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Judges
  • Hon'ble Mr. Justice Rameshkumar Chunilal Mankad
  • Hon'ble Mr. Justice Manharlal Pranlal Thakkar
Acts
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Citation Codes
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Judges
  • Hon'ble Mr. Justice Rameshkumar Chunilal Mankad
  • Hon'ble Mr. Justice Manharlal Pranlal Thakkar
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Smart Summary

Structured Summary of the Opinion — Mankad, J.

Factual and Procedural Background

This reference arises from estate duty proceedings concerning the estate of J.K. Daftary (the deceased), who died on April 3, 1971. The deceased was a coparcener in a Mitakshara Hindu undivided family (HUF) consisting of himself and his son, Ramniklal J. Daftary, who was the accountable person in the estate proceedings. The central dispute concerned whether the value of the share of a lineal descendant in the joint family property should be included in the dutiable estate for the purpose of determining the rate of estate duty under section 34(1)(c) of the Estate Duty Act, 1953 (the Act).

The Assistant Controller and the Appellate Controller held that on the death of the deceased his interest ceased under section 7 of the Act and that the value of the interest of the lineal descendant in the joint family property was includible for rate purposes under section 34(1)(c). The Income-tax Appellate Tribunal agreed with that view. The accountable person challenged the Tribunal's view and, under section 64(1) of the Act, two questions were referred to the court for opinion.

Legal Issues Presented

  1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that on the death of the deceased who was a coparcener in a Mitakshara Hindu joint family, his interest ceased under section 7 of the Estate Duty Act?
  2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the interest of the lineal descendants of the deceased in the joint family property should be taken for rate purposes under section 34(1)(c) of the Estate Duty Act?

Arguments of the Parties

Accountable Person's (Appellant's) Arguments — Mr. K. C. Patel

  • Mr. Patel did not dispute that the deceased was a coparcener under Mitakshara law and that the deceased owned no property other than his HUF interest.
  • He contended that under the proviso to section 6 of the Hindu Succession Act, 1956, if the deceased left certain surviving relatives (a female relative specified in Class I of the Schedule or a male who claims through such a female relative), the deceased's interest in Mitakshara coparcenary property devolves by testamentary or intestate succession under the Hindu Succession Act and not by survivorship.
  • Relying on Explanation 1 to section 6, Mr. Patel argued that the deceased's interest should be treated as the defined share that would have been allotted on a notional partition immediately before death; therefore what passed was a defined share rather than a coparcenary interest.
  • He maintained that section 34(1)(c) of the Estate Duty Act applies only where a coparcenary interest (as such) passes on death (i.e., where section 7 applies), and thus the value of a lineal descendant's share should not be included in the dutiable estate if the interest passed under the proviso to section 6 (i.e., under succession rather than by cesser/survivorship).
  • Mr. Patel also noted that the record did not show whether the particular survivors required by the proviso to section 6 were in fact present; nevertheless, the Tribunal proceeded on the assumption that the proviso applied.

The opinion does not contain a detailed account of opposing party submissions in the text provided.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court's analysis proceeds in two principal dimensions: (i) identifying what actually passed on the death of the deceased, and (ii) determining how the quantum of that passed interest is to be ascertained for valuation and estate duty rate purposes.

1. Nature of what passed on death:

- The court accepted that section 6 of the Hindu Succession Act governs the devolution of the deceased's interest in the Mitakshara coparcenary property. Section 6 expressly states that the interest of a Mitakshara coparcener devolves by survivorship upon surviving coparceners, except for the proviso which directs devolution by testamentary or intestate succession when certain Class I relatives survive.

- The court rejected the appellant's submission that Explanation 1 to section 6 transforms the nature of what passes from a coparcenary interest into a defined share. The court emphasized that Explanation 1 is a legal fiction adopted "for the limited purpose of ascertaining the share or interest of the deceased coparcener in the coparcenary property."

- Accordingly, the court concluded that, notwithstanding the explicatory fiction used to quantify that interest, what actually passes is the coparcenary interest of the deceased. The Explanation merely provides a formulaic method to determine the quantum of that coparcenary interest; it does not convert the substantive character of the interest into something other than a coparcenary interest.

2. Applicability of section 34(1)(c) of the Estate Duty Act:

- Section 34(1)(c) requires aggregation, for rate purposes, of "property so passing which consists of a coparcenary interest in the joint family property of a Hindu family governed by the Mitakshara... law" together with the interests of all lineal descendants of the deceased in the joint family property.

- The court held that it is immaterial for the purposes of section 34(1)(c) whether the coparcenary interest passes under section 5 of the Estate Duty Act (i.e., passes as property) or is deemed to pass under section 7 (i.e., by cesser/survivorship). The critical requirement is that the property passing on death includes a coparcenary interest.

- Because the coparcenary interest of the deceased did pass on his death (whether characterized as passing under section 5 or as deemed to pass under section 7), section 34(1)(c) is attracted and the interests of lineal descendants in the joint family property must be aggregated for the purpose of determining the appropriate rate of estate duty.

