates in the event of his death or an injury caused by
an accident during or as a result of air journey performed as such in the
Corporation's service. The compensation payable under the said rule was in
addition to the compensation which the Corporation had agreed to pay under an
agreement described as Pilot Agreement entered into with the Corporation
whereby it was provided that the Corporation shall pay compensation for the
death of a pilot a maximum of 36 times his monthly basic pay if such death
occurred in the circumstances mentioned in the above- mentioned service rules,
or while travelling on duty in surface transport provided by the Corporation or
its nominated agents. In accordance with the terms of the aforesaid agreement
between the deceased and his employer, a sum of R.S.. 68,300 was received by
his widow as compensation. The High Court under reference in that case held
that the right to get compensation as a condition of one's service was as much
an interest in property as any other interest which a person might have in
incorporeal property, such as choses-in-action etc. The circumstances that the
occasion for the exercise of the right arose after the death of the person and
was also conditional upon death, did not in any way detract from the existence
of the right of the deceased's interest therein during his lifetime.
The Court noted that though in that case, the
deceased was not required to make any contribution for the purpose of earning
the compensation as in Quixley's case, yet the compensation was payable as a
reward for the services rendered. Therefore, the deceased had interest in it
and had also the right to appoint the person to whom it should be paid. The
distinction between pecuniary damages for the loss caused to the estate and
pecuniary loss sustained by the membes of his family through his death has no
relevance for the purpose of deciding whether the compensation payable in a
case like the present was property which should be deemed to pass on the death
of deceased. The High Court felt that the case came within the ratio of the
decision of the Court of Appeal in Quixley's case (supra). But the facts of the
instant appeal are different.
334 Prior to the judgment under appeal the
problem arose before Jammu & Kashmir High Court in the case of Controller
of Estate Duty v. Kasturi Lal Jain, 93 I.T.R. 435. Ali, C.J.
as the learned judge then was of the Jammu
& Kashmir High Court held that before a property could pass to the heirs of
a deceased person under section 5 of the Estate Duty Act, 1953, it had to fulfill
the following conditions:
"(i) The property must be in the power,
possession and control (actual, constructive or beneficial) of the deceased;
(ii) The deceased must have an interest,
whether in praesenti or contingent, in the said property;
(iii) The property must be in existence
during the life-time of the deceased or at the time of his death; and (iv) The
deceased must have power of disposition over the property." The Court was
of the view that where compensation was paid under the Carriage by Air Act,
1934, to the heirs of a person dying in an air crash by the Airlines
Corporation, the deceased had neither any interest in the property nor was he
in possession of the property either actually or constructively. The property
in such a case did not and could not have come into existence during the
lifetime of the deceased but accrued for the first time after his death and
that too because his death took place in a certain mode.
It was further held that under the provisions
of the Carriage by Air Act, 1931, the compensation ensured for the benefit of
the members of the passenger's family and had nothing to do with the estate of
the deceased. As none of the above said conditions for the passing of property
on death under section 5 of the Act was fulfilled, the estate duty could not be
levied on such compensation. The learned Chief Justice observed that the
connotation of the words 'passes on the death of such person' was important. He
referred to Webster's International Dictionary. He observed that 'passing'
involved some actual change in the title or possession of the property which
must result on death. The Division Bench therefore negatived the revenue's
contention.
The Punjab and Haryana High Court in the case
of Controller of Estate Duty, Patiala v. Smt. Motia Rani Malhotra, 98 I.T.R.
42, had to deal with this problem though in a different context. It is held by
the High Court in that case that the amount of compensation received by 335 the
heirs of a person who died in an air crash comes into being only A after the
death of the person. It exists at no point of time either contingently or
otherwise during the lifetime of the deceased. The High Court was of the
opinion that the property which was not in existence at all during the lifetime
of the deceased cannot be said to pass on his death. The provisions of the
Indian Carriage by Air Act, 1934 provided compensation to members of the family
of a victim of an air crash. In the very nature of things the damages by way of
compensation arose after the person was dead. The Act definitely provided for
whom it was available.
