Venkataramaiah, J.:— One T. Karibasappa was the karta of a HUF governed by Mitakshara law consisting of himself and his three sons. He died on October 24, 1965. He owned some separate property in addition to one fourth share in the joint family property which consisted of a residential house of the value of Rs. 80,000. The Assistant CED computed the liability of estate duty payable in respect of the estate of Karibasappa under the E.D Act, 1953 (hereinafter referred to as “the Act”) as follows:

Total value of separate properties: Rs. 65,018 Cesser of interest Rs. In coparcenary property Non agricultural (including residential, house). 1,13,000 Agricultural 13,400 Surrender value of policy. 10,000 1,36,400 Deceased's ¼ share 34,100 99,118 Less Funeral expenses 1,000 Deceased's share in residential house 20,000 21,000 21,000 Principal value 78,118 Add lineal decendants’ share for rate purposes (34,100 × 3) 1,02,300 1,80,418

2. Accordingly, estate duty was calculated and levied by the Assistant Controller. On appeal, the Appellate CED held that while determining under s. 39 of the Act the value of the share of the deceased, Rs. 80,000 which was the entire value of the residential house should, in view of s. 33(1)(n) of the Act, be first deducted and no part of its value should be taken into consideration even for purposes of s. 34(1)(c) of the Act. Accordingly, he allowed the appeal of the accountable person. The Income-tax Appellate Tribunal, Bangalore Bench, dismissed the appeal of the department. At the instance of the department, the following question of law is referred to this court under s. 64(1) of the Act:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the exemption under Section 33(1)(n) of the Estate Duty Act, 1953, should be given due effect to while computing the principal value of the estate of the joint Hindu family of which the deceased was a member.?”

3. The total value of joint family property of which the deceased was a member was Rs. 1,36,400. If a partition had taken place just before his death he would have been allotted ¼th share in that family property and the value of that share’ would have been Rs. 34,100. The sum of Rs. 1,36,400 referred to above included Rs. 80,000 being the value of a residential house in which all the members including the deceased were living. The contention of the accountable person is that in view of the exemption allowed under s. 33(1)(n) the entire value of the residential house should be first deducted from Rs. 1,36,400 in order to determine the value of the interest of the deceased which would be liable to duty under the Act and one fourth share of the balance should be treated as the value of such interest. It is further argued that for purposes of aggregation under s. 34(1)(c) of the Act the remaining value should be added to the value of the estate of the deceased, as the three other surviving coparceners were all lineal descendants of the deceased. In other words, the case, of the accountable person is as follows:

Value of joint family properties:

Rs. 1. Residential house (portion of the building used for residence) 80,000 (Rs. 1,13,000 shown in the Asst. Controller's order.) 2. Let out portion of the building 33,000 1,13,000 3. Agricultural property 13,400 4. Surrender value of policy 10,000 1,36,400 Less: Residential house. 80,000 56,400 ¼th share of the deceased. 14,100

Add: Value of deceased's other properties items 1 to 6 in the Asst. Controller's order. 65,018 Total 79,118 Less Funeral expenses 1,000 For assessment purposes Lineal descendants’ 78,118 shares for the purpose of aggregation. 42,300 1,20,418

4. Duty has to be paid on Rs. 78,118 at the rate applicable to Rs. 1,20,418. The case of the department on the other hand is that exemption from estate duty can be allowed under s. 33(1)(n) only in respect of the ¼th share of the deceased in the residential house and the entire value of the share of the lineal descendants should be aggregated under s. 34(1)(c) for purposes of rate of estate duty. The relevant provisions of the Act which arise for consideration in this case are ss. 5, 7(1), 33(1)(n), 34(1)(a) and (c) and 39 of the Act. Sections 5 and 7(1) are in Part II of the Act which contains provisions relating to imposition of estate duty. Section 33(1)(n) is in Part III containing exceptions from the charge of duty. Section 34(1) is in Part IV dealing with aggregation of property and rates of duty and s. 39 is in Part V dealing with the principles governing the valuation of the property and interest of the deceased for purposes of levy of duty.

