1983 (11) TMI 147 - AT - Income Tax

Inheritance Tax Appeal Decision: Life Insurance Duty, Firm Assets Valuation, Fixed Assets Valuation Rules

Sardar Harbansingh. Versus Assistant Controller Of Estate Duty.

The Tribunal allowed both appeals in part, determining that the amount received under the life insurance policy was subject to duty under sections 6 and ... A Firm, Estate Duty, Legal Representative, Life Insurance, Property Passing On Death Issues Involved:1. Nature of the amount received under a life insurance policy.2. Share of the goodwill in three firms in which the deceased was a partner.3. Valuation of fixed assets in various firms.Issue-wise Detailed Analysis:1. Nature of the Amount Received Under a Life Insurance Policy:The primary question in both the appeals (by the accountable person and the department) revolves around the nature of the amount of Rs. 2,01,750 received under a life insurance policy taken by the deceased. The policy in question was a '20 years money back policy with profits (with the accident benefit)'. The policy stipulated that in case of the insured's death due to an accident, an additional sum equal to the sum assured would be paid to the nominee.The accountable person argued that the policy was a personal accident policy and not a contract of indemnity, asserting that the policy money did not pass on the death of the deceased under section 5 of the Estate Duty Act, 1953. The Assistant Controller, however, held that sections 5 and 6 of the Act governed the money received under the policy, deeming it as property that passed on the death of the deceased.The Appellate Controller, referencing the Madras High Court decision in M.Ct. Muthiah v. CED, concluded that the deceased had no estate vested in himself but had a right to dispose of the benefits arising under the policy. Thus, the money received from the LIC on the personal accident policy was deemed to pass under sections 6 and 15 but not aggregatable under section 34(3).The Tribunal preferred the Madras High Court's view over the Gujarat High Court's decision in Bharatkumar Manilal Dalal's case, holding that the policy was a composite policy (life policy and accident benefit policy). The amount ascribed to the life policy was held to pass on the death of the deceased under section 14, while the accident benefit amount was deemed dutiable under sections 6 and 15 but not aggregatable under section 34(3).2. Share of the Goodwill in Three Firms:The deceased was a partner in three firms: Standard Tyres and Motors, Vijayawada; Khandari Tyres, Hyderabad; and Khandari and Company, Hyderabad. The question was whether the deceased's share in the goodwill of these firms passed under section 5 of the Estate Duty Act.The Assistant Controller held that the two firms (Standard Tyres and Motors and Khandari Tyres) had goodwill, valuing it based on five years' income and deducting interest and remuneration. The Appellate Controller reduced the estimation, considering market competition, but upheld the existence of goodwill.The Tribunal, referencing various court decisions, including the Supreme Court's ruling in Addanki Narayanappa v. Bhaskara Krishnappa, held that goodwill is an intangible asset of the firm. However, it was incorrect to value only the goodwill separately. The correct approach was to ascertain the share of the deceased in the net assets of the firms, including goodwill.3. Valuation of Fixed Assets in Various Firms:The Assistant Controller increased the value of fixed assets (sites and buildings) in the firms by one-third, considering market appreciation. The Appellate Controller modified this, adding one-fifth instead of one-third to the cost of construction estimated by the valuer.The Tribunal upheld the Appellate Controller's approach, agreeing that the market value of these assets would be higher than their book values, especially given the appreciation in property values in cities like Hyderabad and Madras. The addition of one-fifth to the cost of construction was deemed justified.Conclusion:The Tribunal allowed both appeals in part, holding that the amount received under the life insurance policy was dutiable under sections 6 and 15 but not aggregatable under section 34(3). It also directed the Assistant Controller to ascertain the share of the deceased in the net assets of the firms, including goodwill, and upheld the valuation of fixed assets with the addition of one-fifth to the cost of construction.