TMI Blog1974 (11) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... h the fatal accident in that historic plane crash near Alps on 24th January, 1966, en route to the United States in the course of his return journey after enjoying his brief spell of holiday for about three months in this country during which he got himself married. The deceased had purchased on August 8, 1965, a limited non-renewable policy covering certain travel accidents on scheduled airlines from Aetna Life Insurance Company, Hartford, Connecticut, U.S.A., insuring himself against risk of air travel for his journey from U.S.A. to India and back for a maximum sum of pound 75,000. The accountable person was designated as a beneficiary under the said policy by the deceased. It appears that the deceased had also purchased similarly in July, 1965, a personal accident policy from New India Assurance Company Ltd., insuring himself for a maximum sum of Rs. 1,00,000 against risk of loss of life or limb arising as a result of accident in the course of one year. The deceased had paid only one premium of Rs. 255 under the said policy to the New India Assurance Company. The accountable person was nominated as a beneficiary for receiving the claim amount payable under the said policy in cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were reiterated. The Tribunal did not agree fully with the Appellate Controller and held that section 5 of the said Act would not be attracted as admittedly the property in the shape of insurance amounts, which the beneficiary named in the policies subsequently received under the policies, did not exist since they came into existence only after the death. The Tribunal also held that section 6 of the Act was also not applicable as it was not possible to hold that the deceased had disposing power over the amounts received by the beneficiary after his death since what the deceased possessed was only a future interest in the contingent contract, the contingency of accident being most uncertain. The Tribunal distinguished the decision of the Delhi High Court in Controller of Estate Duty v. A. T. Sahani, which followed the decision of the House of Lords in Attorney-General v. Quixley, by pointing out that they were not applicable in the facts of the present case as the insurance policies covered risk on account of accident which were purely in the nature of a contingent contract in which the deceased could have no interest in praesenti till his death in respect of these contracts and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether accident or otherwise, is a contingent contract providing for the liability of an insurer to pay a sum assured to an insured on the happening of a specified event, which has always some element of uncertainty either as to its time or its cause. Neither the time nor the causes of uncertain specified events would be conclusive on the point of existence of interest of an insured in a policy. It is such interest which is a property existing at the time of death which passes on his death or is capable of being disposed of by an insured by act inter vivos or by a will. In any case, assuming without admitting, that it may not be a life policy kept up by the deceased, it is certainly a purchase or provision of an interest in the nature of accident policy and the beneficial interest under it springs into life on the death of an insured. In the submission of the revenue, the sums aforesaid were, therefore, liable to be subjected to estate duty at least under sections 5, 6 or 15 of the Estate Duty Act. The above respective broad contentions were advanced on the basis of different intermediate contentions to which we will advert at the appropriate stages. The question as referred to u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid. If, as each premium becomes payable, it lies with him to say whether or not it shall be paid--if, to take the simplest case, the hand that pays is the hand of his agent acting according to his direction--I should have no difficulty in saying that he keeps up the policy but, equally, where the payment is made by a trustee whose duty and right it is to pay whether the settlor wills it or not, it is not he but the trustee who pays the premiums and keeps up the policy. " Lord Wright in his opinion said that keeping up a policy "generally involves periodical payments" and though a single premium policy is not unknown, that would have the effect not so much of keeping up a policy as establishing its operation once and for all. It should be also noted that section 14 imposes liability of duty on money received under a policy of insurance effected by any person on his life and would not, therefore, take in its sweep the cases of monies paid under an accident policy, the connotation of which is well-known as contradistinguished from that of life policy. The opinion of the Tribunal that section 14 of the said Act is not attracted to the facts of the present case is justified. We w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, which, when he dies, are to reappear in the form of a beneficial interest accruing or arising on his death. Now, it is not subtracting from his means if the deceased has received a full equivalent in return for whatever he has laid out. Our attention was invited in this connection to the provision as it originally stood in the Estate Duty Bill, 1952 (Bill No. 92 of 1952), which is reproduced in [1952] 22 ITR at page 45 (Statutes). Clause 15 incorporates the said provision. It provided as under : " 15. Annuity or other interest purchased or provided by the deceased.