3. On the two referred questions:

- The court observed that it was unnecessary to determine (answer) the first question concerning whether the deceased's interest ceased under section 7 of the Estate Duty Act because even if the coparcenary interest had passed as property under section 5, the result would be the same under section 34(1)(c).

Holding and Implications

Holding:

Question 1: Not necessary to answer.

Question 2: In the affirmative and against the accountable person.

Implications:

  • The court held that the coparcenary interest of the deceased did pass on his death and that, for rate computation under section 34(1)(c) of the Estate Duty Act, the interests of the lineal descendants in the joint family property must be aggregated with the deceased's coparcenary interest to form one estate. Consequently, the value of the share of the lineal descendant is includible in the dutiable estate for determining the rate of estate duty.
  • The decision directly affects the parties by confirming that the accountable person is liable to have the lineal descendant's interest counted for rate purposes (the answer to question 2 is against the accountable person).
  • The court explicitly stated that it was unnecessary to resolve the separate issue whether the interest ceased under section 7; it did not purport to create or announce any broader doctrine beyond applying the statute to the facts. The opinion does not state that a new legal precedent was established beyond its statutory interpretation and application to the matter before the court.
  • The reference was answered accordingly, with no order as to costs (i.e., no costs ordered).

End of summary — based solely on the content of the provided opinion.

Show full summary ...

    Ramniklal J. Daftary v. Controller Of Estate Duty, Gujarat.

    Mankad, J.:— The two questions which are referred to us for our opinion arise out of the estate duty proceedings in respect of the estate of J.K Daftary (hereinafter referred to as the “deceased”) who died on April 3, 1971. The deceased was a coparcener in the Hindu undivided family (hereinafter referred to as the “HUF”), consisting of himself and his son, Ramniklal J. Daftary; who is the accountable person. In the course of the assessment proceedings, one of the questions which arose was whether the value of the share of the lineal descendant of the deceased was includible in the dutiable estate for rate purposes under s. 34(1)(c) of the E D. Act, 1953 (hereinafter referred to as “the Act”). The Income-tax Appellate Tribunal, agreeing with the view taken by the Asst. Controller and the Appellate Controller, held that on the death of the deceased who was a coparcener in the Mitakshara Hindu family, his interest ceased under s. 7 of the Act and that the value of the interest of the lineal descendant of the deceased in the joint family property was includible in the dutiable estate for rate purposes under s. 34(1)(c) of the Act. The accountable person has challenged the view taken by the Tribunal, and at his instance, the following two questions are referred to us for our opinion under s. 64(1) of the Act:

    “(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that on the death of the deceased who was a coparcener in a Mitakshara Hindu joint family, his interest ceased under section 7 of the Estate Duty Act?

    (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the interest of the lineal descendants of the deceased in the joint family property should be taken for rate purposes under section 34(1)(c) of the Estate Duty Act?”

    2. Mr. K.C Patel, learned counsel for the accountable person, did not dispute that the deceased was a coparcener in an HUF governed by the Mitakshara law. Besides having interest in the property owned by the HUF, the deceased did not own any other property. Mr. Patel contended that under the proviso to s. 6 of the Hindu Succession Act, 1956, when a Hindu male dies leaving him surviving a female relative specified in class I of the Schedule or a male relative specified in that class who claims through such female relative, his interest in the Mitakshara coparcenary property shall devolve by testamentary or intestate succession, as the case may be, under the said Act and not by survivorship. Mr. Patel pointed out that under Expln. 1, for the purpose of s. 6, 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 the partition of the property has taken place immediately before his death, irrespective of whether he was entitled to claim partition or not. Now, there is nothing on the record to show whether in the instant case the deceased had left him surviving a female relative specified in class I of the Schedule or a male relative specified in that class who claims through such female relative. It, however, appears the Tribunal has proceeded to resolve the controversy raised before it on the basis that the proviso to s. 6 of the Hindu Succession Act was attracted.

    3. In other words, the Tribunal proceeded to examine the question raised before it on the assumption that the deceased had left him surviving a female relative specified in class I of the Schedule or a male relative specified in that class who claims through such relative. Mr. Patel argued that since the interest of the deceased in the HUF devolved under the proviso to s. 6 of the Hindu Succession Act, such interest is a property which passes on his death as laid down under s. 5 of the Act. It was not a case of cesser of the interest of the deceased which will attract the provisions of s. 7 of the Act. Mr. Patel's argument was that s. 34(1)(c) would be attracted only in a case where the property is deemed to pass on the death of the deceased under s. 7 of the Act. It was argued that in view of Expln. 1 to s. 6 of the Hindu Succession Act, it should be presumed that there was an actual partition of the properties of the HUF immediately before the death of the deceased and if such a presumption is raised what passes on the death of the deceased is his defined share and not the coparcenary interest in the property of the HUF. Section 34(1)(c) of the Act, the argument ran, applied only in case where the coparcenary interest of the deceased passes on death and such being not the position after the coming into force of the Hindu Succession Act, the said provision did not apply. Therefore, according to Mr. Patel, the value of the share of the lineal descendant was not includible in the dutiable estate for rate purposes under the said provision.

