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TMI Blog1975 (7) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... 34/1973-74 and two companies, Palkulam Estates (P) Ltd. and Nagammal Mills Limited, both of them being controlled companies. 2. The deceased Kumaraswami and his two brothers, Nelliappan and Nagamani, were the sons of one Sastha, and they constituted an HUF. Kumaraswamy died on 18th Oct., 1960, leaving behind him four daughter, Bhagavathi ammal, Krishnammal, Thangammal and Rajammal, his wife Nagammal, having predeceased him in 1954. Nelliappan died on 18th July, 1961, leaving behind him five sons, Sastha, Muthuswamy, Kumaraswami, Gasesan, Paramasivan and his widow, Arumugha ammal and five daughters, Sivagamai annal, Krishnammal, Bhagavathi ammal, Rajamani ammal and Rugmani ammal and his wife, Anjayammal died in 1970. Nagamani, the younger brother had three sons, Sastha, P.N. Subramanian and Krishnan and two daughters. On the death of Kumaraswami, Krishnammal and Thangammal, two of his daughters, filed jointly an ED account on 1st Nov., 1961. The other two daughters, Rejammal and Bhagavathi ammal also filed separately ED accounts on 9th Nov., 1961. The Asstt. CED noticed that as a result of the compromise entered into between the daughters of the deceased his brother, Nagamani and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deceased, his two brothers and their sons and that consequently only one third share of the deceased therein could be deemed to have passed under s. 7 of the ED Act. He apportioned the duty payable among the various accountable persons and the to controlled companies. He directed that Rs. 5,60,561.68 was to be paid by. Nagammal Mills Ltd. Rs. 11,20,168.73 was to be paid by Palkulam Estates P. Ltd. and the balance of the duty of Rs. 11,93,742 and the interest of Rs. 79,543.66 was to be paid by the various accountable persons as set out in annexure D to the assessment order. 4. Aggrieved by such assessment, the four daughters of the deceased, the sons of Nelliappan and the two companies preferred E.D.A. NO. 17/1971-72, while the surviving brother, Nagamani, and his three sons preferred E.D.A. No. 16/1971-72 to the appellate CED, Southern Zone, Madras, raising various contentions. The main points of dispute before Appellate Controller were as regards (1) the Valuation of the interest of the deceased in the Partnership firm, Pioneer Motors (2) valuation of 2, 700 shares held by the deceased in Palkulam Estates P. Ltd. (3) valuation of 6,864 equity shares held by the deceased in Naga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken as "benefit" derived by him from the said company and that only Rs. 78,149 received by the deceased from the said company and deemed to be dividend under s. 2(6A)(e) of the IT Act, 1922, could be taken as benefit and on that basis the value of transfer benefit slice would be less than the value of the shares held by the deceased in the said company and consequently there was no need for the inclusion thereof in the assessment under r. 11(3) of the Controlled Companies Rules. He, accordingly, deleted Rupees 34,07,628 from the computations. Regarding the other controlled company, Nagammal Mills, Ltd. he held that Rs. 2,91,872 which was the amount repaid by the company to the deceased (the same having been lent by the letter to the company) obviously could not be treated as "benefit" received by the deceased, that consequently the total benefit received by the deceased from the said company would amount only to Rs. 93,250 with the result that the value of the slice of the assets of the said company includible under s. 17 of the ED Act on the basis of the enjoyment of such benefit would work out to Rs. 8,62,847 and since it was lower than the value of the preference and equity shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner, Smt. Varadammal, under the registered Sale Deed dt. 21st Dec., 1931 by the joint family in the name of the Kartha, the deceased. A true copy of this sale deed had been placed before us. The case of the Department is that the deceased and his two brothers became divided some time prior to 16th Sept., 1943. In support of this contention, reliance is placed upon the release deed executed by Nalliappan and Nagamani in favour of the deceased on 16th Sept., 1943. It is also pointed out that subsequent to this, the deceased and his brothers applied to the ITO, Tiruneleli, for recognition of the partition under s. 26-A of the IT Act, 1922, that the latter also passed an order on 30th Nov., 1949 recognising the partition and that thereafter the deceased had filed returns claimed the status of an individual and had been assessed as such and that his two brothers had been filing returns in their capacity as Kartha of their respective joint families, and had been assessed in such status. The accountable persons, on the other hand, contend that there was no division. According to them the release deed dt. 16th Sept., 1943 did not deal with the forest lands at all and did not also bring abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50,000 the purchaser company had to pay R.H.C. Rowther Rs. 6 lakhs, that being the balance payable to him for the purchase of the rubber estates from him and that for the balance of Rs. 4,50,000, the