Income Tax Appellate Tribunal - Madras
Dr. U. Vasudeva Rao vs Wealth-Tax Officer on 28 October, 1987
Equivalent citations: [1988]25ITD30(MAD)
ORDER
George Cheriyan, Vice President
1. This appeal by the assessee relates to the assessment year 1981-82. The assessment made is in the status of 'individual'. The only point at issue is the valuation of the assessee's interest in a property at 69, Alagappa Road, Madras. The valuation date is 31-3-1981. The WTO found that this property was sold in November 1981 for Rs. 12 lakhs and the assessee had paid Rs. 50,000 to his mother in consideration of her surrendering and transferring of her life interest in the property. The WTO enquired of the assessee why a value of Rs. 11,50,000 should not be adopted in place of Rs. 1,65,000 returned by the assessee. The submission of the assessee was that there was no intention as on 31-3-1981, i.e., the valuation date, to sell the property in question and the question of adopting the value of sale which took place later did not arise. Alternatively, the submission was that since the assessee was living along with his mother in the said residence, the value of the property should be frozen under Section 7(4) of the Wealth-tax Act. The WTO stated that he did not see any force in the contention of the assessee. The question of freezing the value under Section 7(4), according to him, did not arise because the provisions of Section 7(4) spoke of the value of a house belonging to the assessee. According to the WTO, the assessee could not be said to own the property as the ownership would vest with him only after the death of his mother. Eventually, the WTO brought to tax the amount of Rs. 11,50,000 as the value of the house in question.
2. The assessee appealed. The AAC held that the assessee had only a vested remainder in the property and the assessee would have become the owner only on the happening of a contingency, namely, the death of his mother. According to the AAC, until the condition was fulfilled, the interest of the assessee was only contingent. The AAC also considered that the sale price was the best possible evidence of the market value since the sale took place on a proximate date to the valuation date and he adopted Rs. 11,50,000 as the value of the property.
3. The learned counsel for the assessee placed before us a copy of the Will made by the assessee's father, Dr. U. Krishna Rao. The Win in question was executed on the 22nd March, 1958. In terms of the Will, the assessee Dr. U. Vasudeva Rao and his mother Smt. Sharada were appointed as executors. The High Court of Madras, on the 5th June, 1962, granted probate in respect of the aforesaid Will. The submission of the learned counsel for the assessee was that in terms of the Will, the assessee's mother had a life interest in the property with power to enjoy the same without the right of alienating the same or burdening it with any debts. After her death, the house was to go to the assessee. He, therefore, submitted that the assessee had a vested right in the property throughout and under the provisions of Section 7(4) of the Wealth-tax Act, it should be considered that the house belonged to the assessee. He further submitted that the assessee was physically residing in the house with his mother and, therefore, it was exclusively used by him for residential purposes.
4. The learned Departmental Representative, on the other hand, relied on the decision of the Madras High Court in R. Janardhanan v. CWT [1987] 165 ITR 144 and submitted that the Madras High Court has considered the provisions of Section 5(1) (iv) of the Wealth-tax Act where also the language was similar and have gone into the issue, for deciding that case, whether the assessee was residing as of right in the house, or whether it was by way of sufferance. If the assessee was residing as of right, then alone, according to the learned Departmental Representative, the provisions of Section 7(4) would become applicable. In the present case, he stated, in terms of the Will the assessee's mother was to have a life interest with full powers to enjoy the same and only after her death, the house was to go to the assessee. Therefore, the fact of the assessee residing with the assessee's mother could not be said to be as of right.
5. In reply, the learned counsel submitted that the relationship of mother and son could not be ignored and the fact of the mother and son being co-executors in terms of the Will could not be ignored. An executor became the owner of the property of the deceased and, therefore, the assessee, when he stayed in the house, apart from being the son of the deceased, was also the executor of the deceased and stayed there as of right.
6. We have considered the rival submissions. The terms in the Will relating to the house in dispute are as under :
1. The house named 'Hawarden' & situated in 69, Lawders Gate Road (also called Dr. Alagappa Road) in Vepery, Madras-7. To this however she will have only a life interest with full powers to enjoy the same without the right of alienating the same or burdening it with any debts. After her death this house shall go to my first son, Dr. U. Vasudeva Rao.
The Madras High Court in the case of R. Janardhanan (supra) has observed as under :
Whatever be the right that was given to Ranganayaki Ammal, she had no right to encumber the same during her lifetime. If really a life interest of the usual type with a vested remainder on others in the property was given to Ranganayaki Ammal, there could be no restriction on dealing with that right. This is because it will be inconsistent with the right conferred on the lady. It may be that even in the case of a life interest, any encumbrance or dealing with the property would not enure beyond the lifetime of the lady. In the light of the restriction on the enjoyment of that right itself and in the context of the property being joint family property and vested remaindermen are all being sons including minor sons who are all living together, we have no doubt that what was given to her was only a right of residence in the house and not the usual right which in legal parlance is known as life interest.