If it were part of his estate passing on his
death it would pass on to his heirs other than those specified in the Act, in
case they were not in existence. But that did not happen.
If the members of the family specified in the
Act are not in existence, the payment has not to be made. Hence, the
compensation was not property capable of passing on death.
The High Court felt that there was a lot of
difference between compensation received on account of permanent or temporary
injury in an air crash, and the compensation received by the heirs of a person
dying in an air crash. In the former case the amount received by the person
formed part of his estate but where compensation was received by his heirs on
his death in air crash, according to the High Court, it cannot partake of his
estate. When a person boarded a plane he could not, at that time, be said to
have created an estate or interest capable of passing after his death.
Section 15 of the Act provided for those
types of cases where the owner of property tried to dissipate his property in
such a way that it passed on to his heirs without suffering estate duty. It did
not bring to charge compensation received by the heirs of a victim of an air
crash. Therefore the sum of money received in such a case was not liable to
estate duty, according to Punjab and Haryana High Court. The problem there was,
however, slightly different, from the present but the basic position was that
the property came into existence only on the death of the passenger in the
plane.
In Bharatkumar Manilal Dalal v. Controller of
Estate Duty, Gujarat, 99 I.T.R. 179, it is necessary to refer briefly to the
facts. One M, the deceased, in that case had purchased on 8th August, 1965, a
limited non-renewable policy covering certain travel accidents from A insuring
himself against risk of air travel for his journey from U.S.A. to India and
back for a maximum sum of f 75,000.
Similarly, the deceased had purchased in
July, 1965, a personal accident policy from company insuring himself for a
maximum of R.S.. 1,00,000 against risk 336 of loss of life or limb arising as a
result of accident in the course of one year. The deceased had paid only one
premium of R.S.. 255 under the said policy to the company B.
The father of the deceased, the accountable
person, was nominated as the beneficiary in both the insurances for receiving
the claim amount payable under the policies in case of death of the insured. M
died on 24th January, 1966, in a plane accident on his way to the U.S.A. R.S..
1,00,000 and R.S.. 3,57,808 were received from company and Company A
respectively by the accountable person as a sequel to the accident. The
Appellate Tribunal held that the said two sums were liable to be included in
the dutiable estate of the deceased, M, under section 15 of the Estate Duty Act
but not under any other section. On a reference at the instance of both the
accountable person and the revenue, the question was whether the amounts were
liable to estate duty under sections 5, 6, 14 or 15 of the Act.
The High Court held that section 14 of the
Act was not attracted on a plain reading of the section. The High Court held
further that section 14 imposed liability of duty on money received under a
policy of insurance effected by any person on his life and would not,
therefore, take in its sweep the cases of moneys paid under an accident policy,
the connotation of which was well known as contradistinguished from that of
life policy. It was contended for the assessee that the purchase of an accident
policy by the deceased could not be held to be an interest purchased or
provided by him within the meaning of section 15 of the Act and that the words
"other interest" in section 15 should be understood in the cognate
sense of the word "annuity" on the principle of noscitur a sociis.
The term "other interest" was of widest amplitude and there was no warrant
in the section itself or in any other provision of the Act to infer that the
legislature wanted to restrict the meaning and import of the term "other
interest". The contention that the import of the term "other
interest" should be restricted and that it should take colour from the
word "annuity" and should bear a cognate meaning must be rejected. If
the legislative intent as outlined in the Statement of objects and Reasons
given in the Bill legislature wanted to cover all kinds of interests which have
been purchased or provided by the deceased in the nature of annuities or
policies other than life insurance policy as passing on his death to the extent
of a beneficial interest accruing or arising as a result of the death. The High
Court referred to the decision in Westminster Bank Ltd.
