Full Judgment Text
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PETITIONER:
M.CT. MUTHIAH & ANOTHER ETC.
Vs.
RESPONDENT:
THE CONTROLLER OF ESTATE DUTY, MADRAS ETC.(AND VICE VERSA)
DATE OF JUDGMENT17/07/1986
BENCH:
MUKHARJI, SABYASACHI (J)
BENCH:
MUKHARJI, SABYASACHI (J)
PATHAK, R.S.
CITATION:
1986 AIR 1863 1986 SCR (3) 315
1986 SCC Supl. 375 1986 SCALE (2)54
ACT:
Estate Duty Act 1953-Sections 2(15), 5, 6, 15, 34(3)-
Estate duty-Property liable to estate duty-Personal accident
Insurance policy-Money received by heirs of deceased under
the policy-Whether forms part of estate of deceased, passes
on death-Accident policy and life policy-Distinction
between.
Jurisprudence-Custom-Prevalence of-Matter of evidence-
’Dwyanamanushyana’ form of adoption-Prevalence of in Madras
State.
HEADNOTE:
The deceased was the Karta of a Hindu undivided family.
He had two sons. He gave his first son in adoption to his
divided paternal uncle. He was joint with his second son
throughout his life. He took out a personal accident
insurance policy with the Insurance Company and effected a
nomination in favour of his first son. During the currency
of the policy, the deceased died following the crash of the
airliner in which he had travelled, and the Insurance
Company paid the nominee a sum of Rs.2 lakhs, the benefit
stipulated under the terms of the policy. At the time of his
death, the deceased had other properties and interests. one
was his interest as an undivided copartner in his joint
family which consisted of himself and his second son.
In the assessment proceedings under the Estate Duty Act
1953, the accountable persons urged before the Deputy
Controller of Estate Duty: (i) that the amount of Rs.2 lakhs
could not be aggregated with the rest of the properties, but
must be brought to charge independently as a separate estate
in itself, because the deceased had no interest at all in
the insurance money, and (ii) that the adoption in 1931 was
on the basis that notwithstanding adoption into another
family, the adoptee must continue to retain his interest in
the properties belonging to the family of his birth and,
therefore, he was entitled, as on the date of the de-
316
ceased’s death, to an equal interest in the deceased’s
family properties, so that the quantum of the deceased’s
coparcenary interest was not one-half but only one third of
the total value of the family properties. A "Muri" (deed of
adoption) that was executed was produced in this regard.
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The Deputy Controller rejected these contentions and
held: (i) that the personal accident insurance money of Rs.2
lakhs paid by the Insurance Company should be charged to
estate duty and it had to be aggregated with the rest of the
properties passing on the deceased’s death; (ii) that the
insurance money of Rs.2 lakhs was property which the
deceased was competent to dispose of by will; (iii) that the
deceased did have an interest in the insurance money; (iv)
that the deceased’s interest in the coparcenary property,
which had to be included in the dutiable estate, extended to
one half share of the joint properties on the basis that the
deceased and his second son were alone entitled as
coparceners to the said properties; (v) that the document
produced in support of the plea of adoption was not genuine
and even otherwise it had no legal effect on the continued
rights of the adopted son in the family of his birth
subsequent to his adoption. He, therefore, included in the
dutiable estate, one-half of the joint family properties as
being the measure of the deceased’s coparcenary interest.
The accountable persons appealed against the above
assessment to the Central Board of Revenue. The Board held:
(i) that the insurance money of Rs.2 lakhs was chargeable to
estate duty under s. 6; (ii) that the deceased had interest
in the insurance money; (iii) that the deceased did have the
power of disposition over the insurance money both by the
exercise of power of nomination under the policy and also
independently by the exercise of any testamentary power;
(iv) that the Hindu law of adoption makes the adopted son
lose his property interests in the family of his birth and
that the "dwyamanushyana" form of adoption had become
obsolete in Madras, and no such custom was prevailing in the
Nattukottai Chettiar community, under which the adopted son
never loses his property rights in the family of his birth
and, therefore, upheld the assessment of one-half of the
value of the whole of the joint family property as the
measure of the deceased’s dutiable interest.
On reference, the High Court held that as the deceased
was competent to dispose of the monies payable under the
accident policy, the sum of Rs.2 lakhs was includible in the
principal value of the estate but the same was not liable to
be aggregated with the other properties and
317
had to be assessed as an estate by itself and that the type
of adoption pleaded by the accountable person was recognised
by the custom of the Nattukottai Chettiar community, the
terms of the ’muri’ formed part of the adoption and the
adoption could not be considered de hors the agreement and
hence the deceased had only one-third share in the joint
family properties at the time of his death. R
In the appeal to this Court, on behalf of the
accountable persons it was contended: (i) that it was a
condition precedent for the attraction of the duty that (a)
the estate holder must have had possessed or enjoyed a
property or an interest in property; (b) the interest in a
property might be either vested or contingent; (c) but that
interest should be with regard to either an immovable
property or a movable property which was capable of being
ascertained during the lifetime or at the time of the death
of the estate holder; (d) a contingent interest could fall
within the purview of the Act only if the interest of a
tangible nature and was capable of being ascertained (ii)
that there had to be a passing of property or interest as
contemplated by s. 2(16). There has also to be a change in
the beneficial possession and enjoyment of property of the
interest in that property; (iii) that an accident insurance
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policy could not be construed as a movable property unlike a
life insurance policy or an annuity since a person who
possessed it could not also be said to have a contingent
interest because there was every possibility of the accident
policy getting extinguished or rendered worthless during his
lifetime; (iv) that in the case of a life insurance policy,
there is always a tangible continuing interest only that the
value of that interest might be subjected to a change at the
time of passing of the property; (v) that it was not
necessary that during the lifetime of the deceased the
property in question should have ’attained’ the full value
e.g. ’Annuity’. Only a future interest that crystalised
after the death of the estate holder; (vi) that since the
benefit in accident policy could only accrue after the death
of the estate holder, it became property for the first time
after the demise of the estate holder.
Allowing the appeal by the accountable persons and
dismissing the appeal of the Revenue, the Court, G
^
HELD: 1.1. Under the personal accident insurance policy
in question the insurance money became property only on
happening of a specified contingency. That property arose on
the death of the deceased during the subsistence of the
accident policy. The property is the sum of Rs.2 lakhs which
became receivable by the nominee or the legal rep-
318
resentative of the deceased because of the death of the
deceased in the air accident during the subsistence of the
policy. That right to the sum arose because (a) the deceased
died; (b) in air accident; (c) during the subsistence of the
policy. The property came into being on that contingency
after death. No property can, therefore, be deemed to pass
on the R death of the deceased. [342D-F]
1.2 During the lifetime of the deceased, an interest
was vested totally and irretrievably in the hands of the
beneficiary or the legatee or the nominee. The death did not
cause property to change hands. The fact that a person can
nominate a beneficiary will not tantamount to a disposition
of the property. [342F-G]
1.3 Whether a particular custom prevails in a
particular community or not is a matter of evidence. [343C]
2.1 Section 5 of the Estate Duty Act, 1953 provides
that there shall be levied and paid upon the principal value
ascertained in the manner provided of all properties which
passes on the death of a person. Three factors are
important: (1) there must be passing (2) of such property
and (3) such passing on must be on the death of a person.