--Any annuity or other interest, including moneys payable under a policy of life assurance, 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 ........ " At page 76 in the same volume the object and reason for clause 15 are given. They read as under: " Clause 15.--From section 2(1)(d), U. K. Finance Act, 1894. The general purpose of this provision is to prevent a man from escaping estate duty by redu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest" in section 15. There cannot be any equity about a tax if one is within the corners of a charging section. Neither the initial objective nor the alternate intention of the legislature in putting the same on a statute book is relevant. The pertinent question to which the court must address itself is, whether, on the true construction of section 15, the term "other interest" would be wide enough to cover the cases of interest under accident policy or the court should restrict its meaning having regard to the scheme of the Act or the structure of the section. We do not find anything in the structure of the section so as to limit and restrict the meaning of the term "other interest". Section 14 provided for moneys received under a policy of life insurance where the policy is wholly kept up and on the accepted interpretation of similar provision in the United Kingdom it is clear that only those life insurance policies which have been kept up by the insured by paying the premiums as and when they become due and which possibly would not include single premium policies, are within the mischief of that section. It is clear to us that section 14 would, therefore, not cover the cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n order to make the scope of the defined word correspondingly wider. It is only where the intention of the legislature in associating wider words with words of narrower significance is doubtful, or otherwise not clear that the present rule of construction can be usefully applied. It can also be applied where the meaning of the words of wider import is doubtful ; but where the object of the legislature in using wider words is clear and free of ambiguity the rule of construction in question cannot be pressed into service. As has been observed by Earl of Halsbury L.C. in Corporation of Glasgow v. Glasgow Tramway and Omnibus Co. Ltd., in dealing with the wider words used in section 6 of Valuation of Lands (Scotland) Act, 1854: '...... the words "free from all expenses whatever in connection with the said tramways" appear to me to be so wide in their application that I should have thought it impossible to qualify or cut them down by their being associated with other words on the principle of their being ejusdem generis with the previous words enumerated.' " In Craies on Statute Law, seventh edition, it has been observed at page 179, that the rule of law generally known as the ejus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Section 11 has been designed to prevent legal avoidance of estate duty in certain circumstances and is attracted only where an interest limited to cease on a death has been disposed of or has been determined. Section 12 is also designated with a view to avoid the payment of duty and is attracted where the settlements have been made with the reservation under which an interest under settled property for life or any other period determinable by reference to death is reserved either expressly or by implication to the settlor or whereby the settlor may have reserved to himself the right by the exercise of any power to restore to himself or to reclaim the absolute interest in such property. Section 13 is also designed with a view to prevent the avoidance of duty and is attracted where a person absolutely entitled to any property has transferred or vested it in himself and another person joinly so that the beneficial interest in some part of that property passes or accrues by survivorship on his death to the other person; the whole of that property would be deemed to pass on the death and liable to pay the duty. Section 14 provides for moneys payable under a policy of insurance effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest" which is of the widest import. It is now no more a doubtful proposition of law whether a policy of insurance was an "annuity" or "other interest" within the meaning of section 2(1)(d) of the Finance Act of 1894 as observed by Lord Morton of Henryton in Westminster Bank Ltd. v. Inland Revenue Commissioners at page 749: " My Lords, in the case of D'Avigdor-Goldsmid v. Inland Revenue Commissioners expressed a doubt whether a policy of assurance was an 'annuity or other interest' within the meaning of section 2(1)(d) of the Act of 1894, and if I had to decide that question in the absence of authority, I should feel the same doubt to-day. The argument presented by counsel for the appellant has considerable attractions. However, in Attorney-General v. Murray, the Court of Appeal answered that question briefly in the affirmative. That decision has stood unquestioned for over fifty years and very many policies must have been dealt with on the footing that it was correct. Morever, this House in Adamson v. Attorney-General gave a wide meaning to the words just quoted, though it does not appear that the trust funds included any policy of assurance. Finally, if the decision in Murray ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer of interest in the subject-matter. The subject-matter of a contract of insurance must be