TMI Blog1974 (1) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... in the form of life interest was exempt from the levy of estate duty ? " Mrs. Alice St. John Ives, domiciled in India, died on April 8, 1962, and an account of the property passing on her death was filed by the accountable person before the Deputy Controller of Estate Duty, Southern Zone, Madras, on October 10, 1962, declaring the net principal value of the estate at Rs. 12,11,674. The Deputy Controller computed the net principal value at Rs. 18,07,853 which included a sum of Rs. 7,14,000 the value 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1)(b)(ii) of the Act as erroneously held by the Tribunal. He argued that, as the deceased was domiciled in India at the time of her death, the value of the property in question has to be included in the principal value of her estate; that clause (ii) applied only to a case where the deceased was domiciled outside India at the time of death but the settlor was domiciled in India at the date the settlement took effect and, therefore, the Tribunal was in error in the view it has taken that the instant case 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 regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifts inter vivos) that the proper law regulating the devolution of the property or of the disposition under which it passes is not British, and also to satisfy at least one of the conditions (II), i. e., (II)(a) (deceased domiciled outside Great Britain at his death), or (II)(b) (disponer and provider of the property domiciled outside Great Britain at the date of disposition), or (Where the death was before 1st August, 1962) (II)(c) (property immovable by the lex situs). " At page 1254 conditions (1) and (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 dispositio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be included in the property passing on the death of the deceased- (a) immovable property situated outside British India at the time of the death; (b) movable property situate outside British India at the time of the death except- (i) in the case of settled property of which the deceased was life tenant, if the settlor was domiciled in British India at the time of his death; (ii) in the case of any other property if the deceased was domiciled in British India at the time of his death. " It is relevant to notice 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the duty is defined by section 21. Section 5(1) of the Act reads thus : " 5. (1) In the case of every person dying after the commencement of this Act, there shall, save as hereinafter expressly provided, be levied and paid upon the principal value ascertained as hereinafter provided of all property, settled or not settled, including agricultural land situate in the territories which immediately before the 1st November, 1956, were comprised in the States specified in the First Schedule to this Act, which passes on the death of such person, a 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 settl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade in the language of section 21 of the Act from clause 19 of the Bills as originally introduced in 1946 and 1948. Under clause 19(1) of the Bills of 1946 and 1948, the intention was to include movable property situated outside India if it is settled property of which the deceased was a life tenant provided the settlor was domiciled in India at the time the settlement took effect and in the case of any other foreign movable property, if the deceased was domiciled in India at the time of his death. Clause 19(1)(i) in the original Bills referred to above 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Britain; or (b) which by the law of the country in which it is situate is immovable property. " It will be seen from the above section that the case of property passing under or by reason of a disposition made by a person who was domiciled elsewhere than in some part of Great Britain was put as a proviso. It was argued by the learned counsel for the accountable person that we should read the disjunctive word " or " occurring between sub-clauses (i) and (ii) of section 21(1)(b) of the Act as " and " in order to give effect to the intention of Parliament 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, paragr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside India is exempt. Movable property located outside India is subject to Indian estate tax if the decedent was domiciled in India at the time of death ; in addition, 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. In all other cases, movable property located outside India is exempt. Domicile is determined in accordance with the principles set forth 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of which the deceased was life tenant where the settlor was domiciled in India at the time the settlement took effect. We have examined the territorial scope of estate taxes in the United States of America, Canada, Australia, South Africa, Sweden, France, Netherlands and Switzerland in order to see whether there is any common basic principle underlying the levy of tax on property having situs outside the taxing State. In the U.S.A. the federal estate tax is levied (a) in the case of a person domiciled in the U.S.A. or who, though not domiciled, is a U.S.A. citizen, on his 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s referred to above is that property having its situs in the taxing country is charged to tax. Immovable property situated outside the taxing State is not included in the property passing on death. Movable property is taxed though physically situated outside the territory of the taxing State by applying the maxim, mobilia sequuntur personam which means " movables follow the person ". That maxim is sometimes loosely expressed in the phrase, " the situs of personal property is the domicile of the owner". This maxim is generally followed by legislatures while enacting laws imposing tax on 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 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the death of a person may suffer multiple taxation in several States. In our own country, before the enactment of the Central Sales-tax Act, 1956, more than one State began to levy sales-tax on the same sale transaction, each State taking one or other of the elements of sale as constituting sufficient nexus for levying tax. That havoc was put an end to by the intervention of Parliament by making appropriate amendments to the Constitution and enacting the Central Sales Tax Act. When several sovereign States impose tax having extra-territorial operation, the same property suffers multiple 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 fac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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