[326F]
2.2 Section 3(1)(a), (b) & (c) provides for certain
situations in which a person is deemed competent to dispose
of property. Section 6 deals with property within disposing
capacity and provides that property which the deceased was
at the time of his death competent to dispose of shall be
deemed to pass on his death. [327A-B]
3.1 It was a condition precedent for the application of
the Act that the estate holder must have possessed or
enjoyed the property or interest in property, the interest
in property might be either vested or contingent but
interest should be that with regard to which either
immovable property or movable which was capable of being
ascertained during the lifetime or at the time of the death
of the estate holder. The property vested or contingent must
be one which was capable of being ascertained. Even if these
tests were satisfied then there has to be a passing of that
property or interest as contemplated under s. 2(16) of the
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Act. Even if a person might have power to dispose of a
property or interest in property, he cannot or his estate
cannot be brought within the purview of the Act solely
because of that factor. In order for an estate to be liable
to estate duty, the power of disposition must be with regard
to a property capable of being ascertainable during the
lifetime
319
of the deceased or at the time of his death. There had to be
a change in A the beneficial possession and enjoyment of the
property or the interest in that property. In other words,
the property or interest which is liable to estate duty has
to pass through the estate of the deceased. [340B-E]
3.2 Though the deceased might have a right of
disposition as and when the property would be available in
case the contingency happens, namely, the death of the
deceased in an accident, but that right is different from
the right to the money accruing or arising because of the
death due to accident. [340E-F]
3.3 An accident insurance policy cannot be construed as
a movable property unlike a life insurance policy or an
annuity because as laid down in s. 2(15) of the Act it is
not only necessary for the person to have property or
interest in property but that interest must be in regard to
a movable property and his interest should also be capable
of being ascertainable during his lifetime or at the time of
his death in that f movable property. Secondly, an accident
insurance policy could not be construed as a property or an
interest in property since a person who possessed it cannot
also be said to have a contingent interest because there was
every possibility of the accident policy getting
extinguished or rendered worthless during his lifetime; on
the other hand, in the case of a life insurance policy,
there was always a tangible continuing interest only that
the value of that interest might be subjected to change at
the time of passing of the property. [340H; 341A-C]
3.4 A contingent interest which did not get crystalised
during the lifetime of the deceased but which interest
would, with certainty, accrue after the demise of the estate
holder will be caught by s. 6 of the Act. The accident
policy could only accrue after the death of the estate
holder. It became property for the first time after the
demise of the estate holder. There was no element of
property during the lifetime of the estate holder. [341C-D]
3.5 The interest in an accident insurance policy did
not pass through the estate of the deceased as in the case
of a life insurance policy or annuity and in the instant
case, the interest directly went to the beneficiaries in the
case of death by accident of the estate holder. [341E]
3.6 In the instant case, the property is really born on
the death of the deceased in an accident. The sum of Rs.2
lakhs was non-existent before the death. There might have
been some right of disposition in
320
respect of the property which might accrue on the death of
the deceased. That right is different from the right to the
movable property of Rs.2 lakhs that is taking place. [340F-
G]
Attorney-General v. Quixley, 1929 All England Reports
Reprint 636 and Controller of Estate Duty v. A.T. Sohani,
New Delhi, 78 I.T.R. 508, distinguished.
Controller of Estate Duty v. Kasturi Lal Jain, 93
I.T.R. 435 and Controller of Estate Duty, Patiala v. Smt.
Motia Rani Malhotra, I.T.R. 42, approved.
Bharatkumar Manilal Dalal v. Controller of Estate Duty,
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Gujarat, 99 I.T.R. 179, over-ruled.
Westminster Bank Ltd. v. Inland Revenue Commissioners
[1957] 2 All E.R. 745 = 16 I.T.R. (ED) 3, Smit. Amy F. Anti
v. Assistant Controller of Estate Duty, Bombay 142 ITR 57,
P. Indrasena Reddy & Pingle Madhusudhan Reddy v. Controller
of Estate Duty, 156 ITR 45, Shri H. Anraj etc. v. Government
of Tamil Nadu etc. [1986] (1) SCC 414, Smt. Sarabati Devi &
Anr. v. Smt. Usha Devi, 1984(1) SCR 992 and Public Trustee
v. Inland Revenue Commissioners, [1960] A.C.398, referred
to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil appeal No. 2086 of
1974 and 67 of 1975
From the Judgment and order dated 20th September, 1973
of the Madras High Court in Tax Case No . 310 of 1967.
C. Rarnakrishna, Mohan Parasaran and Mrs. Janaki Rama
chandran. for the Appellants in C.A. No. 2086 of 1971 and
for the Respondent in C.A. No. 67 of 1975.
S.C. Manchande, Dr. Gauri Shankar, K.P. Bhatnagar and
Miss A. Subhashini, for the Appellant in C.A. No. 67 of 1975
and for the Respondent in C.A. No. 2086 of 1974.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. These two appeals are from the
judgment and order of the Madras High Court dated 2oth
September,
321
1973 by certificates of fitness granted by the High Court
under section A 65 of the Estate Duty Act, 1953, hereinafter
called the Act.
Civil Appeal No. 2086 of 1974 is by accountable persons
and Civil Appeal No. 67 of 1975 is by the revenue. The
judgment under appeal is reported in 94 I.T.R. at page 323.
The accountable persons are the sons of one late M.
Chindermbara Chettiar hereinafter called the deceased. The
deceased was the Karta of a Hindu undivided family. He gave
his first son Muthiah, in adoption to his divided paternal
uncle Pethachi Chettiar, and adoption ceremony was held on
7th June, 1931. Subsequently his second son, also called
Pethachi, was born in 1933, with whom the deceased was joint
throughout his life.
On 21 February, 1954, prior to proceeding to Malaya by
air, the deceased took out a personal accident insurance
policy with the United India Fire and General Insurance
Company Ltd. (hereinafter cal- led the Insurance Company).
Under the terms of the said policy which was to be in force
for one month, the Insurance Company had agreed that if at
any time during the currency of the said policy, the
deceased should sustain any accident resulting in any injury
or injury leading to his death, then, the Insurance Company
undertook to pay to the assured or to the legal
representative of the assured in case of the assured’s
death, such sum as might be appropriate in the Table of
Benefits appended to the Policy. The Table of Benefits
mentioned that in case of death or total disablement the
benefit payable was R.S.. 2 lakhs, in case of partial
disablement, R.S.. 1 lakh., in case of temporary
disablement, a weekly payment of Rs.1200 or Rs.300 according
to the nature of the disablement. The policy, inter alia,
provided that "the policy is unassignable and the company
shall not be affected by notice of any trust or purported to
be imposed upon assignment of or of any charge or lien
imposed or purported or any dealing with the policy and the
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receipt of the insured or the executors or administrators of
the insured for any moneys payable thereunder shall in all
cases be any effectual discharge to the company". A sum of
Rs.250 was paid or credited as paid by the deceased as and
towards the premium and other charges for the aforesaid
personal accident insurance policy. It also appeared that in
the proposal Form dated 20th February, 1954 filed by the
deceased with the Insurance Company, the deceased had
effected a nomination in favour of his son M. Ct. Muthiah.
On the 13th March, 1954, the deceased died following the
crash of the airliner in
322
which he had travelled. On his death the Insurance Company
paid the nominee, the appellant No. 1 herein a sum of R.S..
2 lakh which was the benefit stipulated to be paid, in such
an event, under the terms of the policy. At the time of his
death the deceased had other properties and interests. One
was his interest as an undivided coparcener in his joint
family which consisted (after the adoption away of his first
son A. Muthiah) of the deceased and his second son Pethachi.