distinguished from the subject-matter of insurance which exists independently of the contract. Bowen L.J. in Castellain v. Preston said: " What is it that is insured in a fire policy ? Not the bricks and the materials used in building the house, but the interest of the assured in the subject-matter of insurance,....... " In his book, General Principles of Insurance Law, second edition (Butterworths), E.R. Hardy Ivamy has pointed out at page 10. " A contract of insurance necessarily contemplates the existence of something to which an accident may happen, and anything to which an accident may happen, may, therefore, be the subject-matter of insurance. Strictly speaking, an accident can only happen to a physical object. There are, however, certain kinds of insurance intended to protect, the assured in cases where he requires protection not against accidents to physical objects, but against the consequences to himself of such accidents. In these kinds of insurance, the interest of the assured which will be adversely affected by the happening of the accident insured against and not the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iary, is reserved to the insured and the consent of the beneficiary or beneficiaries shall not be requisite to surrender or assignment of this policy or to any change of beneficiary or beneficiaries or to any other changes in this policy. " Clause 8 of the New India Assurance Company provides: " The company shall not be bound to notice or be affected by any notice of any trust, charge, lien, assignment or other dealing with or relating to this policy but the receipt of the insured or his legal personal representatives shall in all cases be an effectual discharge to the company. " However, as we have just observed, the question of assignment is not at all relevant for determining whether the moneys payable under the two relevant policies in the present case would be dutiable under section 15 of the Estate Duty Act. The learned advocate on behalf of the accountable person, therefore, urged that section 15 would not be attracted as no new beneficial interest has come into existence on the death of the insured in the present case. In support of his contention he relied on the decision of the House of Lords, in D' Avigdor-Goldsmid v. Inland Revenue Commissioners. Our attention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly be prejudiced by the loss of life or limb as a result of the accident and, therefore, had an insurable interest for purposes of personal accident. To contend that the death did not generate a new beneficial interest is beside the point for the time being. 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. The first limb of the contention urged by the learned advocate on behalf of the accountable person that the deceased had no interest in the two policies before us is not at all well-founded and should be rejected. The second limb of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new beneficial interest" and "it enhanced the value of the other interest in which the beneficial interest subsisted" cannot be pressed into service in support of the stand of the accountable person. In our opinion it was by the very death of the insured in the present case that the beneficial interest of the accountable person was generated since he had no interest whatsover in the sums assured or in the contractual rights under the policies during the lifetime of the insured. In that view of the matter, the second limb of the contention is not worthy of merit and it should be rejected. We will now proceed to examine whether the aforesaid two sums are liable to be included within the dutiable estate of the deceased either under section 5 and/or section 6 of the Estate Duty Act. It has been very strenuously contended on behalf of the accountable person that the Tribunal has rightly held that the deceased had no interest in so far as the aforesaid two sums were concerned since what the deceased had under the aforesaid two insurance policies was the future interest in a contingent contract which was more in the nature of spes successionis than an interest in expectancy because the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he insurers. To contend that the right under a contract of insurance contained in an accident policy is one in nature of spes successionis is too broad a contention, which cannot be accepted. The right of an assured under an accident policy is not merely to exact a sum assured in case of death only; it also invests in the insured a right to recover the sum assured for other bodily injury resulting in loss of limb on account of accident. Contracts of insurance are aleatory contracts "depending on an uncertain event or contingency as to both profit and loss (vide Webster's New International Dictionary, 2nd edition); for financial or other consideration the insurer agrees to pay or otherwise benefit to the assured on the happening of a specified event or contingency: vide The Law of Insurance by Raoul Colinvaux, 3rd edition). As observed by Lord Mansfiled in Carter v. Boehm , "insurance is a contract upon speculation". It is no doubt true that there are various classes of insurances recognized in practice as well as in law and they are designated by separate names such as life insurance, accident insurance, fire insurance, marine insurance, burglary insurance, etc. These different kin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e subject-matter of insurance (see McPhilips v. London Mutual Fire Insurance Co.). Nor is the consent