TMI Blog1987 (5) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... . Muthiah Chettiar of Chettinad, Chettinad House, Raja Annamalaipuram, Madras. He died on 24-1-1970 leaving behind his wife Kumara Rani Smt. Meenakshi Achi, mother Rant Meyyammai Achi, besides father Dr. Raja Sri M.A. Muthiah Chettiar and brother Dr. M.A.M. Ramaswamy. On his death 1/3rd share in the property of the Hindu undivided family devolved on his legal heirs in terms of proviso to motion 6 of the Hindu Succession Act, 1956 and this has been duly accounted for by the accountable person in accordance with section 7(1) of the Estate Duty Act, 1953. The estate duty attributable to the estate Passing on death was Rs. 8,57,050. The properties of the Hindu undivided family, were not physically divided. In the original assessments made it would appear that just as 1/3rd of the property of the Hindu undivided family falling to the share of the deceased was excluded from the net wealth of the Hindu undivided family for them years so also 1/3rd of the estate duty liability was excluded by the Wealth-tax Officer. Subsequently by rectificatory orders the Wealth-tax Officer excluded totally the estate duty liability from the net wealth of the Hindu undivided family for these Years under c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of proviso to section 6 of the Hindu Succession Act. Further he contended that section 2(m) does not mention estate duty payable as it is concerned with tax, penalty and interest and rule 35A of the Tribunal Rules specifically provides for filing of separate stay petition regarding recovery of estate duty in contradistinction with income-tax, Interest and penalty. Referring to the decision of the Allahabad High Court in the case of Maharani Raj Laxmi Kumari Devi v. CED [1980] 121 ITR 1002, he submitted that the function of proviso to section 6 of the Hindu Succession Act was not to effect a disruption in a coparcenary family but it creates a fiction only for the purpose of fixing the persons who are entitled to succeed to the property of the deceased coparcener. Therefore proviso to section 6 of the Hindu Succession Act does not effect a partition by operation of -law. He then referred to the decision of the Gujarat High Court in the case of CWT v. Kantilal Manilal [1973] 90 ITR 289, for the proposition that the property that devolved on the legal heirs was a specific share in definite ascertained properties subject of course to payment of proportionate share of debts and lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hindu Succession Act does not effect a disruption in a coparcenary family and only creates a fiction for limited purpose. The fiction is created for the purpose of fixing the persons who are entitled to succeed to the property of the deceased coparcener that is for the purpose of laying down the succession. The fiction is limited in scope and does not effect a partition by operation of law. This is what has been observed by their Lordships of the Allahabad High Court in the case of Maharani Raj Laxmi Kumari Devi. Since there is no physical partition but the quantum of share being fixed or the proportion is crystallised it is nonetheless subject to payment of proportionate share of the debts and liabilities. The property that belongs to the Hindu undivided family and the share that devolved on the legal heirs in the absence of physical partition by metes and bounds continued to be enjoyed as tenants in common and the legal heirs on whom the share devolved by intestate succession also continued to be members of the family vide the observation of the Gujarat High Court in the case of Kantilal Manilal at page 295 and the decision of the Supreme Court in the case of Narayanrao Shamrao D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that passed on the death of the deceased and in the absence of any physical partition and allotment of any specific property it was not possible for the legal heirs to do so. In case the Hindu undivided family discharges the liability from out of its property it is entitled to recover the same from the legal heirs out of the share of the property that passed on death of the deceased. Thus as a matter of fact the joint and several liability imposed under section 53(5) would come into operation so far as the payment of estate duty liability is concerned. It is only a matter of fineness of law that the liability should be appropriated to the share of the Hindu undivided family property that devolved on the legal heirs in terms of proviso to section 6 of the Hindu Succession Act. It is for this reason that we are of the opinion that the liability to estate duty is attributable only to the share of the Hindu undivided family property that is deemed to pass on the death of the deceased in terms of section 7(1) of the Estate Duty Act, the principal value of which is to be computed in terms of section 39(1) and (3) of the Estate Duty Act. In this view of the matter there is no quarrel ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the deceased, but the assets of the deceased actually or constructively received merely constituted the limit of the liability. Further, as pointed out by the Gujarat High Court in the case of Kantilal Manilal at page 294, the