1979 (12) TMI 32 - HC - Income Tax

Land compensation pre-death is 'property passing on death' for estate duty, valuation must consider market value, enhanced compensation, litigation risks.

The court clarified that the right to receive compensation for land acquired before the deceased's death constitutes 'property passing on death' subject ... Civil Court, Reference Pending, Right To Receive Compensation Issues Involved:1. Determination of the principal value of the estate for estate duty purposes.2. Right to receive compensation as property passing on death.3. Factors influencing the valuation of the right to receive compensation.Issue-wise Detailed Analysis:1. Determination of the Principal Value of the Estate for Estate Duty Purposes:The primary issue was the determination of the principal value of the estate for estate duty purposes under Section 36 of the Estate Duty Act (E.D. Act). The Assistant Controller of Estate Duty initially valued the estate at Rs. 26,62,000, based on the deceased's claim for compensation. However, the Appellate Controller and the Income-tax Appellate Tribunal later adjusted this value to Rs. 22,204, which was the compensation awarded by the acquisition authority. The Tribunal emphasized that the valuation should reflect the market value of the property as of the date of death, not subsequent enhancements.2. Right to Receive Compensation as Property Passing on Death:The court examined whether the right to receive compensation for land acquired before the deceased's death constituted 'property passing on the death' under Section 2(16) of the E.D. Act. It was established that since the land had already been acquired and vested in the government, the deceased's estate included only the right to receive compensation, not the land itself. This right was deemed 'property' under Section 2(15) and thus subject to estate duty.3. Factors Influencing the Valuation of the Right to Receive Compensation:The court considered several factors influencing the valuation of the right to receive compensation:- Market Value at Time of Death: The principal value must be estimated based on the market value at the time of the deceased's death, as per Section 36 of the E.D. Act. The Collector's award serves as a baseline, but it is not final.- Potential for Enhanced Compensation: The possibility of receiving enhanced compensation through litigation should be considered, but it cannot be assumed to be equivalent to the claimant's highest demand or the amount eventually awarded by the court.- Hazard of Litigation: The risks and uncertainties associated with ongoing litigation for enhanced compensation should be factored into the valuation. This includes the time, effort, and expenses involved in pursuing such claims.- Protected Tenants' Share: Since the land was in the possession of protected tenants entitled to 60% of the compensation, only 40% of the awarded or potentially awardable compensation was payable to the accountable persons.The court concluded that the Appellate Tribunal erred by not considering the potential for enhanced compensation and other relevant factors. The case was remanded for a revised determination of the principal value, incorporating these considerations.Conclusion:The judgment clarified that the right to receive compensation for land acquired before the deceased's death is 'property passing on death' and must be valued based on its market value at the time of death. The valuation should consider the Collector's award, potential for enhanced compensation, litigation risks, and the share of protected tenants. The court directed a revised valuation to accurately reflect these factors.