Kerala High Court
E. Mohammed Babu Sait vs Controller Of Estate Duty on 27 March, 1996
Equivalent citations: [1997]223ITR757(KER)
Author: G. Sivarajan
Bench: G. Sivarajan
JUDGMENT V.V. Kamat, J.
1. The assessee has brought before us, obviously for answer in regard thereto, the following two questions :
" 1. Whether, in a case where a deduction given in the original assessment is later found to be not due, it is open to the estate duty authorities to invoke Section 59 of the Estate Duty Act, 1953, as if there has been an escapement of property chargeable to estate duty either by reason of undervaluation of the properties included in the account or of omission to include therein any property which ought to have been included or of assessment at too low a rate or otherwise ?
2. Whether the deduction allowed in the original assessment was not a deductible liability at the time of the death of the deceased and if so, whether the reopening of the original assessment was valid in law ?"
2. In other words, we are required to consider whether the proceedings could be understood to have been legally and properly initiated under Section 59 of the Estate Duty Act. We have also considered whether if when the original assessment was made, the deduction was allowed which in fact was not a deductible liability at the time of the death of the deceased and as such was subsequently held not to be a deductible liability, the reopening could be considered to be proper and valid under Section 59 of the Estate Duty Act.
3. To a limited extent, the factual matrix would help to proceed further. Smt. Khadija Bai expired on August 26, 1977. Her accountable person as known to the provisions of the Estate Duty Act, 1953, was one Haji Essa Haji Abdul Sathar Sait. In the original assessment proceedings completed on January 31, 1979, the value of the estate of the deceased was fixed at Rs. 5,26,178. From this a deduction of Rs. 1,43,927 was granted and allowed by the Assistant Controller of Estate Duty. This was for the reason, according to the Controller, being the deceased's share of liability towards the estate duty payable on the estate of the deceased father one late Haji Abdul Latiff Essa Sait. In view of the subsequent order, the clear position that at the time of the death of Smt. Khadija Bai this could not have been a deductible liability came to be so ordered by the appellate authority. The situation, according to the Department, was a case of reopening for the purpose of addition of the amount of Rs. 1,43,927 which was obviously wrongly deducted.
4. Before the Assistant Controller of Estate Duty it is so recorded in the order dated November 12, 1981 (annexure "B"), in the following manner :
"The case was discussed with him and he agreed to the consequential revision based on the appellate order passed in the other case."
5. On the basis thereof, this amount of Rs. 1,43,927 was added to the principal assessed value of Rs. 5,26,178 adding to the total principal value amounting to Rs. 6,70,105.
6. The first appellate authority by the order dated March 25, 1985 (annexure "C"), observed that it was in the subsequent appellate order in the case of the father of the deceased, the liability was reduced. It is further observed that the principal value of the estate passing on the death has to be computed after allowing only the real liabilities, and once the real liability is found less than what was allowed, the correct liability has to be allowed. It is further observed that the liability having been allowed unconditionally at the time of original assessment, the reopening was well within the legal situation.
7. The Appellate Tribunal by the order dated December 4, 1989, considered the submissions to the effect that reopening in consequence of the appellate order is outside the scope of Section 59 of the Estate Duty Act, 1953. The Tribunal in this connection observed that the deduction of Rs. 1,43,927 was allowed obviously wrongly because no estate duty was payable on the estate of the deceased's father. The Tribunal considered this to be an aberration to reopen the original assessment giving deduction of the said amount understanding it to be the liability of the deceased towards the estate duty on the estate of the deceased's father. To understand the question it would be more than appropriate to consider the plain language of Section 59(b) of the Estate Duty Act, 1953. Even if it is considered in isolation, it would not show any difficulty to understand the situation with reference to the expected questions to be answered as to whether the action initiated could be a perfectly legal and proper action under the aforesaid provision.
8. So far as is relevant with reference to the questions posed, the provisions of Section 59(b) are as follows :
" If the Controller, - ....
(b) has, in consequence of any information in his possession, reason to believe notwithstanding that there has not been such omission or failure as is referred to in Clause (a) that any property chargeable to estate duty has escaped assessment, whether by reason of undervaluation of the property included in the account or of omission to include therein any property which ought to have been included, or of assessment at too low a rate or otherwise, . . ."
9. As stated above, when the Controller is faced with a situation in consequence of any information in his possession creating a foundation of reason to believe then he has to proceed further by taking action under the said provision. The above provision conveys the sphere of reason to believe. The Controller must have reason to believe that there is an escapement of assessment. This escapement of assessment has to be with regard to any property chargeable to estate duty. It would be further seen that the provision qualifies illustrative situations with regard to the escapement of assessment, obviously to the property chargeable to estate duty. As stated above, the situations are enacted to state that escapement of assessment should be the result of : (1) undervaluation of the property included in the account, or (2) omission to include therein any property which ought to have been included, or (3) assessment at too low a rate, or (4) otherwise.