In the assessment under the Estate Duty Act, 1953
(hereinafter called the ’Act’), the Deputy Controller of
Estate Duty was of the view that the personal accident
insurance money of R.S.. 2 lakhs paid by the Insurance
Company should be charged to estate duty and further that it
had to be aggregated with the rest of the properties passing
on the deceased’s death. He held further that the insurance
money of R.S.. 2 lakhs was property which the deceased was
competent to dispose of by will. Before the Deputy
Controller, it was urged that the amount of R.S.. 2 lakhs
could not, in any case, be aggregated with the rest of the
properties, but must be brought to charge independently as a
separate estate in itself, the contention being that the
deceased had no interest at all in the said insurance money.
The Deputy Controller rejected this contention as untenable,
holding that the deceased did have an interest in the
insurance money. As in respect of the deceased’s interest in
the coparcenary property, which had to be included in the
dutiable estate, the Deputy Controller took the view that
such interest extended to 1/2 share of the joint properties
on the basis that the deceased and his second son Pethachi
were alone entitled as coparceners to the said properties.
He rejected the contention that M. Ct. Muthiah who had been
adopted away from this family in 1931 was nevertheless
entitled, as on the date of the deceased’s death, to an
equal interest in the deceased’s family properties, so that
the quantum of the deceased’s coparcenary interest was no
one-half but only-one-third of the total value of the family
properties. It was urged before the Deputy Controller that
the adoption of M. Ct. Muthiah in 1931 was on the basis that
notwithstanding his adoption into another family, M. Ct.
Muthiah must continue to retain his interest in the
properties belonging to the family of his birth. A "Muri" in
Tasil in curdgeon-leaf purported to have been executed on
7th June, 1931 was produced before the Deputy Controller in
support of the above plea. The Deputy Controller did not
accept the genuineness of the said document. But even
otherwise, the Deputy Controller proceeded to hold that the
"Muri" had no legal effect on the continued rights of
adopted son in the family of his birth subsequent to his
adoption. He accord
323
ingly included, in the dutiable estate, one-half of the
joint family properties as being the measure of the
deceased’s coparcenary interest.
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The accountable persons appealed against the above
assessment to the Appellate authority which at that time, as
the law then was, the Central Board of Revenue.
The Central Board held that the insurance money of
R.S.. 2 lakh was chargeable to estate duty under section 6
of the Act. The Board took the view that under the terms of
the policy, the deceased had the right to nominate a person
to take the moneys on the deceased’s death and also the
capacity to dispose of the amount by testamentary
disposition.
On the question as to whether the amount of R.S.. 2
lakhs must, in any event, be charged as a separate estate in
itself, segregated from the rest of the properties, the
Central Board rejected the accountable persons’ contention
that the deceased never had any interest in the said
insurance money. On the terms of the accident policy, the
Board was of the view that the deceased did have the power
of disposition over the insurance money both by the exercise
of the power of nomination under the policy and also
independently by the exercise of any testamentary power.
On the point relating to the exact quantum of the
deceased’s interest in coparcenary property, the Board
accepted the genuineness of the "Muri". Before the Board, an
Agreement in writing dated 19th August, 1976 between A.
Muthiah and Pethachi. the two sons of the deceased, was
produced to further support the claim that Muthiah retained
his coparcenary interest in the family of his birth despite
his adoption into another family.
The Board however held that the Hindu law adoption
makes the adopted son lose his property interests in the
family of his birth and that the "dwamushayana" form of
adoption pleaded by the accountable persons had become
obsolete in Madras. The Board rejected the claim that there
was a custom prevailing in the Muttukttsi Chettiar
community, to which the deceased belonged, under which the
adopted son never loses his property rights in the family of
his birth. On these findings, the Board upheld the
assessment of one-half of the value of the whole of the
joint family property as the measure of the deceased’s
tiahle interest.
324
After the decision of the Board, the following
questions of law were referred to the High Court.
"1. Whether the deceased was competent to dispose
of the moneys payable under the accident policy
and whether the sum of Rs.2,00,000 is includible
in the principal value of the estate?
2. If the sum of R.S.. 2 lakhs was liable to be
assessed to duty whether the said amount could be
aggregated with the other properties or should be
assessed as an estate by itself?
3. Whether the share of the deceased Chindambaram
Chettiar in the property of the joint family at
the time of his death was one half or one third of
the property?"
The High Court by the judgment under appeal answered
the first question in favour of the revenue and against the
accountable person and the second and third questions were
answered against the revenue and in favour of the
accountable person.
Being aggrived by the answer against the first
question, the ac countable person has preferred the appeal
being appeal No. 2086 of 1974 and on the certificate granted
by the High Court and on the subsequent two questions, the
revenue obtained the certificate of fitness to appeal to
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this Court which is appeal No. 67 (NT) of 1975.
The High Court in the judgment under appeal held that
under section 5 of the Act, all properties which passed on
the death of the person were liable to estate duty. Under
section 6 of the Act, property which the deceased was at the
time of his death competent to dispose of should be deemed
to pass on his death and under section 3(1)(a), a person was
deemed competent to dispose of property if he has such an
estate or interest therein or such general power as would,
if he were suijuris, enable him to dispose it of. General
power included every power of authority enabling the holder
thereof to appoint or dispose of property as he thought fit,
whether exercisable by instrument inter vivos or by will or
both. A personal accident policy was not a contract of
indemnity. The amount payable on death of the insured was
fixed in the policy itself. It was in the contemplation of
the parties even at the time of the contract that in the
case of death the amount would be
325
payable either to the nominee or the legal representative
and not to A the assured. It was thus in the nature of a
provision made by the deceased for such person. The deceased
had no interest in the money as such because that came into
existence the moment after his death and was payable to the
nominee or legal representative. But he had a right in the
payment on his death to his legal representatives. In other
words, he had interest over the payment of money and not in
the money itself. He had a right to take away that right of
the legal representatives to receive the money and to vest
it in some other person by will. He could nominate a person
to whom the amount should be paid. Nomination in such a case
was in the nature of a disposition by will and as such till
he breathed his last he could cancel such nomination and
nominate another. The nominee, unlike an assignee of life
policies, got title to the money on death, for the property
itself came into existence by reason of the death and was
payable to the nominee by virtue of the power of disposition
by will which deceased had over the sum. The High Court
further held that the money paid on death was property and
that was clear. This property, according to the High Court,
came into existence at the time of death. The High Court
further held that though the property was not in existence
before his death, since it came in at the time of his death,
the deceased was competent to dispose of the same by will.
It was this power, according to the High Court, of disposal
that attracted the provisions and made it property which was
deemed to pass on his death under section 6 of the Act. The
beneficial interest in the policy which accrued or arose on
death was the sum paid out under the policy and this
beneficial interest having been purchased by the deceased,
the provisions of section 15 of the Act were also attracted.
Further, the estate had been depleted to the extent of the
premium paid and the beneficial interest purchased and the
deceased not having received a full equivalent for what he
has paid and having regard to the nature of the policy, the
intention from the beginning was to make a provision. The
principal value of the estate that was deemed to pass under
section 6 and which accrued or arose under section 15 was
that sum which was paid out under the policy. As there was
no devolution of interest from the deceased to another
person and from the very inception the amount was payable
only to the nominee or legal representative, section 5 of
the Act was not applicable.
It was further held by the High Court that in the case
of a personal accident policy, the property was not the
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policy but the ultimate money that was paid and that should
be deemed to pass on death of the deceased because of his
competency to dispose of the same by
326
will and the holder of the policy had a light to have the
amount paid to his legal representative or nominee. The
right was with respect to the disposition of the money
payable under the policy and not a right in the money
itself. But in case of a life insurance policy, both the
policy and the money payable thereon was property which
could be settled during the lifetime of the insured. As the
deceased never had any interest during his lifetime in the
money paid on death under the personal accident policy,
though he was competent to dispose of the same by will, the
sum paid under the policy was not aggregatable with the
other estate of the deceased and was to be treated as an
estate by itself under section 34(3) of the Act. The High
Court held that though as the deceased was competent to
dispose of the moneys payable under the policy, the sum of
R.S.. 2 lakhs was includible in the principle value of the
estate but the same was not liable to be aggregated with the
other properties and had to be assessed as an estate by
itself.
