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C. Vanajakshi Venkata Rao And Another v. Controller Of Estate Duty.
Factual and Procedural Background
At the instance of the accountable persons the Income-tax Appellate Tribunal referred two questions to this Court under s. 64(1) of the Estate Duty Act. The dispute arose on the death of a member of a Hindu Undivided Family (HUF) consisting of the deceased and his two sons. The accountable persons (assessee) filed a return showing the value of the deceased's 1/3 share in HUF properties at Rs. 94,835. The Assistant Controller disputed the valuation, valuing the entire HUF properties at Rs. 9,26,768 and the deceased's 1/3 share at Rs. 2,87,256.
Among the HUF properties was a residential house valued at Rs. 94,500. Exemption under s. 33(1)(n) of the Estate Duty Act was claimed in respect of that house; the estate duty authorities allowed only one-third of the house's value under s. 33(1)(n). For the purpose of determining the rate of estate duty payable on the estate, the authorities also aggregated the shares of the lineal descendants (the two sons) with the deceased's share as contemplated by s. 34(1)(c). The assessee objected to both actions and the Tribunal rejected the assessee's contentions, following earlier decisions, and referred the two questions to this Court.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the exemption allowed under section 33(1)(n) of the Estate Duty Act is limited only to 1/3 share of the deceased in the residential property?
- Whether, on the facts and in the circumstances of the case, for the purpose of determining the rate of estate duty payable on the property passing on the death of the deceased, aggregation of the share of lineal descendants in terms of section 31(1)(c) of the Estate Duty Act is correct?
Arguments of the Parties
Accountable Persons' (Assessee) Arguments
- The exemption under s. 33(1)(n) should not be confined to the deceased's 1/3 share in the residential house but should extend to the entire value of the residential house owned by the HUF.
- The shares of the lineal descendants (the two sons) cannot be clubbed with the share of the deceased for any purpose, including for determining the rate of estate duty.
Revenue / Estate Duty Authorities' Position
- The Assistant Controller valued the entire HUF properties and limited the s. 33(1)(n) exemption to the deceased's 1/3 share of the residential house.
- For determining the rate of estate duty, the authorities aggregated the shares of the lineal descendants with the deceased's share under s. 34(1)(c), thereby increasing the principal value for rate determination.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| K. Seshamma v. Appellate CED | The view that where a residential house is owned by an HUF of which the deceased was a member, only the deceased's share in the house is entitled to exemption under s. 33(1)(n) and not the whole house. | Followed as supporting authority for the proposition that exemption is confined to the deceased's share; cited in answering the first question in favour of the Department. |
| Income-tax Appellate Tribunal v. Madan Mohan (Allahabad High Court) | Cited by the Tribunal with respect to the second contention (regarding aggregation of lineal descendants' shares). | The Tribunal relied on this decision in rejecting the assessee's second contention; the Court noted the Tribunal's reliance in the referral. |
| CED v. K. Nataraja | Karnataka High Court's decision aligning with the view that only the deceased's share is entitled to exemption in an HUF-owned house. | Used as further High Court authority supporting limitation of exemption to the deceased's share under s. 33(1)(n). |
| CED v. Estate of Late Durga Prasad Beharilal | Appeared to support the assessee's contention on a superficial reading, but on close reading did not hold that lineal descendants' properties should not be aggregated under s. 34(1)(c). | The Court examined this decision, observed that it followed an earlier R.C. decision, and concluded it was not deciding against aggregation under s. 34(1)(c); therefore it did not advance the assessee's second contention. |
| R.C. No. 30/74 (dated October 19, 1976) | The paragraph quoted shows that the deceased's one-third share must be exempted under s. 33(1)(n) and that the remaining two-thirds belong to coparceners and cannot be brought into the deceased's estate. | Quoted and relied upon to show that the question considered in that referral concerned only the scope of s. 33(1)(n) (limitation to deceased's share) and not aggregation under s. 34(1)(c); used to interpret Durga Prasad decision. |
| T. Sundaresa Mehta v. CED | Listed among decisions of other High Courts to the same effect (i.e., limiting exemption to deceased's share in HUF-owned house). | Cited as part of the uniform judicial authority supporting the Court's answer to the first question. |
| Gunvantlal Keshavlal v. CED | Listed among High Court decisions of similar effect regarding exemption limited to deceased's share. | Relied upon to show the uniformity of authority on the scope of s. 33(1)(n). |
| Smt. Gunvantibai v. CED | Listed among High Court decisions of similar effect. | Supported the Court's conclusion on the first question as part of consistent authority. |
| CED v. R. S. Gwalre | Listed among High Court decisions of similar effect. | Part of the body of authority relied upon to affirm that exemption is limited to the deceased's interest. |
| CED v. N. Ramachandra Bhat | Karnataka High Court decision reaffirming the principle in CED v. K. Nataraja that exemption operates only to the deceased's share. | Cited as further confirmation by the Karnataka High Court of the principle applied by this Court in answer to the first question. |
Court's Reasoning and Analysis
The Court addressed the two referred questions sequentially and applied the language of the statute together with a review of relevant judicial authorities.