deceased and his two brothers were each allotted 1,500 shares of the said company of the face value of Rs. 100 each. He further pointed out that the deceased, his brothers and nephews and the company Palkulam Estates P. Ltd. had all executed a promissory note for Rs. 7 lakhs in favour of Palai Central Bank Ltd., on 27th Sept., 1960 whereunder moneys had been borrowed for the business of the said company. He also referred to the fact that in the compromise entered into between the daughters of the deceased, the sons of Nellaiappan, Nagamani and his sons in A.S. No. 127 of 1966, in the Court of the District Judge, Kanyakumari, the parties had agreed that these properties belonged to the joint family and that a decree in pursuance thereof was passed by the District Judge, Kanyakumari on 26th Sept., 1961. Reliance was also placed upon the fact in the appeal filed by the State of Madras against the deceased, viz. A.S. No. 81 of 1961 in the High Court of Madras against the Judgment and decre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of the bus transport and lorry transport and the business carried on under the name and style Pioneer Picture Place in Travencore State and that it had been further agreed that the deceased should pay each of them Rs. 25,000 Sarkar rupees within one year from that date. It was also categorically stated that the two brothers had given up their rights in all the other properties that were standing in the name of the deceased and the other businesses carried on by the family. It was emphasised in cl. 10 that they had become completely divided. 11. It will be thus seen that the operative portion of separation deed is unambiguous and unequivocal. There was not only a severance of status but a physical division of all the joint family properties. No property was excluded from its purview. It is also significant that the deceased and his two brothers applied to the ITO, Tirunelveli for recognition of the partition under s. 26-A of the IT Act, 1922 and the same was granted by the officer by his letter dt. 30th Nov., 1949. This shows that the partition was a real one and not a pretence or make believe. It is also not disputed that thereafter the deceased submitted returns only in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the deceased had executed a will in which he had asserted his exclusive right to these forest lands and had bequeathed them to them to his daughters and had also directed that they should bear equally the expresses of litigation relating there to. There is no evidence of any dispute between him and his brothers at that time. Hence it cannot be said that such assertion by the deceased was a false one. There was no motive for the deceased to make such an assertion unless it was true. 14. These lands had been purchases by the deceased from one Varadammal under a sale deed dt. 21st Dec., 1931. It appears that some time in 1957, the Government of Madras claimed rights over these lands of the extent of 847 acres 15 cents. Hence, the deceased instituted O.S. No. 30 of 1958 in the Sub Court of Nagercoil against the State of Madras for declaration of his title to those lands and for an injunction restraining the defendants from interfering with his peaceful possession and enjoyment of the same. That suit was decreed by the Sub Court on 30th April, 1960. Thereafter, the State of Madras preferred A.S. No. 81 of 1961 impleading the deceased as the sole defendant in the first instance. Dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 500 per acre. It was contended before the Appellate Controller that the rate adopted was excessive. It was pointed out that the State of Madras has claimed title to an extent of 847 acres 50 cents of these forest lands, that consequently the deceased instituted O.S. No. 30 of 1958 in the Sub Court, Nagercoil, that though the Subordinate Judge decided in favour of the deceased upholding his claim of title to these forest lands the State of Madras preferred As. No. 81/1961 in the High Court of Madras, that the High Court, by its Judgment dt. 17th Sept., 1967 held that the State of Madras had no title to these properties, that the deceased had not also established title to the properties and that consequently his heirs were entitled to remain in possession thereof as against the State of Madras and that the State of Madras had preferred a further appeal to the Supreme Court. The Appellate Controller taking into consideration these circumstances held that the above extent of 847 acres and 50 cents should be valued at the rate of Rs. 250 per acre. The appellants in E.D.A. No. 34 of 1973-74 have not questioned this valuation. But the appellants in E.D.A. NO. 40/73-74 have questioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r final hearing before the High court, it was contended that in view of the finding of the High court on the earlier occasion that the State of Madras had no title to these lands, the right of the heirs of the deceased to remain in possession of these lands as against the State of Madras should be upheld. This contention was accepted by the High court by its Judgment dt. 17th Sept., 1969 and only a restricted decree was passed, viz. that the heirs of the deceased were entitled to the suit properties as against the State of