Regarding adoption, the High Court was of the view that
the type of adoption set out by the accountable person was
recognised by the custom of the Nattukottai Chettiar
community, the terms of the muri formed part of the adoption
and the adoption could not be considered de hors the
agreement and hence the deceased had only one-third share in
the joint family properties at the time of his death.
In order to appreciate the question involved in Civil
Appeal No. 2086 of 1974, it is necessary to bear in mind the
scheme of the Act. Section 5 deals with levy of estate duty.
It states that there shall be levied and paid upon the
principal value ascertained in the manner provided of all
properties which passes on the death of such person.
Therefore, three factors are important; (1) there must be
passing, (2) of such property and (3) such passing on must
be on the death of a person. Section (2)(15) of the Act
defines ’property’ as inclusive of any interest in property
movable or immovable, the proceeds of sale thereof and any
money or investment for the time being representing the
proceeds of sale and also includes any property converted
from one species into another by any method. There are two
Explanations which are not necessary to be set out in
detail.
Section 2(16) deals with ’property passing on the
death’ and includes any property passing either immediately
on the death or after any interval, either certainly or
contingently, and either originally or by way of
substitutive limitation, and ’on the death’ includes ’at a
period ascertainable only by reference to the death’.
327
Section 3(1)(a), (b) & (c), inter alia, provides for
certain situations in which a person is deemed competent to
dispose of property. Section 5 as we have noted before deals
with the levy of estate duty. Section 6 deals with property
within disposing capacity and provides that property which
the deceased was at the time of his death competent to
dispose of shall be deemed to pass on his death.
Section 14 deals with policies kept up for a donee. It
is not necessary to set out the actual terms of the said
provisions. Section 15 deals with annuity or other interest
purchased or provided by the deceased and provides that any
annuity or other interest, purchased or provided by the
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deceased, either by himself alone or in concert or by
arrangement with any other person shall be deemed to pass on
his death to the extent of the beneficial interest accruing
or arising, by survivorship or otherwise, on his death.
Section 34 of the Act provides for aggregation and
stipulates that for purposes of determining the rate of the
estate duty to be paid or D any property passing on the
death of the deceased, what kinds of property should be
aggregated. Except sub-section (3) of section 34, nothing is
material for our present purpose. Sub-section (3) of section
34 reads as follows:
"(3) Notwithstanding anything contained in sub-
section (1) or sub-section (2), any property
passing in which the deceased never had an
interest, not being a right or debt or benefit
that is treated as property by virtue of the
Explanation to clause (15) of section 2, shall not
be aggregated with any property, but shall be an
estate by itself, and the estate duty shall be
levied at the rate or rates applicable in respect
of the principal value thereof."
Sree C. Ram Krishan, learned counsel for the
accountable persons in the first appeal before us and who
was the advocate who had appeared before the High Court made
various submissions. He submitted that it was a condition
precedent for the attraction of the duty that (a) the estate
holder must have had possessed or enjoyed a property or an
interest in property; (b) the interest in a property might
be either vested or contingent; (c) but that interest should
be with regard to either an immovable property or a movable
property or an interest in immovable or movable property
which was capable of being ascertained during the lifetime
or at the time of the death of the estate
328
holder; (d) a contingent interest could fall within the
purview of the Act only if the interest was of a tangible
nature and was capable of being ascertained, that is to say,
the estate holder must always be having a possibility to
enjoy or possess that interest either actually or
constructively during his lifetime itself. He cited the
example of a life insurance policy.
According to counsel, if the above tests were satisfied
then there had to be a passing of that property or interest
as contemplated by section 2(16) of the Act. Even though a
person might have a power to dispose of a property or
interest in property, he could not or his estate could not
be brought within the purview of the Act solely because of
the above factors. Because over and above this, in order for
an estate to be liable for estate duty the power of
disposition must be with regard to a property capable of
being ascertainable during his lifetime or at the time of
his death. It was urged that a property or interest in
property has necessarily to change hands in order to attract
estate duty. There has also to be a change in the beneficial
possession and enjoyment of the property or the interest in
that property. In other words, it was submitted, the
property of interest which was liable for estate duty under
the Act has to pass through the estate of the deceased.
According to the counsel, applying the above principles it
could not be said that an accident insurance policy had the
characteristics of a property or interest in property and
therefore was not liable for estate duty because an accident
insurance policy could not be construed as a movable
property unlike a life insurance policy or an annuity
because as laid down in section 2(15) it was not only
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necessary for a person to have property or interest in
property but that interest must be in regard to a movable
property and his interest should also be capable of being
ascertainable during his lifetime or at the time of his
death in that movable property. An accident insurance
policy, according to him, could not be construed as a
property or an interest in property since a person who
possessed it could not also be said to have a contingent
interest because there was every possibility of the accident
policy getting extinguished or rendered worthless during his
lifetime; on the other hand in the case of a life insurance
policy, there is always a tangible continuing interest only
that the value of that interest might be subjected to a
change at the time of passing of the property. Further it
was submitted that it was not necessary that during the
lifetime of the deceased the property in question should
have ’attained’ the full value e.g. ’Annuity’. An annuity
could mature even after the death of the estate holder. But
it must be noted that the
329
estate holder in the case of an annuity deposit knew
precisely the value of the contingent interest that would
mature at a future date. Consequently even a contingent
interest which did not get crystalised during the lifetime
of the deceased but which interest would, with certainty,
accrue after the demise of the estate. holder will be caught
by section 6 as a property passing from the deceased to the
beneficiary. Thus though only a future interest that that
crystalised after the death of the estate holder would be
deemed as a property of the estate holder. Learned counsel
submitted that an accident policy is not property, because
it lacks the well known characteristic of property namely,
that it should be capable of being mortgaged or pledged as a
security. It lacked the characterists of a security.
Consequently an accident policy was not a property,
according to counsel.
Since the benefit in accident policy could only accrue
after the death of the estate holder, it became property for
the first time after the demise of the estate holder. There
was, according to the counsel for the accountable person, no
element of property during the lifetime of the estate
holder. Therefore, there could not be any passing of
property in a case like this. A possession of accident
policy could not be construed as a property in the hands of
the estate holder. It was further submitted that in the case
of an accident insurance policy, there cannot be passing
because there was no change in the beneficial possession or
enjoyment of the property or interest in the policy. The
interest in accident insurance policy did not pass through
the estate of the deceased as in the case of a life
insurance policy or annuity. But here the interest directly
went to the beneficiary in the case of the death by accident
of the estate holder. It was in the premises submitted that
it cannot be accepted that the deceased had any power of
disposition over the accident policy during his lifetime
because the interest in an accident policy could not also be
elevated to that of a contingent interest since there is
always the chance for the accident policy being rendered
worthless during the lifetime of the deceased. There is also
no chance for the deceased to bear the fruition of the
policy during his lifetime because in the case of an
accident policy the condition of the policy itself was to
the effect that the policy would bear fruition only if the
estate holder did not die due to natural causes but in an
accident .
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A large number of authorities both Indian and English
and a large number of dictionaries relevant for this purpose
were relied upon.
330
So far as the first appeal is concerned, namely, Civil
Appeal No. 2086 of 1974, the question of assessability to
estate duty of the amount received as a result of the death
of the assured is involved. This question has been examined
by various authorities to some of which our attention was
drawn.