1. On the first question regarding s. 33(1)(n): the Court read s. 33(1)(n) together with s. 39(1) and held that the exemption under s. 33(1)(n) must be confined to the deceased's interest in the residential house. The Court explained that the words in s. 33(1) — "property of any of the following kinds belonging to the deceased which passes on his death" — require that exemption be claimed only in respect of property which (a) belongs to the deceased and (b) passes on his death. Thus, where the house is a coparcenary asset, the exemption applies only to the deceased's share and not to the entire house in which surviving coparceners also have interests.
The Court further clarified valuation procedure: the principal value of all properties of the deceased must first be ascertained under the Act (including s. 39), and then the value of items exempt under ss. 25–33 should be determined and deducted when computing estate duty. The Court rejected the notion that the entire value of the house should be excluded at the valuation stage.
2. On the second question concerning aggregation for the purpose of determining the rate of estate duty: the Court considered the language of s. 34(1)(c) and found it "quite clear and unambiguous." Section 34(1)(c), as quoted and interpreted by the Court, requires that where the property passing consists of a coparcenary interest, the interests in the joint family property of all the lineal descendants of the deceased member must be aggregated for the purposes of determining the rate of estate duty on the principal value of the estate. The Court emphasised that s. 34(1)(c) enables aggregation for the purpose of determining the applicable rate but does not authorize the levy of estate duty upon the separate interests of the lineal descendants themselves; its purpose is limited to aggregation for rate determination.
Having observed a uniform line of High Court and this Court decisions supporting the view that only the deceased's interest is exempt under s. 33(1)(n), and given the clear language of s. 34(1)(c) permitting aggregation of lineal descendants' interests for rate determination, the Court concluded that the revenue was correct in clubbing the values of the sons' shares with the deceased's share to determine the rate of estate duty.
Holding and Implications
Holding: The Court answered both referred questions in the affirmative, thereby ruling in favour of the Department and against the assessee.
Core Rulings:
- The exemption under s. 33(1)(n) is confined to the deceased's share in a residential house owned by an HUF and does not extend to the whole house.
- For the purpose of determining the rate of estate duty, the interests of the lineal descendants in coparcenary property must be aggregated with the deceased's interest under s. 34(1)(c).
Direct consequences: The Assistant Controller's approach limiting the s. 33(1)(n) exemption to the deceased's one-third share and aggregating the sons' shares with the deceased's share for rate determination was upheld. The referred case was answered accordingly and the Court ordered no costs.
The opinion does not discuss broader or novel precedent-setting implications beyond applying and relying upon the existing uniform body of authority and the clear statutory language.
1. At the instance of the accountable persons, the Income-tax Appellate Tribunal referred the following two questions for out opinion, under s. 64(1) of the E.D. Act :
"1. Whether, on the facts and in the circumstances of the case, the exemption allowed under section 33(1)(n) of the Estate Duty Act is limited only to 1/3 share of the deceased in the residential property ?
2. Whether, on the facts and in the circumstances of the case, for the purpose of determining the rate of estate duty payable on the property passing on the death of the deceased, aggregation of the share of lineal descendants in terms of section 31(1)(c) of the Estate Duty Act is correct ?"
