Residential house exempt under section 33(1)(n) - Shares not aggregated for rate purposes

K. Venugopal Versus Controller Of Estate Duty

K. Venugopal Versus Controller Of Estate Duty - [1983] 143 ITR 988, 36 CTR 334, 15 TAXMANN 170 Issues Involved:
1. Aggregation of lineal descendants' share in the joint family property for exemption under section 33(1)(n) of the Estate Duty Act.
2. Deceased's share of goodwill in a partnership firm passing under section 5 of the Estate Duty Act.

Detailed Analysis:

Issue 1: Aggregation of Lineal Descendants' Share in the Joint Family Property for Exemption Under Section 33(1)(n) of the Estate Duty Act

The court was tasked with determining whether, for the purpose of aggregation of the lineal descendants' share in the joint family property, the entire value of the residential house should be exempted under section 33(1)(n) of the Estate Duty Act.

Relevant Facts:
The deceased, K. G. Krishna Murthy, was the karta of a Hindu Undivided Family (HUF) and owned a residential house valued at Rs. 88,000. The Assistant Controller of Estate Duty exempted only the deceased's 1/4th share (Rs. 22,000) in the residential house under section 33(1)(n), rejecting the contention that the entire value of the house should be exempted for aggregation purposes.

Legal Provisions:
- Section 5: Imposes estate duty on property passing on the death of a person.
- Section 7: Deems property in which the deceased had an interest ceasing on death to pass on death.
- Section 33(1)(n): Provides exemption for one house or part thereof used by the deceased for residence, up to a certain value.
- Section 34(1)(c): Requires aggregation of the interest in the joint family property of all lineal descendants of the deceased for rate purposes.
- Section 39(1) and (3): Provides for the valuation of the deceased's share in the joint family property as if a partition had taken place immediately before the deceased's death and treats the whole of the joint family property as belonging to the deceased for valuation purposes.

Court's Reasoning:
The court emphasized the importance of giving full effect to the statutory fictions created by sections 7(1), 39(1), and 39(3). The fiction under section 39(3) treats the whole of the joint family property as belonging to the deceased for the purpose of estimating its principal value. This implies that all provisions of the Act, including exemptions under section 33(1)(n), should apply as if the entire joint family property belonged to the deceased.

The court reasoned that if the whole of the joint family property is deemed to belong to the deceased, the entire value of the residential house (Rs. 88,000) should be exempted under section 33(1)(n). Consequently, once the entire value of the house is exempted, the question of aggregating the shares of the lineal descendants for rate purposes under section 34(1)(c) does not arise.

Precedents:
- CED v. Estate of Late R. Krishnamachari: The Madras High Court held that properties exempted under section 33(1) should be left out of account when determining the total value of the joint family properties.
- CED v. Estate of Late Durga Prasad Beharilal: The Andhra Pradesh High Court held that the entire residential house of the joint family should be treated as belonging to the deceased, and the exemption under section 33(1)(n) should apply to the whole house.

Conclusion:
The court concluded that the entire value of the residential house should be exempted under section 33(1)(n) read with sections 39(1) and 39(3) of the Act. Therefore, the aggregation of the shares of the lineal descendants for rate purposes under section 34(1)(c) does not arise once the entire value of the house is exempted.

Issue 2: Deceased's Share of Goodwill in a Partnership Firm Passing Under Section 5 of the Estate Duty Act

Facts:
The deceased was a partner in a partnership firm, and the Assistant Controller included the value of the deceased's 1/4th share of the goodwill in the estate passing on his death under section 5 of the Act. The accountable person did not press for an opinion on this issue.

Conclusion:
The court did not express an opinion on this issue as it was not pressed by the accountable person.

Final Judgment:
The court answered the first question in favor of the accountable person, holding that the entire value of the residential house should be exempted under section 33(1)(n) read with sections 39(1) and 39(3) of the Act. Consequently, the aggregation of the shares of the lineal descendants for rate purposes under section 34(1)(c) does not arise. The court did not express an opinion on the second question. No order as to costs was made.