of the insurers to the assignment required even if the policy contains a condition against assignment without their consent, or even an express condition that the policy shall not be assignable in any case whatever, since the assignment does not alter the relations of the original parties to the contract, and, consequently, does not prevent the personal factor in the contract of insurance from having its full operation. The policy continues to subsist, depending for its existence upon the continuance of the assured's interest and upon his performance of the duties imposed upon him personally by the nature of the contract whilst the assignment relates merely to the application of the proceeds of the insurance, and takes effect only in the event of a loss. " We, therefore, cannot agree with the learned counsel for the accountable person that under an accident policy an insured has no property whatsoever in his lifetime and the property, if any, comes into existence only on his death. As held in Westminster Bank Ltd. v. Inland Revenue Commissioners, "when a settlor settles a policy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot have any bearing on the broad question raised in this reference, namely, whether the enhanced value of such interest on the happening of the contingency is liable to be included in the dutiable estate. The definition of "property" in section 2(15) of the Estate Duty Act includes any interest in property, movable or immovable, the proceeds of sale thereof, and any money or investment for the time being representing the proceeds of sale and also includes any property converted from one species into another by any method whatsoever. "Property passing on death" has been defined in section 2(16) of the said Act as including property passing either immediately on the death or after any interval, either certainly or contingently, and either originally or by way of substitutive limitation, and "on the death includes" at a period ascertainable only by reference to the death "Interest in expectancy" has been defined to include an estate in remainder or reversion and every other future interest, whether vested or contingent, but does not include revisions expectant upon the determination of leases. In our opinion, therefore, there is no justification for holding that under an accident poli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her to make contribution and by the School Teachers (Superannuation) Act, 1925, her executors and administrators were given in return for the compulsory contribution, a right to receive this gratuity. The effect of these three statutes was that the deceased lady teacher was bound to make her contribution and equally had a right to have paid to her personal representatives a sum which was called "death gratuity", on conditions, inter alia, that she must have died in contributory service. In the appeal before the House of Lords, all the conditions were fulfilled and she had an absolute right at the time of her death to be paid "death gratuity". The exact amount to be paid was a matter of calculation by the Board of Education in accordance with the rules and regulations which prescribed the calculations. The lady died on April 11, 1927. A sum of pound 429 17s. 11d. was awarded by the Board on August 4, 1927. The Crown claimed that this sum of death gratuity was subject to estate duty. According to section 1(f) of the Finance Act, 1894, all property passing on death was charged to duty. It was urged on behalf of the estate that section 1 of the Finance Act, standing alone, would not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d dispose of this interest by her will, although he said she could not raise any money on it in the sense that there could not be an assignment of it while she was alive, but it would appear to me that to suggest that the deceased had no power to dispose of this sum by will would be to take away half the merit of the gratuity on her decease.... Id certum est is the old maxim and just as where a man is possessed of freehold property which is devastated by fire just before his death, but, being fully assured, he enables his executors to receive under a contract of fire insurance a sum which is to be estimated by an award made as a condition precedent to liability, so also here the mere ascertainment of the amount at a later date does not alter the nature of the right which the deceased had or prevent that right falling within the term 'property', and, as such, chargeable to estate duty. " Lawrence L.J., in his speech, observed: " .....The Finance Act, 1894, section 1, imposes estate duty on all property which passes on the death. In order that the estate duty may be payable under that section, the property must have a continuous existence before and after the death, and the pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assing on the death of the deceased shall be deemed to include', and see also section 22(2)(a) of the Act. The deceased had an absolute right to be paid pound X under the Teachers (Superannuation) Act, 1925, section 5, a right which she was given in return for compulsory contributions. The fact that the quantum remains to be ascertained does not make the right any the less property within the artificial meaning of 'property passing on the death' laid down in the Finance Act. " The learned counsel for the accountable person sought to distinguish this decision and also the decision of the Delhi High Court in Controller of Estate Duty v. A.T. Sahani, which had followed Quixley's case and