TMI Blog1982 (7) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... (group) policy The employer, Dastur Co., is described in the policy as the " insured We shall, for the purposes of convenience, refer to the " combine " as the " insurer ". The persons in respect of whom the insurance was effected, that is, the employees of Dastur Co., are referred to as " insured persons " in the policy. In the schedule to the policy, the insured persons are described as follows : " All employees of the insured on the pay roll of the company as at 1-12-65 and all persons employed subsequent to the aforesaid date during the period of currency of the policy." The duration of the policy which was originally 1st December, 1965, to 1st December, 1966, has been renewed from time to time and the policy in force on the date of death of the deceased was for the period 1st December, 1967, to 1st December, 1968. By later endorsements the employees have been divided into two parts (i) Employees whose salary is below Rs.11,000 per annum. (ii) Employees whose salary is above Rs.11,000 per annum. Under the terms of the policy different sums are payable by the insurer in the case of death or bodily injuries specified in the policy. The policy provides that if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or by virtue of this policy." It appears that even prior to 1965, the Personal Accident (Group) Insurance was also in operation. Dastur Co. issued an office circular dated 21st December, 1962. Clause I of that circular reads as follows : " The company has now made arrangements with an insurance company by which compensation is payable, in case of occupational accidents within or outside India resulting in permanent disablement or death. This personal accident (24 hours coverage) insurance includes travel accident and is provided at company's expenses for all employees of M.N. Dastur Co. Pvt. Ltd. These arrangements apply only to permanent employees of the company and do not cover their wives and children. " By cl. 2 of the said circular it was made clear that the compensation payable by the insurance company in each case would be equivalent to two years' salary of the individual concerned at the time of accident resulting in a claim under the policy. Other forms of remuneration such as allowances, bonus and the like were excluded in determining the salary for this purpose. Under cl. 3 it was made clear that personal accident insurance would automatically cease to ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate Controller, however, took the view that the decision not having been given in an estate duty matter could not be invoked by the accountable person. He further held that merely because the circular dated 21st December 1962, described " that the payment would be ex gratia ", it did not mean that the payment was voluntary and the deceased did not have any right in it. He held that the deceased had an interest in the policy which was property and he was competent to dispose of his interest and that interest would be deemed to pass on his death. He, therefore, held that the sum of Rs. 68,400 was dutiable. When the matter was taken to the Income-tax Appellate Tribunal, the Tribunal took the view that Dastur Co. was acting on behalf of the staff of the company in providing the insurance at its own expense, ; that the said Dastur Co., in consideration of the services rendered by its employees, was providing the staff the insurance benefit; that since the consideration can be said to have moved from the members of the staff, the insurance policy in its turn can be said to have been taken by the members of the staff themselves ; that since the benefit was not in fact withdrawn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether, on the facts and in the circumstances of the case, the sum of Rs. 68,400 payable on the death of the deceased in pursuance of the insurance policy is liable to duty under the Estate Duty Act, 1953 ? (2) Whether, on the facts and in the circumstances of the case, the compensation amounting to Rs. 43,846 out of the compensation amount of Rs. 50,000 received by the accountable person as per the provisions of the Indian Carriage by Air Act, 1934, on the death of her husband is dutiable under the Estate Duty Act, 1953 ?" We shall first deal with the question as to whether the sum of Rs. 68,400 payable on the death of the deceased in pursuance of the insurance policy is liable to duty under the E.D. Act, 1953. At the outset, it may be pointed out that it was not the case of the Revenue that the said amount of Rs. 68,400 passed on the death of the deceased under s. 5(1) of the E.D. Act. The Revenue has based its case for making this amount liable to estate duty on s. 6 and alternatively on s. 15 of the E.D. Act. Mr. Dastur, appearing on behalf of the accountable person, has contended that under the Personal Accident (Group) Policy, the deceased had no disposable interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust so created has given him. The basis of that rule is that though he is not a party to the contract, his rights are equitable and not contractual. The judicial Committee applied that rule to an Indian case, Khwaja Muhammad Khan v. Husaini Begam [1910] LR 37 IA 152; ILR 32 All 410. In a later case, Jamna Das v. Ram Autar [1911] LR 39 IA 7 ; ILR 34 All 63, the Judicial Committee pointed out that the purchaser's contract to pay off a mortgage debt could not be enforced by the mortgagee who was not a party to the contract. It must, therefore, be taken as well settled that except in the case of a beneficiary under a trust created by a contract or in the case of a family arrangement, no right may be enforced by a person who is not a party to the contract." Relying on this decision, Mr. Dastur has contended that not only is the insured person not a party to the contract of insurance and, therefore, the estate of