1. These two appeals, one filed by the accountable person and the other filed by the department, are heard together and disposed of by this common order for the sake of convenience.
2. The deceased was a Flight Engineer working in Air India. He died on 1-1-1978 in an accident while on duty. The employer made the following payments to the legal heir of the deceased : 1. Compensation for death under Rule 31 of the Service Regulations read with Establishment Order (clause 15) : Rs. 16,200.
2. Accident insurance paid under regulation 31A of the aforesaid Regulations read with Clause 49 of the aforesaid order : Rs. 60,000.
The accountable person did not include the aforesaid three sums in the return on the ground that they did not form part of the estate of the deceased. The Assistant Controller, however, held that the amounts were dutiable under Sections 5 and 6 of the Estate Duty Act, 1953 ("the Act"). He relied on the decision in the case of CED v. A.T. Sahani [1970] 78 ITR 511 (Delhi) 3. The accountable person appealed to the Appellate Controller and contended that the claim of the accountable person should have been accepted. Reliance was placed on a number of decisions enumerated in the appellate order with particular emphasis on the decision in the case of Smt. Lakshmisagar Reddy v. CED [1980] 123 ITR 601 (AP). The Appellate Controller considered the aforesaid decision of the Andhra Pradesh High Court and applied the principles laid down therein to the facts of the instant case. He arrived at the conclusion that the first item, namely, compensation, was not dutiable, because its payment was not obligatory. Similar was the conclusion reached by him regarding the third item, viz., ex gratia payment. However, regarding the second item, namely, accident insurance, lie found that there was an obligation on the part of the employer to pay the amount and it was not purely discretionary. Hence, he held the second amount to be dutiable.
4. The accountable person has come up in appeal against the order of the Appellate Controller on the ground that the second amount of Rs. 60,000 referred to earlier should have been declared as exempt from duty. On the other hand, the department has come up in appeal on the ground that first amount of Rs. 61,200 paid as compensation should have been held as dutiable. It may be stated that there is no dispute regarding the decision of the Appellate Controller in regard to the third amount, namely, the ex gratia payment.
5. Shri M.M. Mazumdar, the learned representative for the accountable person, urged before us that the contention of the accountable person should have been accepted. He strongly relied on the decision in the case of Lakshmisagar Reddy (supra). According to him, the payment of accident insurance was also discretionary inasmuch as regulation 31A says that the employer may or may not insure an employee. He pointed out that in fact the employer did not insure the life of the deceased but paid the amount out of its own funds. Once the payment of the amount is within discretion of the employer, he contended, it follows that the amount would come within the ratio of the decision of Lakshmisagar Reddy (supra) and would become exempt from duty.
6. As an alternative contention, Shri Mazumdar urged before us that in case the amount is held to be dutiable, then the provisions of Section 34(3) would apply because the deceased never had any interest in the amount during his life time. Consequently, that amount of Rs. 60,000 should not be aggregated with the other properties of the estate but should be treated as a separate estate in itself.
7. Shri S.S. Inamdar, the learned representative for the department, on the other hand, supported the order of the Appellate Controller so far as the latter's decision on the second point is concerned. He pointed out that the latter part of regulation 31A clearly states that the employer shall pay the amount on the death of the employee by accident and the discretion of the employer was limited only to its option as to whether to get the life of the employee insured or not with an insurance company. Hence, he argued that there was no discretion left with the employer so far as the necessity to pay the amount under regulation 31A was concerned. Either the employer gets the life of the employee insured or it decides not to insure but pay the amount out of its own funds when the occasion arises.
8. Coming to the departmental appeal, Shri Inamdar urged that the Appellate Controller should not have held the sum of Rs. 60.000 paid as compensation by the employer as free from duty. He referred to the decision in the case of Sahani (supra) wherein it has been held that the compensation received by the legal heirs of the deceased on his death by accident from the employer was held to be dutiable. He argued that though regulation 30 says that the employer may pay the compensation, yet Clause 50 of the aforesaid order provides for the payment of 30 times the basic pay as compensation, which is quite certain.
9. Shri M.M. Mazumdar replied that the case of Sahani (supra) is not applicable to the facts of this case because their Lordships of the Andhra Pradesh High Court have distinguished on facts the case of Sahani (supra) at page 608 of the judgment in the case of Lakshmisagar Reddy (supra). He pointed out that the payment made in the case of Lakshmisagar Reddy (supra) was under rule 73 of the Indian Airlines Corporation which is identical with regulation 30 under which the payment was made to the deceased. Hence, he contended that the decision of the Appellate Controller was quite correct and deserved to be upheld. In the alternative, he urged that the provisions of Section 34(3) would equally apply to this amount also.