Madras and to resist interference by the Government. The High Court further observed that "the findings of the Subordinate Judge on the question of title and possessions of the deceased were set at large and should not be considered as final in any future proceedings. Thereupon, the State of Madras preferred an appeal to the Supreme Court and the matter is still pending. It will be thus clear that there is a cloud in the title of the deceased to this extent of forest lands viz. 847 acres 59 cents though he had been in possession thereof from 1931 and his predecessor-in-title had been in possession thereof prior to that. The possibility of the Supreme Court decidi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore us that the deceased had not reserved and right in this house under the gift deed executed by him in favour of this daughters, that he was only a licence and that consequently there was no scope for the application of s. 10. In support of this contention reliance was placed on the decision of the Supreme Court in CED vs. R. Kanakasabai & Ors., reported in 89 ITR 251 (SC). The learned standing counsel for the Department on the other hand contended that in view of the fact that the deceased was admittedly residing in a portion of the house, s. 10 of the Act was attracted. He pointed out that there was no scope for the application of the second proviso thereto since the said proviso came into force w.e.f. 1st April, 1966 having been introduced by Act 13 of 1966 and since the deceased had not reserved any right of residence in the gifted house. 20. In George De Costa vs. CED the deceased had purchased a house in the joint names of himself and his wife in 1940. They made a gift of their house to their sons in October, 1954. The deed of gift recited that the donees had accepted the gift and had been put in possession of the gifted property. The deceased died on 30th Sept., 1959. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ried daughter in the gifted house can be brought to duty. It can be reasonably taken that the portions allotted to each of the four daughters is of equal value. Therefore, only one fourth of Rs. 1,07,000 viz. Rs 26,750 alone can be included in the assessment as the value of the property deemed to pass under s. 10 of the ED Act. 22. Point No. 4. We now taken up the question of valuation of the shares held by the deceased in Palkulam Estates P. Ltd. This point has been dealt with by the Asstt. CED in paragraphs 8 to 15 of the order and by the Appellate Controller in paragraphs 12 to 14 of his order. The share capital of this company was Rs. 5,00,000 made up of 5,000 shares of Rs. 100 each. The deceased held 1700 shares in the said company. The accountable persons had valued these shares at Rs. 199.26 each. This was on the basis of the value of the assets of the company as given in the balance-sheet as on 16th Aug., 1960 valuing them at Rs. 22,33,287. Deducting the liabilities by way of secured loans and current liabilities and provisions amounting to Rs. 9,04,843, the value of 5,000 equity shares was arrived at as Rs. 13,28,444 and the value of each share as Rs. 265.68. 25 per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r adjustments for current assts, the proportionate profit from 17th Aug., 1960 upto the date of death of the deceased etc. the net value of the assets was taken as Rs. 5,884.85 and on this basis the Asstt. CED worked out the value of each share at Rs. 1,177. 23. It was contended before the Appellate Controller that r. 15 of the ED (Controlled Companies) Rules was not applicable and that the market value of the rubber gardens and the coconut topes fixed was excessive. The Appellate Controller did not accept these contentions. He also held that in view of the admitted fact that this company was a controlled company r. 15 was applicable. He also confirmed the value adopted by the Asst. Controller for valuing the rubber gardens and the coconut topes. But he held that there was no need for separately valuing the 100 acres of vacant land and the land covered by roads. He, accordingly deleted Rs. 50,000 and determined the value of each share as Rs. 1,167. 24. It was contended before us by Shri Mahalingam, the learned counsel for appellants in E.D.A. No. 34/1973-74 that in ascertaining the value of the shares held by the deceased in the said company, which passed on his death under s. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nery section and hence it could not be said that adoption of the break up method for determining the value of these shares of the deceased in the said company was opposed to the provisions of that section. 