v. Inland Revenue Commissioners. [1957] 2 All
E.R. 745 = 36 I.T.R. (ED) 3. It could not be successfully contended, according
to the High Court, that the deceased had no interest in his lifetime in the 337
relevant policies. In the two personal accident policies in that case, the A
subject matter of the insurance was the person of the deceased in case of its
being exposed to certain perils of travelling and the assured would clearly be
prejudiced by the loss of life or limb as a result of the accident and,
therefore, had an insurable interest for purposes of personal accident. To
contend that death did not generate a new beneficial interest, the High Court
felt, was beside the point for the time being. The deceased had an interest in
the contractual right under the two relevant policies of insurance to exact a
particular sum, if and when there was loss of life or limb arising as a result
of accident. The very fact that deceased had a contractual right to exact a
particular sum in case of loss of life or limb was an interest in expectancy
and it would have been in interest in presenti the moment the accident occur-
red resulting in loss of limb. The contract of insurance contained in the two
relevant policies conferred on the deceased the benefit of the policies,
namely, the right to exact a particular amount of damage depending on the loss
of limb or life. as the case might be. The contention that the deceased had no
interest in the policies, according to the High Court, was not well found be
upheld. It was further held that on the death of the insured, the beneficial
interest of the accountable person was generated. Therefore, section 15 of the
Act was applicable.
As regards the applicability of sections 5
and 6 of the Act, the deceased had property in the nature of interest to
receive the sums assured on the happening of the contingency of accident
resulting in loss of limb or life under the contracts of insurance contained in
the aforesaid two accident policies and he was competent to dispose of that property
by an act inter vivos or by a will. The property in nature of interest was in
existence in the lifetime of the deceased which passed on his death to the
beneficiaries designated or to his legal representative in absence of such
designation and was, therefore dutiable under section 5 of the Act. In any
case, he had a right to property and under the said policies which he could
have disposed of by will and, therefore, it must be deemed to pass on his death
under section 6 of the Act. In the view we have taken of the policy involved in
the instant case, we are unable, with respect, to agree with the High Court
that the deceased had right in expectancy-the deceased had no right, the
nominee or the beneficiary would have the right-the property does not pass through
the deceased.
Relying on section 34(3) of the Act, it was
contended by the 338 accountable person that the aforsaid sum should not be
aggregated with other property of the deceased and should be assessed as an
estate by itself. As we have noted before, this question is a subject matter of
Civil Appeal No. 67 of 1975. On this aspect, the judgment under appeal held in
favour of the accountable person while the Gujarat High Court was of the view
that sub-section (3) would not be applicable because it could not be said that
the deceased had no interest in the contract of insurance contained in the two
accident policies. The High Court held that the deceased had property in the
nature of interest to receive payment in case of loss of limb arising as a result
of accident or the deceased purchased an interest for the benefit of his legal
representatives in case of loss as a result of accident. It, therefore, could
not be said that the deceased had never any interest in the contracts of
insurance contained in the said two policies and money payable thereunder. To
this extent, the Gujarat High Court dissented from the Madras High Court's
view. It was further held by the Gujarat High Court that it could not be
contended that the principal value of the property should be determined with
reference to the death of the insured and at the time of his death the property
in question had only the value of the premiums which had been paid. It must be
held that the valuation must be ascertained on the date immediately succeeding
the date of the death, which, in the present case would be aforesaid two sums.
Therefore, the High Court allowed two sums received from the insurance company
to be included in the estate duty under section 5, section 6 and section 15 of
the Act.
The Bombay High Court in Smt. Amy F. Antia v.
Assistant Controller of Estate Duty, Bombay, 142 I.T.R. 57, was confronted with
a situation where an engineer in the employment of M.N. Destur & Company
died in an air crash on 28th May, 1968. The question which arose in the course
of estate duty proceedings on his death was whether an amount of Rs.68,400
which was payable on the death of the deceased in pursuance of a group
insurance policy taken out by the employer, Destur & Co. was liable to be
included as part of the property which passed on the death of the deceased. The
Bombay High Court was of the view that personal accident insurance was one of
the three main types of insurance. The object of personal accident insurance
was to make a provision in case an accidental injury happens which may
sometimes disable a person and affect his employment and his earning capacity
or in some cases it may result in death, and the injured person wants to make
provision for his dependants in case untimely accidental death occurs. A
personal accident policy was in the 339 nature of a provision for the legal
representatives and in the case of the death of the insured, the death benefit
was payable to the legal representatives. The proviso in the insurance policy
in that case stated that the insured alone would have the sole and exclusive
right of receiving payment or enforcing any claim under the policy. & Co.
