TMI Blog1965 (12) TMI 141X X X X Extracts X X X X X X X X Extracts X X X X ..... ller of Estate Duty added to the principal value ₹ 1,42,552 which represented moneys due under thirteen insurance policies taken out on the life of the deceased of which ₹ 94,662 was after his death received by the accountable person and a sum of ₹ 46,000 on policies with the Oriental Government Security Life Assurance Company Ltd remained to be realised if and when the company admitted the claims The balance of ₹ 4,083 related to three polices on the life of the widow, which were effected by the deceased and for which premiums were paid by him They became paid up long before the death of the deceased but the amount under the terms of the policies was payable only on the death of the widow The deceased was on be of the quota-holders for the Madurai Mills and the Meenakshi Mills and had built up a lucrative business in yarn The Assistant Controller found that a third of the value of the good will of type business carried on by the family should be included in the chargeable assets and estimated its value at ₹ 50,000 on the basis that the average annual profits earned line the five years immediately preceding the death of the deceased was ₹ 32,579 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts covered by the policies constituted joint property or separate property of the individual coparcener concerned From a common sense point of view, the court considered that when one of the coparceners insured his life, he intended the benefit of the policy to his heirs and not to the other coparceners Rajamannar CJ and Venkatarama Iyar J were of the view : The presumption, therefore, would be that the profit, if any, made by means of the policy would not be joint family asset The utmost that the other coparceners in equity can claim is that the assured should be debited with the prima which have been paid from joint family funds Amplifying this view, they further observed : In our opinion, having regard to modern social conditions and the growth of individual consciousness in marked contrast to the more corporate outlook of an earlier day, the general presumption must be that when one of the members of a joint family insures his life, the amount of the policy belongs to the assured as his separate property and does not become a joint family asset The premia must be treated as amounts drawn by the individual members and they must be debited with those amounts With ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arcenary, sought in opposition to the widow of the deceased to have a declaration that they were entitled to the moneys due under the policies The High Court of Patna had accepted their contention and decided that the insurance policies formed part of the assets of the coparcenary to which the two step-brothers as plaintiffs were entitled as survivors On a certificate, the widow of deceased went up before the Supreme Court The three policies stood in the name of the deceased and had matured even during his lifetime On an examination of the relative accounts of the family, it was found that the joint family incurred expenses for purchasing the policies In other words, the premiums were paid out of joint family funds From the treatment in the common accounts and the use to which a part of the policy moneys was put, the Supreme Court considered that those facts also showed that the policy moneys were treated as joint family assets and not as separate property of the deceased Notwithstanding these factual findings, it was argued for the appellant before the Supreme Court that insurance was a special venture and was meant only for the benefit of the family of the assured and that the ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sured The presumption based on the personal contractual relationship and the modern concept of society and economy and individual rights may not help where life insurance policies are taken out on the lives of the members of a coparcenary and are kept up, that is to say, the premiums therefor were paid out of joint family funds or to the detriment of the joint family assets In such a case, the principles of Hindu law will have application with the result that whatever is acquired out of coparcenary property or to the detriment of the joint family assets will belong to the coparcenary or joint family It is true that up to the year 1948, the deceased was the only surviving coparcener of his branch of the family after the partition from his brother in August, 1935, and his minor sons were born subsequent to 1948 But this can make no difference to the fact that the policies were kept up by payment out of joint family funds The principle of Hindu law as stated by Mayne in his treatise on Hindu Law and Usages (eleventh edition) is : All savings made out of ancestral property, and all purchases or profits made from the income or sale of ancestral property, would form part of the ancest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue Act, 1889, and section 2(1)(c) of the English Finance Act more or less analogous to section 14 of the Indian Estate Duty Act, 1953, and the noble Lords were agreed in holding that to keep up a policy was to pay the premiums thereon, as they fell due and the person who paid them was the person who kept up the policy In that case there were two policies on the life of the deceased and the question was whether they were kept up by him within the meaning of section 11(1) of the Customs and Inland Revenue Act, 1889, in which case, estate duty was payable on the whole value of the proceeds What happened was, the deceased had executed a settlement for the benefit of his son and certain others including in it the policies and at the same time he transferred to the trustees of the settlement certain income-yeilding investments on the primary trust to pay the premiums for time to time to become payable in respect of the policies out of the income thereof The deceased retained no control over the trustees and no interest under the settlement, under which he was divested of all rights and beneficial interest whatsover in the two policies of assurance The trustees were, at all material times ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lor s money The phrase keep up the policies is, no doubt, an ordinary expression, but the question is whether, within the meaning of the Act, it is the settlor who has kept them up Lord Simonds dealing with the question stated : I agree that it is not a term of legal art, but it is, I think, the most appropriate expression in our language to describe the doing of those acts which will prevent a policy lapsing The question is : who kepts up the policy ? Who does these acts which prevent the policy lapsing ? Who, in fact, pays the premiums ? I see no justification for ascribing those acts to a settlor who