26. As already stated, this company, Palkulam Estates Estates Private, Limited was admittedly a controlled company. Rule 5 of the ED (Controlled) Companies Rules deals with valuation for ED of the shares held by an individual in controlled companies. It provides that "where for the purposes of ED, there pass on the death of a person shares in or debentures of a controlled company and if the deceased had the control of the company at any time during the three years ending with his death, the principal value, of the shares or debentures, as the case may be, shall be estimated by reference to the net value of the assets of the company in accordance with the provisions contained in sub r. (2), in lieu of being estimated in accordance which the provisions of sub-s. (1) of s. 36 of the Act". It is admitted by the accountable persons that the deceased had control over this company in the three years ending with his death. It therefore follows that the valuation of the shares held by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be realised by that process. But the Court stated that the principles enunciated were not hard and fast rules. The Madras High Court has pointed out in R. Ratnasabapathi Chettiar vs. CWT reported in 93 ITR 555 (SC) that the Supreme Court decision referred to above cannot be understood as having laid down that the break up method should be adopted only when the company was ripe for liquidation. For the reasons given above, we hold that the method adopted by the Asstt. CED was proper. 28. It is next contended that the Asstt. CED was not justified in adopting the rate of Rs. 4,000 per acre in respect of 956 acres of rubber gardens having plants of 13 years to 20 years of growth and at Rs. 2,000 per acres for 228 acres of rubber gardens having plants of the growth of 5 years to 7 years. It is pointed out that the Asstt. CED was not justified in rejecting the two instances of sales cited by the accountable persons, viz., the sale of 1212 acres of rubber gardens, coconut gardens etc., by Midland Rubber and Produce Company of Ltd. Arch-Bishop of Trivandrum in 1961 for Rs. 21,00,000 (the average rate works out to Rs. 1,568 per acre) and the sale by the said company to M.S. M.M. Meyyap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of net assets of this company has to be taken as Rs. 47,28,885 as against Rs. 58,84,885 fixed by the Asst. CED. On this basis, the market value of each share of this company works out to Rs. 946. But Art. 3(c) of the Articles of Association of this company provides that no share of it shall be transferred to any person without obtaining the consent of the company in general meeting. This imposes a restriction on free marketability and hence the value has to be discounted. Giving a discount of 15 per cent for this, the value of each share is to be taken as Rs. 800. Thus the value of 1,700 shares held by the deceased in this company has to be taken as Rs. 13,60,000 as against Rs. 20,00,900 fixed by the Asstt. CED. 30. Point No. 5--The next question to be considered is as regards the value of the shares held by the deceased in Nagammal Mills Ltd. This is covered by ground Number 2 in the memorandum of grounds of appeal filed by the Department. The deceased held 3,250 cumulative preference shares of the value of Rs. 100 each fully paid and 6,364 equity shares of the value of Rs. 100 each fully paid of the said mill. The Asstt. CED has valued the 3,250 preference shares at Rs. 3,25, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date of the death of the deceased. We, therefore, think that there is no need for enhancing the value of the preference shares held by the deceased in the said company. 31. Point No. (6) : The next question to be considered is regarding the inclusion of the value of the slice of the assets of the two controlled companies Palkulam Estates Private, Limited and Nagammal Mills Ltd. as deemed to have passed on the death of the deceased under s. 17 of the ED Act. As already stated, the Asstt. CED included Rs. 34,07,628 as the value of the slice of the assets of Palkulam Estates Private Ltd. and Rs. 17,05,266 as the value of the slice of the assets of Nagammal Mills Ltd. But the Appellate Controller has directed deletion of both. That was because he found that in the case of Palkulam Estates P. Ltd. only Rs. 78,149 which had been received by the deceased from the said company and which had been deemed as dividend under s. 2(6A) of the IT Act, 1922, could be considered as 'benefit' that on that basis the value of the slice of the assets of the said company that could be included in the assessment would be less than the value of the shares of the deceased in the said company and that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidual could legally avoid ED by transferring his assets to a company and getting allotted to him share in such company and securing other benefits such as remuneration as Director, rent free quarters etc. Thus, when the shares of a company are held by the deceased, they pass on his death. But what is dutiable in such a case in only their market value. The deceased could avoid duty on such shares also by giving out or settling them on his children provided the survived the statutory period. It is to meet this type of situation that s. 17 and allied sections have been enacted. 