issued an office circular which made it clear that the compensation payable by
the insurance company in each case would be equivalent to two years salary of
the individual concerned at the time of accident resulting in a claim under the
policy. Clause 5 of the circular stated that the benefits enjoyed by the staff
under the scheme were ex gratia in character and might be withdrawn or modified
at the sole discretion of the company. In pursurance of the insurance policy a
sum of R.S.. 68,400 was paid by & Co. to the estate of the deceased. A sum
of R.S.. 50,000 was also paid to the estate of the deceased by the airlines in
accordance with the provisions of the Indian Carriage by Air Act. The Assistant
Controller and the Appellate Controller held that both the amounts were liable
to estate duty. The Tribunal held that the amount of R.S.. 68,400 was liable to
estate duty and out of the amount of R.S.. 50,000, R.S.. 43,846 was not liable
to estate duty. The Bombay High Court held that with regard to the amount of
R.S.. 68,400 the insurance policy and the circular issued by & Co. had to
be read together. The policy expressly provided that in the case of an insured
person suffering an injury, the insured would be paid the capital sum insured
against the name of the insured person and in respect of the person- suffering
was twice the annual salary drawn by the person on death or occurrence of the
accident. The High Court held that the sum of R.S..68,400 was, therefore,
liable to estate duty but held also that the sum received under the provisions
of the Indian Carriage by Air Act was not liable to duty under the Act.
The learned judges referred to the two
decisions under appeal. The real question which fell for consideration in the
case before the Bombay High Court was whether question No. l in that case was
what the right the deceased had in the personal accident policy. The question
No. 1 in that case was whether, on the facts and in the circumstances of the
case, the sum of R.S.. 68,400 payable on the death of the deceased in pursuance
of the insurance policy was liable to duty on estate. It would thus appear that
each case is decided in the peculiar facts in terms of the policy.
Reliance was also placed on certain
observations in the case of P. Indrasena Reddy & Pingle Madhusudhan Reddy
v. Controller of Estate Duty, 156 I.T.R. 45. There, the Court was dealing with
the test of "disclaimer". The Court observed that the test of
"disclaimer" has to H 340 be adopted to determine whether the
deceased had any interest in insurance policies. If the facts showed that the
beneficiaries disclaimed, the resulting interest would be in favour of the
deceased and the policy amount would pass to the legal representative.
It was condition precedent for the
application of the Act that the estate holder must have possessed or enjoyed
the property or interest in property, the interest in property might be either
vested or contingent but interest should be that with regard to which either
immovable property or movable property or an interest in immovable or movable
which was capable of being ascertained during the lifetime or at the time of
the death of the estate holder.
The property vested or contingent must be one
which was capable of being ascertained. Even if the above tests were satisfied
then there has to be a passing of that property or interest as contemplated
under section 2(16) of the Act.
Even if a person might have power to dispose
of a property or interest in property, he cannot or his estate cannot be
brought within the purview of the Act solely because of that factor. In order
for an estate to be liable to estate duty the power of disposition must be with
regard to a property capable of being ascertainable during the lifetime of the
deceased ceased or at the time of his death. It was next urged that property or
interest in property had necessarily to change hands in order to be liable to estate
duty under the Act. There had to be a change in the beneficial possession and
enjoyment of the property or the interest in that property. In other words the
property or interest which is liable to estate duty has to pass through the
estate of the deceased. It is important to bear in mind that though the
deceased might have a right of disposition as and when the property would be
available in case the contingency happens namely the death of the deceased in
an accident, but that right is different from the right to the money accruing
or arising because of the death due to accident. See in this connection the
case of Shri H. Anraj etc. v. Government of Tamil Nadu etc., [ 1986] (1) SCC
414. So in this case the property is really born on the death of the deceased
in an accident. Property in the sense the sum of R.S.. two lakhs was
non-existence before the death. There might have been some right of disposition
in respect of the property which might accrue on the death of the deceased.