Before we do so, it may be worthwhile to refer to the
dictionary meaning of certain words to which our attention
was drawn.
In Words and Phrases Legally Defined-Vol. 1 1969
(second Edn.) at page 332, it has been said that "Contingent
Liability" is a phrase with no settled meaning in English
law because Danckwerts, J. thought it necessary to resort to
dictionary used. The Court of Appeal regarded its meaning as
an open question. A conditional obligation, it has been said
there, or an obligation granted under a condition which is
uncertain, had no obligatory force till the condition was
purified. All this was relied in aid of the submission that
until the accident happened or death resulted, the
beneficiary of the insurance policy or the nominee of the
assured does not get any benefit. In order words, the birth
of the property and the right to get it accrues on the death
of the deceased. The property which the legatee or the
nominee receives was property until the accident during the
lifetime of the deceased.
In Words and Phrases Legally Defined-Vol. 4 at page
200, "Property" has been defined as to what belongs to a
person exclusively of others and can be the subject of
bargain and sale. It includes goodwill, trade marks,
licences to use a patent, book debts, options to purchase,
life policies and other rights under a contract. An annuity
secured only by a personal undertaking was not, however,
treated as property; nor was a revocable Licence, according
to that dictionary.
The decision in Attorney-General v. Quixely, 1929, All
England Law Reports, Reprint, 696, has coloured many of the
decisions of both English and our courts on this aspect. It
is necessary, therefore, to appreciate that decision
properly, if possible. Briefly the facts in t-hat case were
that on 11th April, 1927, a school teacher died and her
legal representative became entitled to receive a "death
gratuity" under the School Teachers (Superannuation) Act,
1925-section 5(1). on 11th August, 1927, the gratuity was
paid and the estate duty was claimed in respect of it. It
was held by the Court of Appeal in England that the gratuity
was property of which the teacher was "competent to dispose"
within the meaning of the Finance Act, 1894 of England and,
331
therefore, estate duty was exigible in respect of it by
virtue of section A 2(1)(a) of that Act.
The information filed on behalf of the Attorney-General
alleged that Margaret Louis Quixley died intestate on 11th
April, 1
1927. Letters of administration to her estate were 5th July,
1927 granted to her sister, the defendant, out of the
Principal Probate Registry. The deceased was at the time of
her death in the service of the Girls’ Public Day School
Trust as a secondary school teacher at the Blackheath High
School and had been in such service for a period of upwards
of five years. Such service was "recognised service" within
the meaning of the School Teachers (Superannuation) Acts,
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1918 to 1925, and "contributory service" within the meaning
of the Schools Teachers (Superannuation) Act, 1925, and the
contributions prescribed by the School Teachers
(Superannuation) Acts, 1922, 1924 and 1925 were duly paid by
and in respect of the deceased down to the time of her
death. In the above circumstances a death gratuity became
payable by the Board of Education to the defendant as the
legal personal representative of the deceased under the
School Teachers (Superannuation) Act, 1925. Rowlatt, J.
Observed that the question involved was not free from
difficulty. He narrated the facts as such. The lady was a
teacher under circumstances which under the School Teachers
(Superannuation) Act, 1918, entitled her to the prospect of-
brought within the ambit of a power in the Board of
Education to grant a gratuity of this kind on her death.
Rowlatt, J. Observed that she had no right, she made no
contribution, but there was a power conferring a gratuity.
Then the effect of the School Teacher (Superannuation) Act,
1922, was that she remained without any further advantage
than being in the category of persons who might receive such
a grant, but she was compelled to make a contribution. Under
the School Teachers (Superannuation) Act, 1925, matters were
carried a step further because she or her executors or
administrators were given in return for the compulsory
contribution a right to receive the gratuity. Considering
sub-section (1)(a) of the relevant Act which is similar to
our section 6 of the present Act reads as follows:
"Property which the deceased was at the time of
his death competent to dispose of shall be deemed
to pass on his death. "
Rowlatt, J. gave judgment for the Crown. There was an
appeal and the appeal was dismissed. Lord Hanworth, M.R.
after stating the H
332
facts and analysing the provisions noted that in 1925 there
came an important Act under which the gratuity became
payable to the deceased’s representatives. Master of Rolls
further went on to observe that from and after the operation
of the Act of 1925 referred to in the judgment, there was a
definite right on the part of the school teacher who
fulfilled certain conditions-as the teacher before the Court
of Appeal did, by dying at the time when she was still in
contributory service-to be paid a sum which was to be
estimated and calculated under the provisions of the
statute. Master of Rolls further observed: the statute,
therefore, gave at once a right to the person who fulfilled
the conditions of service, and equally a right to the board
to insist on the contributions being paid. Master of Rolls
found as a fact that all the conditions required were
fulfilled, therefore, the teacher had an absolute right to
be paid. It is this significant factor that has to be borne
in mind. Therefore, it was held that there was a right which
the deceased could dispose of by will, therefore, it was
property passing on the death of the deceased.
It was a comprehensive Act providing for superannuation
benefit for teachers on retirement and gratuity to legal
heirs in the case of death in service. Section 5 provided
that death gratuity to be paid to legal heirs if teacher
died while in service. Section 9 provided for contribution
compulsory at a certain fixed percentage both by the teacher
and by the employer. Section 12 provided for repayment of
contributions on teacher creasing to be eligible. See in
this connection Halsbury’s Statutes of England, 2nd Edn.,
Vol. 8, page 388. In that context, in our opinion, this
question of liability arising on the death of accident
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policy has to be understood in a different perspective. In
Quixley’s case, there was a vested right in the teacher
during her lifetime and the teacher could dispose of that
right in the manner she liked. But in case of death by
accident in aircrash, the deceased had only a right of
nomination for his heirs to get the money but the money
would arise or the property would be born only on the
contingency of the death happening. We have examined the
nature of the right-in the light of the submissions made.
The interest in accident policy does not pass through the
estate of the deceased. It was always a chance so far as the
deceased was concerned in the instant case. Sankey, C.J.
found in Quixley’s case that the deceased had a right-only
quantification was not there. But in the instant case before
us the deceased had no right in his lifetime. Undoubtedly
the right to nominate and right of the nominee or legal
representative to get the money was there in case
333
of death of the deceased but the deceased had no right to
the money A which was dependent on happening of an uncertain
event.
In Controller of Estate Duty v. A. T. Sahani, New
Delhi, 78 I.T.R. 508, the Delhi High Court had to consider
slightly different question. There under Rule 159 of the
Indian Airlines Corporation (Flying Crew) Service Rules, a
member of the flying crew was entitled to a compensation at
specific rates in the event of his death or an injury caused
by an accident during or as a result of air journey
performed as such in the Corporation’s service. The
compensation payable under the said rule was in addition to
the compensation which the Corporation had agreed to pay
under an agreement described as Pilot Agreement entered into
with the Corporation whereby it was provided that the
Corporation shall pay compensation for the death of a pilot
a maximum of 36 times his monthly basic pay if such death
occurred in the circumstances mentioned in the above-
mentioned service rules, or while travelling on duty in
surface transport provided by the Corporation or its
nominated agents. In accordance with the terms of the
aforesaid agreement between the deceased and his employer, a
sum of R.S.. 68,300 was received by his widow as
compensation. The High Court under reference in that case
held that the right to get compensation as a condition of
one’s service was as much an interest in property as any
other interest which a person might have in incorporeal
property, such as choses-in-action etc. The circumstances
that the occasion for the exercise of the right arose after
the death of the person and was also conditional upon death,
did not in any way detract from the existence of the right
of the deceased’s interest therein during his lifetime.
