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TMI Blog1974 (1) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the deceased's interest in B. C. Alexander Trust, U.K. In the appeal preferred by the accountable person before the Appellate Controller of Estate Duty, New Delhi, the inclusion of the said sum of Rs. 7,14,000 in the principal value was upheld; he, however, reduced the principal value by a sum of Rs. 7,320. In the second appeal preferred by the accountable person the Income-tax Appellate Tribunal, Madras Bench, held that the said sum of Rs. 7,14,000 is not includible in the principal value of the estate. Aggrieved by the order of the Tribunal, the Controller of Estate Duty sought the reference and the Tribunal has referred the question of law as set out above for the opinion of this court. The material facts as found by the Tribunal are: B. C. Alexander, the father of the deceased, who was not domiciled in India, died before the year 1910 leaving a will under which a trust was created in respect of certain funds left by him in the Unite Kingdom. Under the terms of the said will the deceased became entitled to the income of the fund for life; she was further given the power of appointment of the successors to the fund, and, in the event of default of such appointment, the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e came under clause (i). Shri S. P. Bhat, learned counsel for the accountable person, contended that clause (ii) has to be read as a proviso or an exception to clause (i) by reading the word "or" occurring after clause (i) not as a disjunctive but as " and ", a conjunctive, in order to carry out the intention of the legislature. He argued that according to recognised principles of private international law, the " proper law " that governs the disposition of movable property is the " lex domicile " of the settlor and in the case of devolution of movable property it is the " lex domicile " of the deceased; that the concept of the " proper law " of the disposition or devolution regulating the passing of property on the death is the principal factor which determines the liability to estate duty under all estate duty enactments; that in the case of devolution of movable property situated outside India it will be chargeable to duty under the Act only if the deceased was domiciled in India at the time of the death and in the case of movable property in which the deceased had only a life interest the law under which the property passes on the death is the " lex domicile " of the settlor w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (11) referred to in page 1323 have been stated thus: " Section 28(2) of the Finance Act, 1949, is in negative form, i.e., it defines the circumstances in which non-British property is not liable to estate duty. By abolishing the former provisions, it first brings all property within the prima facie charge of estate duty ; but the sub-section (as amended by the Finance Act, 1962, section 28(1)) then goes on to provide that property shall be deemed for the purposes of estate duty not to include any property passing on the death which is situate out of Great Britain if it is shown-- (I) that the 'proper law' regulating the devolution of the property so situate, or the disposition under or by reason of which it passes, is the law neither of England nor of Scotland; and (II) that one at least of the following conditions is satisfied, namely- (a) that the deceased did not die domiciled in any part of Great Britain ; or (b) that the property so situate passes under or by reason of a disposition- (i) made by a person who, at the date at which the disposition took effect, was domiciled elsewhere than in some part of Great Britain; and (ii) not made, directly or indirectly, on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the provision defining the territorial scope of estate duty in Pakistan is similar to clause 19 of the 1946 Estate Duty Bill. That Bill having lapsed, Bill No. 30 of 1948 was introduced. Clause 19 in the said Bill read as follows: "Foreign Property: (1) There shall not be included in the property passing on the death of the deceased- (a) immovable property situated outside the provinces of India; (b) movable property situated outside the provinces of India at the time of the death except- (i) in the case of settled property of which the deceased was a life tenant if the settlor was domiciled in any province of India at the time the settlement took effect; (ii) in the case of any other property if the deceased was domiciled in any province of India at the time of his death. (2) The Board may make rules prescribing the manner in which the nature and the locality of different classes of assets shall be determined for the purposes of this section. The Bill was referred to a Select Committee which made certain changes. Clause 19 as amended by the Select Committee read thus: "Foreign property. 1. There shall not be included in the property passing on the death of the dece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty called 'estate dutt' at the rates fixed in accordance with section 35. " The practical effect of section 5 read with section 21 is that all property-movable or immovable-situated in India passing on the death of a person after the coming into force of the Act is chargeable to duty, whether the person dying is a domicile of India or a non-domicile. Immovable property situated outside India passing on death shall not be included in the property passing on the death of the deceased. Foreign movable property shall not be included in the property passing on the death of the deceased unless : (i) in the case of any property whether settled or not the deceased was domiciled in India at the time of his death ; or (ii) in the case of settled property of which the deceased was a life tenant, the settlor was domiciled in India at the time the settlement took effect. The section is in negative form, i.e., it defines the circumstances in which non-Indian property is not liable to estate duty. While under section 28(2) of the U. K. Finance Act, 1949, one of the essential conditions that has to be satisfied in order to bring to charge movable property situated outside the United Kingdom i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove was in effect a proviso to clause 19(1)(ii) since the latter clause makes the intention clear by stating that it applies to a case of " property " other than the one provided under clause (i). The original Bill did not disclose any intention to include any movable property situate outside India passing on the death of a person not domiciled in India even if the settlor was domiciled in India. Under the original Bills, in order to include movable property of which the deceased was a life tenant, two conditions were required, viz., (a) the settlor was domiciled in India