2. The facts in so far as they are relevant for answering the two questions referred are : The deceased was a member of an HUF consisting of himself and his two sons. On his death the accountable persons filed the turn showing the value of the 1/3 estate of the deceased, i.e., his 1/3 share in the properties owned by the HUF, at Rs. 94,835. The Asst. Controller, however, disagreed with this valuation, and valued the entire properties held by the HUF at Rs. 9,26,768 and the 1/3 share of the deceased at Rs. 2,87,256. The HUF owned a residential house among other properties and exemption was claimed in respect of the said house under s. 33(1)(n) of the E.D. Act, which was valued at Rs. 94,500. The estate duty authorities allowed only 1/3 of this amount under s. 33(1)(n). Thereafter, for the purpose determining the rate of estate duty payable on the estate of the deceased, they clubbed the shares of the lineal descendants, i.e., the sons, with the share of the deceased, as contemplated by s. 34(1)(c) of the Act. The assessee complained against both the above courses of action. Their case was that the exemption under s. 33(1)(n) should not be confined to 1/3 share only, but should extend to the entire value of the residential house. They also contended that the shares of the lineal descendants cannot be clubbed with the share of the deceased for any purpose whatsoever including the purpose of determining the rate of estate duty.
3. The Tribunal rejected both these contentions following the decision in K. Seshamma v. Appellate CED , with respect to the first contention and the decision of the Allahabad High Court in Income-tax Appellate tribunal v. Madan Mohan , with respect to the second contention. Thereupon the accountable persons applied for referring the above two questions to this court, which was done.
4. So far as the first question referred to us is concerned, there can be little doubt, on a reading of s. 33(1)(n) along with s. 39(1), that the exemption must be confined only to the deceased's share in the residential house. section 33(1)(n) reads :
"33. Exemptions. - (1) To the extent specified against each of the clauses in this sub-section, no estate duty shall be payable in respect of property of any of the following kinds belonging to the deceased which passes on his death - ....
5. (n) one house or part thereof exclusively used by the deceased for his residence, to the extent the principal value thereof does not exceed rupees one lakh if such house is situate in a place with a population exceeding ten thousand, and the full principal value thereof, in any other case."
6. Several High Courts have taken the uniform view that in the case of a residential house owned by an HUF of which the deceased was a member, only his share therein is entitle to exemption and not the (value of the) whole house. This is the view taken by this court in K. Seshamma v. Appellate CED [1973] 88 ITR 82, and by the Karnataka High Court in CED v. K. Nataraja [1979] ITR 769.
7. So far as the second question is concerned, the languages of s. 34(1)(c) is quite clear and unambiguous. It reads :
"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, - ..
8. (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, Marumakkatayam, or Aliyasantana law, also the interests in the joint family property of all the lineal descendants of the deceased member;
9. shall be aggregated so as to form on estate and estate duty shall be levied thereon at the rate or rates applicable in respect of the principal value thereof."
10. The learned counsel for the accountable persons, however, relied upon the decision of this court in CED v. Estate of Late Durga Prasad Beharilal [1979] 116 ITR 692. Thought the said decision apparently appears to support the case of the accountable persons, a close reading of the decision shows that the learned judges did not say that for the purpose of determining the rate, the properties of the lineal descendants should not be determining the rate, the properties of the lineal descendants should not be aggregated with the share of the deceased as contemplated by s. 34(1)(c). The learned judges merely followed the earlier decision of this court in R.C. No 30/74, dated October 19, 1976. We have sent for that decision and have perused it. The paragraph in that judgment, which has indeed been quoted in the aforesaid decision, reads as follows :
"So far as this aspect of the case is concerned, we are of the opinion that the amount of Rs. 74,882, being the entire value of the residential house in which the deceased had one-third share, the deceased's 1/3 share will have to be exempted as per the provisions of section 33(1)(n) of the Estate Duty Act. So far as the balance of the value is concerned, it is not in dispute that the two sons of the deceased are the coparceners and they would take two-thirds share in the house as coparceners. In these circumstances, the share of the two coparceners cannot be brought into the estate of the deceased. So, having given exemption under section 33(1)(n) to the extent of the share of the deceased and having held that, after deducting the one-third share of the deceased, the balance cannot be accounted in the estate of the deceased as that two-thirds share belongs to the coparceners, we find that the entire amount of Rs. 74,880 cannot be included in the estate of the deceased for the reason mentioned above."
