Income Tax Appellate Tribunal - Nagpur
Smt. Narayanibai R. Heda vs Assistant Controller Of Estate Duty on 24 December, 1986
Equivalent citations: [1987]22ITD98(NAG)
ORDER
B.C. Mitra, Accountant Member
1. These two appeals one by the Accountable Person and the other by the department - arising out of the Appellate Controller of Estate Duty, are disposed of by this consolidated order for the sake of convenience.
2. The facts relating to the Accountable person's appeal in brief are, that the deceased Late Smt. Bhagirathbai Rathi prior to her death on 8-7-1977 made a Will dated 18-5-1977 bequeathing all her properties to Smt. Narayanibai R. Heda, her daughter. On 19-5-1977 she executed a gift deed, whereby her residential house being premises no. 212, Ward-1, Amravati, was gifted to her great grand son Shri Vasantkumar, who was a major at the relevant time. The value of the gifted property was returned by the Accountable Person at a sum of Rs. 1,18,000. The Accountable Person also claimed deduction of Rs. 1 lac under Section 33(1)(n) in respect of the gifted property which the ACED allowed in the original assessment completed under Section 58(3) on 25-10-1980. Subsequently, the Revenue Audit raised an audit query pointing out a mistake in the ACED's order of assessment. According to the audit party the exemption under Section 33(1)(n) allowed in the assessment was wrong as the property in question did not belong to the deceased on the date of death and its value was included in the assessment under the deeming provisions of the Estate Duty Act. The query raised by the audit party was not accepted by the ACED but the same was included by the Revenue Audit in the Local Audit Report, a copy of which was forwarded to the Controller of Estate Duty. The ACED, however, started remedial action by issue a show cause notice under Section 61. The proceedings, subsequently, were dropped by the ACED on 13-3-1981. Thereafter the ACED reopened the assessment under Section 59(b) and after hearing the Accountable Person re-determined the principal value of the estate by his order dated 26-11-1983 on a total sum of Rs. 10,84,435. In this assessment he took the value of the gifted property at a sum of Rs. 1,35,000 on the basis of the Gift-tax assessment order as against Rs. 1,18,000 taken originally in the assessment completed under Section 58(3) on 25-10-1980. Further, in the re-assessment, the ACED withdrew the deduction allowed under Section 33(1)(n) in the original assessment.
3. Before the Appellate Controller, the Accountable Person challenged the ACED's action in re-opening the assessment under Section 59(b) on the strength of the Supreme Court decision in the case of Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996. On merits also the reassessment was challenged on the ground that the deceased who gifted the property on 19-5-1977 continued to reside therein till her death on 8-7-1977. It was argued that the value of the gifted property was included in the assessment under the deeming provisions of Section 9 and consequently, under Section 33(1)(n) the Accountable Person was entitled to the deduction of Rs. lac out of the value of the property so included in the principal value of the estate. The Appellate Controller rejected both the contentions of the Accountable Person by observing, inter alia, that "the Controller of Estate Duty has brought to the ACED's notice the decision in the case of CED v. K. Hilal [1981] 130 ITR 781 (Mad.). This had not been considered by the ACED earlier. To that extent I will hold that this was information available with the ACED for the first time within the meaning of the decision in Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SO)". On the question of the allowance of the deduction in terms of Section 33(1)(n) the Appellate Controller confirmed the ACED's action by following the Madras High Court decision in the case of CED v. K. Hilal [1981] 130 ITR 781. The appeal of the Accountable Person is against the said order of the Appellate Controller.
