Controller of Estate Duty Vs. Gowrishankar Damani - Court Judgment

Ismail, J.

1. The Income-tax Appellate Tribunal, Madras Bench, under Section 64(1) of the Estate Duty Act, 1953, hereinafter referred to as the Act, has referred the following question of law for the opinion of this court:

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that no penalty could be imposed in this case under Section 60(l)(c) of the Estate Duty Act? '

2. Smt. Lakshmi Bai passed away on October 19, 1966. The accounts for purposes of estate duty were rendered by the accountable person, Shri Gowrishankar Damani, on June 15, 1967, in E.D. 1-A Form duly verified and sworn in. The principal value admitted was net movables of Rs. 77,393 only. During the course of scrutiny of income-tax records of the deceased, it was noticed by the Assistant Controller of Estate Duty that the deceased was in receipt of an allowance every year from the accountable person and that the same had been made a charge on a property. On further examination, he found that the deceased had effected a settlement in respect of the house property at No. 98, Mint Street, Madras, in favour of her grandson on May 23, 1945, and that in that settlement the deceased had reserved an interest in the said property. Consequently, according to the. Assistant Controller of Estate Duty, provisions of Section 12 of the Act were applicable. Accordingly, the assessment was completed on July 29, 1967, on a principal value of Rs. 1,51,593 including the value of the property settled under the document dated May 23, 1945. The Assistant Controller of Estate Duty was of the opinion that the accountable person had without reasonable cause failed to admit the value of the settled property (probably he meant the value of the property settled under the document dated May 23, 1945), in the estate duty return and had thereby concealed the particulars of the principal value of the estate, with the result he issued a notice under Section 60(2) of the Act on July 29, 1967. In reply to this, the accountable person pleaded that the settlement took place before the statutory period, that is, more than 2 years of death, that there had been no reservation either under Section 10 or Section 12 as contemplated and that the value of the said property was, therefore, not included in the estate duty return under the bona fide belief that the same was not includible. The Assistant Controller of Estate Duty did not accept this explanation of the accountable person and imposed a penalty of Rs. 3,000 under Section 60(1)(c) of the Act by his order dated January 31, 1968. Against this order, the accountable person preferred an appeal to the Appellate Controller of Estate Duty, who, by his order dated July 16, 1968, while confirming the liability to penalty, reduced the quantum of penalty to Rs. 1,500. The accountable person preferred a further appeal to the Income-tax Appellate Tribunal, Madras Bench, and the Tribunal by its order dated 25th August, 1970, allowed the appeal and held that the accountable person was not liable to pay any penalty under Section 60(l)(c) of the Act. It is the correctness of that conclusion of the Tribunal that is challenged in the form of the question referred to this court extracted already.

3. We shall immediately indicate the reasons which prevailed with the Tribunal for holding that the accountable person was not liable to pay any penalty. In paragraph 6 of its order, the Tribunal sets out the two points it had to consider, namely, (1) whether penalty is exigible where an asset is deemed to be an asset under the deeming provisions of Section 12 of the Act; and (2) where there is a difference of opinion as regards the asset and its includibility in the estate or its assessability under the Act and if that difference of opinion is bona fide, can the non-inclusion of that asset in the estate duty return lead to concealment as envisaged in Section 60(l)(c) of the Act. On point No. 1 posed before it, the Tribunal came to the conclusion that the penalty was not exigible in respect of what it construed to be deemed asset. On point No. 2 also it held in favour of the accountable person, With regard to the reasons given by the Tribunal in respect of its conclusion on point No. 2, we may immediately point out that those reasons are not convincing. Difference of opinion in respect of an issue or the debatable nature of an issue will arise only in the event of different authorities taking difierent views on a question. For instance, if the assessing authority takes one view and the appellate authority takes another view, from that itself it can be stated that there is scope for argument that a particular person who had not done a particular thing might have omitted to do it as a result of bona fide impression that he was not bound to do it. But in this particular case, the difference of opinion which the Tribunal points out is the difference of opinion between the accountable person and the assessing officer. On the face of it, that cannot be said to be a difference of opinion and such difference of opinion can have no bearing on the question of deciding the bona fides of the accountable person. As a matter of fact, there is bound to be difference of opinion in every case between an assessee and the assessing officer, unless the assessee submits to the assessment. In all other cases when the assessee contests the assessment in respect of any particular matter and the assessing officer does not accept the case of the assessee, it cannot be said that there is a difference of opinion on the issue in question, Therefore, we have, no hesitation whatever in pointing out that the observations made by the Tribunal in respect of point No. 2 as to there being a difference of opinion are certainly wide and they are not relevant. However, the conclusion of the Tribunal on point No. 1 simply as a matter of construction of the relevant statutory provision is correct we shall point out the reasons therefor.

