Madhya Pradesh High Court
Controller Of Estate Duty vs Madhusudan Das Malpani on 30 June, 1993
Equivalent citations: 1994(0)MPLJ48
Author: D.M. Dharmadhikari
Bench: D.M. Dharmadhikari
JUDGMENT D.M. Dharmadhikari, J.
1. The following questions of law have been referred by the Income-tax Tribunal, for our opinion, under Section 64(3) of the Estate Duty Act, 1953 (hereinafter referred to as "the Act") :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that there is no finding of the Supreme Court in Madhusudan Das v. Narayani Bai, AIR 1983 SC 114, about the validity of the trust known as Mannulal Jagannathadas Trust ? and (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in rejecting the application for rectification of its order dated February 28, 1979, in spite of the above decision of the Supreme Court ?"
2. The above questions arise on the following facts. Seth Jagannath Das was alive when his wife, Premwati, died issueless on September 24, 1951. It was claimed by one of the accountable persons, namely, Madhusudan Das, that he had been adopted by Seth Jagannath Das as his son, a day prior to the death of his wife. After the death of his wife, Jagannath Das created a charitable trust by a registered deed dated March 17, 1952, under the name and style of "Seth Mannulal Jagannath Das Hospital Trust" and transferred his entire estate with certain reservations for his residence and maintenance as an obligation on the working trustee, Seth Narsinghdas. After the death of Seth Jagannath Das, on October 7, 1957, the working trustee, Seth Narsinghdas, claiming to be the accountable person filed an estate duty return under the Act, showing the principal value of the property passing on the death of Seth Jagannath Das as nil. The Assistant Controller of Estate Duty did not accept the return and applying the provisions contained in Section 12 of the Act determined the value of the property at Rs. 23,33,410, as assessable to duty by his order of assessment dated April 3, 1972. Seth Narsinghdas, as working trustee, and accountable person went up in appeal. The Appellate Controller excluded part of the estate from levy only to the extent of the property valued at Rs. 15,46,368.
3. Seth Madhusudan Das, claiming to be the adopted son of Seth Jagannath Das filed a suit on September 24, 1957, against his adoptive father and the trustees, claiming a share in the estate as a co-parcener. A declaration was also sought that as a result of valid adoption, the trust created by Jagannath Das on September 24, 1951, was, void or invalid in law. The suit was decreed by the trial court on September 27, 1961, holding the adoption of Madhusudan Das as valid and declaring the trust as void. The High Court, however, in appeal, by its judgment and decree dated September 30, 1967, dismissed the suit. Seth Madhusudan Das raised a protest before the Assistant Controller and requested for stay of the proceedings pending decision of the civil litigation in the civil courts. It is very relevant to mention at this stage that on the protest and request made by Madhusudan Das for staying the proceedings for levying duty on the estate of Seth Jagannath Das, the Bench of the Appellate Tribunal in its order made the following observations :
"Madhusudan Das had before the lower authorities as well as before us claimed that the estate duty proceedings be stayed till the decision of the Supreme Court but the lower authorities found themselves unable to do so for an indefinite period of time and we also do not think it expedient or necessary to stay the matter for an indefinite period pending the decision of the appeal before the Supreme Court. Remedial action can always be taken and orders can be rectified after the Supreme Court takes a decision which will have a bearing on the issue in the estate duty matter."
4. It may now be mentioned that the Supreme Court in the case of Madhusudan Das v. Smt. Narayani Bai, AIR 1983 SC 114, reversed the appellate judgment and decree of the High Court and decreed the suit confirming the judgment and decree granted by the trial court in the matter of adoption of Madhusudan Das. The trial court had granted a decree that the adoption as son of Madhusudan Das, by Seth Jagannath Das was valid and in accordance with law. The trial court has also declared that Jagannath Das could not have created a valid trust of the properties, which he held jointly as one of the coparceners along with his son. The creation of the trust was thus declared invalid.
