1987 (4) TMI 31 - HC - Income Tax

Interpretation of Estate Duty Act on life insurance policies post-death

The High Court held that Section 14(1) of the Estate Duty Act, 1953 applied to sums received from two life insurance policies after the deceased's death. ... Amounts Paid Under Insurance Policies, Estate Duty, Is Kept Up Issues Involved1. Applicability of Section 14(1) of the Estate Duty Act, 1953.2. Interpretation of the phrase 'is wholly kept up' in the context of life insurance policies.3. Relevance of past judgments and statutory provisions in interpreting Section 14.Detailed Analysis1. Applicability of Section 14(1) of the Estate Duty Act, 1953The primary issue is whether the sums received from two life insurance policies after the death of the deceased are subject to estate duty under Section 14(1) of the Estate Duty Act, 1953. The Assistant Controller of Estate Duty and the Appellate Controller of Estate Duty both held that the sums received under the policies passed on the death of the deceased. The Income-tax Appellate Tribunal, however, concluded that since the premiums had ceased to be payable in 1957/59, the policies could not be said to have been wholly kept up by the deceased, and thus, Section 14 was not attracted.The High Court disagreed with the Tribunal's interpretation, holding that the provisions of Section 14(1) are indeed attracted to the sum of Rs. 1,74,766 received from the two policies by the assignees after the death of the deceased. The Court emphasized that the word 'is' in Section 14 refers to the present, while 'kept up' refers to the past, meaning that a policy has been and is kept valid by the payment of premiums. Therefore, even a paid-up policy, which requires no further premiums, can be considered as 'kept up' by the deceased.2. Interpretation of the Phrase 'is wholly kept up'The Court examined the phrase 'is wholly kept up' in the context of life insurance policies. The Court referred to past judgments, including Barclays Bank Ltd. v. Attorney General and Seethalakshmi Ammal v. CED, which interpreted 'keeping up' a policy as preventing it from lapsing by paying premiums. The Court also considered the judgment in Lord Advocate v. Inzievar Estates Ltd., where it was held that the policy money was liable to estate duty in proportion to the premiums paid by the donor after the assignment.The Court of Appeal's judgment in Hodge v. Inland Revenue Commissioners was also discussed, where it was held that the period relevant to consider was after the date of the assignment. The Court concluded that the phrase 'is wholly kept up' includes policies that have been fully paid up, as the past payments of premiums keep the policy valid.3. Relevance of Past Judgments and Statutory ProvisionsThe Court considered several past judgments and statutory provisions to interpret Section 14. It noted that the provisions of Section 14 of the Estate Duty Act, 1953, were drawn from Section 11(1) of the Customs and Inland Revenue Act, 1889. The Court also referred to the statutory concession announced by the treasury after the decision in Hodge's case, which limited estate duty in certain circumstances.Mr. Dhanuka, representing the Revenue, argued that the language of Section 14 should be interpreted similarly to the English provision, despite the Court of Appeal expressing shock at the result in Hodge's case. Mr. Dastur, representing the assessee, emphasized the word 'is' and argued that Section 14 applies only to running current life insurance policies, not to paid-up policies. However, the Court found no justification for excluding premium payments made by either the assured or the donee.ConclusionThe High Court concluded that Section 14(1) of the Estate Duty Act, 1953, is applicable to the sums received from the two life insurance policies after the death of the deceased. The interpretation of 'is wholly kept up' includes policies that have been fully paid up. The question was answered against the assessee, and no order as to costs was made.