quantum of share of the deceased though fixed and the proportion in which the share is to be counted is also crystallised themselves subject to of course payment of proportionate share of the debts and liabilities and such proportionate share of debts and liabilities would include the liability to estate duty also. This is how the assessee has understood the case and the learned counsel for the assessee also relied on this decision in support of his case. The question whether the debts and liabilities in terms of section 44 of the Estate Duty Act would include the estate duty payable on the property deemed to pass is a debatable point and there could be possibly two opinions and in any case it is not a mistake apparent on the record. The Commissioner (Appeals) held that the liability is attributable to the share of the property that passed on death of the deceased and therefore deductible therefrom. This is another view which is possible. The Delhi High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi. In computing the net wealth of the HUF by virtue of this legal position, only 2/3rd of the assets and debts of the HUF is being assessed in the hands of the assessee. The balance of 1/3rd is being assessed in the following manner : Kumararani Smt. Meenakshi Achi (wife of 2) 1/6 On the death of mother Smt. Meyyammai Achi on 1-3-1970 her legal heirs viz. Dr. Rajah Sir M.A. Muthiah Chettiar 1/12 Dr. M.A.M. Ramaswamy 1/12 Total 1/3 3. The accountable persons of the late Kumararajah included his 1/3rd undivided share in the HUF property while submitting the estate duty return in accordance with sec. 7(1) of the Estate Duty Act. The present HUF-assessee herein, submitted its wealth-tax returns for the assessment years under consideration as on the relevant valuation dates and in these returns it excluded the value of the 1/3rd share going to the legal heirs of the late Kumararajah in accordance with sec. 6 (proviso) of the Hindu Succession Act. This position was accepted by the WTO. The assessee claimed that the entire estate duty attributable to the undivided share of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction in the wealth-tax assessment of the HUF. 8. The CIT (A) has pointed out that the provisions of the Estate Duty Act are clear. Under sec. 74 the estate duty payable In respect of property passing on the death of a person, shall be a first charge on the "property so passing" on the death of Kumararajah. He further pointed out that the coparceners other than the late Kumararajah are not liable to pay out of the estate not passing on the death of Kumararajah. The CIT (A) further pointed out that it is also quite possible that the Assistant Controller might be in a position to recover either the entire estate, duty of Rs. 8,57,050 or 2/3rd thereof from the assets of the HUF even after the death of Kumararajah. But in such an event, the HUF would be entitled to recover the estate duty so paid from the legal heirs of the late Kumararajah. Under these circumstances, the CIT (A) was of the view that the WTO was justified in ingnoring the estate duty liability altogether while computing the net wealth of the HUF. He pointed out that the WTO's action is also further justified by the provisions of sec. 2(m) of the WT Act, 1957. According to this section where any debts are secured o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeable to the view of the CIT (A) that the entire estate duty liability attributable to the undivided share of late Kumararajah must be allowed as a deduction in the wealth-tax assessments to be made on the legal heirs of late Kumararajah subject to the provisions of sec. 2(m)(iii) of the WT Act. 12. SO far as the jurisdiction of the WTO in invoking the provisions of sec. 35 of the WT Act is concerned, the learned A.M. was of the view that "the question whether the debts and liabilities in terms of sec. 44 of the Estate Duty Act would include the estate duty payable on the property deemed to pass is a debatable point and there could be possibly two opinions and in any case it is not a mistake apparent on the record". 13. In view of the findings given in his order, the learned A.M. held that the WTO was not justified in passing the rectificatory orders for these years and the CIT (A) was not justified in sustaining the same on the ground that there was a mistake apparent from the record. With respect I am unable to agree with the view taken by the learned A.M. on the question of rectification done under sec. 35 of the WT Act. 14. According to the learned counsel appearing for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pay income-tax and interest on money borrowed to pay estate duty. While the former is not paid for the purpose of making or earning the income, the latter is not made for the purpose of making or earning the assets. Whether interest paid is allow able under sec. 57(iii) of the Act or not, depends on the facts of each case. If property is received by a person subject to a charge for payment of a liability and moneys are borrowed for clearing that liability, the interest paid on such borrowed moneys will be an allowable expenditure. If, therefore, at the date when the estate duty was paid by the assessee, the shares were charged with the liability