Citation Codes

Equivalent Citations

citation codes

Case Number

Estate Duty Reference No. 300 of 1982

Judges

K.C Agrawal
R.K Gulati, JJ.

Acts

section 39(1) of the Estate Duty Act, 1953 (the Act),
SECTION 6 HINDU SUCCESSION ACT 1956
not.9. Sub-sections (1) and (3) of section 39
clause (c) of sub-section (1) of section 34
clause (c) of section 34(1).13.
court.5. Section 34
section 34(1)(c)

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Smart Summary

Summary of Opinion — K.C. Agrawal, J.

Factual and Procedural Background

The Revenue referred the following question to the High Court: “Whether, on the facts and in the circumstances of the case, only 27/60 share of the lineal descendants was includible in the principal value of the estate left by the deceased or 3/5ths of share as was included by the Assistant Controller of Estate Duty?”

The deceased, Bhakt Sajjan Krishna, died on August 3, 1979. A pedigree and allocation of interests in the joint family property (as set out in the opinion) show the deceased, his wife and three sons, and further descendants. The accountable person (assessee) contended that in determining the shares of the lineal descendants a deemed partition under section 39(1) of the Estate Duty Act, 1953 should be taken to include not only the deceased, his wife and his three sons but also the sons of the sons (grandsons) and the wives of the sons, resulting in the lineal descendants' share being 27/60.

The Assistant Controller of Estate Duty rejected that contention and held the share of the lineal descendants to be 3/5ths for rate purposes. On appeal the Assistant Controller's decision was reversed and 27/60 was included in determining the principal value. The Income-tax Appellate Tribunal upheld the view that 27/60 (and not 3/5ths) was includible for rate purposes under section 34(1)(c) of the Act. The Revenue made a reference to the High Court, bringing the question before this court.

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, only 27/60 share of the lineal descendants was includible in the principal value of the estate left by the deceased, or whether 3/5ths (as held by the Assistant Controller of Estate Duty) was the correct share to be included for rate purposes under section 34(1)(c) of the Estate Duty Act, 1953.

Arguments of the Parties

Accountable Person's (Assessee's) Arguments

The deemed partition under section 39(1) should be contemplated not only among the deceased, his wife and his three sons but also among the sons of the sons of the deceased and the wives of the sons.
If the shares are calculated on that basis (i.e., including grandsons), the share of the lineal descendants to be aggregated for rate purposes would be 27/60.
Relied on the Division Bench decision in Satyanarayan Saraf v. Assistant Controller ([1978] 111 ITR 432 (Cal)) to support the proposition that lineal descendants include grandsons for the purpose of aggregation under section 34(1)(c).

Revenue's (Petitioner's) Arguments

The expression “lineal descendants” in clause (c) of section 34(1) should be read to include only the sons of the deceased and not the grandsons whose fathers are alive.
Reference to section 39: the deeming provision contemplates a partition immediately before death between the deceased and his lineal descendants, and for the purposes of that provision the lineal descendants meant only sons in the relevant context.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Consolidated Coffee Ltd. v. Coffee Board, [1980] 46 STC 164, 174 (SC)	Principle on interpreting deeming provisions/fictions: ascertain the purpose of the fiction and assume only facts incidental to giving effect to that fiction; do not give the fiction a wider meaning than its object.	The court invoked this principle to limit the scope of the deemed partition created by section 39(1) and to interpret “lineal descendants” in section 34(1)(c) in light of the purpose of the deeming fiction.
Satyanarayan Saraf v. Assistant Controller, [1978] 111 ITR 432 (Cal)	Held (by Calcutta High Court) that lineal descendants aggregated under section 34 included grandson and produced a smaller share (example: 1/9 + 1/9 = 2/9).	The court considered this decision as supporting the assessee's position but expressly declined to follow it, stating inability to subscribe to that view and rejecting its application in the present case.
Badri Vishal Tandon v. Asst. CED, [1976] 103 ITR 468 (All)	Analysis of the objects of section 34 — notably (1) to remove disparity in incidence of estate duty between Mitakshara and Dayabhaga governed persons and (2) to remove unequal distribution of wealth.	The court relied on this exposition of section 34's objects to support a narrow reading of “lineal descendants” (to include sons but not grandsons whose fathers are living) as sufficient to achieve the legislative purpose.