the deceased person could not have filed a suit in order to recover the insurance amount payable by the insurer to the insured, but special provision of the contract of insurance between the insured and the insurer specifically provided that no person other than the insured a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the deceased had a power of appointment will also fall within s. 6. It was pointed out that s. 6 is in addition to or supplemental of the provisions of s. 5(1) which is a charging section and that s. 6 is merely subsidiary and supplementary and when s. 6 has brought property within the charge of duty " either alone " as in the case of competency to dispose of under s. 6, which could not be supposed to " pass on death or concurrently with s. 5, its function is at an end. Section 6 of the E.D. Act is analogous to the provisions of s. 2(1)(a) of the English Finance Act of 1894. Summarising the scope of s. 2(1)(a) it is observed in Dymond's Death Duties, 14th edn, at p. 431, as follows : " Estate Duty is chargeable under s. 2(1)(a) of the Finance Act, 1894, in respect of any benefits (whether in the form of lump sums or annual payments) under a scheme where either (i) the benefit is payable to the deceased's legal personal representatives as of right, or (ii) the deceased had a general (not a limited) power to nominate the beneficiary, whether exercised or not except where the deceased had in his life-time irrevocably nominated the beneficiary or could have revoked such a no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insured person or his legal representatives are concerned, according to the learned counsel, there may be an expectation on their part that they will receive the amount of insurance received by the insured from the insurer, but the scheme, as indicated in the circular, does not carry the matter beyond a mere expectation on the part of the insured person. Heavy reliance has been placed by Mr. Dastur on the decision of the Andhra Pradesh High Court in Smt. Lakshmisagar Reddy v. CED [1980] 123 ITR 601, in which on a construction of r. 73 of the Indian Airlines Corporation Employees' Service Rules, the Andhra Pradesh High Court took the view that in a case governed by r. 73, there was no guarantee that the Corporation would certainly pay any sum either to the nominee or to the legal representatives of the deceased as the conditions envisaged in r. 73 have to be satisfied and the right to nominate a person or persons who would be entitled to receive the compensation payable by the Corporation under r. 73 cannot be equated to any right, if any, of the deceased to dispose of the compensation amount at the time of his death, thereby ruling out the applicability of s. 6 of the E.D. Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the policy. With regard to the clause which expressly prohibits any person other than the insured acquiring any right under the policy, Mr. Joshi pointed out that it was merely a machinery to give a discharge to the combine as it would be inconvenient to deal with the individual employees separately. According to the learned counsel, reading the policy as a whole, it secured benefit to the insured person named in the schedule and the capital sum payable on the death of the insured person is intended by the policy to be a benefit to the insured person's estate and is not intended for the pocket of the insured. The learned counsel argued that the terms as a whole show that the parties envisage the payment of capital sum to the insured and payment of it by the insured to the insured person, with the result that the payment was to be channelised through Dastur Co. The intention to benefit the insured person was also spelt out from the circular which, in cl. 2, provided that the compensation payable by the insurance company in each case will be equivalent of two years' salary of the individual concerned at the time of the accident resulting in a claim under the policy. Reference w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch policies are taken out must be arrived at without being affected by the ultimate result with regard to the nature of this right in attracting or otherwise the liability to estate duty. We, therefore, propose primarily to deal with the nature of the policy read with the circular issued by Dastur Co. in order to find out whether the deceased could have any right against the insured, that is, the employer, Dastur Co., either in the case of a bodily injury which may not have resulted in death or, as has now unfortunately happened, in the circumstances in which death has resulted from an accident while he was in employment. A contract of insurance may be classified in three different ways: (1) according to the nature of the event on which the sum insured becomes payable, (2) according to the nature of the interest affected, and (3) according to the nature of the insurance. In the first class of cases fall marine insurance, fire insurance, life insurance and accident insurance (See General Principles of Insurance Law by E. R. Hardy Ivamy). In the case of life insurance, the sum insured becomes payable on death and in the case of accident insurance, the sum insured becomes payab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the premium? Undoubtedly the object of personal accident insurance is to make a provision for payment of money in the event of the assured sustaining accidental injury. Under the heading " Personal Accident Insurance " in Halsbury's Laws of England, 4th edn., vol. 25, p. 310, the following appears : " The object of personal accident insurance is to make provision for payment of a sum of money in the event of the assured sustaining accidental injury. It resembles life insurance and differs from other types of insurance in that it is not a contract of indemnity; it is merely a contract to pay a sum of money on the happening of