The Court noted that though in that case, the deceased
was not required to make any contribution for the purpose of
earning the compensation as in Quixley’s case, yet the
compensation was payable as a reward for the services
rendered. Therefore, the deceased had interest in it and had
also the right to appoint the person to whom it should be
paid. The distinction between pecuniary damages for the loss
caused to the estate and pecuniary loss sustained by the
membes of his family through his death has no relevance for
the purpose of deciding whether the compensation payable in
a case like the present was property which should be deemed
to pass on the death of deceased. The High Court felt that
the case came within the ratio of the decision of the Court
of Appeal in Quixley’s case (supra). But the facts of the
instant appeal are different.
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334
Prior to the judgment under appeal the problem arose
before Jammu & Kashmir High Court in the case of Controller
of Estate Duty v. Kasturi Lal Jain, 93 I.T.R. 435. Ali, C.J.
as the learned judge then was of the Jammu & Kashmir High
Court held that before a property could pass to the heirs of
a deceased person under section 5 of the Estate Duty Act,
1953, it had to fulfil the following conditions:
"(i) The property must be in the power, possession
and control (actual, constructive or
beneficial) of the deceased;
(ii) The deceased must have an interest, whether
in praesenti or contingent, in the said
property;
(iii) The property must be in existence during the
life-time of the deceased or at the time of
his death; and
(iv) The deceased must have power of disposition
over the property."
The Court was of the view that where compensation was
paid under the Carriage by Air Act, 1934, to the heirs of a
person dying in an air crash by the Airlines Corporation,
the deceased had neither any interest in the property nor
was he in possession of the property either actually or
constructively. The property in such a case did not and
could not have come into existence during the lifetime of
the deceased but accrued for the first time after his death
and that too because his death took place in a certain mode.
It was further held that under the provisions of the
Carriage by Air Act, 1931, the compensation ensured for the
benefit of the members of the passenger’s family and had
nothing to do with the estate of the deceased. As none of
the above said conditions for the passing of property on
death under section 5 of the Act was fulfilled, the estate
duty could not be levied on such compensation. The learned
Chief Justice observed that the connotation of the words
’passes on the death of such person’ was important. He
referred to Webster’s International Dictionary. He observed
that ’passing’ involved some actual change in the title or
possession of the property which must result on death. The
Division Bench therefore negatived the revenue’s contention.
The Punjab and Haryana High Court in the case of
Controller of Estate Duty, Patiala v. Smt. Motia Rani
Malhotra, 98 I.T.R. 42, had to deal with this problem though
in a different context. It is held by the High Court in that
case that the amount of compensation received by
335
the heirs of a person who died in an air crash comes into
being only A after the death of the person. It exists at no
point of time either contingently or otherwise during the
lifetime of the deceased. The High Court was of the opinion
that the property which was not in existence at all during
the lifetime of the deceased cannot be said to pass on his
death. The provisions of the Indian Carriage by Air Act,
1934 provided compensation to members of the family of a
victim of an air crash. In the very nature of things the
damages by way of compensation arose after the person was
dead. The Act definitely provided for whom it was available.
If it were part of his estate passing on his death it would
pass on to his heirs other than those specified in the Act,
in case they were not in existence. But that did not happen.
If the members of the family specified in the Act are not in
existence, the payment has not to be made. Hence, the
compensation was not property capable of passing on death.
The High Court felt that there was a lot of difference
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between compensation received on account of permanent or
temporary injury in an air crash, and the compensation
received by the heirs of a person dying in an air crash. In
the former case the amount received by the person formed
part of his estate but where compensation was received by
his heirs on his death in air crash, according to the High
Court, it cannot partake of his estate. When a person
boarded a plane he could not, at that time, be said to have
created an estate or interest capable of passing after his
death.
Section 15 of the Act provided for those types of cases
where the owner of property tried to dissipate his property
in such a way that it passed on to his heirs without
suffering estate duty. It did not bring to charge
compensation received by the heirs of a victim of an air
crash. Therefore the sum of money received in such a case
was not liable to estate duty, according to Punjab and
Haryana High Court. The problem there was, however, slightly
different, from the present but the basic position was that
the property came into existence only on the death of the
passenger in the plane.
In Bharatkumar Manilal Dalal v. Controller of Estate
Duty, Gujarat, 99 I.T.R. 179, it is necessary to refer
briefly to the facts. One M, the deceased, in that case had
purchased on 8th August, 1965, a limited non-renewable
policy covering certain travel accidents from A insuring
himself against risk of air travel for his journey from
U.S.A. to India and back for a maximum sum of f 75,000.
Similarly, the deceased had purchased in July, 1965, a
personal accident policy from company insuring himself for a
maximum of R.S.. 1,00,000 against risk
336
of loss of life or limb arising as a result of accident in
the course of one year. The deceased had paid only one
premium of R.S.. 255 under the said policy to the company B.
The father of the deceased, the accountable person, was
nominated as the beneficiary in both the insurances for
receiving the claim amount payable under the policies in
case of death of the insured. M died on 24th January, 1966,
in a plane accident on his way to the U.S.A. R.S.. 1,00,000
and R.S.. 3,57,808 were received from company and Company A
respectively by the accountable person as a sequel to the
accident. The Appellate Tribunal held that the said two sums
were liable to be included in the dutiable estate of the
deceased, M, under section 15 of the Estate Duty Act but not
under any other section. On a reference at the instance of
both the accountable person and the revenue, the question
was whether the amounts were liable to estate duty under
sections 5, 6, 14 or 15 of the Act.
The High Court held that section 14 of the Act was not
attracted on a plain reading of the section. The High Court
held further that section 14 imposed liability of duty on
money received under a policy of insurance effected by any
person on his life and would not, therefore, take in its
sweep the cases of moneys paid under an accident policy, the
connotation of which was well known as contradistinguished
from that of life policy. It was contended for the assessee
that the purchase of an accident policy by the deceased
could not be held to be an interest purchased or provided by
him within the meaning of section 15 of the Act and that the
words "other interest" in section 15 should be understood in
the cognate sense of the word "annuity" on the principle of
noscitur a sociis. The term "other interest" was of widest
amplitude and there was no warrant in the section itself or
in any other provision of the Act to infer that the
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legislature wanted to restrict the meaning and import of the
term "other interest". The contention that the import of the
term "other interest" should be restricted and that it
should take colour from the word "annuity" and should bear a
cognate meaning must be rejected. If the legislative intent
as outlined in the Statement of objects and Reasons given in
the Bill legislature wanted to cover all kinds of interests
which have been purchased or provided by the deceased in the
nature of annuities or policies other than life insurance
policy as passing on his death to the extent of a beneficial
interest accruing or arising as a result of the death. The
High Court referred to the decision in Westminster Bank Ltd.
v. Inland Revenue Commissioners. [1957] 2 All E.R. 745 = 36
I.T.R. (ED) 3. It could not be successfully contended,
according to the High Court, that the deceased had no
interest in his lifetime in the
337
relevant policies. In the two personal accident policies in
that case, the A subject matter of the insurance was the
person of the deceased in case of its being exposed to
certain perils of travelling and the assured would clearly
be prejudiced by the loss of life or limb as a result of the
accident and, therefore, had an insurable interest for
purposes of personal accident. To contend that death did not
generate a new beneficial interest, the High Court felt, was
beside the point for the time being. The deceased had an
interest in the contractual right under the two relevant
policies of insurance to exact a particular sum, if and when
there was loss of life or limb arising as a result of
accident. The very fact that deceased had a contractual
right to exact a particular sum in case of loss of life or
limb was an interest in expectancy and it would have been in
interest in presenti the moment the accident occur- red
resulting in loss of limb. The contract of insurance
contained in the two relevant policies conferred on the
deceased the benefit of the policies, namely, the right to
exact a particular amount of damage depending on the loss of
limb or life. as the case might be. The contention that the
deceased had no interest in the policies, according to the
High Court, was not well found be upheld. It was further
held that on the death of the insured, the beneficial
interest of the accountable person was generated. Therefore,
section 15 of the Act was applicable.