That right is different from the right to the movable property of R.S. 2 lakhs
that is taking place.
An accident insurance policy cannot be
construed as movable property unlike a life insurance policy or an annuity
because as laid down in section 2(15) of the Act it is not only necessary for
the person 341 to have property or interest in property but that interest must
be in A regard to a movable property and his interest should also be capable of
being ascertainable during his lifetime or at the time of his death in that
movable property. Secondly, an accident insurance policy could not be construed
as a property or an interest in property since a person who possessed it cannot
also be said to have a contingent interest because there was every possibility
of the accident policy getting extinguished or rendered worthless during his
lifetime; on the other hand in the case of a life insurance policy, there was
always a tangible continuing interest only that the value of that interest
might be subjected to change at the time of passing of the property.
A contingent interest which did not get
crystalised during the lifetime of the deceased hut which interest would, with
certainty, accrue after the demise of the estate holder will be caught by
section 6 of the Act. A property passed from the deceased to the beneficiary.
Though only a future interest that crystallised after the death of the estate
holder would be deemed as a property of the estate holder. The accident policy
could only accrue after the death of the estate holder. It became property for
the first time after the demise of the estate holder. There was no element of
property during the lifetime of the estate holder The interest in an accident
insurance policy did not pass through the estate of the deceased as in the case
of a life insurance policy or annuity and here the interest directly went to
the beneficiaries in the case of death by accident of the estate holder.
This Court had to deal with nomination under
the Insurance Act in the case of Smt. Sarabati Devi & Anr. v. Smt. Ushal
Devi, [1984] (1) SCR 992. In that case the effect of nomination under the
Insurance Act was analysed.
The meaning of the expression "property
passes" came up for consideration in the observations of Viscount Simonds
in the case of Public Trustee v. Inland Revenue Commissioners [1960] A.C. 398,
where at page 407 of the report Viscount Simonds dealing with section 1 of the
Finance Act. 1894 of U.K observed that:
"the word "passes", familiar
as it has now become to us, was not in 1894 a term of art in the law relating
to death duties, and that it would appear to have been a matter of H 342 sheer
necessity for the Act to proceed to a definition of the area of charge. It was
natural that the draftman should do so by the use of the word "deem,"
a word which, has been described by Lord Radcliffe, is apt to include the
obvious, the uncertain and the impossible." Section 6 of the Act which
makes property which the deceased at the time of his death competent to dispose
of deemed to pass on his death makes, as in the words of Lord Radcliffe, inter
alia, to include, 'impossible'. But the question here in the instant case is
whether the expression 'impossible' also include the possibility of including
something which is not property as yet of the deceased to pass on the death of
the deceased. The fact that a person can nominate a beneficiary will not
tantamount to disposition.
In view of the discussions above we are of
the opinion that insurance money became property only on happening of a
specified contingency. That property arose on the death of the deceased during
the subsistence of the policy in accident. We are dealing with the passing of
property or situation where property can be deemed to have passed. The property
in this case is the sum of R.S.. 2 lakhs which became receivable by the nominee
or the legal representative of the deceased because of the death of the
deceased in air accident during the subsistence of the policy. That right to
the sum arose because (a) the deceased died; (b) in air accident; (c) during
the subsistence of the policy that property was not there before. Therefore,
property came into being on that contingency after death. In our opinion,
therefore, no property can be deemed to pass on the death of the deceased. In
any event, during the lifetime of the deceased, an interest was vested totally
and irretrievably in the hands of the beneficiary or the legatee or the
nominee. The death did not cause property to change hands.
