TMI Blog1980 (3) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... nt writ petitions have been filed by the husband and power-of-attorney agent of Kalyani, the first daughter. It is common ground that she became entitled on the death of Anantharamakrishnan to a fifth share in his estate under the provisions of the Hindu Succession Act. Soon after his death, the question of liability to estate duty arose. All the heirs, other than Sri Sivasailam, who were also the accountable persons, wrote to the Asst. Controller on 15th December, 1964, as follows : "We are the other accountable persons to the estate of late Sri S. Anantharamakrishnan. Sri A. Sivasailam has rendered the estate duty account. We agree to abide by the accounts rendered by him and any explanation furnished by him with regard to estate duty matters will be binding on us." M/s. Amalgamations Private Ltd. is a company which holds shares in most of the companies of this group, such as Simpson Co. Ltd. By a letter dated 27th April, 1965, M/s. Amalgamations Private Ltd. informed the assessing authority that the deceased had transferred property in the form of shares in M/s. Simpson Co. Ltd. to it and that the deceased had controlling interest in the said company at the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accountable person under section 19(1)." In response to the notice issued, the company rendered an account on 8-10-1965 admitting therein the shares held by the deceased in M/s. Amalgamations Private Ltd., and other allied concerns as also the amount due to the estate by M/s. Amalgamations Private Ltd. The account rendered by the company was incomplete. After referring to certain assets and liabilities which were shown in the account, and after observing that the principal value of the assets were not given in the account, it was added : " In their covering letter, however, the company pointed out 'we have long back intimated about the company being a controlled company, vide our letter ... dated 27-4-1965. As desired by you now, we are formally filing a return. So far as valuation and other assets are concerned, we have to refer you to the estate duty returns and other data already furnished to you by the legal heirs'." In para. 3 of the assessment order, the Asst. Controller further observed as follows : " Since M/s. Amalgamations Private Ltd. is a controlled company and since the deceased had control over the company, it was proposed to value the shares held by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any within the meaning of s. 17, and as M/s. Amalgamations Private Ltd. was a controlled company, and the deceased had control over its affairs, the valuation of the shares held by the deceased in such a company, it was held, could be made only in the manner laid down in r. 15 framed by the Board. The Asst. Controller rejected the plea that r. 15 could be applied only to a case where s. 17(1) was applied. In his view, if the conditions prescribed in r. 15 were satisfied, it could be applied even independently of s. 17(1). The validity of the rule was not gone into by him as, according to him, he was only a creature of the statute. After disposing of all, the contentions raised by the accountable persons before him, he stated in his order: " The arguments discussed above were put to the accountable persons and after considerable discussions, in their letter dated 5-1-1970 addressed to the Controller of Estate Duty, Madras, they have agreed to the valuation of 39,000 shares held by the deceased in M/s. Amalgamations Pvt. Ltd., and 10,575 shares held by him in M/s. Simpson Co. Ltd., applying rule 15 of the Controlled Companies Rules." The details of the working were discussed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation of shares of companies for the purpose of estate duty. Unless there was a transfer of Property, presumably without consideration by the deceased to M/s. Amalgamations Pvt. Ltd., and any benefit accrued to the deceased from the company, s. 17(1) would not, in the view of the applicant, be attracted. It was, therefore, pointed out that the finding in the assessment order that M/s. Amalgamations Pvt. Ltd. was to be treated as an accountable person because of the transfer of shares to it was not correct. It was stated that if any transfers were made by the deceased and if any portion of the assets of M/s. Amalgamations Pvt. Ltd., was required to be included in terms of s. 17(1), then, of course, the company would become an accountable person under s. 19 and the amount which it had to pay as duty would be proportionate to the slice of the assets included under s. 11(1) in the estate determined as passing on the death of the deceased. It was further stated : " The assessment order does not show any detail on this point. You will please pass a rectification order as to what is the exact amount included under section 17(1) as the property passing on the death of the deceased. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies Rules imposed liability for the state duty and that it was forgotten that liability to pay estate duty arose only under s. 5. In para. 11(8) it was added : " All the authorities including some text book writers on the subject are in error in assuming that if shares in a controlled company are purchased for cash, there is a transfer of property within the meaning of section 17 of the Act, forgetting that whereas in the United Kingdom the Estate Duty Act was amended after the decision in St. Aubyn v. AttorneyGeneral [1951] 2 All ER 473; 3 EDC 292 (HL), there has been no such amendment in India." In the submission of the petitioner, the company could not be made an accountable person under s. 19 of the Act. Originally the respondents to the writ petitions were the Asst. Controller and the other four heirs of the deceased. Subsequently, M/s. Amalgamations Pvt. Ltd. was also added as a respondent. A supplemental affidavit was filed by the husband and the agent of the petitioner to make two points clear ; it was explained that, firstly, the petitioner was not in any way questioning the assessment order as to the estate duty and its quantum, and, secondly, that all th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. He further submitted by reference to the provisions of the Act that r. 15 did not at all apply in this case and that, therefore, M/s. Amalgamations Pvt. Ltd. should not have been treated as an accountable person at all. As this was, according to him, a p1atent error, it should have been rectified by the Asst. Controller. The learned counsel for the Asst. Controller contended that the company was rightly treated as an accountable person and that, in any event, there was no apparent error which could be rectified under s. 61. In the light of these contentions, it is necessary to find out whether there is any apparent error in this case which should have been rectified by the Asst. Controller. In this context, we shall refer to a few of the relevant provisions of the Act. Section 17 is one of the special provisions relating to transfers of properties to companies. Section 17(1) provides : "17. (1) Where the deceased has made to a controlled company a transfer of any property ... and any benefits accruing to the deceased from the company accrued to him in the three years ending with his death, the assets of the company shall be deemed for the purposes of estate duty t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passing to him, it shall, where occasion requires, be repaid to him by the trustees or owners of the property." Section 61, which is the provision now under consideration, runs as follows: " 61. At any time within five years from the date of any order passed by him...... the Controller....... may, on his...... own motion, rectify any mistake apparent from the record and shall, within a like period, rectify any such mistake which has been brought to the notice of the Controller....... by the person accountable: Provided that no such rectification shall be made which has the effect of enhancing the estate duty payable unless the person accountable has been given a reasonable opportunity of being heard in the matter." Thus, the question for consideration as set out earlier is whether there is any mistake apparent from the record in the present case. This mistake was stated to be the inclusion of M/s. Amalgamations Private Ltd. as an accountable person. The learned Advocate-General relied on a passage in the decision in T. S. Rajam v. CED [1968] 69 ITR 342 in support of his submission that there was an apparent error in this case. The relevant passage occurs at p. 349, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of a barrier to the revenue at all material times to re-open a mistake in the value of property, though patent and obvious." The first officer was found to have accepted the consideration as shown by the deceased without bestowing any thought as to whether it represented the fair and full price of the shares. On the facts it was held that there was a mistake in the valuation which could be rectified. The observations found in this decision cannot be taken out of the context and applied to all situations. This decision was subsequently distinguished in Addl. CIT v. Shree Shankar Co. [1979] 118 ITR 636 (Mad). After the decision in T. S. Rajam v. CED [1968] 69 ITR 342 (Mad), there has been a pronouncement of the Supreme Court in T. S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50. That case arose under s. 154 of the I.T. Act, 1961. The expression used in the said provision is " any mistake apparent from the record ". In that case, rectification proceedings were initiated on the ground that there was a mistake apparent from the record inasmuch as the firm had not been charged at the maximum rate of tax under s. 17(1) of the Indian I.T. Act, 1922. The firm and its partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o far as it is material, as follows: " 15. (1) Where for the purposes of estate duty there pass, on the death of a person, shares in, or debentures of, a controlled company, then, if (a the deceased had the control of the company at any time during the three years ending with his death; ...... the principal value of the shares or debentures, in lieu of being estimated in accordance with the provisions of sub-section (1) of section 36 of the Act shall be estimated by reference to the net value of the assets of the, company in accordance with the provisions of the next succeeding sub-rule." Sub-rule (2) provides for the basis for the