for payment of estate duty, the interest paid on the money borrowed to pay estate duty would be allowable under section 57(iii). If, however, the moneys had been borrowed by the assessee for the purpose of discharging what is purely a personal liability as an accountable person to pay the estate duty, the interest would not be allowable." In the case of Kantilal Manilal at page 294 the Gujarat High Court held that "the quantum of share is fixed : the proportion in which the share is to be counted are also crystallised. This specific sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s entertained about it", a clear case of an error apparent on the face of the record would be made out Thungabhadra Industries Ltd. v. Govt. of A.P. AIR 1964 SC 1372. Where by misreading a section, which is clear, a wrong view is taken and a wrong calculation is made, it would certainly come within the purview of sec. 154 as a mistake apparent on the face of the record CIT v. Mcleod Co. Ltd. [1982] 134 ITR 674, 677 (Cal.). In ITO v. Asok Textiles Ltd. [1961] 41 ITR 732, the Supreme Court recalled the view taken by it in the earlier case and held that, under these provisions, the Income-tax Officer could examine the record and, if he discovered any mistake, whether of fact or of law, he could rectify it. The Supreme Court also pointed out that the restrictive operation of the power of granting review of mistake or error apparent on the face of the record under Order XLVII, Rule 1, of the Code of Civil Procedure did not apply to a case of rectification of a mistake apparent from the record in income-tax proceedings. (Also see A.H. Wheeler Co. (P.) Ltd. v. ITO [1964] 51 ITR 92 (All.) ; Arvind N. Mafatlal v. ITO [1957] 32 ITR 350 (Bom.); ITO v. ITAT [1965] 58 ITR 634 (All.). But a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant is a HUF. The common objection taken in all these appeals is to the orders passed by the WTO under sec. 35 of the Wealth-tax Act, 1957 ("the Act") whereunder he excluded the estate duty liability originally allowed as a deduction in the assessment of net wealth for these years. There was a difference of opinion on the validity of such, action of the WTO. The learned Accountant Member, who wrote the leading order, held that the WTO was not justified in passing the said orders and that the Commissioner (A) was also not justified in sustaining these orders of the WTO. In other words, according to the learned A.M., there was no mistake apparent from the record so as to clothe the WTO with the jurisdiction to act under sec. 35. He was, therefore, of the view that the said orders of the WTO had to be cancelled. 2. The learned Judicial Member, on the other hand, upheld the validity of the WTO's action. According to him, the Commissioner (A) was fully justified in dismissing the assessee's appeals filed against the orders of the WTO under sec. 35 for these years. Following this difference of opinion the President directed that the matter be placed before a Third Member for resolving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing on the death of the deceased shall be a first charge on the immovable property so passing in whomsoever it may vest on his death. 5. The assessee-HUF submitted its wealth-tax return for the assessment year 1970-71 and in this return it excluded the value of the 1/3rd share devolving on the legal heirs of the late Kumara- raja under the Hindu Succession Act. Such exclusion from the net wealth of the assessee-HUF was accepted for assessment by the WTO also. The assessee, however, did not stop with this. It went on to claim that the entire estate duty attributable to the undivided share of the late Kumararaja viz. Rs. 8,57,050 should be deducted as a liability from the wealth returned by it. The contention for the assessee before the WTO in this regard was that the entire estate duty could be recovered from the property remaining with the HUF as on 31-3-1970 under the provisions of sec. 74 of the Estate Duty Act. 6. The WTO did not accept the above claim for deduction of Rs. 8,57,050. Taking note of the fact that he bad to exclude 1/3rd of the value of the properties of the HUF as on 31-3-1970 from assessment to wealth-tax, following the death of the Kumararaja on 24-1-1970, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s might have to recover either the entire estate duty of Rs. 8,57,050 or 2/3rd thereof from the assets of the HUF even after the death of the deceased, but in such an event the assessee-HUF would be entitled to recover the estate duty so paid by it from the legal heirs of the Kumararaja. In any case no deduction can be allowed for any estate duty liability from the net wealth of the assessee-family. The net wealth of the assessee-family has to be computed simply excluding the 1/3rd share in the net assets of the assessee-family as on 31-3-1970. (iv) Section 2(m) of the Act was also relevant in this regard. That provides that any debts which are secured on any property In respect of which wealth-tax is not chargeable are not to be deducted from the wealth of the assessee. In the present case no wealth-tax is chargeable on the undivided 1/3rd share of the Kumararaja. Hence the entire estate duty liability which is a charge on such 1/3rd share