neither does them himself nor is competent to direct their performance I do not base my opinion on the juxtaposition of the words `premiums paid by him to the words `kept up , for it is by the payment of premiums that a policy is ordinarily kept up My opinion would be the same if the subsection ended with the word `assignee It is manifest from this decision, and particularly the observations which we have extracted, that a person can be said to keep up a policy if he pays the premiums himself out of his own money and thus prevents the policy from lapsing We have alre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the words for the benefit of a donee, whether nominee or assignee , it is clear that the nominee must be such as he may also be a donee That means the nomination for the purpose of section 14 must be such as will constitute the nominee, a donee entitled to the benefit of the policy money The accountable person was but a nominee in respect of the policies except two which were of course assigned in her favour The nomination in each of these cases was no doubt ex facie the policy but it was specifically mentioned that the nomination was under the Insurance Act It follows that the nomination did not vest in her any right to the insurance money All that it enabled her was to receive the money and the nomination must be taken to be only for that purpose By such nomination she by no means became a donee or nominee within the meaning of section 14 of the Estate Duty Act Our conclusion, therefore, is that the thirteen policies were not kept up by the deceased for the benefit of a donee, whether as a nominee or assignee Because they were not so kept up by the deceased, the assignment of the two policies to the accountable person will not, in our opinion, bring even these two policies wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... full Bench of this court resolved a conflict opinion and held that expressed on the face of it in section 6 of the Married Women s Property Act did not necessarily mean that the requirement was satisfied if the proposal, which, by the terms of the policy, would form part of it, was expressive of such intention Against clause 12 in the proposal in that case, relating to the name of the person nominated to receive the sum assured, was mentioned self or wife Velayee Ammal The learned judges were of the view that the words created a trust in favour of the wife Subsequently a Division Bench of this court in Mohanavelu Mudaliar Vs Indian Insurance Banking Corporation Ltd while noticing that dispositions of life insurance policies can be classed as (1) assignment, (2) nomination, and (3) creation of a trust by reason of the provisions of the Married Women s Property Act, 1882, observed : If by nomination a trust is created then the nominee becomes the beneficiary but the difficulty is to find out from the exact words used what the intention was, because the terms `nomination and `nominee are not strictly speaking terms of art `Nominate means only to name and it is in every instan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On this view, questions Nos 4 and 5 do not arise for consideration Question No 6 reads as follows : Whether, on the facts and in the circumstances of the case, the policy moeys received under Policy Nos 813825, 813826, 1145972 and 1145973 which were nominated by the deceased in favour of his wife on the 25th June, 1953, ie, more than two year prior to his death, are not liable to estate duty on his death ? The Board of Revenue dealt with it from the standpoint of section 14 of the Estate Duty Act and said that the period that elapsed between the date of nomination or assignment and the date of death was irrelevant for purposes of liability u/s 14 But we have already held that section 14 has no application to the policies In the order of the Assistant Controller the point was dealt with with reference to section 9 on the assumption that the policies covered by the question were all assigned to the accountable person which is not factually correct As mentioned by us, she was only a nominee in respect of these policies Though two of the policies were assigned, they are not covered by question No 6 On the footing that the policies in the question were assigned, the view was ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipal value as liable to estate duty The Board agreed with the Assistant Controller as regards this and dealt with the further contention for the accountable person that goodwill, even if it existed, was not a partible item and held that the liability to estate duty was not based on the partibility or otherwise of the property This is upon the view that the goodwill of the business, as such, was not treated as a separate asset in which the deceased had a share but it was only an element which made up the total value of the business and that the business carried on by the family was saleable As to the value of the goodwill, the Board thought that what price it would fetch over and above the tangible assets that the family possessed would be the test and the estimate made by the Assistant Controller was not extravagant In our opinion, the findings of the revenue authorities on the two questions have no basis and cannot be accepted as sound in law There was here no material on which they could reasonably conclude that a goodwill existed What is a goodwill ? It is one of those terms which is better understood than comprehensively and clearly described Broadly speaking, it is the mag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale depends almost entirely on the price The learned judge concluded, therefore, that the business had no goodwill worth the name S C Cambatta Co Private Ltd Vs Commissioner of Excess Profits Tax was concerned with a business of running a theatre and a restaurant and the question there was whether a question of law did arise and whether the goodwill of the theatre and the restaurant was calculated in accordance with the law In that connection, the Supreme Court considered what a goodwill was and referred to the following observations of Lord Macnaghten in Inland Revenue Commissioners Vs Muller Co s Margarine Ltd What is goodwill ? It is the benefit and advantage of the good name, reputation, and connection of a business It is the attractive force which brings in custom Reference was also made to certain other English cases and it was observed by the Supreme Court at page 505 : It will thus be seen that the goodwill of a business depends upon a variety of circumstances or a combination of them The location, the service, the standing of the business, the honesty of those who run it, and the lack of competition and many other factors go individually or together to make ..... X X X X Extracts X X X X X X X X Extracts X X X X
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