4. The learned counsel for the Accountable Person stated that the ACED on the basis of the audit objections first initiated rectificatory proceedings under Section 61 which he dropped on a due consideration of the objections raised against the show cause notice issued in that regard. The ACED thereafter initiated proceeding's under Section 59(b) on re-appraisal of the very same materials that were before him during the course of original assessment. The ACED, it has been pointed out, considered the provisions of Section 9 and Section 33(1)(n) while making the original assessment. Therefore, according to the learned counsel, any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on the materials already considered by him. By placing reliance on the Supreme Court decision in the case of Indian & Eastern Newspaper Society (supra), the learned counsel pointed out that an error discovered on a reconsideration of the same material did not confer jurisdiction on the ACED to re-open the completed assessment under Section 59(b). It has further been stated that the Madras High Court decision in the case of K. Hilal (supra) was within the knowledge of the ACED at the time of making the original assessment and consequently no fresh information came to the possession of the ACED for enabling him to act in terms of Section 59(b). Our attention was drawn to the audit note, a copy of which has been filed before us as also the ACED's reply to the audit objection wherein the views expressed by the Controller of the Estate Duty have been noted which by implication suggested that the ACED initiated action on being directed by the Controller. Accordingly, it has been urged that the ACED's satisfaction in re-opening the assessment was derived from the Controller. In this context, he brought to our notice the Appellate Controller's observation in paragraph 5 of his order which mentioned, inter alia, that "the Controller gave directions that the audit objection was correct and directed the ACED to proceed under Section 59". This, according to the learned counsel, vitiated the entire proceedings and, therefore, the ACED's order was liable to be quashed.
5. On merits also, according to the learned counsel, the Appellate Controller while considering the provisions of Sections 4(1) and 5(1) of the Wealth-tax Act, 1957, in the light of the High Court decisions in S. Naganathan v. CWT [1975] 101 ITR 287 (Mad.), V. Vaidyasubramaniam v. CWT [1977] 108 ITR 538 (Mad.), CWT v. KM. Eapen [1978] 114 ITR 415 (Kar.) and CWT v. C. Rai [1979] 119 ITR 553 (Bom.), ought to hare held that in a case, where by a legal fiction, as in the instant case, duty has been levied on a property transferred by taking resort to the deeming provisions of the Act viz., Section 9, the exemption available to the Accountable Person in terms of Section 33(1)(n) as a corollary should have been allowed. It has been argued that in the Madras High Court decision in the case of K. Hilal (supra) this aspect was not considered and, therefore, according to the learned counsel, the Madras High Court decision is distinguishable on facts with the present case. It has been pointed out that the will executed by the deceased on 18-5-1977 stipulated clearly that the deceased reserved her rights to the enjoyment and possession of all her movable and immovable assets and property till her death. The Accountable Person, it has been stated, is, therefore, entitled to the exemption under Section 33(1)(n) as the property in question was exclusively used by the deceased for her residence. The Departmental representative, in reply, supported the order of the Appellate Controller.
6. The note of the ACED's purporting to be the reply to the audit objection is both unsigned and undated. Since reliance has been placed on the said note it will be appropriate to extract the same hereinafter:
The facts of the case in brief is as under :
Smt. Bhagiratibai G. Rathi, died on 8-7-77. While determining the net P.VE. an amount of Rs. 1,18,000 was included in the estate of the deceased. The observation in the Assessment order while adding the amount is as under :
Value of house property :
Rs.
The value of the self-occupied property of Bunglow as shown 1,18,000 Value of other properties 1,18,756 2,36,756 Less Exemption allowed under Section 33(1)(n) being out of value of one house as was exclusively used by the deceased for her residence total value of this house shown at Rs. 1,18,000 but exemption only allowed Rs. 1,00,000 under Section 33(1)(n) of E.D. Act. 1,00,000 Net total value of house property 1,36,756 After passing the assessment order a notice was issued to the A/P for withdrawal of exemption as Rs. 1,00,000 under Section 61 of the E.D. Act. To the show cause notice the A/P filed reply on 20-3-81. After considering the facts of the cause proceedings under Section 61 are dropped vide order dt. 13-3-81. As for order under Section 61 is concerned the action of the ACED was correct, as there was a disputed point the mistake could not be rectified under Section 61 hence the objection of Audit that proceedings under Section 61 were dropped is not correct and, therefore, not acceptable.