should be ignored. (v) It follows from the above that the entire estate duty liability attributable to the undivided share of the Kumararaja must be allowed as a deduction in the wealth-tax assessments to be made on the legal heirs of the Ku ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taining the share of the Kumararaja and also for the purpose of allowing proportionate debts and liabilities thereof. Hence the deduction allowed In the original assessments (WT) of the assessee-HUF to the extent of 2/3rd of the estate duty payable was in order. No doubt, the estate duty payable on the property passing on the death of the deceased was thus bifurcated, between the assessee-family and the legal heirs of the deceased in the ratio of 2/3rd and 1/3rd as per the original assessments, although the estate duty payable is attributable to the share of the deceased that passed on his death. (iv) Section 74 of the Estate Duty Act creates a charge on immovable property passing on the death of the deceased "after the debts and encumbrances allowable under the Estate Duty Act". In these circumstances the assessee chose to claim the entire liability to estate duty but the WTO bifurcated the liability in the ratio of 2/3rd (assessee-HUF) and 1/3rd (assessment of legal heirs). The assessee could discharge the estate duty liability only by sale of its properties or of the property that passed on the death of the deceased. In the absence of a partition by metes and bounds the legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the deceased and the other corparceners immediately before his death in view of Explanation 1 to sec. 6 of the Hindu Succession Act, 1956. This assumption which the statute requires to be made, that a partition had in fact taken place, must permeate the entire process of ascertaining of the ultimate share of the heirs through all its stages. Secondly the issue regarding deduction of the estate duty liability from out of the estate passing on the death of the deceased according to sec. 36 of the Estate Duty Act is also covered by the uniform judicial view taken by various High Courts. In such a clear context it must be held that there was a mistake in the original orders "passed by the CED in the instant case". Hence rectification of the same was in order. In this view of the matter, the orders of the Commissioner (A) had to be confirmed and the appeals dismissed. 12. Shri Ramamani took me through the orders of the authorities below as well as the orders of the learned A.M. and the learned J.M. He placed strong reliance on the order of the learned A.M. He stressed the fact that the assessee-HUF continued to exist even after the death of the Kumararaja, even though a notional p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... htly or wrongly a deduction had been allowed against a genuine statutory liability. It should have been allowed fully in the assessment of the legal heirs of the late Kumararaja. Due to some mix-up (the origins of which are not clear at this stage) the deduction was not claimed in the assessments of the legal heirs of the late Kumararaja. Instead, the deduction was claimed in the assessments of the assessee-HUF and both the Department and the assessee agreed to a particular proportion of deduction in this regard for all these years. To efface this arrangement would be to seriously upset the equities of the situation. The assessments of the legal heirs of the late Kumararaja would now be beyond the limitation period for any consequential relief. Shri Ramamani agrees that no doubt equity and tax are strangers, but asks, does it mean that an appellate body like the Tribunal. committed to delivering substantial justice must support orders which show up the tax to be the sworn enemy of equity ? 14. Shri Natarajan, on the other hand, supported the orders of the Commissioner (A). His approach was simple and direct. He submitted that estate duty was payable only in respect of property pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had referred in fact to the point that a HUF continues to exist even after the death of a coparcener, but with a diminished share of the ancestral assets. He had also in this regard drawn my attention to State of Maharashtra v. Narayan Rao Sham Rao Deshmukh [1987] 163 ITR 31 (SC). I do not, however, see that this position in law can help the assessee in the instant case. What was really a simple matter was, through oversight perhaps, complicated by the ITO at the original stage. One of the coparceners of the assessee-HUF died before the relevant valuation date. The Hindu Succession Act applied. In terms of that Act, 1/3rd of the assessee-family's properties devolved on the legal heirs of the deceased coparcener i.e. as on 31-3-1970 and onwards the assessee-HUF was no longer assessable on 1/3rd share of the property which so passed on the death of the deceased coparcener. There was of course estate duty payable on the property which so passed. This again was a liability which could have had nothing to do with the wealth of the assessee-family. Section 74(1) of the Estate Duty Act does not hold that the liability of the deceased coparcener as in this case would be the liability of ..... 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