33. It will be seen from s. 17(1) that three conditions are necessary to establish a claim for ED thereunder. They are:-- (i) The company must be one to which the section applies. In other words, it must be a controlled company as defined in s. 17(4); (ii) The deceased must have made a transfer of property to the company. Such transfer should not be of an interest limited to cease on his death and such transfer should not have been made in a fiduciary capacity; (iii) Benefit must have accrued to the assessee in three years ending with his death. In the instant case, it is admitted by the accountable perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perties and separate ownership of properties by co-parceners was not recognised and that consequently if a coparcener died or a coparcener was born or adopted, no charge took place in the ownership of such property by the family, that subsequently there was a development of the law, as a result of which it was considered that interest of a co-parcener survived on his death on the other coparceners in the family that this was a recognition of the principle that a coparcener had an interest in the joint family properties, that a further development was that a co-parcener could own separate properties, and that a creditor could proceed against the undivided share of a co-parcener in execution of a decree obtained by him against such a co-parcener, that the law has been further charged by the provisions of the Hindu Succession Act of 1956 where under the interest of a coparcener in the joint family properties devolves by succession on his heirs in certain contingencies and a co-parcener has also been given a right to dispose of his share in the joint family properties by executing a will. He pointed out that s. 17 of the ED Act does not speak of the co-parcenary interest at all and tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e them. viz. "To my mind it would make a mockery of the undivided family system if this temporary reduction of the coparcenary unit to a single individual were to convert what was previously joint property belonging to an undivided family into the separate property of the surviving co-partner". The Judicial Committee rejected the contention that since a single co-partner". The Judicial Committee rejected the contention that since a single co-parcener had full power over the property held by him, he must be held to be the absolute owner and observed that the fact that he possessed such power of alienation appeared to be an irrelevant consideration. The above principle enunciated by the Privy Council has been referred to with the approval by the Supreme Court in Gowli Buddanna vs. CIT, Mysore, reported in 60 ITR 293 and N.V. Nardranath vs. CWT, Andhra Pardesh reported in 74 ITR 190. 37. In the instant case, we have already held that the deceased and his two brothers had become divided prior to 16th Sept., 1943. But in view of the decisions of the Supreme Court referred to above the deceased, his wife and his unmarried daughters constituted a HUF and the deceased was the sold coparce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s be the case under the Hindu Succession Act. The proviso to s. 6 enacts that if such a male Hindu dies leaving behind him a female relative specified in class 1 of the Schedule to the said Act or a male relative claiming through such a female relative, his interest in the Mitakshara co-parcenary property would devolve by testamentary or intestate in the Mitakshara co-parcenary property would devolve by testamentary or interest succession as the case may be. Sec. 30 of the said Act provides that it is competent for a co-parcener in a Hindu Joint Family to dispose of his interest in the joint family property by executing a will. In view of these vital changes, it can no longer be said that the interest of a co-parcener in a Joint family property is one limited to cease on his death. As has been rightly pointed out by the learned standing counsel, the decision of the Privy Council in Attorney General of Ceylon vs. A.R. Arunachalam Chettair & Ors. reported in is only to the effect that though the sole surviving co-parcener had an absolute right to dispose of the family properties held by him, they continued or retain the character of a joint family property. But it is not authority fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any case, the concept in s. 7 cannot be extended to s. 17. 40. It was next argued by Shri Mahalingam that the deceased being the Kartha of the HUF consisting of himself, his wife and un-married daughters was a trustee in respect of the properties that belonged to the said family and hence the transfer made by him of certain properties to the two companies being of such family properties, the provisions of s. 17 were not applicable. In this connection, he referred to be decision in G.Krishnaswami Naidu vs. CIT (1974) 1 TTJ Page 47, where it was mentioned that the kartha of a HUF was not an agent or a trustee but acted in a fiduciary capacity. Reference as also made to the decision in Annamalai vs. Murugesan reported in ILR 26 Page 544, where it was pointed out that the manager of an HUF was not an agent but his position was more like that of a trustee. But it has been pointed out by the Privy Council in Peerasu vs. Sillaraidu reported in ILR 44 Madras 656 that the position of a Manager of a Hindu Joint Family was not precisely the same as that of a trustee since he was not bound to economise and save as a trustee was. The cases referred to above were all cases where the Manager w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral, reported in 3 ED Cases 203. The Asstt. CED has also relied upon the passage occurring at page 80 of Hanson's Death Duties, which is as follows : "Successive payments in discharge of loans made by the deceased and successive loans made to the deceased by the company on the other hand answer the description of periodical payments and the reckonable as benefit". As already stated, he worked out the aggregate value of the assets of the company as Rs. 58,84,885 the total income of the company for the three years preceding the death of the deceased as Rs. 9,81,581 the benefit derived by the deceased as Rs. 5,68,382 and determined the value of the primary slice as Rs. 34,07,628. He did not, however allow reduction under r. 11(1) of the ED (Controlled Companies) Rules. 