a specified event, namely, the sustaining by the assured of personal injury by such accidental means as may be defined in the policy. The event may involve the death of the assured, but the insurance is not for that reason a contract of life insurance. In the case of life insurance, the assured is bound to die some day, the uncertainty being as to the date when the death will take place. In the case of personal accident insurance, on the other hand, no accident may ever happen, and, even if it does, there is no certainty that it will result in death or disab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal accident insurance is provided at the company's expense for all employees. What is, emphasised is that there is an insurance cover for all the employees which has been provided by the company itself at its own expense. Then it is specified that these arrangements apply only to permanent employees of the company. The circular specifies the amount of compensation, which will be equivalent to two years' salary of the individual concerned. Clause 3 is important and it declares that the personal accident insurance shall automatically cease to apply to any insured person upon termination of employment. It is clearly implied in this paragraph that the personal accident insurance will remain applicable to the insured persons during their employment. That this an insurance cover of the insured person himself is made clear in paragraph 4 where choice has been given to the employees to have additional cover, if they so like. The whole argument of the learned counsel for the accountable person seems to be based on cl. 5. But before we refer to the reference to the ex gratia character of the insurance cover, it is necessary to point out that Dastur Co. has itself treated these insurance c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entitled. The argument that the employer wanted to safeguard itself against a possible claim by an employee, who had suffered an accidental injury, or the legal representatives of the employee, who had met with accidental death, would mean that what is expressly a personal accident insurance policy is to be equated with an employer's liability insurance policy on the footing that it was a contract of indemnity which, on the face of it, the present is not. We fail to see what other purpose the circular could have had than to bestow benefits as of right on the employees when they are expressly told that they have now bad an insurance cover at the cost of the employer, that they would be receiving compensation in the case of accidental injury or accidental death and that these benefits would be available only during the period of employment. Therefore, notwithstanding the fact that the contract of insurance between the insured and the insurer does not by itself create a right in the insured person to claim any insurance moneys directly from the insurer, in view of the circular notifying that certain benefits have been given to the employees, in our view, there was clearly a right to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eased's own negligence, default or breach of instructions. Rule 73 read as follows : " In the event of death or disablement while on duty by an accident to an employee or in the event of loss or damage to the personal belongings caused while the employee is travelling on duty, the Corporation may pay compensation to him or to his legal representative(s), as the case may be, at such rates and on such conditions as it may lay down from time to time, unless such accident, loss or damage is attributable to his own negligence, default or breach of instructions." (Underlining ours.) The Andhra Pradesh High Court pointed out that compensation under this rule is not payable if the accident, loss or damage is attributable to the negligence, default or breach of instructions on the part of the employee and the word used in the rule is " may " and not " shall ". The High Court took the view that there was no guarantee that the Corporation would certainly pay any sum either to the nominee or to the legal representatives of the deceased as the conditions envisaged in r. 73 have to be satisfied and then it observed as follows (p. 607) : " The right to nominate a person or persons who would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision to the decision of the Chancery Division in Re J. Bibby Sons Ltd. [1952] 2 All ER 483. In Bibby Sons Ltd.'s case, the amount of pension granted to the widow of the deceased employee by the trustees of the employer-company, who had an absolute and uncontrolled discretion in the exercise of Powers in regard to the payment of pension, was held to be not property within s. 2 of the Act of 1894 and it was held that the widow had no beneficial interest since she had no enforceable right to the pension, the same being of a gratuitous provision by the company without any bargain and agreement between the company and the deceased employee. A brief look at Bibby Sons Ltd.'s case [1952] 2 All ER 483 (Ch D) will show that the decision in that case turned on the fact that there was an absolute discretion in the trustees of the employer-company in the matter of grant of pension and that was why it was held that the widow of the deceased employee had no enforceable right to the pension. The deceased in Bibby Sons Ltd.'s case was in the employment of company which had adopted a pension scheme which was created by an indenture made between the company and some of its directors w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of s. 2 of the Act of 1894. It is true that in Bibby Sons Ltd.'s case [1952] 2 All ER 483 (Ch D), the ratio of the decision in In re Miller's agreement [1947] 1 Ch 615 (Ch D) was applied. In that case, it was held that in order to be chargeable with duty under s. 2(1)(d) of the Finance Act, 1894, a beneficial interest arising on death