5. By s. 5 estate duty is levied upon the principal value, ascertained as provided in the Act, of all property referred to therein which passes on the death of a person at the rates fixed in accordance with s. 35 of the Act. Section 2(15) of the Act defines “property” as including 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. Sub-section (1) of s. 7 of the Act states that subject to the other provisions of that section property in which the deceased or any other person had an interest ceasing on the death of the deceased shall be deemed to pass on the deceased's death to the extent to which a benefit accrues or arises by cesser of such interest including, in particular, a coparcenary interest in the joint family property of a Hindu family governed by the Mitakshara law, Murumakkattayam or Aliyasantana law. Section 39(1) of the Act provides that the value of the benefit accruing or arising from the cesser of coparcenary interest in any joint family property governed by the Mitakshara school of Hindu law which ceases on the death of a member thereof shall be the principal value of the share in the joint family property which would have been allotted to the deceased had there been a partition immediately before his death. Section 39(3) provides that for the purpose of estimating the principal value of the joint family property of a Hindu family governed by the Mitakshara, Murumakkattayam or Aliyasantana 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 whole of the joint family property had belonged to the deceased. Section 36 provides that the principal value of any property shall be estimated to be the price which in the opinion of the Controller it would fetch if sold in open market at the time of the deceased's death.

6. It is contended on behalf of the accountable person that the exemptions allowable under s. 33(1) should be taken into consideration at the stage of valuation of interest under s. 39. It is difficult to agree with the above submission for the following reasons:

1. Section 39 which is in Part V and which has been there since the commencement of the Act deals with valuation of coparcenary interest of the deceased like ss. 36, 37, 38 and 40. Sections 36 to 40 have nothing to do with exemptions from payment of estate duty which are dealt with in Part III of the Act. The fiction under s. 39(3) should be limited for the purpose of valuation only and cannot be extended for determining exemptions. It has also to be observed here that s. 39(3) has been there from the commencement of the Act but s. 33(1)(n) was introduced in 1964 with effect from September 23, 1963.

2. The items of property which are exempt from payment of estate duty under s. 33 are not like items of property which are not to be treated as part of the estate passing on the death of the deceased referred to in ss. 21 to 24 of the Act. Properties referred to in ss. 25, 26, 27, 28, 29, 32 and 33(1)(a) to (p) do pass on the death of the deceased but only estate duty is not payable in respect of them.

3. The words “property of any of the following kinds belonging to the deceased which passes on his death” in s. 33(1), which are decisive in this case, make it very clear that exemption can be claimed under that subsection only in respect of that property, (1) which belongs to the deceased, and (2) which passes on the death of the deceased.

7. In view of the foregoing even though “a house” is referred to in s. 33(1)(n), 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 Part V of 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.

8. Part VI of the Act deals with the rules relating to aggregation of property and rates of duty. Section 34(1)(a) 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 taken into consideration while aggregating the properties for purposes of rate of estate duty: It is significant that only value of certain items referred to in s. 33(1), i.e, in cls. (c), (d), (e), (i), (j), (1), (m), (mm), (n), (o) and (p) are to be excluded at this stage and not others referred to in s. 33(1) and in ss. 25 to 29 and 32 even though no estate duty is payable in respect of them also. This again suggests that it would not be correct to deduct all items on which estate duty is not payable even while determining the principal value under Part VI. 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 interests in the joint family property of all the lineal descendants ‘of the deceased member should be added to the properties mentioned in s. 34(1)(a) and (b) for purposes of rate of estate duty.

9. It must be emphasised here that s. 34(1)(c) merely enables aggregation of the interest of lineal descendants for the purpose of determining rate at which duty is leviable on the principal value of the estate of the deceased but it does not authorise the levy of any estate duty on the interest of the lineal descendants. Its purpose is, therefore, a restricted one. What has to be aggregated under s. 34(1)(c) is the entire interest in the coparcenary property of all the lineal descendants of the deceased members without any exemption or exception. Hence, it is difficult to accept the contention that the interests of the lineal descendants in the house which is referred to in s. 33(1)(n) should be excluded while applying s. 34(1)(c).

