1968 (9) TMI 46 - HC - Income Tax

Court Rules Partition Agreement Not Subject to Estate Duty

The court determined that the instrument dated 16th November 1953 constituted a partition of joint family properties, not a renunciation. This partition ... Estate Duty Act, 1953 - Whether the release deed executed by the deceased was correctly held to constitute a disposition in favour of a relative, within the meaning of section 27(1) read with Explanation 2 to section 2(15) of the Estate Duty Act, 1953 - Held, no Issues Involved:1. Nature of the transaction recorded in the instrument dated 16th November 1953.2. Whether the transaction constitutes 'disposition' within the meaning of section 27, sub-section (1) of the Estate Duty Act, 1953.3. Applicability of section 2(15), Explanation 2 of the Estate Duty Act, 1953.Detailed Analysis:1. Nature of the Transaction Recorded in the Instrument Dated 16th November 1953:The primary issue was to determine whether the instrument dated 16th November 1953 was a renunciation by the deceased of his interest in the joint family properties or a partition of the joint family properties between the deceased and Kantilal. The court examined the substance of the transaction rather than the mere labels used in the document. The instrument indicated that the joint family properties were divided into two parts: a sum of rupees one lakh taken by the deceased and the remaining properties taken by Kantilal. The court noted that this division was done on an ad hoc basis due to the complexity of valuing shares in running businesses. The document declared that each party became the sole and absolute owner of their respective shares, indicating a partition rather than a renunciation. The court concluded that the instrument was indeed one of partition, not renunciation.2. Whether the Transaction Constitutes 'Disposition' within the Meaning of Section 27, Sub-section (1) of the Estate Duty Act, 1953:The court analyzed whether the partition of joint family properties could be considered a 'disposition' under section 27, sub-section (1). It referred to the legal understanding of partition under Hindu law, which is a process of converting joint enjoyment into enjoyment in severalty without transferring any interest in property. The court cited the Supreme Court's decision in Commissioner of Income-tax v. Keshavlal Lallubhai Patel, which held that partition does not involve a transfer of assets. Therefore, since partition does not involve the transfer of interest, it cannot be considered a 'disposition' under section 27, sub-section (1). The court emphasized that the word 'disposition' must involve the element of transfer of an interest in property, which is not present in the case of partition.3. Applicability of Section 2(15), Explanation 2 of the Estate Duty Act, 1953:The court examined whether section 2(15), Explanation 2, which deems the extinguishment of a debt or 'other right' as a disposition, applied to the present case. The court found two main issues with applying this Explanation. First, partition does not involve the extinguishment of any interest in property at the expense of the coparcener who receives less than his rightful share. Second, the Explanation refers to the extinguishment of a 'right,' not an 'interest in property.' Since partition involves the division of property and not the extinguishment of a right, the Explanation does not apply. Therefore, the transaction could not be deemed a disposition under section 2(15), Explanation 2.Conclusion:The court concluded that the instrument dated 16th November 1953 was a partition of joint family properties between the deceased and Kantilal. This partition did not constitute a 'disposition' within the meaning of section 27, sub-section (1) of the Estate Duty Act, 1953, nor did it fall under the deemed disposition provided by section 2(15), Explanation 2. Consequently, the legal fiction of passing of property on death under section 9, sub-section (1) was not attracted. The Central Board of Revenue erred in including the value of the deceased's one-half share in the principal value of the estate. The court answered the reference question in the negative and ordered the Controller of Estate Duty to pay the costs of the reference to the accountable person.