    4. Section 6 of the Hindu Succession Act, on which strong reliance was placed by Mr. Patel, reads as under:

    “6. When a male Hindu dies after the commencement of this Act, having at the time of his death an interest in a Mitakshara coparcenary property, his interest in the property shall devolve by survivorship upon the surviving members of the coparcenary and not in accordance with this Act:

    Provided that, if the deceased had left him surviving a female relative specified in class I of the Schedule or a male relative, specified in that class who claims, through such female relative, the interest of the deceased in the Mitakshara coparcenary property shall devolve by testamentary or intestate succession, as the case may be, under this Act and not by survivorship.

    Explanation 1.—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.

    Explanation 2.—Nothing contained in the proviso to this section shall be construed as enabling a person who has separated himself from the coparcenary before the death of the deceased or any of his heirs to claim on intestacy a share in the interest referred to therein.”

    5. Section 6 provides for a devolution of the interest in a coparcenary property. Mr. Patel does not dispute that it is under the provisions of s. 6 that the interest of the deceased in the HUF property devolved. If that be so, we fail to see how, with the aid of Expln. 1, it can be argued that what devolved was not a coparcenary interest. Two questions become pertinent, namely, (i) What passed on the death of the deceased? Was it a coparcenary interest? and (ii) What was the value of the interest and how is it to be computed? The answer to the first question is obvious. What passes is the coparcenary interest of the deceased. And once this answer stares us in the eye, no other problem remains to be considered for the applicability of s. 34(1)(c) of the Act. The next question which crops up is: What exactly is the quantum of what has passed? How to quantify it? How to compute it? How to value it? And it is this dimension of the second question which is dealt with in Expln. 1 appended to s. 6. A fiction or a workable formula is evolved thereby for the limited purpose of quantification or ascertainment in order to spell out what is to be computed, how The aid of Expln. 1 is to be taken only in order to ascertain the share or interest of the deceased coparcener in the coparcenary property. Explanation 1 to s. 6 resorts to the simple expedient, undoubtedly fictional, that 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 that property had taken place immediately before his death. What is, therefore, required to be assumed and assumed for the limited purpose demarcated hereinabove, is that a partition had in fact taken place between the deceased and his coparceners immediately before his death. It is for the limited purpose of ascertaining the share of the deceased in the coparcenary property that Expln. 7 to s. 6 of the Hindu Succession Act comes into play. We are, however, unable to see any force in Mr. Patel's argument that as a result of the Expln. 1 what devolves is not the coparcenary interest of the deceased (though s. 6 in terms says so) but his defined share on the assumption (which is made, to compute the extent of coparcenary interest which has devolved) that there was an actual partition. We do not agree that actual partition of the property of the HUF must be assumed to have taken place immediately before the death of the deceased (to do so would be to re-write s. 6) and it must further be assumed that it was the share which the deceased received at such partition which devolved on his heirs under the proviso to s. 6. We cannot do so, for, s. 6 in terms says that what passes is coparcenary interest and the Explanation to s. 6 merely explains how to ascertain the coparcenary share by recourse to the fiction. There is, therefore, no doubt that what devolved under the proviso to s. 6 was the coparcenary share of the deceased.

    6. For the purpose of s. 34(1)(c) of the Act, we may hasten to add, it is immaterial whether the property passes as laid down under s. 5 of the Act or is deemed to pass under s. 7 of the Act. Section 34(1)(c) of the Act, in so far as is relevant, reads as under:

    “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 interests 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.”

    7. In order to attract the application of s. 34(1)(c) what is necessary to establish is that the property passing on death includes a coparcenary interest in the joint family property. If the coparcenary interest of the deceased passes on his death whether under s. 5 or under s. 7 of the Act, the interest of the lineal descendants of the deceased in the joint family property have to be aggregated so as to form one estate for the purpose of determining the rate of estate duty. It is, therefore, not relevant whether the coparcenary interest of the deceased passes under s. 5 or s. 7 of the Act. In the instant case, the coparcenary interest of the deceased did pass on his death whether under s. 5 or under s. 7 of the Act and, consequently, the provisions of s. 34(1)(c) are attracted. Therefore, in determining the rate of estate duty to be paid on the property passing on the death of the deceased, the value of the share of the lineal descendant of the deceased is includible in the dutiable estate. In the view which we are taking, we do not consider it necessary to answer question No. 1 referred to us for our opinion. Even if the coparcenary interest of the deceased passed on the death of the deceased as laid down under s. 5 of the Act, it must be held that the Tribunal was justified in holding that the interest of the lineal descendant of the deceased in the joint family property shall have to be taken into account for rate purposes as provided in s. 34(1)(c) of the Act.

    8. In the result, we answer the questions as follows:

    QUESTIONS ANSWERS 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that on the death of the deceased who was a coparcenary in a Mitakshara Hindu joint family, his interest ceased under section 7 of the Estate Duty Act? Not necessary to answer. 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that interest of the lineal descendants of deceased in the joint family property should be taken for rate purposes under section 34(1)(c) of the Estate Duty Act? In the affirmative and against the accountable person.

    9. Reference answered accordingly with no order as to costs.

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    Comments

    Ramniklal J. Daftary v. Controller Of Estate Duty, Gujarat.
    (Apr 22, 1981)