As regards the exemption of Rs. 1,00,000 on account of residential house some more facts are to be mentioned here. The deceased gifted the house property to her grand-son Shri V.T. Malpani vide gift-deed executed on 18-5-77, which was registered on 19-5-77. It is an accepted fact by the Audit as will be seen from the audit memo sent vide No...that as per will the ownership of her residential house passed on to Shri V.T. Malpani, after her death. It is, therefore, evident that even though the house was gifted vide gift-deed dt. 18-5-77 which was registered on 19-5-77 simultaneously the deceased reserved right to reside in the house as per her will executed on the same date. The house property was, therefore, not taxable under section but under Section 10. In this connection the facts of the present case are very similar as decided by the Mysore High Court in the case of George Da Casta v. CED [1967] 63 ITR 497. The decision was confirmed by the Supreme Court as discussed on page 172,173 & 174 in the Ed. Act by D.H. Nanavati, 3rd edition, 1976. The present case is even more strong when the reservation made in the will by the deceased is considered. Therefore, the property under consideration was taxable under Section 10 of the B.D. Act, and not under Section 9 of the E.D. Act, as contemplated by the Audit. As Section 9 was not applicable the exemption for residential house at Rs. 1,00,000 was rightly allowed. It will be seen from Assessment Order also that the ACED never intended to add the value under Section 9 as will be seen from the observation in the assessment order the extract of which is given above. Hence the objection of the Audit is misconceived and not based on the factual position and the law. The objection is, therefore, not acceptable.
The Commissioner of Income-tax, Nagpur, is of the opinion that the property is included under Section 9 and not under Section 10 of the Estate Duty Act. 18-5-77 will is regarding property passing to Shrimati Narayanibai Hoda. As per the Gift Deed exclusive possession is given. Physical possession might have been taken by the Donee after death as claimed on behalf of the Accountable Person. The de jure possession was on the date of Gift Deed registered. She was only permissive user and was allowed by sufferance to stay in the building owned by Shri V.T. Malpani.
Expression "exclusively used by the deceased for her residence" under Section 33(1)(n) would postulate the existence of right of use and not a permissive user or user otherwise than under a, right. Deduction under Section 33(1)(n) not allowable.
The note as will be apparent from the extract made above incorporates the view expressed by the ACED on the audit objection as also the opinion of the Controller in the matter. Nowhere in the note the Controller directed the ACED to re-open the assessment under Section 59(a) or Section 59(b). The High Court decision which was relied upon by the ACED K. Hilal's case (supra) also does not figure in the Controller's comments to the audit objection. We therefore, fail to understand as to how the Appellate Controller in paragraph 5 of his order stated that the ACED was directed by the Controller to proceed under Section 59. The note containing the ACED's objection to the audit query need not, in our opinion be confused with the reasons recorded by the ACED for purposes of re-opening the assessment under Section 59(b). The Appellate Controller has not stated what were the reasons recorded by the ACED and before us also a copy of the ACED's recorded reasons has not been filed.
7. The learned counsel's submission that the ACED had no jurisdiction to re-open the assessment under Section 59 cannot be accepted. In the case of Maharaj Kumar Kamal Singh v. CIT [1959] 35 ITR 1 the Supreme Court held that "the word 'information' in Section 34(1)(b) includes information as to the true and correct state of the law and so would cover information as to relevant judicial decisions." The provisions of Section 59(b) of the E.D. Act are analogous to the provisions contained in Section 147(b) of the IT Act, 1961 as also Section 34(1)(b) of the Indian Income-tax Act, 1922. The said decision of the Supreme Court has been referred to by the Supreme Court in its later decision in Indian & Eastern Newspaper Society's case (supra) wherein at page 1000 it has been observed thus -
What does 'information' in Section 147(b) connote ? In Maharaj Kumar Kamal Singh v. CIT [1959] 35 ITR 1 (SC) this Court, construing the corresponding Section 34(1)(b) of the Indian IT Act, 1922, held the word 'information' to mean not only facts or factual material but to include also information as to the true and correct state of the law and, therefore, information as to relevant judicial decisions.
At page 1004, their Lordships observed thus -
Tha,t part alone of the note of an audit party which mentions the law which escaped the notice of the ITO constitutes 'information' within the meaning of Section 147( b) ; the part which embodies the opinion of the audit party in regard to the application or interpretation of the law cannot be taken into account by the ITO.