held that a gratuity payable on death by an accident to a pilot under the Indian Airlines Corporation (Flying Crew) Services Rules was property which passed on death under section 6 of the Estate Duty Act, and, therefore, liable to pay estate duty, by urging that these two cases were cases of compulsory gratuity schemes under which an employee was given an absolute right to the payment of gratuity in consideration of the services rendered. It appears that the Tribunal has also taken a similar view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s called, and defined as, contributory service, and there are others. These conditions would have to be fulfilled, or that right would not have become absolute... " The emphasis by the Tribunal on the fact that death was a certainty and, therefore, there was an absolute right under those relevant Acts applicable in Quixley's case is misplaced. It is on the happening of a certain contingency, namely, the teacher concerned dying in contributory service, and on other conditions being fulfilled that she had a right to payment of gratuity on her death to her legal representatives. In our respectful opinion the Delhi High Court was perfectly justified in applying the ratio of Quixley's case to the facts before it. The Tribunal was, therefore, clearly in error in distinguishing both these decisions on the grounds which are not justified. In A. T. Sahani's case Mr. Justice Hardayal Hardy, speaking for the court, observed as under after referring in extenso to the speeches of different Lord justices in Quixley's case : " It is true that in the instant case the deceased was not required to make any contribution for the purpose of earning the compensation as Miss Quixley was required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d nominate a person to whom the amount shall be paid, or vary or change the nomination which is by itself a disposition in the nature of will. The Madras High Court affirmed that it admits of no doubt that the money paid on death is property though it came into existence at the time of the death. Since it came into existence at the time of his death, the deceased was competent to dispose of the same by a will which attracts the provision of section 6 of the Estate Duty Act. The court also held that the beneficial interest in the policy which accrued or arose on death is the sum paid out under the policy and this beneficial interest having been purchased by the deceased, the provisions of section 15 of the Estate Duty Act were also attracted. The Madras High Court was of the opinion that unlike in the case of a life insurance policy, where both policy and money payable thereon are property, in the case of a personal accident policy the property is not the policy but the ultimate money that is paid and, therefore, that money would be deemed to pass on the death of the deceased because of his competency to dispose of the same by will. The Madras High Court, therefore, answered the fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in respect of the principal value thereof. Sub-section (2) of section 34 provides for a different rate of estate duty when the estate referred to in sub-section (1) of section 34 includes any property exempt from estate duty. Sub-section (3) of section 34 which is material for purposes of determining this last contention reads as under: " Notwithstanding anything contained in sub-section (1) or sub-section (2), any property passing in which the deceased never had an interest, not being a right or debt or benefit that is treated as property by virtue of the Explanations to clause (15) of section 2, shall not be aggregated with any property, but shall be an estate by itself, and the estate duty shall be levied at the rate or rates applicable in respect of the principal value thereof. " The learned counsel for the accountable person relied on the decision of the Madras High Court in M. C. T. Muthiah v. Controller of Estate Duty, where the Madras High Court ruled that the sum payable under accident policy should not be aggregated with other properties but should be assessed as an estate by itself under section 34(3) because the deceased never had an interest during his lifetime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wlatt J. said at page 290 : " I do not think section 4 means an interest in possession or enjoyment, but she had an interest in the widest possible sense that can be used. " In that view of the matter which we have taken it cannot be said that the deceased had no interest in the contracts of insurance contained in the two accident policies. We are of the opinion that the deceased had a property in the nature of interest to receive payment in case of loss of limb arising as a result of accident or the deceased purchased an interest for the benefit of his legal representatives in case of loss of his life as a result of accident. It, therefore, cannot be said that the deceased had never an interest in the contracts of insurance contained in the said two policies and the moneys payable thereunder. With utmost respect to the learned judges of the Madras High Court, we are not in agreement with the view which they have taken that the moneys payable under an accident policy should be assessed as a separate estate under section 34(3) of the Estate Duty Act, more particularly when they had taken the view that the same were liable to estate duty under section 15 of the Estate Duty Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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