The fact that a person can nominate a
beneficiary will not tantamount to a disposition of the property. In any event
that disposition vested in the nominee or the legal representative a right in
the property. It did not pass on the death of the deceased. In the premises, we
are unable to accept the High Court's conclusion on the first question and we
are in agreement with the views of the High Court of Jammu and Kashmir in
Controller of Estate Duty v. Kasturi Lal Jain (supra) . The first appeal No.
2086 of 1974 is allowed and question no. 1 is answered in the negative.
In that view of the matter question No. 2
which is the subject 343 matter of Civil Appeal No. 67(NT) of 1975 need not be
dealt with. However, we are of the opinion on the construction of section 34(3)
and the views expressed by the High Court on this point that had it been
necessary to answer this question, we would have treated this as a separate
estate from the other estate of the deceased and the value of this could not be
aggregated. B The third question which is also the subject matter of appeal No.
67 of 1975 relates to the adoption under the custom of Chettiar Community. Now
whether a particular custom prevails in a particular community or not is a
matter of evidence. Mayne's Treatise on Hindu Law and Usage 10th Edn. edited by
S. Srinivasa Iyengar from page 280 described the peculiar form of
Dwyamushyayana adoption thus:
"208. An exception to the rule that
adoption severs a son from his natural family exists in the case of what is
called a dwyamushyayana or son of two fathers. This term has a two-fold
acceptation.
Originally it appears to have been applied to
a son who was begotten by one man upon the 1 wife of another, but for and on
behalf of that other. He was held to be entitled to inherit in both families,
and was bound to perform the funeral obligations both of his actual and his
fictitious father. This is the meaning in which the term is used in the
Mitakshara; but sons of this class are now obsolete. Another meaning is that of
a son who has been adopted with an express or implied under seems to take place
in different circumstances.
One is what seems to take place in different
circumstances. One is what is called the Anitya, or temporary adoption, where
the boy is taken from a different gotra, after the tonsure has been performed
in his natural family. He performs the ceremonies of both fathers, and inherits
in both families, but his son returns to his original gotra. This form of
adoption is now obsolete.
The only form of dwyamushyayana adoption that
is not obsolete is the nitya or absolute dwyamushyayana in which a son is taken
in adoption under an agreement that he should be the son of both the natural
and adoptive fathers. It appears to be obsolete in Madras on the East Coast.
But in the West Coast among the Nambudri Brahamana, it is the ordinary form. In
Bombay and the United Provinces its existence is fully recognised. It has H 344
been recognised by the Judicial Committee in two cases from Bengal." In
Mulla's Principles on Hindu Law, 3rd Edition, p. 393 Dvyamushyayana, the effect
of partition has been described.
These have been set out in the judgment of
the High Court.
It is not necessary to reiterate them again.
In any event we accept the reasoning of the
High Court that if the adoption was not valid as contended for by the revenue,
then Muthiah continued to be a member of the natural family and as such his
share in the joint family would have passed on the death of the deceased. In
this background, it is, however, difficult to appreciate the stand of the
revenue that the adoption was valid but no effect could be given to the ter ns
of Muri. Muri, according to revenue stood by itself. The High Court found it
not possible to accept this argument. We are of the same view.
The agreement properly read could not be
taken as a post- adoption agreement. In that view of the matter certain factual
aspects were urged before the High Court for contending that the accountable
person was not free to urge that there was no valid adoption and Muthiah
continued to be a member of the natural family. We do not find much merit in
such contentions and these need not be dealt with. These have been dealt with
by the High Court and we accept them.
Not much serious arguments in support of the
appeal on this aspect by the revenue was advanced before us. In the premises we
uphold the decision of the High Court in two questions involved in appeal No.
67 of 1975 and therefore the second question in that appeal is answered by
saying that amount of Rs.2 lakhs if assessable would have been assessed as a
separate estate and on the third question-the share of the deceased in the
property of the joint family at the time of death was one-third and not
one-half. In the premises this appeal fails and is dismissed.
In view of the divided success, parties will
pay and bear their costs in both the appeals.
A.P.J. Appeal dismissed.
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