1980 (10) TMI 25 - HC - Income Tax

Release deed excludes movable property from deceased's estate for estate duty purposes

The court held that Explanation 2 of Section 2(15) of the Estate Duty Act was not applicable to the release deed executed by the deceased. The value of ... Disposition, Estate Duty, Gift, HUF Issues Involved:1. Applicability of Explanation 2 of Section 2(15) of the Estate Duty Act, 1953.2. Classification of the deed of release as an instrument of partition or a simple release.3. Inclusion of the value of the released movable property in the estate of the deceased for estate duty purposes.Issue-wise Detailed Analysis:1. Applicability of Explanation 2 of Section 2(15) of the Estate Duty Act, 1953:The primary issue was whether the Tribunal was justified in holding that Explanation 2 of Section 2(15) was not applicable in this case. Explanation 2 states: 'The extinguishment at the expense of the deceased of a debt or other right shall be deemed to have been a disposition made by the deceased in favour of the person for whose benefit the debt or right was extinguished.' The court examined whether the release of the deceased's interest in the movable property of the HUF without consideration could be deemed a disposition under this provision.The court referred to the Supreme Court's decision in CED v. Kantilal Trikamlal [1976] 105 ITR 92, which clarified that the term 'disposition' has a wide import and includes the extinguishment of a right. However, the court distinguished the present case from Kantilal Trikamlal, noting that there was no actual partition or severance of status in the HUF, and the deceased merely extinguished his inchoate right in the movable property.2. Classification of the Deed of Release:The court analyzed whether the deed executed by the deceased was an instrument of partition or a simple release. The Assistant Controller and Appellate Controller had held that the deed was a simple release, leading to the relinquishment of the deceased's one-third share in the HUF's movable property. The Tribunal, however, found that since there was no partition and the deceased's share was not definite, Explanation 2 to Section 2(15) was not attracted.The court emphasized the principles of Hindu law, which state that a coparcener's share in the joint family property is indeterminate until a partition occurs. Therefore, the deed of release, which did not involve a partition, could not be classified as an instrument of partition.3. Inclusion of the Value of Released Movable Property:The court examined whether the value of the released movable property should be included in the estate of the deceased for estate duty purposes. The Assistant Controller had included Rs. 72,668 as the value of the deceased's one-third share in the movable property, arguing that the release deed amounted to a disposition under Section 9 read with Explanation 2 to Section 2(15).The court referred to the Privy Council's decision in Attorney-General of Ceylon v. A. R. Arunachalam Chettiar [1958] 34 ITR (ED) 20, which held that a coparcener in a Hindu undivided family does not have a definite share in the family property until a partition occurs. Therefore, it was not possible to value the inchoate right of the deceased in the movable property at the time of the release.The court concluded that since the deceased's right in the movable property was inchoate and indeterminate, it could not be valued or deemed to be a disposition of property under Explanation 2 to Section 2(15). Consequently, the Tribunal was correct in deleting the inclusion of Rs. 72,668 from the estate of the deceased.Conclusion:The court answered the referred question in the affirmative, holding that the Tribunal was justified in law in concluding that Explanation 2 of Section 2(15) was not applicable to the release deed executed by the deceased. The sum of Rs. 72,668 was rightly excluded from the principal value of the estate of the deceased for estate duty purposes. The Controller of Estate Duty was ordered to pay the costs of the reference to the accountable person.