42. The Appellate Controller, on appeal, accepted the contention that the loans taken by the deceased from this controlled company, Palkulam Estates P. Ltd., could not be treated as "periodical payments" as defined in r. 5(1) r/w Rule 5(2) of the ED (Controlled Companies) Rules and hence could not be considered as a "benefit". He was of the view that unless payments had been received by the deceased from the contro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r indirectly, is to be treated as benefit. Clause (b) provides that any such income or payment which the deceased could have become entitled to receive by exercising, in the three years ending with his death of any power exercisable by him or with his consent, also should be treated as benefit. Thus, r. 5(a) covers cases of actual receipt by the deceased of any income of the company or any periodical payment, while r. 5(b) provides for cases, where though entitled to receive income of the company or such payment, the deceased had not actually received them. In other words, r. 5(a) may be said to provide for actual benefit which r. 5(b) provides for potential benefit. Sub-r. (2) of r. 5 is also important. It defines the expression "periodical payment" occurring in r. 5(a) as "meaning a payment by way of dividend or interest, a payment by way of remuneration not being a single lump sum payment and any other payment being one of a series of the same or of varying amounts, and whether payable at regular intervals or otherwise" (the provision corresponding to r. 5(a) in the United Kingdom Finance Act, 1940 is sub-s. (1) of s. 47 thereof. The provision corresponding to r. 5(2) in the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the deceased repaid in his life time will have to rank as benefits. Per Lord Simonds, the ejusdem generis rule has no application to the definition of "periodical payments". Lord Tucker doubted whether loans were within this definition, but considered that s. 47 did not provide an exhaustive definition of "benefits" and that the loans conferred benefits in the natural and ordinary meaning of that word". Reliance was also placed upon the decision in House of Lords in St. Aubyn vs. Attorney General, Ceylon ED case P. 293) referred to in the above passage 46, 46. Sec. 17(1) of the ED Act provides that where a deceased has made a transfer of any property to a controlled company and any benefits accrued to him, from the company in the three years ending with his death, the assets of the company shall be deemed to be included in the property passing on his death for the purpose of ED to the extent determined in accordance with sub-s. (2) thereof. The expression "any benefits accruing to the deceased from the company accrued to him" is significant. "Accrue" refers to a stage anterior to receipt and indicates a right to receive. In CIT Bombay vs. Ahmedbhai and Co. Bombay reported in 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mention of "advance by way of loan" where it is intended to be included. Dividend interest and remuneration mentioned in the above sub-rule are all founded on a right to receive the same. As already stated, r. 5(a) of the ED (Controlled Companies) Rules, deals with benefits not actually received by the deceased form the controlled company, but which he was entitled to receive. It says that any such income or payment or enjoyment which the deceased was entitled to receive shall also be treated as benefits accruing to the deceased from the controlled company. This shows that any income of the company and any periodical payment by the company received by the deceased and referred to in r. 5(a) should have also been actually received by him by reason of his being entitled to receive the same. In other words, r. 5(a) covers cases of actual receipts by a deceased being entitled therefore and sub-r. (b) covers cases where the deceased though entitled to receive such income or periodical payment had not actually received it. A person who had made a transfer of his properties to a controlled company would be entitled to receive dividend in respect of the shares in such company allotted to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stees. By appointment dt. 28th March, 1927, the instalments payable and £10,000 out of £9,50,000 were appointed absolutely to the deceased and the latter paid the sum of £10,000 to the company in consideration of the preference shares issued to him. Under a mortgage deed dt. 30th Jan., 1933, made between the deceased on the one hand and the company on the other, the latter covenanted to advance to the former £500 at 4 per cent interest thereon every 25th of March, 24th of June, 29th of September and 25th of December during the joint lives of the deceased and his nephew, Francis Cecil