1979 (11) TMI 77 - HC - Income Tax

Compensation not part of deceased's estate under Estate Duty Act; court awards costs.

The compensation amount of Rs. 74,960, paid by the Indian Airlines Corporation to the deceased captain's wife, was held not to form part of the deceased's ... Legal Representative, Property Passing Issues Involved:1. Whether the compensation amount of Rs. 74,960 was property passing on the death, liable to estate duty under the Estate Duty Act of 1953.Detailed Analysis:Issue 1: Whether the compensation amount of Rs. 74,960 was property passing on the death, liable to estate duty under the Estate Duty Act of 1953.Material Facts:The accountable person's husband, a captain in the Indian Airlines Corporation, died in an air accident. The Indian Airlines Corporation paid the deceased captain's wife a sum of Rs. 91,586, which included Rs. 74,960 towards compensation under Rule 73 of the Indian Airlines Corporation Employees' Service Rules and Establishment Orders. The accountable person claimed exemption for the compensation amount, arguing that the deceased had no vested or contingent interest in it. The Asst. Controller, relying on the Delhi High Court's decision in CED v. A. T. Sahani, included the sum in the estate of the deceased. Appeals to the Appellate Controller and the Income-tax Appellate Tribunal were unsuccessful, leading to this reference.Contentions:- Accountable Person: The deceased did not acquire any right to the compensation amount during his lifetime. The payment was discretionary and contingent upon the accident not being attributable to the deceased's negligence, default, or breach of instructions, thus it does not form part of the estate.- Revenue: The deceased had a right to nominate a person to receive compensation in case of accidental death, thus conferring an interest in the property (compensation). The compensation is connected to the employment and service of the deceased, passing to his heirs under sections 5 and 6 of the Act.Legal Analysis:- Section 5 of the Act: This is the charging section, stating that the principal value of all property passing on the death of a person is liable to estate duty.- Section 6 of the Act: Property which the deceased was competent to dispose of at the time of his death shall be deemed to pass on his death.- Section 3(1)(a): Defines the competency to dispose of property, requiring an estate or interest in the property or general power enabling disposal.Interpretation of Rule 73:Rule 73 of the Indian Airlines Corporation Employees' Service Rules states that compensation may be paid to the legal representatives of an employee who dies in an accident while on duty, unless the accident is attributable to the employee's negligence, default, or breach of instructions. The word 'may' indicates discretion, not obligation, and there is no ascertained amount.Judicial Precedents:- Supreme Court in CED v. Hussainbhai Mohamedbhai Badri: Emphasized the change in beneficial interest, not title, in determining property passing on death.- Jammu and Kashmir High Court in CED v. Kuri Lal Jain: Held that compensation paid to heirs of a deceased passenger in a plane crash was not property passing on death under section 5 of the Act.- Delhi High Court in CED v. A. T. Sahani: Distinguished on facts, relating to compulsory payment of compensation under specific service rules, which is not applicable in the present case.Conclusion:The compensation amount of Rs. 74,960 did not form part of the estate of the deceased captain as:1. The right to receive compensation under Rule 73 accrued only to the legal representatives after the death of the employee.2. The deceased had no beneficial interest in the compensation amount during his lifetime.3. The deceased was not competent to dispose of the compensation amount at the time of his death.Thus, the compensation amount was not property passing on the death and is not liable to estate duty under the Act. The accountable person is entitled to costs of this reference, with an advocate's fee of Rs. 300.