2002 (8) TMI 89 - HC - Income Tax

Court rules deceased's undrawn salary not subject to estate duty, rejects Revenue's arguments.

The court ruled in favor of the assessee, stating that the deceased's undrawn salary and benefits did not form part of the estate subject to estate duty. ... Estate Duty Act, 1953 - 'whether, on the facts and circumstances of the case, the Appellate Tribunal was right in holding that there has been transfer attracting application of section 17 of the Estate Duty Act, 1953?' - The delay on the part of the deceased in drawing the remuneration and other perquisites to which he was entitled, cannot, in the circumstances, be regarded as a transfer by him of the undrawn salary and benefits to the company which would render a part of the assets of the company includible in his estate. In fact, the deceased had drawn most of the monies which had become due to him by way of remuneration and value of perquisites, prior to his death. The amount that was found due from his current account in the company was only Rs. 28,277. - The order of the Tribunal, therefore, cannot be sustained. The question referred to us is answered in favour of the assessee and against the Revenue. Issues:Interpretation of section 17 of the Estate Duty Act regarding transfer of property to a controlled company and its implications on estate duty assessment.Analysis:The judgment concerns the application of section 17 of the Estate Duty Act in a case where the deceased was the managing director of a controlled company. The assessing authority included a part of the company's value in the deceased's estate, considering his remuneration, dividends, and other benefits received as accruing to him due to a transfer of property to the company. However, the court noted that there was no evidence of any property transfer by the deceased to the company. The authorities relied on rules under the Act, defining 'disposition' and benefits accruing to the deceased, but the court emphasized that for section 17 to apply, there must be a transfer of property to the company. Absent such a transfer, mere accrual of benefits to the deceased does not attract section 17.The court delved into the legislative intent behind section 17, aiming to prevent evasion of estate duty by individuals transferring valuable property to controlled companies while retaining control and benefits. It highlighted that the section was not meant to tax remuneration received by individuals for their services to such companies. The court distinguished a previous case where a deposit by the deceased with a company was considered a transfer, as opposed to the current case where the deceased's contributions to the company's net worth through his skill and labor, resulting in remuneration, did not constitute a transfer. The court emphasized that the delay in drawing remuneration did not equate to transferring undrawn amounts to the company for estate duty purposes.Ultimately, the court ruled in favor of the assessee, stating that the deceased's undrawn salary and benefits did not form part of the estate subject to estate duty. The court rejected the Revenue's reliance on a previous case and emphasized that the deceased had not deposited any funds with the company, but had rightfully received remuneration for his services. The order of the Tribunal was deemed unsustainable, and the question was decided in favor of the assessee, who was awarded costs.