10. It follows from the above discussion that only the value of the interest of the deceased in a house which forms part of his coparcenary is exempted from estate duty under s. 33(1)(n) and for purposes of aggregation under s. 34(1) whereas under cl. (a) thereof the value of the interest of the deceased in such house is excluded, under cl. (c) thereof the value of the interest of all the lineal descendants in such house has to be added for the purpose of rate of estate duty. Such a construction will not do any violence to s. 33(1)(n) also as exemption is given in respect of one house or a part thereof exclusively used by the deceased for residence under it. Even though certain items of property are mentioned in cls. (a) to (p) of s. 33(1) we have to construe them as having reference to the interest of the deceased in those items of property and not to interests of others. Property under s. 2(15) includes interest in property also.

11. Reliance was placed by the learned counsel for the accountable person on a decision of the Andhra Pradesh High Court in CED v. Estate of Late Durga Prasad Beharilal, [1979] 116 ITR 692, 694, in which it was held: “after giving exemption to the share of the deceased under s. 33(1)(n) the balance of the property cannot be taken into consideration because that belongs to the other coparceners”. In order to reach that conclusion the Andhra Pradesh High Court solely depended upon the reasons given in an earlier case decided by it (R.C No. 30 of 1974, dated October 19, 1976), which are extracted in its decision. The said extract is as follows (p. 693):

“So far as this aspect of the case is concerned, we are of the opinion that the amount of Rs, 74,880 being the entire value of the residential house in which the deceased had one-third share, the deceased's ⅓rd share will have to be given exemption as per the provisions of s. 33(1)(n) of the E.D 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 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 reasons mentioned above.”

12. It has to be observed that it is not clear from the above decision why the value of the interest of the lineal descendants in the house should not be added for purpose of aggregation as required by s. 34(1)(c) of the Act.

13. The next case cited before is CED v. Estate of Late R. Krishnamachari, [1978] 113 ITR 200 (Mad). It was argued on behalf of the accountable person that the following passage at page 205 in the above decision was in support of his case i

“The question is then whether in determining the value of the joint Hindu family properties, the properties mentioned in section 33(1) which are exempt from the charge should be omitted and then the share of the deceased member determined. A reading of section 33 makes it clear that subject to the limitations introduced by the various clauses regarding the quantum of the exemption, properties of the kinds mentioned in the various clauses of sub-section (1) of section 33 will not come into the picture at all in reckoning the value of the property that passed on the death of an individual. This section has to be applied in the case’ of individuals in their exclusive right as well as in the case of members of a joint Hindu family who by virtue of the fictions introduced by sections 7 and 39(1) are taken to have passed on properties on their death for the purpose of the Estate Duty Act. Naturally, it follows that in determining the total value of the properties of the Hindu family, these properties that are left out of account by the clear provisions under section 33(1) must also be left out for the purpose of determining the total value of the properties of the joint family. To make it clear, we would like to state that there is no charge at all on the exempted properties. It is as though that these properties are not taken into account at all for the purpose of the Act.”

14. When the above passage is read in isolation it may lend some support to the contention urged on behalf of the accountable person. The above reasoning is not quite consistent with the other portions of that decision. But in the earlier part of that decision at page 205, the High Court of Madras dealing with s. 39(3) observed as follows:

“In order to determine the value of his share, it is necessary to determine the value of the joint family property and for that purpose alone section 39(3) has provided that it may be assumed that the deceased died possessed of properties which belonged to the joint Hindu family and the provisions of the Act, so far as may be, for the determination of the value of the property of an individual when he died, for the purpose of estate duty, shall be applied for determining the market value of the total of the joint Hindu family properties. This is merely for the purpose of finding out the total value of the entire properties of the joint Hindu family, which is necessary in order to find out the value of the share of the deceased, which alone is taken to have passed on his death. The duty under the Act can, therefore, be imposed only on the value of the property which passed as the share of the deceased in a Hindu undivided family, which he would have obtained, had there been a partition in the family at the time of his death.”