Court's Reasoning and Analysis

The court examined the relevant statutory text and the purpose of the provisions relied upon by the parties. Section 34(1)(c) provides that, for determining the rate of estate duty, the interest in the joint family property of all the lineal descendants of the deceased (in specified Hindu coparcenary systems) shall be aggregated with the property passing on death to form one estate. Section 39(1) creates a deeming fiction: for valuation of a coparcenary interest ceasing on death, the principal value shall be what would have been allotted to the deceased had a partition taken place immediately before his death; sub-section (3) applies the Act as if the joint family property had belonged to the deceased to determine that principal value.

The court emphasised the settled rule of interpretation of fictions: one must ascertain the purpose of the fiction and assume only such incidental facts as are necessary to give effect to it; the fiction must not be given a wider operation than its object requires (drawing on the Consolidated Coffee decision).

Applying that principle to section 34(1)(c) and the deeming partition in section 39, the court analysed whether the term “lineal descendants” should include grandsons (whose fathers were alive) for the purpose of calculating the portion to be aggregated. The accountable person’s contention was that the deemed partition should extend to grandchildren and wives of sons so that shares of grandsons would be worked out, producing a 27/60 aggregate share of lineal descendants. The Revenue contended that “lineal descendants” in the context of the deeming provisions should be understood to mean only the sons, not grandsons in the presence of living fathers.

The court considered doctrinal material (Mulla on Hindu Law) noting the principle that a father may partition in his lifetime giving his sons equal shares but a grandfather does not have power to effect separation among grandsons — a principle relevant to interpreting clause (c) of section 34(1). It also reviewed the objects of section 34 (as articulated in Badri Vishal Tandon) — removing disparity between Mitakshara and Dayabhaga regimes and removing unequal distribution of wealth — and concluded those objects would be achieved by a narrower reading.

Taking these elements together — the purpose-limited operation of deeming provisions, the statutory scheme of sections 34 and 39, the doctrinal point about partition powers, and the legislative objects behind section 34 — the court concluded that “lineal descendants” in clause (c) of section 34(1) does not include grandsons whose fathers are alive, and that for rate purposes 3/5ths (as determined by the Assistant Controller) was the correct share to be included in the principal value of the estate.

Holding and Implications

The court held that 3/5ths was includible in the principal value of the estate left by the deceased for the purposes of section 34.

Implications:

Direct effect on the parties: The court's decision supports the Revenue's contention and determines that, for the purpose of aggregating interests under section 34(1)(c) and valuing under section 39, the term “lineal descendants” should be read to include the sons but not grandsons whose fathers are living; consequently, the principal value for rate purposes is to reflect a 3/5ths share rather than 27/60.
On precedent: The court expressly declined to follow the Calcutta High Court's decision in Satyanarayan Saraf to the extent that it endorsed inclusion of grandsons in the relevant sense; the present decision adopts a narrower construction of “lineal descendants.”
Broader implications: The court observed that the objects of section 34 are satisfied by this construction; the opinion does not announce a new overarching principle beyond the interpretative application of deeming fictions and the statutory scheme as presented in the case.

No order as to costs.

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Controller Of Estate Duty v. Krishna Kumari Devi.

K.C Agrawal, J.:— At the instance of the Revenue, the following question has been referred to the High Court for its opinion:

“Whether, on the facts and in the circumstances of the case, only 27/60 share of the lineal descendants was includible in the principal value of the estate left by the deceased or 3/5ths of share as was included by the Assistant Controller of Estate Duty?”