St. Aubyn. By another deed of agreement dt. 4th Aug., 1936, the company covenanted to advance to the deceased on the every first of January and first of July during the same joint lives, a further sum of £500 upon the same terms as the advances that were to be made under the Deed dt. 30th Jan., 1933. Pursuant to the said deeds, the company had advanced to the deceased in each of the three years preceding his death sum amounting in all £3,000 which along with interest thereon remained due and owing by the deceased at his death. A claim was made on the estate of the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntain exhaustive definition of the word "benefits" but merely enumerated certain matters which were be to treated as benefits. It will be thus seen that the opinion of their Lordships was not emphatic and confident. On the other hand, the views would appear to have been expressed with hesitation and doubt. Moreover, the question whether a periodical payment to be considered as a benefit be one which the deceased had a right to receive was not raised and considered in that case. (ii) In this connection, reference can be usefully made to the observation of the Bombay High court in Katizabal Mohammad Ibrahim vs. CED, Bombay reported in 37 ITR (ED) P. 53. There, by a Deed of wakf-al-aulad, the settlor created a wakf of certain immovable properties and a sum of Rs. 1 lakh, under which the ultimate benefit to charity was postponed unit the extinction of the descendants of the Settlor. She reserved for the her maintenance during her life time 62.1/2 per cent of the net income of the immovable properties and directed that 3 1/8 per cent of the income was to be given to her daughter for her maintenance and the remaining for her daughter's children and in certain specified shares and that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty which operated when the English enactment came into force. 50. We have already pointed out how the various provisions in the relevant sections and rules show that the "periodical payments" to be considered as "benefits" should be such which the deceased was entitled to received from the controlled company to which he had transferred the properties. We have also stated that in the case of St. Aubyn. the advances made by the controlled company to the deceased had been made in pursuance of the two mortgage deeds. In other words, the deceased there, had a right to receive those payments. In the instant case, the deceased did not have any such right. He merely had a current account with the company in which the money lent to him from time to time by the company were debited. We, therefore, hold that Rs. 5,68,392 that was received by the deceased from Palkulam Estate P. Ltd. within the period of three years prior to his death cannot be considered as "benefit" received by him. 51. But, as has been already pointed out, Rs. 78,149 was treated as deemed dividend in the assessment of the deceased for the asst. yr. 1959-60, under s. 2(6-A)(e) of the IT Act, 1922. Under r. 2(8) of the ED ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16th Aug., 1958 and 16th Aug., 1960 and that the deceased's share thereof would be Rs. 13,917, Rs. 45,316 and Rs. 92,518 making a total of Rs. 1,51,151 and this along with Rs. 78,149 treated as deemed dividend in the assessment for the asst. yr. 1959-60 would come to Rs. 2,29,900. The learned counsel has placed before us another statement showing that even taking the value of the net assets of the controlled company as Rs. 58,84,835 as determined by the Asst. CED the transfer benefit slice would work out to Rs 13,78,332 and that since it will be less than the value of the shares of the deceased in the said company, no duty could be levied thereon. (It may be stated that we have, in paragraph 29 of the our order, held that the value of the assets of the company is to be taken as Rs. 47,28,885 and that of 1700 shares held by the deceased therein should be taken as Rs. 13,60,000. Even so, the transfer benefit slice would be less than the value of the shares. The learned standing counsel for the Department, on the other hand, contended that it could not be said with certainty that the controlled company in question would have disbursed the amount in question as dividend during the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur finding that the loans taken by the deceased from this company (excepting for Rs. 77,149 which was treated as deemed dividend in the assessment for the asst. yr. 1959-60) cannot be considered as a benefit and since the value of the slice of the assets of the company attributable to such share, benefit of Rs. 77,149 would be less than the value of the shares of the deceased in the said company as fixed by us, there is no question of levying any duty on such slice. 55. If, however, it is to be held that the loans taken by the deceased are to be considered as benefits, then the value of such non-share benefit would be only Rs. 3,38,481 (Rs. 5,68,382 minus Rs. 2,29,900 treated as share benefit). In that case, the non transfer benefit share would be only 3,38,482 x 47,28,885 9,81,581 (We have fixed the value of the net assets of the company as Rs. 4,72,885 and there is no dispute about the question of the income of the company for the last three years.) 