As regards the applicability of sections 5 and 6 of the
Act, the deceased had property in the nature of interest to
receive the sums assured on the happening of the contingency
of accident resulting in loss of limb or life under the
contracts of insurance contained in the aforesaid two
accident policies and he was competent to dispose of that
property by an act inter vivos or by a will. The property in
nature of interest was in existence in the lifetime of the
deceased which passed on his death to the beneficiaries
designated or to his legal representative in absence of such
designation and was, therefore dutiable under section 5 of
the Act. In any case, he had a right to property and under
the said policies which he could have disposed of by will
and, therefore, it must be deemed to pass on his death under
section 6 of the Act. In the view we have taken of the
policy involved in the instant case, we are unable, with
respect, to agree with the High Court that the deceased had
right in expectancy-the deceased had no right, the nominee
or the beneficiary would have the right-the property does
not pass through the deceased.
Relying on section 34(3) of the Act, it was contended
by the
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338
accountable person that the aforsaid sum should not be
aggregated with other property of the deceased and should be
assessed as an estate by itself. As we have noted before,
this question is a subject matter of Civil Appeal No. 67 of
1975. On this aspect, the judgment under appeal held in
favour of the accountable person while the Gujarat High
Court was of the view that sub-section (3) would not be
applicable because it could not be said that the deceased
had no interest in the contract of insurance contained in
the two accident policies. The High Court held that the
deceased had property in the nature of interest to receive
payment in case of loss of limb arising as a result of
accident or the deceased purchased an interest for the
benefit of his legal representatives in case of loss as a
result of accident. It, therefore, could not be said that
the deceased had never any interest in the contracts of
insurance contained in the said two policies and money
payable thereunder. To this extent, the Gujarat High Court
dissented from the Madras High Court’s view. It was further
held by the Gujarat High Court that it could not be
contended that the principal value of the property should be
determined with reference to the death of the insured and at
the time of his death the property in question had only the
value of the premiums which had been paid. It must be held
that the valuation must be ascertained on the date
immediately succeeding the date of the death, which, in the
present case would be aforesaid two sums. Therefore, the
High Court allowed two sums received from the insurance
company to be included in the estate duty under section 5,
section 6 and section 15 of the Act.
The Bombay High Court in Smt. Amy F. Antia v. Assistant
Controller of Estate Duty, Bombay, 142 I.T.R. 57, was
confronted with a situation where an engineer in the
employment of M.N. Destur & Company died in an air crash on
28th May, 1968. The question which arose in the course of
estate duty proceedings on his death was whether an amount
of Rs.68,400 which was payable on the death of the deceased
in pursuance of a group insurance policy taken out by the
employer, Destur & Co. was liable to be included as part of
the property which passed on the death of the deceased. The
Bombay High Court was of the view that personal accident
insurance was one of the three main types of insurance. The
object of personal accident insurance was to make a
provision in case an accidental injury happens which may
sometimes disable a person and affect his employment and his
earning capacity or in some cases it may result in death,
and the injured person wants to make provision for his
dependants in case untimely accidental death occurs. A
personal accident policy was in the
339
nature of a provision for the legal representatives and in
the case of the death of the insured, the death benefit was
payable to the legal representatives. The proviso in the
insurance policy in that case stated that the insured alone
would have the sole and exclusive right of receiving payment
or enforcing any claim under the policy. & Co. issued an
office circular which made it clear that the compensation
payable by the insurance company in each case would be
equivalent to two years salary of the individual concerned
at the time of accident resulting in a claim under the
policy. Clause 5 of the circular stated that the benefits
enjoyed by the staff under the scheme were ex gratia in
character and might be withdrawn or modified at the sole
discretion of the company. In pursurance of the insurance
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policy a sum of R.S.. 68,400 was paid by & Co. to the estate
of the deceased. A sum of R.S.. 50,000 was also paid to the
estate of the deceased by the airlines in accordance with
the provisions of the Indian Carriage by Air Act. The
Assistant Controller and the Appellate Controller held that
both the amounts were liable to estate duty. The Tribunal
held that the amount of R.S.. 68,400 was liable to estate
duty and out of the amount of R.S.. 50,000, R.S.. 43,846 was
not liable to estate duty. The Bombay High Court held that
with regard to the amount of R.S.. 68,400 the insurance
policy and the circular issued by & Co. had to be read
together. The policy expressly provided that in the case of
an insured person suffering an injury, the insured would be
paid the capital sum insured against the name of the insured
person and in respect of the person- suffering was twice the
annual salary drawn by the person on death or occurrence of
the accident. The High Court held that the sum of R.S..
68,400 was, therefore, liable to estate duty but held also
that the sum received under the provisions of the Indian
Carriage by Air Act was not liable to duty under the Act.
The learned judges referred to the two decisions under
appeal. The real question which fell for consideration in
the case before the Bombay High Court was whether question
No. l in that case was what the right the deceased had in
the personal accident policy. The question No. 1 in that
case was whether, on the facts and in the circumstances of
the case, the sum of R.S.. 68,400 payable on the death of
the deceased in pursuance of the insurance policy was liable
to duty on estate. It would thus appear that each case is
decided in the peculiar facts in terms of the policy.
Reliance was also placed on certain observations in the
case of P. Indrasena Reddy & Pingle Madhusudhan Reddy v.
Controller of Estate Duty, 156 I.T.R. 45. There, the Court
was dealing with the test of "disclaimer". The Court
observed that the test of "disclaimer" has to H
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be adopted to determine whether the deceased had any
interest in insurance policies. If the facts showed that the
beneficiaries disclaimed, the resulting interest would be in
favour of the deceased and the policy amount would pass to
the legal representative.
It was condition precedent for the application of the
Act that the estate holder must have possessed or enjoyed
the property or interest in property, the interest in
property might be either vested or contingent but interest
should be that with regard to which either immovable
property or movable property or an interest in immovable or
movable which was capable of being ascertained during the
lifetime or at the time of the death of the estate holder.
The property vested or contingent must be one which was
capable of being ascertained. Even if the above tests were
satisfied then there has to be a passing of that property or
interest as contemplated under section 2(16) of the Act.
Even if a person might have power to dispose of a property
or interest in property, he cannot or his estate cannot be
brought within the purview of the Act solely because of that
factor. In order for an estate to be liable to estate duty
the power of disposition must be with regard to a property
capable of being ascertainable during the lifetime of the
deceased ceased or at the time of his death. It was next
urged that property or interest in property had necessarily
to change hands in order to be liable to estate duty under
the Act. There had to be a change in the beneficial
possession and enjoyment of the property or the interest in
that property. In other words the property or interest which
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is liable to estate duty has to pass through the estate of
the deceased. It is important to bear in mind that though
the deceased might have a right of disposition as and when
the property would be available in case the contingency
happens namely the death of the deceased in an accident, but
that right is different from the right to the money accruing
or arising because of the death due to accident. See in this
connection the case of Shri H. Anraj etc. v. Government of
Tamil Nadu etc., [ 1986] (1) SCC 414. So in this case the
property is really born on the death of the deceased in an
accident. Property in the sense the sum of R.S.. two lakhs
was non-existence before the death. There might have been
some right of disposition in respect of the property which
might accrue on the death of the deceased. That right is
different from the right to the movable property of R.S. 2
lakhs that is taking place.