must be such as will be protected by the courts. But on the facts of that case, it was held that duty was not payable in respect of annuities commencing on the death of the deceased in favour of his wife and daughters which were secured by contract between the deceased and the predecessors of his business to which the annuitants were not parties. It was held that s. 56(1) of the Law of Property Act, 1925, conferred no rights on the annuitants who, therefore, had no means of enforcing payment of annuities. Since both these decisions turned essentially on the question as to whether the beneficiaries had any enforceable right, the ratio of those cases is not of any assistance to the accountable person in the present reference where we have found that there is a vested right to the compensation amount because a scheme of personal accident (grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the deceased employee and he, therefore, had interest in it and had also the right to appoint the person to whom it should be paid on his death. While taking this view the Division Bench observed as follows (pp. 517-518): " The circumstance that the occasion for the exercise of that right arises after the death of that person and is also conditional upon death, does not in any way detract from the existence of that right and the deceased's interest therein during his lifetime. The payment of compensation is not gratuitous nor does it depend upon the discretion of the Corporation. It is a compulsory payment which the Corporation is bound to make on the happening of a certain event to the heirs of the deceased. There is thus a direct nexus between the right of the deceased as an essential condition of his service to have that compensation paid to his legal representatives and the right of his legal representatives to receive that payment. This right of the deceased must be regarded as interest in the property in much the same way as he would have had in any actionable claim of which the payment was postponed until after his death. Inasmuch as the deceased had also the right to n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is lifetime and in an accident policy, what is assigned is virtually the subjectmatter of the contract of insurance. The right of the deceased under personal accident insurance policy has been described as a right to exact a certain amount in the case of accidental injury. The following observations may usefully be quoted (p. 196): " The deceased had an interest in the contractual right under the two relevant policies of insurance to exact a particular sum, if and when there was loss of life or limb arising as a result of the accident. The very fact that the deceased had a contractual right to exact a particular sum in case of loss of limb or life is an interest in expectancy and it would have been an interest in present the moment the accident occurred resulting in loss of his limb. The contract of insurance contained in the two relevant policies conferred on the deceased the benefit of the policies, namely, the right to exact a particular amount of damage depending on the loss of limb or life, as the case may be. " After quoting the provision with regard to payment of claims in case of loss of life, the Division Beach made the following observations in the context of s. 15 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 15 would be wholly inapplicable on the facts of the present case. Section 15 reads as follows: " Any annuity or other interest, purchased or provided by the deceased, either by himself alone or in concert or by arrangement with any other person shall be deemed to pass on his death to the extent of the beneficial interest accruing or arising, by survivorship or otherwise, on his death. ... " A bare reading of the provisions of s. 15 will indicate that three conditions must be satisfied before s. 15 can be invoked by the Revenue, namely, (1) there must be an annuity or other interest, (2) it must have been purchased or provided by the deceased either by himself or in concert or by arrangement with some other person, and (3) a beneficial interest therein must accrue or arise by survivorship or otherwise on the death of the deceased. If any one of these three conditions is not satisfied, then the applicability of the provisions of s. 15 must be ruled out. It is contended by Mr. Dastur, and in our opinion rightly so, that the premium in the instant case has been paid by the employer and no interest can be said to be purchased or provided by the deceased either by himself alone or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the Tribunal. So far as the second question is concerned, which is at the instance of the Revenue, the learned counsel for the Revenue has fairly pointed out that that question is really concluded against him by two decisions, namely, CED v. Kasturi Lal Jain [1974] 93 ITR 435 (J K), and CED v. Smt. Motia Rani Malhotra [1975] 98 ITR 42 (P H). In Kasturi La1 Jain's case a Division Bench of the Jammu and Kashmir High Court has taken the view that where compensation is paid by the Airlines Corporation under the Carriage by Air Act, 1934, to the heirs of a person dying in an air crash, the deceased has neither any interest in the property nor was he in possession of the property either actually or constructively and the property in such a case did not and could not have come into existence daring the life-time of the deceased but accrued for the first time after his death and that too because his death took place in a certain mode. It was pointed out that under the provisions of the Carriage by Air Act, 1934, the compensation enures for the benefit of the members of the passenger's family and had nothing to do with the estate of the deceased and as none of the ingredients of s. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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