1982 (1) TMI 33 - HC - Income Tax

Court rules Laxmi Vilas property not liable for estate duty under section 40(a) Estate Duty Act

The court determined that the value of the property known as Laxmi Vilas did not pass on the death of Smt. Bachubai and was not liable to estate duty. The ... Estate Duty, Income From Property, Interest In Property, Property Deemed To Pass Issues Involved:1. Whether the value of the half share in the property known as Laxmi Vilas could be deemed to pass on the death of Smt. Bachubai and be liable to estate duty.2. Whether the value of the benefit accruing from the cesser of interest on the death of the deceased attracted the provisions of section 40(b) of the Estate Duty Act.Issue-wise Detailed Analysis:1. Whether the value of the half share in the property known as Laxmi Vilas could be deemed to pass on the death of Smt. Bachubai and be liable to estate duty:The case revolves around the interpretation of the will of Mr. Jehangir Jivanji Gazdar and the implications under the Estate Duty Act, 1953. Mr. Gazdar's will allowed his wife, Bachubai, to reside in their shared property, Laxmi Vilas, rent-free during her lifetime. Upon her death, the property's use would pass to their sons, Rustom and Dinshaw, under similar conditions. The Assistant Controller of Estate Duty initially held that the property passed under sections 5 and 7 of the E.D. Act, asserting that the right to reside constituted an interest in the property. The Appellate Controller upheld this view, emphasizing that Bachubai's exclusive right of residence ceased upon her death, thereby passing the property's value to her sons.The Tribunal also agreed, stating that Bachubai's right of residence was absolute and exclusive, and thus, the property passed on her death. The Tribunal referenced sections 40(a) and 40(b) of the E.D. Act for valuation, concluding that the full property value was includible in the dutiable estate.However, the court found that the Tribunal's reliance on section 5 was outside the scope of the reference. The court focused on section 7(1) of the E.D. Act, which deems property to pass on death to the extent that a benefit accrues from the cesser of interest. The court noted that the definition of 'property' in section 2(15) includes any interest in property, thus encompassing the right of residence.The court emphasized that for estate duty to apply, the value of the benefit from the cesser of interest must be computable under section 40. Since Bachubai's right of residence did not extend to the property's income, it could not be valued under section 40(a). The court rejected the argument that the right of residence equated to a right to the property's income if rented out.2. Whether the value of the benefit accruing from the cesser of interest on the death of the deceased attracted the provisions of section 40(b) of the Estate Duty Act:The court analyzed section 40, which provides the valuation method for benefits arising from the cesser of interest. Section 40(a) applies if the interest extends to the whole income of the property, while section 40(b) applies if it extends to less than the whole income. The court found that Bachubai's right of residence did not relate to the property's income, making section 40(a) inapplicable.The court referenced previous decisions, including the Madras High Court's ruling in Manian Natesan's case, which did not address the applicability of section 40(a) to a right of residence. The court also cited a Division Bench decision and the Gujarat High Court's ruling, both supporting the view that if the benefit from the cesser of interest cannot be valued under section 40, it is not liable to estate duty.In conclusion, the court held that although there was a cesser of interest, the benefit arising from it was not liable to estate duty as it could not be valued under section 40(a). Consequently, question No. 1 was answered in the negative, and question No. 2 was deemed unnecessary to address. The costs of the reference were to be paid by the Revenue.