TMI Blog1973 (8) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... on the death of the deceased ? (2) Whether the deficit of Rs. 4,88,235 computed in respect of the. 'free estate' of the deceased can be set off against the balance of the estate ? (3) Whether, on the facts and in the circumstances of the case, the sum of Rs. 33,952 is entitled to the rebate envisaged in section 33(1)(f) of the Estate Duty Act ?" The first question has been referred at the instance of the department and the other two at the instance of the accountable person. The proceedings related to the computation of estate duty consequent on the death of Sri R. Rama Setty, who passed away on April 28, 1963. He was the owner of a building known as "Maruthi Mansion" at Davangere. He gifted the same to his grandson, R. S. Hanumantharaj, under a registered deed of gift dated December 27, 1956. The donee was a minor and was represented by his father, R.R. Srinivasa Murthy, as his natural guardian. On December 28, 1956, a lease deed was executed on behalf of the minor in favour of R. Rama Setty and R. R. Srinivasa Murthy in respect of portions of this property. The portion given on lease to Rama Setty was described in schedule "B" to that lease deed and that leased out to R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and to that extent the leased property would be liable to charge of duty. On the basis of the floor area which was in the occupation of the deceased as tenant and the rents paid by the two tenants being equal, the Appellate Controller was of opinion that the deceased could be said to have been in possession and enjoyment of about one-half portion of the property. Accordingly, he held that the value of that portion would work out to Rs. 2,37,500 and sustained the inclusion of that value in the amount chargeable for estate duty. This reduction was contested in appeal by the department to the Tribunal. The accountable person also contested the inclusion of Rs. 2,37,500. But, during the course of the argument before the Tribunal, it seems to have been submitted that the ruling of the Supreme Court in George Da Costa v. Controller of Estate Duty was against the contention sought to be put forth on behalf of the accountable person. The Tribunal held that the contention of the accountable person that no portion of the value of the property could be included under section 10 was untenable. It thus upheld the finding of the Appellate Controller in this behalf. On behalf of the depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and having regard to the close relationship between the parties, however small the portion in the enjoyment of the donor, he could not be said to be excluded from the entire premises. Reliance was sought to be placed on certain observations of the Supreme Court in George Da Costa's case. For the accountable person it was urged that the property deemed to pass on death must be ascertained as on the date of death, that it was clear from the lease deed that the "C" schedule property was in the possession of R. R. Srinivasa Murthy and that merely on the ground of relationship it could not be said that the donor was either in possession of it or was not excluded from the possession thereof. It was also urged that the portions leased out and described in schedules "B" and "C" were each separate units and under the normal principles applicable to landlord and tenant even portions of a property could be let out as separate units and that, therefore, the contention sought to be put forth by the standing counsel was not tenable. It was further pointed out that the specific finding of the Tribunal was that the deceased occupied only a portion of the entire premises and that this is a findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a finding of fact and is supported by the recitals in the lease deed which has been acted upon. Finding to this effect that only portion described in schedule "D" to the lease deed was set apart for common use of the two lessees and that the portion described in schedule "C" was in the occupation of R. R. Srinivasa Murthy cannot be challenged in these proceedings. Srinivasa Murthy having been entitled to be in possession of the portion described in schedule "C" and the portion exclusively let out to Rama Setty having also been specified in the same lease deed, it is clear that they were entitled to possession of specified portions exclusively and this implies that each one was excluded from being in occupation or being entitled to such specified portions allotted to the other. Mere relationship between the parties cannot justify the inference that the donor was in occupation of the portion allotted to Srinivasa Murthy or that he was not excluded therefrom without any specific and tangible evidence in this behalf. It is not the case of the department that there was any such evidence and that it had been ignored by the Tribunal. When two portions, even in one building, are let out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the entire exclusion of the donor. The learned standing counsel laid emphasis on the following observations of the Supreme Court in George Da Costa's case : "It appears from all these cases that the first limb of the section may be infringed if the donor occupies or enjoys the property or its income, even though he has no right to do so which he could legally enforce against the donee. 'Where the question is whether the donor has been entirely excluded from the subject-matter of the gift, that is the single fact to be deter mined. If he has not been so excluded, the eye need look no further to see whether his non-exclusion has been advantageous or otherwise to the donee'". (The last two sentences were extracts from the judgment in Chick v. Commissioner of Stamp Duties ). The argument was that the building was a compact one and the donor was occupying a portion and, therefore, he was not entirely excluded from the subject-matter of the gift. This cannot be accepted in the light of the facts in the case on hand. The observation of the Supreme Court was in the context where the gift of the property had been made and the donor continued to stay in the house till his death. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advanced by the standing counsel for the department and the three decisions referred to above are clearly to the effect that only to the extent the donor was not excluded, the value of the property can be included under section 10. The charge to estate duty under section 10 is only in respect of property that is deemed to pass on death and not on the subject-matter as such of the gift. The section is clear that to the extent of the property that the donor is not excluded from enjoyment it shall be deemed to pass on his death. Therefore, to the extent the donor is excluded it shall not be deemed to pass on his death. The argument of the learned standing counsel would amount to that even though the donor is excluded from a portion of the property, because the gift included that portion also, he must be deemed to be not excluded from the enjoyment of that portion also. There is no warrant or justification to make such an assumption or create a fiction to that effect. The fiction created under the section is restricted and there is no justification to extend it. We, therefore, answer the first question in the affirmative, i.e., on the facts and circumstances of the case, the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the estate out of which the debt were to be met. It was of opinion that the principle enunciated in the case of Barnes where the free estate of the deceased was insufficient to pay the debts incurred by him the deficit could not be adjusted against the value of the gifted properties, applied to the case on hand. In regard to the rebate in respect of the insurance policy, the Tribunal held that as the free estate resulted in a minus figure and was ultimately ignored in arriving, at the principal value of the estate and the insurance money did not enter into the final computation, the authorities were justified in declining to grant the rebate. It is argued on behalf of the accountable person that section 34 of the Estate Duty Act contemplates the levy of estate duty on the estate at the rate or rates applicable in respect of the principal value thereof and section 36 provides for the estimation of the principal value. The argument is that as the estate has to be considered as one, the liabilities also would have to be taken into account and set off against the value of items of property passing on the death. In our opinion the contention urged is not sound. Though all properti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were deemed to be property passing on death for purposes of estate duty they should be treated as though they were liable for debts also. But this contention was not accepted. It was held that the section contemplated liabilities of the estate which were to be met out of the estate and the last three lines of section 7(1) in their natural meaning were inconsistent with the contentions of the accountable person. Lawrence J. observed : "I do not see how, in determining the value of an estate, allowance can be made for debts beyond the value of the assets out of which the debts are to be met. It is an unnatural use of words, in my view, to speak of making an allowance for a minus quantity in determining value." The learned counsel for the accountable person submitted that he would pursue the same line of arguments as was advanced by the counsel for the accountable person in the case of Its re Barites. He argued that as the property is deemed to pass on death and thus a fiction was created so also in regard to the debts a fiction should be created that they would be payable out of those properties. The fiction that certain properties shall be deemed to pass on death is created by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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