The ACED as will be apparent from his note extracted above rejected the audit objection, but his views on the audit objection were not accepted by the Controller. The ACED as we find from the Appellate Controller's order took note of the Madras High Court decision in the case of K. Hilal (supra). It is, therefore, to be held that the ACED became aware of the true and correct state of the law pertaining to the matter before him and in that sense the decision of the Madras High Court (supra) was an 'information' which the ACED could utilise in forming his belief that the property gifted by the deceased was under-valued in the original assessment, within the meaning of Section 59(b) of the E.D. Act. It is also not correct to say that the ACED was aware of the said decision when he made the assessment on 25-10-1980 as the same was published in the Income-tax Reports in 1981. In the original assessment the value of the gifted property was taken at Rs. 1,18,000 which was the amount disclosed in the statement furnished by the Accountable Person. In the re-assessment the value of the said property was taken on the basis of the Gift-tax order at Rs. 1,35,000. The ACED therefore had reason to believe that due to under-valuation of the property in the original assessment there was an escapement of estate duty chargeable on the property gifted. In that view of the matter also the ACED's action in re-opening the assessment can be justified. The Appellate Controller was, accordingly, justified in holding that the ACED's action in re-opening the assessment, in the circumstances, was valid. On the merits of the case also we are inclined to accept the Appellate Controller's observation that "the decision in 130 ITR, 781 clearly covers the facts of the case . ...The property was gifted by the deceased on 19-5-1977. Both the Will and the Gift Deed have been executed on 18-5-1977. The gift-deed was, however, registered on 19-5-1977. The donee as per gift deed and the beneficiary mentioned in the Will are different persons, since the beneficiary of the Will is Smt. Narayanibai, daughter of the deceased while the donee in the gift deed is her great grand-son. In the will no reference has been made to the gift deed, the english version of which reads as under :
Name of Deponent : Smt. Bhagirathibai widow of Ganeshdasji Rathi age 73 years, occupation agriculture, resident of Amravati Camp Tq. and Dist. Amravati do hereby state my "WILL" as under:
That I own movable and immovable property in my name and in the name of my shop named Ramratan Ganeshdas with absolute right over the same. I have no son. I have the following relatives beloved to me. (1) Daughter Sow Narayanibai W/o Rathawallabhji Heda (2) Daughter of daughter that is grand daughter Sow. Rajniprabha W/o Tribhuwandasji Malpani (3) Chi. Vasantkumar, son of my grand daughter Sow. Rajniprabha and (4) Chi. Veena daughter of grand daughter Sow. Rajniprabha. I have donated some property and wealth to Religious Institutions from time to time and some property to my daughter and grand daughters in my life time. Now I have gone too old. Therefore I do hereby state my "WILL" as under:
1. Out of the immovable and movable estate and property which is in my name and in the name of my shop cash in Bank and available at home ; I entrust Rs. 50,000 (Rs. Fifty thousand) only and the Agriculture land as per details enclosed to my daughter Sow. Narayanibai W/o Radhawallabhji Heda for transferring it to charitable Trust named "Smt. Bhagirathibai Charitable Trust" and direct to utilise the income derived from the property of the said trust for supply Food and clothes for poors, for the supply of medicines to Hospitals, for free use and to defray the expenses of Alms on the Sharshaday of my deceased husband and son and for other Public Charitable purposes. There will be three more trustees and other them Sow Narayanibai Heda of the trust. These three trustees will be appointed by Sow. Narayanibai Heda. Thus there will be in all four trustees for the management of the trust.
2. There is no other nearest relative more affectionate than my daughter Sow Narayanibai Heda. She is only doing my service and nursing, and she is the only legal heir to me. Therefore whatever my moveable and immovable estate and property as Houses, Agriculture and other land, Bank balances, shares in Companies etc. and all household goods, furniture, Gold ornaments, Jewellery are bequeathed to her and she would be sole and absolute legal owner of the same after my death. She is also authorised and will be entitled to recover all the debts, loans and other recoveries outstanding at the time of my death. There will be no Rights of anybody else on the moveable and immoveable estate and property etc. that would remain after my death. She shall make payment of Estate Duty etc. out of this estate.
3. I have absolute right to enjoy the moveable and immoveable Estate and property till my death.
In this way this "WILL" has been executed on 18th May 1977 written by Wallabhdas Gowardhandas Rathi.
Witness Signature
( )
.................. L/H thumb impression of Smt.