5. After the aforesaid decision of the Supreme Court in the matter of validity of the adoption and the creation of trust, the Assistant Controller of Estate Duty filed an application before the Tribunal under Section 61 of the Act for rectification of the order which was passed by the Tribunal on February 28, 1979, on the assumption that part of the estate of Jagannath Das had already been transferred to the trust and he held only a limited extent of the estate on the date of his death, which alone was leviable to estate duty. The Bench of the Appellate Tribunal which heard the parties, on the question of rectification of the order of the taxing authorities, under Section 61 of the Act, did not accept the contention advanced on behalf of the Assistant Controller of Estate Duty that the judgment of the Supreme Court in the adoption case was a valid justification for rectification of the order of the taxing authorities. In rejecting the application for rectification under Section 61 of the Act, the Bench of the Tribunal held as under:
"4. We have heard both the sides and considered the issues. After going through the judgment of the Supreme Court, it is not possible for us to agree that we can accept the plea of the Revenue that there is an error apparent from the record. Their Lordships have made a finding regarding the claim of Madhusudan Das for adoption, who claims a portion of the estate, which could not have the effect of passing on the death of Seth Jagannath Das. The order of their Lordships cannot be interpreted as a judicial pronouncement laying down a principle of law which will take retrospective effect and that in the background of the legal principle, declared by their Lordships, there would be a finding of an error apparent from the record. What we want to emphasise here is that their Lordships have made a finding about a fact which could not take retrospective effect as far as a finding of the Appellate Tribunal, made by its order, is concerned. In other words, the Supreme Court judgment cannot constitute a part of the record of the appeal to make the finding of the Appellate Tribunal as affected by an error apparent from the record. Had the Supreme Court judgment declared a principle or provision of law, the case would have been different. It would have been retrospective and its judgment would have constituted a part of the record and made the finding of the Tribunal affected by an error apparent from the record. There is another reason why we are not prepared to accept the plea of the Revenue. What Madhusudan Das had claimed in the aforesaid proceedings before the High Court and the Supreme Court was regarding his claim for the validity of his adoption and, in consequence, to an interest in the aforesaid estate, which was made over by the deceased, Seth Jagannath, to the trust. There is not an air or whisper in the aforesaid judgment about the validity or invalidity of the trust. It will require a long process of reasoning of debate and deduction to reach a finding on the basis of the Supreme Court judgment as to what part of the estate, assessed by the Assistant Controller of Estate Duty, was not liable to be included in the estate of the deceased. Therefore, looked at from this angle also, what effect the Supreme Court judgment will have on the assessment will have to be determined by a long drawn process reasoning of debate and deduction. Such a view, which involves a process of complicated reasoning of a debate and deduction, cannot be considered as a subject-matter fit for rectification within the ambit of Section 254....
6. We have not been able to appreciate why the Revenue had so far failed to proceed under Section 59 of the Act, on the basis of new information received from the judgment of the Supreme Court to correct the assessment made by the Assistant Controller of Estate Duty regarding the estate left by the deceased."
6. The Department then made an application to the Tribunal for referring the questions of law to the High Court arising from the order of the Tribunal passed on the application under Section 61 of the Act. The Tribunal having declined to refer the questions, the Department approached this court and this court in M.C.C. No. 19 of 1983 directed the Tribunal to refer the question under reference for the decision of this court.
7. Shri V. K. Tankha, learned counsel appearing for the Revenue before us, contends that the judgment of the Supreme Court in the adoption case furnished a valid ground for seeking rectification of the order earlier passed by the taxing authorities in the matter of assessment and levy of estate duty on the properties passing on the death of Seth Jagannath Das. He argued that the learned Tribunal was wrong in holding that the judgment of the Supreme Court although binding on all Tribunals and courts, did not constitute an apparent error in the order of the taxing authority, necessitating its rectification in proceedings under Section 61 of the Act. It is also pointed out on behalf of the Revenue that the Supreme Court in its judgment did make a reference to the creation of the trust by Seth Jagannath Das and adoption of Madhusudan Das having been held to be valid the consequence was rendering of the creation of the trust as invalid. It is argued that the Supreme Court had confirmed the judgment and decree of the trial court and there was thus a concluded finding on facts and law that the creation of the trust was invalid and no property could pass to the trust during the lifetime of Jagannath Das.
8. In support of the contention that the judgment of the Supreme Court constituted a good ground for seeking rectification of the order of the taxing authority, strong reliance has been placed on the decision of the Maharashtra High Court (Bombay) in the case of Walchand Nagar Industries Ltd. v. V. S. Gaitonde, ITO [1962] 44 ITR 260. Reliance has also been placed on a decision of the Kerala High Court in the case of Kil Kotagiri Tea and Coffee Estates Co. Ltd. v. I. T. A. T. [1988] 174 ITR 579.