An accident insurance policy cannot be construed as
movable property unlike a life insurance policy or an
annuity because as laid down in section 2(15) of the Act it
is not only necessary for the person
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to have property or interest in property but that interest
must be in A regard to a movable property and his interest
should also be capable of being ascertainable during his
lifetime or at the time of his death in that movable
property. Secondly, an accident insurance policy could not
be construed as a property or an interest in property since
a person who possessed it cannot also be said to have a
contingent interest because there was every possibility of
the accident policy getting extinguished or rendered
worthless during his lifetime; on the other hand in the case
of a life insurance policy, there was always a tangible
continuing interest only that the value of that interest
might be subjected to change at the time of passing of the
property.
A contingent interest which did not get crystalised
during the lifetime of the deceased hut which interest
would, with certainty, accrue after the demise of the estate
holder will be caught by section 6 of the Act. A property
passed from the deceased to the beneficiary. Though only a
future interest that crystallised after the death of the
estate holder would be deemed as a property of the estate
holder. The accident policy could only accrue after the
death of the estate holder. It became property for the first
time after the demise of the estate holder. There was no
element of property during the lifetime of the estate holder
The interest in an accident insurance policy did not
pass through the estate of the deceased as in the case of a
life insurance policy or annuity and here the interest
directly went to the beneficiaries in the case of death by
accident of the estate holder.
This Court had to deal with nomination under the
Insurance Act in the case of Smt. Sarabati Devi & Anr. v.
Smt. Ushal Devi, [1984] (1) SCR 992. In that case the effect
of nomination under the Insurance Act was analysed.
The meaning of the expression "property passes" came up
for consideration in the observations of Viscount Simonds in
the case of Public Trustee v. Inland Revenue Commissioners
[1960] A.C. 398, where at page 407 of the report Viscount
Simonds dealing with section 1 of the Finance Act. 1894 of
U.K observed that:
"the word "passes", familiar as it has now become
to us, was not in 1894 a term of art in the law
relating to death duties, and that it would appear
to have been a matter of H
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sheer necessity for the Act to proceed to a
definition of the area of charge. It was natural
that the draftman should do so by the use of the
word "deem," a word which, has been described by
Lord Radcliffe, is apt to include the obvious, the
uncertain and the impossible."
Section 6 of the Act which makes property which the
deceased at the time of his death competent to dispose of
deemed to pass on his death makes, as in the words of Lord
Radcliffe, inter alia, to include, ’impossible’. But the
question here in the instant case is whether the expression
’impossible’ also include the possibility of including
something which is not property as yet of the deceased to
pass on the death of the deceased. The fact that a person
can nominate a beneficiary will not tantamount to
disposition.
In view of the discussions above we are of the opinion
that insurance money became property only on happening of a
specified contingency. That property arose on the death of
the deceased during the subsistence of the policy in
accident. We are dealing with the passing of property or
situation where property can be deemed to have passed. The
property in this case is the sum of R.S.. 2 lakhs which
became receivable by the nominee or the legal representative
of the deceased because of the death of the deceased in air
accident during the subsistence of the policy. That right to
the sum arose because (a) the deceased died; (b) in air
accident; (c) during the subsistence of the policy that
property was not there before. Therefore, property came into
being on that contingency after death. In our opinion,
therefore, no property can be deemed to pass on the death of
the deceased. In any event, during the lifetime of the
deceased, an interest was vested totally and irretrievably
in the hands of the beneficiary or the legatee or the
nominee. The death did not cause property to change hands.
The fact that a person can nominate a beneficiary will not
tantamount to a disposition of the property. In any event
that disposition vested in the nominee or the legal
representative a right in the property. It did not pass on
the death of the deceased. In the premises, we are unable to
accept the High Court’s conclusion on the first question and
we are in agreement with the views of the High Court of
Jammu and Kashmir in Controller of Estate Duty v. Kasturi
Lal Jain (supra) . The first appeal No. 2086 of 1974 is
allowed and question no. 1 is answered in the negative.
In that view of the matter question No. 2 which is the
subject
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matter of Civil Appeal No. 67(NT) of 1975 need not be dealt
with. However, we are of the opinion on the construction of
section 34(3) and the views expressed by the High Court on
this point that had it been necessary to answer this
question, we would have treated this as a separate estate
from the other estate of the deceased and the value of this
could not be aggregated. B
The third question which is also the subject matter of
appeal No. 67 of 1975 relates to the adoption under the
custom of Chettiar Community. Now whether a particular
custom prevails in a particular community or not is a matter
of evidence. Mayne’s Treatise on Hindu Law and Usage 10th
Edn. edited by S. Srinivasa Iyengar from page 280 described
the peculiar form of Dwyamushyayana adoption thus:
"208. An exception to the rule that adoption
severs a son from his natural family exists in the
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case of what is called a dwyamushyayana or son of
two fathers. This term has a two-fold acceptation.
Originally it appears to have been applied to a
son who was begotten by one man upon the 1 wife of
another, but for and on behalf of that other. He
was held to be entitled to inherit in both
families, and was bound to perform the funeral
obligations both of his actual and his fictitious
father. This is the meaning in which the term is
used in the Mitakshara; but sons of this class are
now obsolete. Another meaning is that of a son who
has been adopted with an express or implied under
seems to take place in different circumstances.
One is what seems to take place in different
circumstances. One is what is called the Anitya,
or temporary adoption, where the boy is taken from
a different gotra, after the tonsure has been
performed in his natural family. He performs the
ceremonies of both fathers, and inherits in both
families, but his son returns to his original
gotra. This form of adoption is now obsolete.
The only form of dwyamushyayana adoption that
is not obsolete is the nitya or absolute
dwyamushyayana in which a son is taken in adoption
under an agreement that he should be the son of
both the natural and adoptive fathers. It appears
to be obsolete in Madras on the East Coast. But in
the West Coast among the Nambudri Brahamana, it is
the ordinary form. In Bombay and the United
Provinces its existence is fully recognised. It
has H
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been recognised by the Judicial Committee in two
cases from Bengal."
In Mulla’s Principles on Hindu Law, 3rd Edition, p. 393
Dvyamushyayana, the effect of partition has been described.
These have been set out in the judgment of the High Court.
It is not necessary to reiterate them again.
In any event we accept the reasoning of the High Court
that if the adoption was not valid as contended for by the
revenue, then Muthiah continued to be a member of the
natural family and as such his share in the joint family
would have passed on the death of the deceased. In this
background, it is, however, difficult to appreciate the
stand of the revenue that the adoption was valid but no
effect could be given to the ter ns of Muri. Muri, according
to revenue stood by itself. The High Court found it not
possible to accept this argument. We are of the same view.
The agreement properly read could not be taken as a post-
adoption agreement. In that view of the matter certain
factual aspects were urged before the High Court for
contending that the accountable person was not free to urge
that there was no valid adoption and Muthiah continued to be
a member of the natural family. We do not find much merit in
such contentions and these need not be dealt with. These
have been dealt with by the High Court and we accept them.
Not much serious arguments in support of the appeal on this
aspect by the revenue was advanced before us. In the
premises we uphold the decision of the High Court in two
questions involved in appeal No. 67 of 1975 and therefore
the second question in that appeal is answered by saying
that amount of Rs.2 lakhs if assessable would have been
assessed as a separate estate and on the third question-the
share of the deceased in the property of the joint family at
the time of death was one-third and not one-half. In the
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premises this appeal fails and is dismissed.
In view of the divided success, parties will pay and
bear their costs in both the appeals.
A.P.J. Appeal dismissed.
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