2. In order to appreciate the background in which the aforesaid question had been raised, we may give the family pedigree and interest in the joint family property of the lineal descendants of the deceased, Bhakt Sajjan Krishna, who died on August 3, 1979, as follows:

Pedigree Table given below:

Bhakt Sajjan Krishna Satya Mohan Agrawal —Pushpa Agrawal Shaeel Mohan Agrawal —Uma Rani Dharam Mohan —Sushma Agarwal Anupam (S) Priti (D) Rupam(S) Poonam(S) Pankaj(S) Piyus(S) Reetu(S) Gagan(S) Gaurav(S) Per Assistant Controller of Estate Duty Per accountable person Bhakt Sajjan 1/5 Bhakt Sajjan 1/5 *Krishna Kumari (W) 1/5 *Krishna (W) 1/5 Satya Mohan 1/15 (do.) Pushpa (W) 1/15 (do.) Satya Mohan 1/5 Anupam 1/1.5 (do.) Sheel Mohan 1/30 (do.) Sheel Mohan 1/5 Umarani (W) 1/30 (do.) Rupam 1/30 (do.) Dharam Mohan 1/5 Poonam 1/30 (do.) Pankaj 1/30 (do.) Piyus 1/30 (do.) Dharam 1/20 ¼th of 1/5 Mohan Sushmarani 1/20 (do.) Gagan 1/20 (do.) Gaurav 1/20 (do.)

3. The case of the accountable person was that for determining the shares of the lineal descendants, a deemed partition under section 39(1) of the Estate Duty Act, 1953 (“the Act”), had to be contemplated not only amongst the deceased, his wife and his three sons, but also amongst the sons of the sons of the deceased and wives of the sons of the deceased. The contention was that if all the shares were worked out on the aforesaid basis, the share of the lineal descendants which could be taken into account for the purpose of rate would come to 27/60. The Assistant Controller did not accept the contention of the accountable person and holding the same to be at 3/5ths, as against 27/60, determined the principal value of the estate of the deceased for rate purposes.

4. In appeal, the judgment of the Assistant Controller on the point aforesaid was reversed and 27/60, as the share of the lineal descendants was included while determining the principal value of the estate of the deceased. In second appeal, the Income-tax Appellate Tribunal took the same view holding that 27/60 and not 3/5ths was includible for rate purposes under section 34(1)(c) of the Act. It was thereafter on the reference application made by the Revenue that this case has come to this court.

5. Section 34 lays down that for the purposes of determining the estate duty payable on the estate of the deceased, all the property passing or which is deemed to pass on the death of the deceased shall be aggregated so as to form one single estate and duty shall be payable at the proper graduated rate given in the First Schedule on the principal value determined in accordance with section 35 of the Act. The relevant clause of section 34(1), with which we are concerned, is clause (c). It is quoted below:

“34. Aggregation.— (1) For the purpose of determining the rate of the estate duty to be paid on any property passing on the death of the deceased,—

(c) in the case of property so passing which consists of a coparcenary interest in the joint family property of a Hindu family governed by the Mitakshara, Marumakkattayam or Aliyasantana law, also the interest in the joint family property of all the lineal descendants of the deceased member;

shall be aggregated so as to form one estate and estate duty shall be levied thereon at the rate or rates applicable in respect of the principal value thereof.”

6. Under the aforesaid section, interest in the joint family property of all the lineal descendants of the deceased shall be aggregated with the property passing on the death of the deceased so as to form one estate.

7. The question raised by the assessee-accountable person was that the expression “lineal descendants” shall take within itself not only the sons but the grandsons as well. It was on this basis that the shares of the sons and grandsons were worked out at 27/60. The case of the Revenue to the contrary is that within this expression, only the sons would be considered as lineal descendants and not the grandsons. Reference to section 39 would also be relevant which lays down the method of calculating the value of interest in the coparcenary property ceasing on the death of any member of a coparcenary. From sub-section (1), it is clear that the value of the benefit accruing or arising from the cesser of a coparcenary interest of a Hindu governed by the Mitakshara school for the purposes of taxation shall be of the principal value which would have been allotted to the deceased had there been a partition immediately before his death. Sub-section (3) provided that for the purpose of determining the principal value of the joint family property of a Hindu family governed by the Mitakshara law in order to arrive at the share which would have been allotted to the deceased had a partition taken place immediately before his death, the provisions of the Act, so far as may be, shall apply as they would have applied if the joint family property had belonged to the deceased.

8. This provision is on the line of Explanation 1 to the proviso to section 6 of the Hindu Succession Act, 1956. This Explanation reads:

“For the purposes of this section, the interest of a Hindu Mitakshara coparcener shall be deemed to be the share in the property that would have been allotted to him if a partition of the property had taken place immediately before his death, irrespective of whether he was entitled to claim partition or not.”