at the time the settlement took effect, and (b) the deceased was domiciled in India at the time of his death. The Select Committee on the 1948 Bill amended clause 19 in the form as it is now found in section 21 of the Act; the reason for the amendment has been stated thus : "We are of the opinion that for the purpose of determining the liability of any property to duty under this clause, both 'domicile ' and 'residence ' of the deceased or the settlor, as the case may be, should be taken into consideration and that for the said purpose the expression ' residence ' should have the same meaning as that assigned to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that Parliament could not have intended to charge duty on movable property situated outside India where the deceased life tenant was not domiciled in India at the time of his death and that sub-clause (ii) is in the nature of a proviso to clause (i). If that was the intention of Parliament there was no necessity to make a deliberate change in the language of clause 19(1) found in the original Bills of 1946 and 1948. When Parliament made a substantial change in the Bill the same must be ascribed to a deliberate intention which cannot be ignored by the court. As stated by Crawford on Statutory Construction (page 322, paragraph 188): "In ordinary use the word 'or ' is a disjunctive that marks an alternative which generally corresponds to the word 'either'. In face of this meaning, however, the word 'or' and the word 'and are often used interchangeably. As a result of this common and careless use of the two words in legislation, there are occasions when the court, through construction, may change one to the other. This cannot be done if the statute's meaning is clear, or if the alteration operates to change the meaning of the law. It is proper only in order to more accurately exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th in the Indian Succession Act of 1925." At page 102 under the heading "exemptions" it is stated : " Property not included in estate.-The classes of property listed below are not included in the estate of a decedent for estate tax purposes. 1.Real property situated outside India is not included in property passing on death. 2. Movable property situated outside India is not included in property passing on death if the decedent was not domiciled in India at the time of death, provided the decedent was not life tenant of the property under a settlement made by a settlor who was domiciled in India when the settlement took effect." The clear view of the Harvard Law School Scholars and Sri N. A. Palkhivala, the joint authors of the book, is that settled movable property located outside India in which the decedent had a life estate is subject to Indian estate tax if the settlor was domiciled in India when the settlement took effect, even if the decedent was not domiciled in India at the time of his death. If clause (ii) of section 21(1)(b) has to be read as a proviso to clause (i), "settled property " located outside India of which the deceased had a life estate is not liable to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s real and personal estate wherever situate, and (b) in the case of a person not domiciled in the U.S.A., and not a U.S.A. citizen, on his real and personal estate in the U.S.A. subject to certain important exceptions like U.S. bank balances, U.S. Government securities, etc. Settled property is taxable only where the deceased was a settlor or competent to dispose of it. In the case of property passing on the death of non-citizens, tax is levied if property has situs in the U.S.A. There is provision for giving credit for tax paid on outside U.S.A. assets under the law. Canadian succession duty was levied (a) in the case of a deceased who was domiciled in a Province of Canada, in respect of the succession on his death to all real or immovable property in Canada and all personal property wherever situate, and (b) in the case of a deceased who was a domiciled outside Canada, in respect of the succession to all property situate in Canada. Settled property was dutiable only where the deceased was the settlor or competent to dispose of the property. In Australia, movable property situated outside Australia is taxable if the deceased was domiciled within that country and if not domiciled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n movable property situated outside the taxing State. For tax purposes movable property is governed, no matter where situated, by the law of the domicile of the owner. It is on this principle that movable property situated outside the taxing State passing on the death is taxed if the deceased was domiciled in that State at the time of death. In the case of settled property of which the deceased was a life tenant, the domicile of the settlor at the time the settlement took effect determines the situs of the movable property passing on the death, no matter where the property was physically present and where the deceased life tenant was domiciled at the time of the death. Clause (ii) was enacted to impose the duty on settled movable property situated outside India if the settlor was domiciled in India at the time the settlement took effect, whatever be the domicile of the deceased life tenant. If the same principle had been followed throughout, settled movable property situated outside India ought to have been excluded from the purview of the duty if the settlor was not domiciled in India, even if the deceased life tenant on whose death property passes was domiciled in India, for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxation. The proper thing to do in such circumstances is for the United Nations to lay down sound conventions consistent with recognised principles of international law and for the member States to observe the conventions. In the instant case it is undisputed that the deceased was domiciled in India and, therefore, the case clearly falls under section 21(1)(b) of the Act and, as such, the sum of Rs. 7,14,000 representing the value of movable property in which the deceased had a life interest is liable to be included in the computation of the principal value of the estate notwithstanding the fact that the property passing on the death of the deceased had no situs in India. This being a reference under the Act, we are not called upon to express any opinion on the constitutional validity of such an impost. Accordingly, we answer the question referred to us in the negative and in favour of the department. It was submitted before us by the learned counsel for the accountable person that estate duty has been paid in the U. K. on the value of the deceased's interest in the Alexander Trust Fund in accordance with the law in force in that country. It was also submitted that the provisio ..... 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