15. The conclusion ultimately reached by the High Court of Madras does not also support the case of the accountable person because the operative part of that decision at page 206 reads:

“It is evident that the exemption relates to property. The property must be of, the kind belonging to the deceased and it must have passed on his death in order that section 33(1) may be applied. But there is limitation about the extent of the exemption. If the house is situate at a place having population in excess of ten thousand, the exemption is limited to. Rs. 1 lakh. In this case, therefore, the assessee will be entitled only to exemption of a maximum extent of Rs. 1 lakh, regarding the house, which as we stated, has been assumed to belong to him and exclusively used for his residence at the time of his death. This house passed as a result of his death. That his interest in the house passed as a result of his death is not disputed. The difficulty, however, arises because the principal value of the house comes to Rs. 1,70,000 and the value of the half share to which the deceased was entitled to in the house comes to Rs. 85,000. When that is the property—the interest in which of the deceased was Rs. 85,000— which passed, is it possible under the section to grant exemption from duty to the extent of Rs. 1 lakh is the question arising for determination. Obviously, the answer is in the negative for the section very clearly refers to the property which passes. The property which passed can only be the half share in the house and the exemption being only in respect of that property, nothing more than the value of the property can even be exempt. The limitation of Rs. 1 lakh provided by section imposes a restriction and that too will have to be applied if the interest that passes can be valued at over 1 lakh of rupees. But the exemption under this section on no account can exceed the value of the property which passed. If the value of the property exceeds Rs. 1 lakh, the exemption will be limited to Rs. 1 lakh. If the value of the property that passed is less than Rs. 1 lakh, the exemption would have to be limited to the value of the property. It is, therefore, clear on the facts of the case that the extent of the exemption is only Rs. 85,000.”

16. The other two decisions cited before us on behalf of the accountable person, CED v. Estate of late Sanka Simhachalam, [1975] 99 ITR 370 (AP) and CED v. Jyotirmoy Raha, [1978] 112 ITR 969 (Cal), do not have any bearing on the question at issue. In these two cases, the question relating to the liability of residential houses used by the deceased in which they had only life interest arose for consideration. In both the cases, the houses “belonged” to the deceased (as explained in s. 2(15) of the Act) and during their lifetime no other person could claim to be in possession of the said houses. The case before us is not a case of that nature.

17. In Income-Tax Appellate Tribunal, Allahabad v. Madan Mohan (since printed as appendix 1, at page 781 infra) decided by the High Court of Allahabad there was a HUF consisting of a certain Damodar Das and his only son, Madan Mohan, and the said family owned a residential house of the value of Rs. 58,500. On the death of Damodar Das, the Assistant CED while determining the estate duty payable on his estate added a half share in that house, i.e, Rs. 29,250 belonging to his son under s. 34(1)(c) of the Act for rate purposes. On appeal, the Zonal Appellate Controller deleted the inclusion on the ground that the residential house was totally exempt under cl. (n) of s. 33(1) of the Act. The department took up the matter in appeal. The Tribunal dismissed the appeal holding that since residential house was specifically excluded by cl. (a) of s. 34(1) even for the purpose of determining estate duty the valuation of the house used by the deceased for residential purposes could not be included in the estate of the deceased for rate purposes. Reversing the decision of the Tribunal, the High Court of Allahabad observed thus (See pp. 782-783 infra):

“Under s. 7 of the E.D Act the share of an adult member of a Hindu coparcenery in joint family property passes on his death. Such share is to be determined on the footing that a notional partition had taken place immediately before his death (vide s. 39). Section 33 exempts properties mentioned in various clauses provided they belonged to the deceased and they passed on his death. Clause (n) of s. 33(1) makes a reference to the exemption of:

‘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’.