9. Sub-sections (1) and (3) of section 39 create a fiction about the deemed partition. It is a settled rule of interpretation of a fiction that the court should ascertain for what purpose the fiction is created and after ascertaining the purpose, the court has to assume all facts which are incidental to the giving effect to that fiction. It will not be given a wider meaning than what it purports to do. As to how a fiction should be interpreted has been laid down in several decisions by the Supreme Court. One of them is Consolidated Coffee Ltd. v. Coffee Board, [1980] 46 STC 164, 174 (SC) : [1980] TLR 1723, 1734. It was said that:

“A deeming provision might be made to include what is obvious or what is uncertain or to impose for the purpose of a statute an artificial construction of a word or phrase that would not otherwise prevail, but in each case it would be a question as to with what object the Legislature has made such a deeming provision”/

10. Coming to section 34(1)(c) as stated earlier the argument of the petitioner's counsel was that not only shall a partition be deemed to have taken place between the deceased, Bhakt Sajjan, and his sons, in which each one of them excluding his widow would get 3/5ths being 1/5th to each of them but also the shares of the grandsons had to be worked out and if those shares were worked out, the interest in the joint family property of all the lineal descendants would be 27/60.

11. In that situation, the rate applicable for payment of estate duty under section 35 would be less than what it would be in case 3/5ths is found to be the share of the lineal descendants liable to be aggregated. For the proposition, the petitioner placed reliance on a judgment of the Division Bench in Satyanarayan Saraf v. Assistant Controller, [1978] 111 ITR 432 (Cal). In that case, Hanuman Prasad died leaving behind his widow, his son, Satya Narain, and his grandson, Bhagwati Prasad. Satya Narain, his son and his daughter constituted the smaller-Hindu undivided family. The Calcutta High Court held that the shares of the lineal descendants which were to be aggregated with the share of the deceased in the joint family were 1/9th +1/9th = 2/9ths. This decision undoubtedly supports the contention of the assessee. But, with the greatest respect, we have found ourselves unable to subscribe to the view taken therein inasmuch as, in our opinion, the expression “lineal descendants” used in clause (c) of sub-section (1) of section 34 will not take within its compass the grandsons whose fathers were alive.

12. Mulla, in his fifteenth edition of Hindu Law, at page 444, paragraph 323, deals with partition by father during his lifetime. He says that the father of a joint family has the power to divide the family property at any moment during his lifetime, provided he gives his sons equal shares with himself. But, a grandfather has no power to bring about separation amongst his grandsons. It is this principle which has to be kept in view while interpreting clause (c) of sub-section (1) of section 34. We have already noted above the purpose of clause (c) of section 34(1).

13. In Badri Vishal Tandon v. Asst. CED, [1976] 103 ITR 468 (All), the objects of section 34 have been dealt with exhaustively. Two out of them, which are relevant for our purposes are:

1. to remove disparity in the incidence of estate duty on the estates of persons belonging to those governed by the Mitakshara, on the one hand and those governed by Dayabhaga, which does not recognise acquisition of interest by birth, on the other, and

2. to remove unequal distribution of wealth.

14. It may be noted here that section 34(1)(c) does not levy any duty on the estate of the deceased. It enables aggregation of the interest of the male lineal descendants for the purposes of determining the rate at which estate duty is leviable on the principal value of the interest-of the deceased. No estate duty is leviable on the interest of the male lineal descendants. It only provides the machinery for determining the rate.

15. To us it appears that the objects of section 34 would be achieved if the expression “lineal descendants” is understood in the sense which we have expressed above.

16. Learned counsel for the Revenue rightly submitted that section 39(1) contemplates a deeming provision for partition in the joint family property immediately before the death of the deceased between the deceased and his lineal descendants which would include in the context of things only the sons and not grandsons. For what we have said above, we hold that 3/5ths was includible in the principal value of the estate left by the deceased for the purposes of section 34.

17. No order as to costs.

Controller Of Estate Duty v. Krishna Kumari Devi.

Summary of Opinion — K.C. Agrawal, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Accountable Person's (Assessee's) Arguments

Revenue's (Petitioner's) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Controller Of Estate Duty v. Krishna Kumari Devi.

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