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Issues: (i) Whether section 7 of the Estate Duty Act, 1953 applied where the deceased had a right to receive the whole income from the property and that interest ceased on death; (ii) Whether the benefit arising on cessation of such life interest could be valued under section 40 of the Estate Duty Act, 1953 and brought to duty.
Issue (i): Whether section 7 of the Estate Duty Act, 1953 applied where the deceased had a right to receive the whole income from the property and that interest ceased on death.
Analysis: Section 7 deems property to pass on death to the extent that a benefit accrues by the cesser of the deceased's interest. The deceased held an interest extending to the whole income of the property. On her death, the children became entitled to enjoy that income, which constituted a benefit arising from the cessation of her interest.
Conclusion: Section 7 applied. The issue was answered against the assessee and in favour of the Revenue.
Issue (ii): Whether the benefit arising on cessation of such life interest could be valued under section 40 of the Estate Duty Act, 1953 and brought to duty.
Analysis: Section 40 provides an artificial method of valuation where the interest extended to the whole income of the property, in which event the principal value of the property itself is taken. The fact that the deceased did not actually derive income or could not alienate the property did not affect the statutory mode of valuation, because the relevant interest was the right to the whole income.
Conclusion: The benefit was capable of valuation under section 40 and was chargeable to duty. The issue was answered against the assessee and in favour of the Revenue.
Final Conclusion: The reference was decided by holding that the deceased's interest fell within section 7 and the resulting benefit was valuably assessable under section 40, leaving the estate duty levy intact.
Ratio Decidendi: Where a deceased had an interest extending to the whole income of the property, the cesser of that interest on death attracts estate duty under section 7 and the benefit is valued under section 40 by reference to the principal value of the property.
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