.................. Bhagirathibai Ganeshdasji Rathi
(Wallabhdas)
The details of land that has been bequeathed for trust Mouja Tiwasa Tq. Chandur Rly Dist. Amravati :
S. No. Acre-Gunthas
56/3 2-23
63/2 7-01
59/2 9-34
70/3 4-25
109/2 14-11
100 3-35
102/2 (part) 8-29
66/4 (part) 2-39
53-37
In less than 2 months from the date of the execution of the gift deed, the deceased died. The provisions of Section 9 in such circumstances became attracted, which the learned counsel did not dispute. All that has been stated is that the property which the deceased used as a residence, the value of which has been considered by applying the deeming provisions of Section 9 is entitled to the deduction envisaged in Section 33(1)(n). This very point came up for consideration before the Madras High Court in the case of K. Hilal (supra) wherein also the deceased made a gift within 2 months of her death and the value of the property in which the deceased was residing till her death was included in the principal value of the estate by invoking the provisions of Section 9 of the E.D. Act. The question arose whether exemption under Section 33(1)(n) was to be allowed in computing the dutiable estate of the deceased. It was held that the deceased having delivered possession of the property to the donee he could not have a right of the user of the said building unless he had, under the terms of the document, reserved such right. In such circumstances, the High Court held that the deceased was in the building only as a permissive user and not in his own right as owner of the building. The High Court in such circumstances held that the requirement of Section 33(1)(n) was not satisfied and the exemption in terms of the said section could not be allowed. In the instant case the donor gave possession of the building to the donee as on the date of the registration of the instrument i.e. 19-5-1977. The title of the donee to the property became perfect on that very date. Accordingly, on the ratio of the aforesaid Madras High Court decision exemption in terms of Section 33(1)(n) cannot be allowed in computing the principal value of the estate. The analogy drawn with reference to Section 4(1)(a) of the W.T. Act, in our opinion, is incorrect. Section 4(1)(a) states that in computing the net wealth of an individual, there shall be included, as belonging to that individual the value of assets which on the valuation date are held by the spouse of such individual to whom such assets have been transferred by the individual, directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live apart. In all the High Court decisions relied on by the learned counsel, the point for consideration was whether the legal fiction created under Section 4 could be extended to the provisions contained in Section 5(1). It has been held that the benefit of Section 5(1)(iv) of the W.T. Act will be available where the property transferred to the wife is included in the wealth-tax assessment of the husband by reason of Section 4(1)(a) of the W.T. Act. It is relevant to point out that Sub-section (3) of Section 4 of the W.T. Act as substituted by the Finance Act, 1975, with effect from 1-4-1975, specifically provides that Section 5 shall apply to assets included in the net wealth of an assessee under Section 4(1)(a). There is no such provision analogous of Sub-section (3) of Section 4 of the W.T. Act in Section 9 of the Estate Duty Act. We would, accordingly, uphold the Appellate Controller's order on this point also.
8. In the departmental appeal two grounds have been raised, namely (i) that the Appellate Controller of Estate Duty erred in deleting the interest levied of Rs. 1650 under Section 53 and (ii) that the Appellate Controller erred in directing the AGED to verify the claim of A.P. for allowing deduction under Section 18A of the Gift-tax Act.
9. Section 53(3) of the E.D. Act states that every accountable person shall, within six months of the death of the deceased, deliver to the Controller an account in the prescribed form and verified in the prescribed manner of all the properties in respect of which estate duty is payable. There is, however, a proviso which states that the Controller may extend the period of six months on such terms which may include payment of interest as may be prescribed in Rule 42. Rule 42(d) prescribes the rate of interest at 6 % per annum. In this case, the duty was imposed on the Accountable Person originally as per order under Section 58(3) dated 25-10-1980. The present assessment has been made under Section 59(1)(b). There is no provision in Section 53(3) in terms of which interest can be charged in a re-assessment made under Section 59(1)(b). The Appellate Controller's order on this point is, accordingly, upheld.
10. In coming to the second ground we find from the Appellate Controller's order that he directed the ACED to allow deduction of the entire stamp duty and gift-tax paid by the Accountable Person including the rebate available to the Accountable Person under Section 18A of the Gift-tax Act. The department's grievance is that the deduction under Section 18A in the Gift-tax Act is not available to the Accountable Person under the Estate Duty Act. Section 50A of the E.D. Act provides the relief from estate duty where gift-tax has been paid. There is no reference to Section 18A of the G.T. Act under Section 50A of the E.D. Act. We accordingly modify the Appellate Controller's order and direct the ACED to allow relief from the duty payable in terms of Section 50A of the E.D. Act.
11. In the result, the appeal of the Accountable Person is dismissed while the departmental appeal is allowed in part.