18. Under this provision residential house is exempt from payment of estate duty; but this exemption is available provided the house belonged to the deceased and it passed on his death. In the case of a residential house belonging to the HUF, it is the share of the deceased which alone passes on his death. In the present case, the HUF consisted of two members only, viz., the deceased and his son. In view of s. 39 the share which will pass on the death of Damodar Das will be half. Thus, only a half share in the house could be said to belong to the deceased and it alone passed on his death. The properties mentioned in the various clauses of s. 33(1) are exempt from estate duty only in so far as they belong to the deceased and pass on his death. In the case of a residential house belonging to the HUF it is the share of the deceased which passes on his death. The value of such share alone in the residential house will be exempt from payment of estate duty under cl. (n). The Tribunal was in error in holding that the entire house was exempt under cl. (n).

19. Section 34 deals with the aggregation of property for determining the rate of estate duty. As already seen only a half share in the residential house under cl. (n) was exempt.

20. Clause (c) of s. 34(1) specifically provides that the interest in the joint family property of all the lineal descendants of a deceased member, in the case of a joint family property, is to be aggregated. Since only a half share in the residential house was exempt under cl. (a), cl. (c) which relates to the remaining half which belonged to the son, who was a lineal descendant of the deceased, would be liable to be aggregated under cl. (c). The value of this share was validly taken into consideration by the Assistant CED for rate purposes.”

21. The above decision is followed by another Bench of the High Court of Allahabad in Controller of Estate Duty v. Satish Chandra (since printed as appendix 2 at p. 783 infra). In that case, the facts were these: One Shri Sunder Lal died in 1966. The deceased was the karta of the HUF. There was a residential house which belonged to that family. The accountable ‘person did not include in the estate duty return any part of the value of that house on the ground that it was exempt. The Assistant Controller estimated the value of the house at Rs. 82,000 and held that since the house belonged to the HUF the share of the deceased and his wife to the extent of Rs. 41,000 was exempt and the balance of Rs. 41,000 being the share of the lineal descendants was includible in the estate of the deceased for rate purposes. The Zonal Appellate Controller did not decide the above question. The Tribunal however held that the entire house was exempt from duty and no part of its value could be included for rate purposes. The High Court while reversing the decision of the Tribunal observed as follows (See p. 784 infra):

“In our opinion, the decisive words in s. 33(1) are ‘which passes on his death’. Section 39(1) lays down that the value of the benefit accruing or arising from the cesser of a coparcenary interest in any joint family property governed by the Mitakshara School of Hindu law which ceases on the death of a member thereof shall be the principal value of the share in the joint family property which would have been allotted to the deceased had there been a partition immediately before his death. In this view of the matter, the property which could have passed on his death would be the principal value of his share in the joint family property which would have been allotted to the deceased had there been a partition immediately before his death. The Tribunal did not consider this aspect of the matter but merely relied upon cl. (n) of s. 33(1) in isolation without focussing its attention on the principal sub-s. (1) itself. Therefore, our answer to the aforesaid question is as follows:

‘The Tribunal was not justified in holding that the value of the entire residential house occupied by Sri Sunder Lal, deceased, karta of his HUF, was exempt from estate duty and the share of the lineal descendants of the deceased was not includible for rate purposes in view of the provisions of s. 33(1)(n) read with s. 34(1)(a) of the E.D Act, 1953. The half share of the lineal descendants of the deceased was liable to be included for the rate purposes in view of the provisions of s. 34(1)(a) and (c) of the E.D Act, 1953’.”

22. We are of the view that the above two decisions of the Allahabad High Court lay down the law correctly.

23. If the view canvassed by the accountable person is accepted even though the value of the deceased's share in the entire joint family property is only Rs. 34,100 exemption under s. 33(1)(n) will have to be given in respect of the whole house which is valued at Rs. 80,000. Truly this could not have been the intendment of the law. The answer to the question referred to us is, therefore, formulated thus:

Section 33(1)(n) of the Act has no relevance to the computation of the value of the interest of the deceased in the coparcenary property under s. 39. Where the residential house belongs to a HUF governed by Mitakshara, only the share of the deceased in such house is exempt from estate duty under s. 33(1)(n). For purposes of rate of estate duty, the value of the share of the deceased in such house has to be excluded from 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 s. 33(1)(n) of the Act.

24. The question is answered accordingly.