9. Shri B. L. Nema, appearing on the other side for the accountable person for payment of estate duty, contended that the judgment of the Supreme Court necessitated complete revision and passing of a fresh order of assessment. This legal exercise fell outside the purview of the power of rectification conferred on the authorities under Section 61 of the Act. It is argued that it would have been open to the Revenue to resort to proceedings under Section 59(b) of the Act for escaped assessment in relation to the estate which was declared to be the estate held by Seth Jagannath Das on the date of his death. Shri B.L. Nema placed reliance on the decisions of the Supreme Court in the case of T. S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50 and Mrs. Khorshed Shapoor Chenai v. Asst. CED [1980] 122 ITR 21. On the basis of the aforesaid decisions it is also sought to be argued that the judgment of the Supreme Court and the civil litigation did not form part of the record of the estate duty case and thus there did not exist "any mistake apparent from the record", for invoking the power of the taxing authorities under Section 61 of the Act.
10. Having appreciated the facts and contentions advanced by the parties, we are of the opinion that the two questions referred to us have to be answered in the negative and in favour of the Department.
11. So far as question No. 1 is concerned, a bare reading of the judgment of the Supreme Court would show that the validity of adoption and the validity of creation of the trust were essentially subject-matters for decision before the Supreme Court in the civil litigation between Seth Jagannath Das and his adopted son, Madhusudan Das. It may be that in the Supreme Court, the argument mainly centred round the question of adoption and the Supreme Court, after appreciating the evidence on record, held that the finding reached by the trial court that a valid adoption did take place, was liable to be confirmed. The necessary legal consequence of the above finding was that Seth Jagannath Das could not have created a trust of the properties jointly held by him as coparcener with his adopted son, Madhusudan Das. The Supreme Court, therefore, confirmed the decree of the trial court in full, whereby the adoption was held valid and the creation of the trust was held void.
12. The first question, therefore, has to be answered in the negative by holding that the judgment of the Supreme Court thus contained a finding that the trust could not be validly created by Seth Jagannath Das on the relevant date when he had already adopted Madhusudan Das as his son.
13. So far as the second question is concerned, we feel no hesitation in holding that the judgment of the Supreme Court furnished a valid ground to invoke the power of rectification under Section 61 of the Act. As a matter of law, the provision contained in Section 61 of the Act is intended to meet such eventualities as obtaining in this case. The argument advanced that the judgment could form a good ground to proceed for escaped assessment under Section 59(b) of the Act, within the prescribed period of limitation, is misconceived. This is not a case of omission to include any property for assessment, which ought to have been so included. In the original order of the taxing authority, a part of the property in question was treated to be the property of the trust which was deemed to be validly constituted in law. There was, thus, a deliberate exclusion of such property from assessment and levy. It was not a case, therefore, of any omission or escaped assessment in relation of such property. Resort to Section 59(b) of the Act for escaped assessment, therefore, was not open to the Department. There is no attempt to get over any bar of limitation prescribed under the Act, as is sought to be urged on behalf of the accountable person. The decision cited on this score in the case of Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC) is of no assistance. In that case, it was held that a different view taken by the assessing authority afterwards on the application of the provisions of the Act would amount to only a change of opinion and cannot constitute a good ground for proceeding for escaped assessment.
14. Equally unacceptable is the argument of Shri B. L. Nema, learned counsel for the taxpayer, that there was "no apparent error on record" to justify rectification. The judgment of the Supreme Court, the judgment and the decree passed by the civil court and the High Court might not have formed part of the record of the estate duty case, but as is the admitted position, the civil litigation concerning the adoption and the trust deed was brought to the notice of the taxing authorities by way of protest and objection raised by one of the accountable person, Madhusudan Das, for seeking stay of assessment and levy of duty until finality of the civil litigation covering part of the property in question. The expression "mistake apparent from the record" used in Section 61 of the Act, in the context and on a reasonable interpretation cannot be restricted to mean some mistake or error reflected from any of the documents on the record of the case. The pendency of civil litigation concerning the property in question was undoubtedly the subject-matter for consideration and came for discussion in the course of the assessment proceedings. Those proceedings were thus the subject-matter or part of the record of the assessment case. The Tribunal, from the portion of its order quoted above, had categorically reserved a right to Madhusudan Das, as an objector, to seek remedy by way of rectification as a remedial action, on the ultimate result of the civil litigation, to which he was a party. The final verdict in the civil litigation by the highest court of law had knocked out the very basis of assessment and levy of duty on a major part of the property in question. The verdict of the Supreme Court thus disclosed an apparent mistake of law in the estate duty case inasmuch as some items of properties which ought to have been treated as held by the deceased Jagannath Das at the time of his death, were treated as the trust properties. This mistake of law deserved rectification in proceedings under Section 61. of the Act.
