1975 (7) TMI 88 - AT - Income Tax

Issues Involved:
1. Ownership of forest lands.
2. Valuation of forest lands.
3. Inclusion of "Nagammal Bhavan" in the estate.
4. Valuation of shares in Palkulam Estates Ltd.
5. Valuation of shares in Nagammal Mills Ltd.
6. Deemed transfer of assets of controlled companies under Section 17 of the ED Act.
7. Deduction of Estate Duty (ED) payable in computing the principal value of the estate.
8. Charging of interest for belated filing of the ED account.

Detailed Analysis:

1. Ownership of Forest Lands:
The primary issue was whether the forest lands of 950 acres 73 cents belonged to the joint family or exclusively to the deceased. The lands were purchased in the name of the deceased, who was the Kartha of the joint family. The Department argued that the deceased and his brothers had divided the property before 1943, supported by a release deed and subsequent tax filings. The accountable persons contended there was no partition and the lands were held jointly. The Tribunal concluded that the forest lands belonged to the HUF consisting of the deceased, his wife, and unmarried daughters, with the deceased as the sole coparcener, thus passing entirely on his death.

2. Valuation of Forest Lands:
The valuation of 847 acres 50 cents of forest lands was contested. The Assistant Controller valued these lands at Rs. 500 per acre, which was reduced by the Appellate Controller to Rs. 250 per acre due to litigation and claims by the Tamil Nadu State Government. The Tribunal further reduced the valuation to Rs. 100 per acre, considering the ongoing litigation and potential costs.

3. Inclusion of "Nagammal Bhavan" in the Estate:
The property "Nagammal Bhavan," gifted by the deceased to his daughters, was included in the estate under Section 10 of the ED Act. The Tribunal held that only the portion allotted to the unmarried daughter, valued at Rs. 26,750, should be included, as the deceased continued to reside in that portion.

4. Valuation of Shares in Palkulam Estates Ltd.:
The shares held by the deceased in Palkulam Estates Ltd. were valued based on the intrinsic value of the company's assets. The Assistant Controller valued each share at Rs. 1,177, which was reduced by the Appellate Controller to Rs. 1,167. The Tribunal further adjusted the valuation, considering the market value of the assets and restrictions on transferability, ultimately valuing each share at Rs. 800.

5. Valuation of Shares in Nagammal Mills Ltd.:
The deceased held both preference and equity shares in Nagammal Mills Ltd. The Assistant Controller's valuation of the preference shares was upheld, but the equity shares' valuation was contested. The Appellate Controller valued the equity shares at Rs. 159.64 per share, which was not challenged by the accountable persons. The Tribunal found no need to enhance the value of the preference shares.

6. Deemed Transfer of Assets of Controlled Companies:
The key issue was whether portions of the assets of Palkulam Estates Ltd. and Nagammal Mills Ltd. should be deemed to have passed under Section 17 of the ED Act. The Tribunal held that the sales of properties to these companies fell within the scope of Section 17(1). However, loans taken by the deceased from Palkulam Estates Ltd. were not considered "benefits" under Section 17(1). Only Rs. 78,147, treated as deemed dividend, was considered a benefit. Similarly, repayments of loans by Nagammal Mills Ltd. were not considered benefits. Consequently, no portion of the assets of these companies was deemed to have passed for duty purposes.

7. Deduction of ED Payable:
The accountable persons claimed that ED payable should be deducted in computing the principal value of the estate. The Tribunal rejected this contention, citing the Karnataka High Court decision that ED payable is not an allowable deduction under Section 44 of the ED Act.

8. Charging of Interest:
The charging of interest for the belated filing of the ED account was contested. The Tribunal upheld the charging of interest under Rule 42 of the ED Rules, stating that the assessment was completed after the rule came into force, making the charge valid.

Conclusion:
The appeals were partially allowed, with adjustments made to the valuation of forest lands and shares in Palkulam Estates Ltd. The inclusion of "Nagammal Bhavan" was limited to the portion allotted to the unmarried daughter. The Tribunal upheld the validity of charging interest and rejected the deduction of ED payable in computing the principal value of the estate. The Department's appeals were dismissed.

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