10. We have considered the contentions of both the parties as well as the facts on record. In the case of Lakshmisagar Reddy (supra), it has been held that : In order to attract the provisions of Section 5(1) of the Act, the following ingredients must be satisfied : 1. The property must be in existence at any time before the death of the deceased.
2. The deceased must have a beneficial interest, be it in praesenti or contingent, in the property.
3. The deceased must be in possession and control, be it actual, constructive or beneficial, of the property.
If the deceased had obtained an accident insurance or life insurance policy and paid some amount towards the premiums, the amount payable by the insurance company would certainly form part of the estate of the deceased. But the compensation paid to the legal representatives in respect of an accidental death under the Motor Vehicles Act or under any such similar provision would not form part of the estate of the deceased.
In the present case, there is no guarantee that the Corporation would certainly pay any sum either to the nominee or to the legal representatives of the deceased, as the conditions envisaged in Rule 73 have to be satisfied.... (p. 606) We find that the decision in that case turned upon the crucial fact, namely, that there was no obligation on the part of the employer to pay the compensation. It is not known whether any establishment orders like Clauses 49 and 50 also existed in that case and. if so, whether they were brought to the notice of their Lordships. In any event, the case of the accountable person before us is that the two amounts under consideration were not dutiable because their payment was discretionary and that there was no obligation on the part of the employer to pay them. We have considered this argument but we do not find any force in the same. When we read regulation 31, we find that it uses the words "may pay". But, Clause 50 of the establishment order categorically says that the compensation shall be paid and what is more, the amount of such compensation has also been definitely laid down to be 30 times of the basic pay of the employee. Hence, regulation 31 read with Clause 50, if read together, leaves no doubt that the payment is indeed obligatory and in no sense discretionary. Hence, the facts of the case before us are distinguishable from those found in the case of Smt.
Lakshmisagar Reddy (supra) and so we are not able to agree with the Appellate Controller on this point. Moreover, once we find that the payment of the amount is not discretionary, then the amount becomes dutiable even according to the decision in the case of Lakshmisagar Reddy (supra).
11. Coming to the second item of accident insurance, we find that the facts are also similar. It is true that the first part of regulation 31A uses the words "may insure", but that option is obviously limited to the choice of the employer between getting the life of the employee insured with an insurance company or paying the amount payable under the regulation out of its own funds when the occasion arises. As pointed out by the Appellate Controller, the second part of regulation 31A uses the words "shall ... pay". In addition Clause 49 of the establishment order makes not only the payment obligatory but also lays down a definite amount in the case of Flight Engineers like the deceased, namely, Rs. 60,000. In the case of Lakshmisagar Reddy (supra), it has been observed in the paragraphs quoted earlier in this order that if the deceased had obtained an accident insurance, the amount would certainly form part of the estate of the deceased.
Respectfully following the aforesaid decision of the Andhra Pradesh High Court in the case of Lakshmisagar Reddy (supra), we hold that both the amounts under consideration were dutiable under the Act. We, therefore, reverse the decision of the Appellate Controller on the first point and uphold his decision on the second point.
12. Coming to the alternative contention raised by the learned representative for the accountable person, we find force in the same.
Section 34(3) reads as below : 34(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.
From the facts of this case already stated earlier, it is evident that the deceased never had any interest in the two amounts under consideration and so Section 34(3) applies to each of them. The question which then arises is whether the two amounts should be treated as a separate estate individually or taken together. On a careful consideration of the language of the section, we are of the opinion, that the two amounts should be treated as separate estates individually and should not be aggregated not only with the other properties but also inter se. This is because the language of the section clearly states that any property which comes within its provisions shall not be aggregated with "any property" which obviously includes a property which qualifies under Section 34(3). Even if it is assumed for the sake of argument that two reasonable interpretations are possible and that the two amounts under consideration should be added together to form a separate estate, we hold that the view which is favourable to the accountable person should be adopted vide the decision of the Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192.
Hence, we direct that the two amounts under consideration should be assessed as separate estates, without either of them being aggregated to the other properties and without adding them together to form a single separate estate.
12. The only other ground in the departmental appeal states that the Appellate Controller erred in holding that the premium of Rs. 7,614 paid under the Married Women's Property Policy Act by the deceased within the statutory period of two years from his death should not be treated as dutiable. We find that the decision of the Appellate Controller is supported by the several Tribunal decisions, namely, ED Appeal No. 33/Ahd./1977-78. ED Appeal No. 17/B/1975-76 and ED Appeal No. 9/Bom./1980. In each of these cases, the Tribunal has held that the premiums of the type under consideration cannot be treated as gifts made by the deceased during his life time. Respectfully following the aforesaid decisions, we uphold the decisions of the Appellate Controller on this point.