56. We now proceed to consider whether any portion of the assets of Nagammal Mills Ltd. could be deemed to have passed on the death of the deceased under s. 17(1). The Asstt. CED has computed the value of the benefits received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Appellate Controller. Therefore, r. 11(3) of the ED (Controlled Companies) Rules is attracted and no portion of the assets of the company become dutiable. 57. On this point we may also consider the contention regarding the determination of the income of this company for the three years prior to the death of the deceased. The Asstt. CED, while computing the income of this company, took the figure of loss as Rs. 4,40,167 for the year ending 30th April, 1958 and the profits of Rs. 2,86,692 and Rs. 4,49,037 for the accounting years ending 30th April, 1959 and 30th April, 1960 respectively. He arrived at the net resultant figure of Rs. 2,96,562 which after other adjustments worked out to Rs. 3,49,484. He rejected the contention that the income for the year ending 30th April, 1958 should be taken as "nil" since depreciation and development rebate could only be allowed to the extent of the positive income available for absorbing both the allowances. Though the accountable persons had raised the ground on this point, the Appellant Controller has not considered the same. It was urged before us by Shri Mahalingam that the profit of this company for the asst. yr. 1959-60 before the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 391. It is urged that the principle of the said decision is applicable to the facts of the instant case. We are unable to accept the above contention. Sec. 73-A merely provides that proceedings for the levy of ED should be commenced, in the case of a first assessment within the expiration of five years from the date of death of the deceased in respect of whose property ED became payable. ED payable is a single duty on a single estate which passes on the death of an individual. Thus, there is only a single proceedings. If such a proceeding is commenced within the time prescribed therefore in s. 73-A of the ED Act, there is no bar in bringing into it the controlled companies, if any, at any time during the pendency thereof. Hence the contention that proceedings in so far they related to the two controlled companies are barred by limitation cannot be accepted. 59. Shri Thriuvengadatha Iyengar also raised a contention that s. 20 of the ED Act, which enables the CBDT to make rules in relation to matters enumerated therein, amounts to excessive delegation of legislative authority and hence the ED (Controlled Companies) Rules framed by the CBDT in exercise of the power conferred on it u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Finance Act, 1894, the valuation for ED purposes was to be made on the basis that the deceased was still alive, though on the point of death. They succeeded on that point in the Court of Session. But that contention was rejected by the House of Lords. (It was held by the House of Lords that the farm was property of which the deceased was competent to dispose within s. 2(1)(a)( of the Finance Act, 1894. The expression "competent to dispose" included property which the deceased had power to dispose of by will and that since the partnership terminated on the deceased's death, the property of which he was competent to dispose by his will was the farm free from tenancy. The House of Lords held that the words "at that time of death of the deceased" in s. 7(5) of the Finance Act, 1894 meant immediately after the deceased's death. In view of the above decision, the contention of the learned counsel that the estate should be deemed to have become fastened with the charge in respect of the duty simultaneously with the death of the deceased cannot be accepted. (ii) Reference may also be made to the decision of the Karnataka High Court in B. Paramila vs. CED, Bangalore, reported in 99 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that r. 42 cannot be applied to the instant case. Sec. 53(3) enables the CED to charge interest for belated filing of the account as prescribed. Such prescribing came to be made under r. 42 framed in 1963. Undoubtedly, r. 42 came into force from 1963. The assessment in the instant case having been completed after r. 42 came into force, the charge of interest is valid. As already stated we cannot entertain the objection regarding the excessive delegation. 62. It will be convenient to set out our finding. Our finding are :-- 1.(a) The forest land of the extent of 950 acres 73 cents belonged to the joint family consisting of the deceased, (as its kartha) his wife and unmarried daughters. (b) Since the deceased was the sole co-parcener the entire extent of the forest lands passed on his death; (c) 847 acres 50 cents of forest lands should be valued only at the rate of Rs. 100 per acre on account of the cloud in the title of the deceased thereto and the litigation in respect thereof. 2. Only that portion of "Nagammal Bhavan" gifted by the deceased to his unmarried daughter could be deemed to have passed under s.10 or the ED Act and the value thereof is to be taken as Rs. 26,750. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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