whether compensation paid by an Airlines Corporation under the Carriage by Air Act, 1934 to the heirs of a person dying in an air crash can be regarded as property passing on the death of the deceased victim for the purposes of Estate Duty Act, 1953 - Income Tax - 880/CBDT

INSTRUCTION NO. 880/CBDT Dated : September 30, 1975 Section(s) Referred: 34(3) Statute: Estate Duty Act The question whether compensation paid by an Airlines Corporation under the Carriage by Air Act, 1934 to the heirs of a person dying in an air crash can be regarded as property passing on the death of the deceased victim for the purposes of Estate Duty Act, 1953, was considered by the Jammu and Kashmir High Court in the cases of Controller of Estate Duty Vs. Kasturi Lal Jain and Controller of Estate Duty Vs. Mohini Devi Muju (93 of I.T.R. 435). The High Court observed that before a property could pass to the heirs of a deceased person under section 5 of the Estate Duty Act, 1953, the following conditions must be fulfilled:- (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 present 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 High Court held that the deceased had neither any interest in the compensation amount nor was he in possession of the compensation either actually or constructively. Further, the compensation itself did not and could not have come into existence during the life-time of the deceased but accrued for the first time after his death and that too because his death took place in a certain mode. Under the provisions of Carriage by Air Act, 1934, the compensation ensured for the benefit of the members of the deceased passenger's family and had nothing to do with the estate of the deceased. The High court concluded that estate duty could not be levied on such compensation. The decision of the High Court has been accepted by the Board. 2. Carriage by Air Act, 1934 has been repealed by Carriage by Air Act. 1972 and now compensation is paid to the heirs of air crash victim in respect of: (a) International Carriage, in terms of the Schedules to the Carriage by Air Act, 1972; and (b) domestic Carriage, in terms of notification issued by the Government of India in exercise of the powers conferred by the Carriage by Air Act, 1972. The principles mentioned in para 1 ante would apply to compensation payable under the provisions of Carriage by Air Act, 1972 or the Government of India notification. 3. A further question which would arise in this regard is whether the compensation amount could be treated as an estate by itself and subjected to estate duty in terms of section 34(3) of the Estate Duty Act. The Board are advised that in view of the use of the word 'passing' in sub-section (3) of section 34 and in view of the interpretation put upon the charging section by the aforesaid High Court, section 34(3) would also be inapplicable to such compensation. 4. It may, however be noted that moneys received under accident insurance policies are liable to estate duty under section 5 or/and section 6 and section 15 of the Estate Duty Act. In the case of Shri Bharatkumar Manilal Dalal Vs. Controller of Estate Duty (Estate Duty Reference No 1 of 1973) decided by the Gujarat High Court the deceased had purchased in July-August. 1965 a limited non-renewable policy covering certain travel accidents on scheduled airlines and also a personal accident policy insuring himself against risk of loss of life or limb arising as a result of accident in the course of one year. On the death of the deceased in an air-crash in January. 1966 the accountable person received two sums of Rs. 1,00,000 and Rs. 3,42,864 from certain insurance companies. The question before the High Court was whether these sums were liable to estate duty The Court held that "the deceased had property in the nature of interest to receive the sum 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 that he was competent to dispose of that property by an act inter-vivos or by a will. The property in the nature of interest was in existence in the life time of the deceased which passed on his death to the beneficiaries designated or to his legal representatives in the absence of such a designation, and was, therefore, dutiable under section 5 of the Estate Duty Act. In any case he had a right to property 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 Estate Duty Act". The Court also held that the term "other interest" in section 15 of the Estate Duty Act is wide enough to cover the cases of interest under accident policies and further that it was by the death of the insured that the beneficial interest of the accountable person was generated since the latter had no interest whatsoever in the sums insured or in the contractual rights under the policies during the life-time of the insured. Thus, the court found that section 15 also was applicable. Further, as the deceased had a 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 in interest for the benefit of his legal representatives in case of loss of his life as a result of accident, it cannot be said that the deceased never had an interest in the contracts of insurance and moneys payable thereunder and, therefore, the moneys covered by the accident policies should be aggregated along with other property for the purpose of levy of duty. 5. This may please be brought to the notice of all the assessing officers.