It would appear that in the present case also what was given to the mother of the assessee in terms of the Will was only a right of residence in the house and not the usual right which in legal parlance is known as life interest. Even if what was given to the mother was life interest, we have no hesitation in holding that the assessee got what was known as the vested remainder which was a transfer of an interest in the property in praesenti which took place on the date of death of the deceased though that transfer was not absolute in the sense it was subject to the right of the mother to reside in the house during her lifetime. The assessee thus, looking to the observations of the judgment of the Madras High Court, became the owner of the property which was capable of being alienated by him later. The first requirement of the provisions of Section 7(4) was satisfied in that it has to be considered that the house was one belonging to the, assessee. It is because a fractional interest in the house is also interest in the house-Itself.
7. In Estate Duty, there is the case of George Da Costa v.CED [1967] 63 ITR 497 (SC) where, after the property was gifted by a person to his children and he continued to stay there and eventually died, the value of the property was held to be correctly included in the hands of the deceased under the provisions of Section 10 of the Estate Duty Act since it could not be held that the donees had assumed possession and enjoyment of the property which was the subject matter of gift to the exclusion of the donor. However, when it came to the question of husband and wife, the Calcutta High Court, under the Estate Duty Act observed in Mrs. Shamsun Nehar Mansurv.CED [1969] 71 ITR 301 as under:
The distinguishing features of the Supreme Court decision in George Da Costa v. CED from the present reference before us can be stated outright and broadly. The Supreme Court case was a father and son case and not a husband and wife case. Filial love may not make, joint residence between the parents and the children. in the house essential or necessary. Marital love might make that not only essential and fundamental but sensible, reasonable and. practical. No construction should be put on the Estate Duty Act so as to be against the public policy to the extent that whenever a husband makes a gift of a property to his wife he should lose both the property and the wife. In such circumstances the fundamental point for consideration is that a husband's going to the wife for consortium or coverture is not a proprietary right in respect of the house gifted.
8. There is also the decision of the Madras. High Court (Estate Duty portion) in the case, of CED v. Estate of Late Dr. Guruswami Mudaliar [1965].58.ITR 64 again an estate duty case. The Court observed.:
We do not consider that the questions propounded do really arise on the facts and circumstances of the case. Let us take the case as presented by the department itself. The deceased had put up a superstructure on a piece of vacant land which admittedly belonged to his wife. Later he gifted the superstructure to his wife. The question that is sought to be raised is whether the gift is one which would come within the provisions of Section 10 of the Estate Duty Act. It is contended that inasmuch as the deceased, till the,end of his life, was living with his wife in the building in question, it should be held that there were certain rights in him in regard to the property. We are, however, unable to agree The living of the deceased with his wife in the building is consistent with their relationships and not because that he retained any interest in the property, namely, in the superstructure which he had absolutely gifted to his wife. There are no words in the deed of gift to support any theory that he reserved any interest in the property to himself. Under the circumstances we see no reason for directing any reference. This application fails and is dismissed with costs. Advocate's fee Rs. 150.
9. In the Wealth-tax Act, there is no question of the provisions of Section 7(4) becoming applicable only in the event of another person's right of residence standing excluded. The mother in the present case had the full legal right to live in the house during her lifetime. The assessee was her only son. The Calcutta High Court has observed that filial love may not make joint residence between parents and children in the house essential or necessary. But living of a son and that also and only son, with the mother in the property in which he has a vested interest and in which the mother had only a right to reside or for that matter even a life interest is consistent with their inter se relationship, i.e., of mother and son, looking to the conditions and traditions prevailing in our country. Therefore, apart from the fact that the mother and the son were appointed as joint executors of the Will, we are of the view that when factually the son resided with the mother continuously, it has to be considered, having regard to customary traditions that the stay of the son, i.e., the assessee, in the house could be said to be as of right. We are, therefore, of the view that the second requirement, i.e., of the house being exclusively used by him for residential purposes, stands satisfied. In this regard, we may point out that the learned counsel for the assessee had made a point, namely, that the provisions of Section 33(1)(n) of the Estate Duty Act were differently worded. [See CED v. K. Hilal [1981] 130 ITR 781 (Mad.)]. There, the requirements for getting exemption were more stringent, namely, "one house or part thereof exclusively used by the deceased for his residence" alone was exempt. Under the provisions of Section 7(4), the words used are "exclusively used by him for residential purposes". According to the learned counsel, the terminology under the Wealth-tax Act is much wider in scope and concept and the benefit of Section 7(4) would be applicable even where a house belonged to the assessee and was used for residential purposes by him though he did not physically reside there. We do not dwell on this any further since we have already held that on the facts of the present case, the assessee would be entitled to the benefits of Section 7(4). We, therefore, direct that the pegged value under Section 7(4) be taken for this assessment year for the value of Rs. 11,50,000 adopted by the WTO. The result is the appeal is allowed.