15. Another argument of Shri B. L. Nema, learned counsel, is that the rectification under Section 61 of the Act does not permit passing of a fresh or revised order of assessment as that, according to him, would necessarily involve a detailed examination of the whole case and material on record. The above argument on the facts of the case has no force. The judgment of the Supreme Court had the effect of declaring that the property excluded from assessment and levy under the Act never belonged to the trust which was void from its inception. The judgment of the Supreme Court thus rendered the exclusion from assessment and levy of the trust property to be an erroneous approach in law. Rectification of such a mistake of law may involve re-examination of the entire material on record and fresh assessment based on the subsequent legal position. We find no limitation or restriction in Section 61 of the Act for holding that the rectification would permit only correction of minor mistakes or accidental omissions and not a revised assessment based on a subsequent declaration of law. The following observations of the Maharashtra High Court (Bombay) in the case of Walchand Nagar Industries [1962] 44 ITR 260 fully support the case of the Department and the view taken by us (at page 265) :
"A glaring and obvious mistake of law can be rectified under Section 35 as much as a mistake of fact apparent from the record.
It would be seen that even though the assessment order made by the Income-tax Officer was a good order on the date it was made, the subsequent enactment rendered that order a mistaken order, and it was held that that mistake could be rectified under Section 35 of the Act. Mr. Joshi tried to distinguish this case from the present case. It is his argument that the order made by the Income-tax Officer in that case was rendered bad by the subsequent enactment, while the order in the instant case, which was a good order, was rendered bad as a consequence of a subsequent judicial pronouncement. We find it difficult to accept this argument and the distinction. In our opinion, the present case is stronger than the other case. The effect of the decision of their Lordships of the Supreme Court is that the levy of excess dividend tax was, at no time, good. The levy was invalid, and that being the true legal position, the order made by the Income-tax Officer was bad at its inception on the date it was made, and that was a mistake and to point out that mistake, no elaborate argument or debate is required, because there is the binding Supreme Court decision, clearly bringing out that mistake. The mistake, therefore, in our opinion, is a mistake apparent from the record, within the meaning of Section 35 of the Act. The authorities concerned, i.e., the respondents were, therefore, clearly in error in not rectifying that mistake under Section 35 of the Act."
16. The decisions of the Supreme Court cited by Shri B.L. Nema, learned counsel appearing for the accountable person, are clearly distinguishable. The case of Mrs. Khorshed Shapoor Chenai [1980] 122 ITR 21 (SC) is on different facts and lays down a different law. In that case, rectification of the mistake in the original assessment was proposed to be undertaken on the ground that the initial valuation adopted in respect of the acquired lands was based on rates fixed by the Land Acquisition Officer and in view of the enhancement of the award by the civil court the enhanced compensation was sought to be included in the principal value of the estate by undertaking the rectification proceedings. It was held that it was a case of rectification of no mistake apparent from record, but the Assistant Controller was really seeking to change the opinion about the valuation of the acquired lands, because some other authority, namely, the civil court, had valued the same differently.
17. The case of T. S. Balaram [1971] 82 ITR 50 (SC) is also distinguishable on facts and law. There it was held that the question whether Section 17(1) of the Indian Income-tax Act of 1922 was applicable to the case of the respondent firm was not free from doubt, and it was not open to the Income-tax Officer to go into the true scope of the provisions of the Act in rectification proceedings under Section 154 of the Income-tax Act, 1961. There was thus no mistake apparent from the record of the assessment of the firm.
18. For all the above reasons, we answer the two questions referred to us in the negative, that is, in favour of the Department and against the contentions advanced on behalf of the accountable person. Our answer to question No. 1 is that on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was not justified in holding that there is no finding in the Supreme Court judgment in the case of Madhusudan Das v. Narayani Bai, AIR 1983 SC 114, about the validity or invalidity of the trust known as Seth Mannulal Jagannath Das trust.
19. Our answer to question No. 2 is that, in the facts and circumstances of the case, the Tribunal was not justified in rejecting the application for rectification of its order dated February 28, 1979, particularly in view of its observations in paragraphs 32 and 23 of the same order in appeal and in view of the judgment of the Hon'ble Supreme Court in the case of Madhusudan Das, AIR 1983 SC 114.
20. Let the matter be now sent along with our order and the record to the Tribunal for consequent action. There shall, however, be no order as to costs.