10. In our judgment, the plain language which has to be looked into affords no difficulty that the power is relatable to a situation of escapement of assessment with regard to any property chargeable to estate duty occurring under the above four situations, if the situation so demands and leads to a factual consequence showing that assessment is effected exhibiting it to have been at too low a rate, resort to the provision can be legitimately expected and justified.
11. In the light of the above situation and the emphasis of learned counsel for the assessee that under the provisions of the Estate Duty Act, 1953, it is the property that is chargeable to estate duty, it would be in the fitness of logical process to understand as to what is meant by the term "property" with reference to the provisions of the Estate Duty Act, 1953. It is more than elementary and need not be emphasised that if a term to be understood is defined in the enactment itself, the meaning given to the term in question shall not be other than or even wider than the one which is given in the definition clause of the statute itself.
12. To illustrate the situation the provision of Section 2(15) of the said Act together with the relevant Explanation 1 thereto needs reproduction and it is as follows :
" 'property' includes 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.
Explanation 1. -- The creation by a person or with his consent of a debt or other right enforceable against him personally or against property which he was or might become competent to dispose of, or to charge or burden for his own benefit, shall be deemed to have been a disposition made by that person, and in relation to such a disposition the expression 'property' shall include the debt or right created,"
13. It is more than obvious that a debt or other right enforceable either personally or against the property has to be understood as property on the basis of inclusive provision placed on the statute by the above Explanation 1.
14. In our judgment understanding the word 'property' to include even a debt, the situations referable in Section 59 for an action in regard thereto by the Controller would cover the factual matrix for its justification.
15. Even apart from Explanation 1, the definition of "property" would also cover because the said definition is also inclusive in character, to include any money or investment representing the proceeds of sale and also any property converted from one species into another by any method, although the provisions of Explanation 1 put the things beyond the pale of any doubt in regard thereto.
16. Counsel for the assessee took us through the provisions dealing with the escapement of assessment of the sister legislations probably on the basis that it would be possible to draw some help. Illustratively, we were referred to Section 34 of the Indian Income-tax Act, 1922, dealing with income escaping assessment, especially Clause (b) thereof. Learned counsel pointed out with his meticulous preparation in regard thereto that the said provision of Section 34(1)(b) finds two different situations with regard to the assessment resulting into escapement. Learned counsel emphasised that the first one is the assessment at too low a rate and the second one is the assessment being the subject of grant of excessive relief under the Act in the context of the situation. In our judgment, this travel is really unnecessary in view of the plain language of Section 59(b) of the Estate Duty Act, 1953, with reference to the limited point urged with reference to the questions expected to be answered.
17. Learned counsel also took us to the similar statutory provisions of Section 17 of the Wealth-tax Act, 1957, as well as Section 16 of the Gift-tax Act, 1958. For the same reasons, the above provisions relating to the escapement of assessment are of no help to change the straight literal meaning as we have reasoned out hereinbefore.
18. The learned senior tax counsel placed for our consideration the decision of the Supreme Court in Sundaram and Co. (P.) Ltd. v. CIT [1967] 66 ITR 604 to tell us as to what is meant by "assessment at too low a rate". We have gone through the said decision and understood with reference to the observations relied upon with regard to the meaning to be given to a situation leading to the conclusion of assessment of income at too low a rate. The question before us does not require adjudication with regard to the situation of assessment at too low a rate. All that we are required to consider and answer is with regard to sustenance of action taken under Section 59(b) of the Estate Duty Act, 1953.
19. In our judgment, the plain reading of the provisions of Section 59(b) justifies the initiation of the proceedings. Therefore, the submission of learned counsel that it is really a situation of rectification of mistakes coverable by the provisions of Section 61 of the Act needs no consideration. In this context, the learned senior counsel (taxes) submitted that it may be that the action may also be justifiable under Section 61 of the Act. Be that as it may, the circumscription of the limits of the proceeding's with regard to the questions posed does not require us to dwell further in regard to the said aspect.
20. For the above reasons, we answer question No. 1 in the affirmative, in favour of the Revenue and against the accountable person. Similarly, we answer question No. 2 in the affirmative, in favour of the Revenue and against the accountable person.
21. A copy of this judgment under the seal of the court and the signature of the Registrar shall be caused to be sent to the Income-tax Appellate Tribunal, Cochin Bench. Order accordingly.