ascertainment of the net value of the assets of the company. While according to the writ petitioner r. 15 of the Controlled Companies Rules prescribes only the method of valuation of the shares or debentures of the controlled company and that it was only an appendage to ss. 36 and 37 and the proper rules to be applied would be r. 4 read with r. 11, the learned counsel for the Asst. Controller contended that r. 15 could be applied in cases of " controlled companies such as the one here, even if the question of benefit had not been or had not to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion on the question of transfer of property by the deceased, then the Asst. Controller can treat the company as an accountable person. He would have to go into the question of benefits accruing to the deceased from the company in the course of further investigation of the facts. At any rate, it cannot be postulated as a clear proposition of law that the two conditions have to be satisfied even when notice to file a return is issued. If at the stage of issue of notice, there was any dispute as to the liability of the company to be taken as an accountable person , then the Asst. Controller would have to determine the dispute. In the present case, there was no such dispute raised by the controlled company and, therefore, it was open to the Asst. Controller to proceed on the basis that the provisions of s. 17(1) were attracted. There cannot be said to be any apparent error when the Asst. Controller treated M/s. Amalgamations Pvt. Ltd. as an accountable person, especially when it submitted to his jurisdiction without any protest. There was also a submission that the tax liability should be apportioned among the accountable persons and that this is a patent error in the assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessment to estate duty exhibits manifest mistake. The error, according to her, lay in the Asst. Controller's treating Amalgamations Private Ltd., as an accountable person, when the assessment itself had not been framed by virtue of s. 17(1) of the E.D. Act. The question is, whether the petitioner is right and the assessment is wrong. In seeking to answer this question, I think it is important to keep three things clear in our minds. There is first the question whether Amalgamations is, a controlled company for purposes of the E.D. Act. Then there is the question whether the assessment in this case is one made under s. 17(1) of the Act. Lastly, there is the question whether Amalgamations can be rendered liable under the assessment as an accountable person. On the first question there never was any doubt in the mind of any one concerned with this assessment that Amalgamations was a controlled company. It is a private company, and not a company in which the public are substantially interested. It is a holding company, and not subsidiary of another. And it has always been under the control of not more than five persons at a time. The statutory definition, therefore, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany. The basis, rather, is the deceased having transferred some property of his at some time to the company. Once this is found, the section begins to operate; and the rest of the proceeding is merely occupied with the determination of the precise quantum of liability which the company has to pay. The quantification part of the assessment consists in comparing the benefits which the deceased had been deriving from the company, on the one hand, with the annual income of the company, on the other, both calculated over a three year period immediately before the deceased's death. The ratio between the two, namely, the deceased's benefit and the company's income, is then applied to the value of the net assets of the company. If, for instance, the value of the benefits amounts to half the net income of the company, then one-half of the company's assets is regarded as the measure of the property liable to estate duty. Further, the duty so determined is declared under the statute to be a first charge on the company's own assets. The Act accordingly makes provision for treating the company itself as an accountable person to the extent that liability is fixed on the company by an applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be treated as an accountable person at all. On the contrary, I think the company can be properly so treated, having regard to the whole course of the assessment proceedings in this case, and having regard to the other provisions in the Act. Under the scheme of the E D. Act, all property passing or deemed to pass on the death of a deceased person are chargeable to estate duty on their principal value [see s. 5 read with s. 3(3)]. All properties so passing or deemed to pass shall be aggregated so as to form one estate, and duty is leviable on a graduated scale on the principal value of the estate [s. 34(1)]. The principal value of any dutiable property shall ordinarily be its market value. [See s. 36], As for shares held by a deceased shareholder in a controlled company, their valuation is to be governed by prescribed Rules. [See s. 20(e)]. The Rules prescribe the break-up value method for valuation of shares in controlled companies (see r. 15 of the Controlled Companies