Estate duty and post-death compensation: no taxable passing of property where the deceased had no beneficial interest or disposal power.

Compensation payable under a service rule to the legal representatives of a deceased employee was held not to be property passing on death for estate duty purposes. The decisive test was whether the deceased had a beneficial interest in the property, or a power of disposal, during lifetime; here, the payment arose only after death and only if stated conditions were met, so the deceased had no accrued right or disposable interest. The amount therefore did not form part of the estate and was not deemed to pass on death under section 6. The revenue's contrary reliance was distinguished from cases involving an existing enforceable service entitlement.

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Issues: Whether the compensation payable by the employer to the legal representatives of a deceased employee under the service rules constituted property passing on the death of the deceased and was therefore liable to estate duty.

Analysis: The expression "property passing on the death" under the Estate Duty Act requires that the deceased had some beneficial interest in the property, or a right or power of disposal over it, during his lifetime. The compensation under the service rule was payable only to the legal representatives after death and only if the stipulated conditions were satisfied. The deceased employee had no accrued right, no beneficial interest, and no competency to dispose of that compensation at the time of death. The payment therefore did not form part of his estate and could not be treated as property deemed to pass on death under section 6. The rule relied on by the revenue was distinguished from cases where the deceased himself had an enforceable service entitlement or an existing interest in the relevant property.

Conclusion: The compensation amount of Rs. 74,960 was not property passing on the death of the deceased and was not liable to estate duty. The answer was in favour of the accountable person.

Ratio Decidendi: For estate duty to attach, the deceased must have had a beneficial interest in, or power to dispose of, the property during his lifetime; a post-death ex gratia or conditional payment accruing directly to legal representatives does not constitute property passing on death.

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