11. A reading of the above extract shows that the question that was referred to this court in R.C. No. 30/74 was not concerned with the aggregation of the properties under s. 34(1)(c) for the purpose of determining the rate of estate duty. The only question referred was whether under s. 33(1)(n) the exemption should be confined to the share of the deceased in the residential house belonging to the joint family or should of the deceased in the residential house belonging to the joint family or should the exemption extend to the entire value; and this court held that the exemption operates only to the extent of the share of the deceased. Having stated so, of course, the learned judges further observed :
"the balance cannot be accounted in the estate of the deceased as that two-thirds share belongs to the coparceners."The words 'property of any of the following kinds belonging to the deceased which passed on his death' in s. 33(1) make it clear that exemption can be claimed under that sub-section only in respect of that property, (1) which belongs to the deceased, and (2) which passes on the death of the deceased. Though certain items of property are mentioned in cls. (a) to (p) of the sub-section, they have to be considered as having reference to the interest of the deceased in those properties and not to the interest of others.
12. Even though 'one house' is referred to in s. 33(1)(n), in the case of coparcenary property exemption can be claimed only in respect of the interest of the deceased in that house and not in respect of the whole house in which the surviving coparceners also have interest. Hence, exclusion of the entire value of the house at the stage of valuation under s. 39 is not called for. The principal value of all the properties of the deceased should be first ascertained in accordance with the rules contained in the Act, including s. 39, and then the value of items in respect of which estate duty is not payable under ss. 25, 26, 27, 28, 29, 32, and 33(1)(a) to (p) should be determined. While computing estate duty deduction should be given in respect of the value of these items on which estate duty is not payable.
13. section 34(1)(a) dealing with aggregation for the purpose of determining the rate of duty, provides that all property passing on the death other than property exempted from estate duty under cls. (c), (d), (e), (i), (j), (l), (m), (mm), (n), (o) and (p) of sub-s. (1) of s. 33 should be aggregated for the purpose of rate of estate duty. Wherever the property so passing consists of a coparcenary interest in the joint family property of a Hindu family governed by the Mitakshara, Marumakkattayam or Aliyasantana law, s. 34(1)(c) requires that the interest in the joint family property of all the lineal descendants of the deceased member should also be so aggregated. Section 34(1)(c) merely enables aggregation of the interest of the lineal descendants for the purpose of determining the rate at which estate duty is leviable on the principal value of the estate of the deceased and does not authorise the levy of any estate duty on the interest of the lineal descendants. Its purpose is, therefore, a restricted one.
14. Therefore, where the residential house belongs to a HUF governed by the Mitakshara law, only the share of the deceased in such house is exempt from estate duty under s. 33(1)(n). For the purpose of determining the rate of estate duty the value of the property passing on his death under s. 34(1)(a), but the value of the shares of all the lineal descendants of the deceased in the coparcenary property including the residential house has to be aggregated under s. 34(1)(c) without any reference to any exemption under section 33(1)(n) of the Act."
15. To the same effect are the decisions of the other High Courts : vide T. Sundaresa Mehta v. CED , Gunvantlal Keshavlal v. CED , Smt, Gunvantibai v. CED and CED v. R. S. Gwalre . The Karnataka High Court reaffirmed the principle of CED v. K. Nataraja , in a subsequent decision in CED v. N. Ramachandra Bhat .
16. In view of the above uniform authority and the clear language of s. 34(1)(c), we must hold that the Revenue was right in clubbing the values of the share of the two sons (who are undoubtedly lineal descendants of the deceased) with the value of the share of the deceased for the purpose of determining the rate of estate duty on the estate of the deceased, as contemplated by s. 34(1)(c).
17. For the above reasons we must answer the first question referred to us in the affirmative, in favour of the Department and against the assessee. Similarly, we must also answer the second question in the affirmative, in favour of the Department and against the assessee. Referred case is answered accordingly. No costs.
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