Rules). Every incorporated company is under duty to furnish particulars of the interest held by a deceased person in its share capital or debentures. (See s. 84). Besides, every company to which a deceased had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te-General urged two points against this position. He said that the definition of accountable person in s. 2(12A) is a general provision, whereas s. 19(1)(a) is a special provision, and he invoked the familiar rule of construction that the special excludes the general. I do not see how this rule of the special overriding the general can at all be applied in a case such as the present where s. 19(1)(a) cannot apply at all. If we once rule out s. 19(1)(a) altogether as inapplicable, what remains for application is only one provision, namely, s. 2(1)(A). It is only in a competition between two provisions, one general and one special, that we are obliged to choose the latter under that well-known rule of construction. But where we have on hand only one provision, we have to see whether it applies or not. Section 19(1)(a) may be a special provision, where both that provision and s. 2(12A) might come in for application. Bat, on the facts of this case, when s. 19(1)(a) does not enter into the reckoning at all, there is no question of reading s. 2(12A) as a general provision. The next point urged by the learned Advocate-General was that the Asst. Controller, for his part, however, had n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the one hand, and a manifest mistake, on the other. A wrong decision, in my view, is a matter of conviction. The decision may relate to the evaluation of evidence or the determination of a point of law. But whether a court or tribunal takes a particular view of the facts or leans in favour of a particular construction of the statute, it does so one of conviction. It may go wrong in its findings. It may go wrong in its statutory construction . But in either case, the error is a matter of its conviction. This idea is sometimes overstated by legal writers when they say that a court has jurisdiction to decide rightly as well as jurisdiction to decide wrongly. However one may regard these errors of conviction of courts and tribunals, they cannot be regarded as mistakes apparent from the record. Where a court or a tribunal comes to a conclusion according to its lights, and not by inadvertence or absentmindedness there can be no apparent mistake. For, the mistake must be capable of being readily recognised as such either by the tribunal or the court concerned or by any one else in their position. Where it takes a considerable argument to convince a court or tribunal that it had gone wro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduce any such rectification within the framework of his assessment? It seems to me that there is a sense in which the cognition of error and its amenability to correction should go hand in hand. Section 61 of the E.D. Act, and similar provisions in other taxing statutes, have conferredthe power on the taxing authorities only to the end that the error which has been brought to their notice cries aloud to be rectified. The intention is rectification, not the substitution of new errors for the old. Hence, unless the rectification claimed tends to make the order error-free, there would be no point in the exercise of the power at all. In the present case, even if the error in the assessment order, assuming it to be apparent, were that the Asst. Controller had regarded r. 15 as part of the scheme of ss. 17 and 19(1)(a), a mere correction of that error would be to no purpose, because the position of the company as an accountable person under s. 2(12A) has got to be reckoned with. A rectification which does not go into this further question would be no rectification at all. For this reason also, it is not possible to deal with the petitioner's application under s. 61 on its limited te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only support the assessment, they also vehemently oppose the writ petitions. I have earlier referred to the consent which the petitioner and the other heirs of the deceased had given to Sivasailam to represent them all in the estate duty proceedings. It is now stated in the counter-affidavit filed by Sivasailam that the petitioner was at every stage appraised about the progress and the direction of the assessment proceedings. The company had paid the provisional demand for estate duty while the assessment was pending, and the final demand under the assessment order subsequently by means of instalments, mostly by borrowing from outside. Every time this happened, the petitioner was taken into confidence, in the counsels of the company. She had actually lent her name along with others even to guaranteeing the loans raised by the company in their behalf. The assessment made by the Asst. Controller was in every respect an agreed assessment. It had not been appealed against by any party. Even in the present writ petitions, the petitioner does not question the correctness of the assessment or the quantum of the estate duty in so far as the deceased's estate is concerned. In these circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X
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