4. It is not in dispute that the accountable person has been found to have concealed particulars only in respect of that part of the estate which is said to have fallen within the scope of Section 12 of the Act. Section 12(1) of the Act is as follows :

'Property passing under any settlement made by the deceased by deed or any other instrument not taking effect as a will whereby an interest in such property for life or any other period determinable by reference to death is reserved either expressly or by implication to the settlor or whereby the settlor may have reserved to himself the right by the exercise of any power, to restore to himself or to re-claim the absolute interest in such property shall be deemed to pass on the setter's death.'

5. There are two provisions to this sub-section and it is unnecessary to refer to them for the purpose of this case. On the language of this section, it contemplates that the property has been settled by the deceased in favour of another person, but while so doing she had reserved an interest in that property for her life or for any other period determinable by reference to her death. In such an event the section says that notwithstanding that the property has been settled and, therefore, it belongs to the settlee still for the purpose of assessment to estate duty, the entire property must be deemed to pass on the death of the settlor. Thus, the section creates a fiction. The postulate of the section is that the property was not the property of the deceased, but the property of the settlee and that, notwithstanding the ownership of the property having already passed to a third party, the section provides that the property shall be deemed to pass only on the death of the settlor, because there was a reservation in favour of the settlor. If under Section 12 the property itself is held to be the property of the settlor, there is no question of such property being deemed to pass on his death, because it will actually pass on his death. It is against the background of this effect of Section 12 that we shall now have to consider Section 60(1)(c) of the Act under which alone penalty has been levied.

6. Section 60(1)(c) of the Act, so far as material, is :

'If the Controller, the Appellate Controller or the Appellate Tribunal, in the course of an^ proceedings under this Act, is satisfied that any person--......

(c) has concealed the particulars of the property of the deceased or deliberately furnished inaccurate particulars thereof; ....

he or it may, by order in writing, direct that-

such person shall pay by way of penalty--......

(ii) ... ...in addition to the amount of the estate duty payable by him, a sum not exceeding twice the amount of the estate duty, if any, which would have been avoided if the principal value shown in the account of such person had been accepted as correct.'

7. Consequently, the basis for the incurring of the liability to penalty is concealment of the particulars of the property of the deceased or the deliberate furnishing of inaccurate particulars of the property of the deceased. The property coming within the scope of Section 12 of the Act cannot be said to be the property of the deceased, as we have pointed out already, and that is the reason why the property covered by Section 12 is deemed to pass on the death of the deceased. So long as Section 60(1)(c) is confined to concealment of particulars of the property of the deceased, that will not take in the property covered by Section 12 of the Act. Therefore, in the present case the allegation against the accountable person being that he had not furnished particulars of the property falling within the scope of Section 12 or had deliberately furnished inaccurate particulars of such property, the provisions of Section 60(1)(c) of the Act are not attracted to this case.

8. While coming to such a conclusion, the Tribunal has relied on the analogy of Section 28(l)(c) of the Indian Income-tax Act, 1922. Section 28 of the Indian Income-tax Act, 1922, dealt with the penalty for concealment of income or improper distribution of profits. Section 28(l)(c) provided:

' If the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal, in the course of any proceedings under this Act, is satisfied that any person..........

(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, he or it may direct that such person shall pay by way of penalty..........in addition to any tax payable by him, a sum not exceeding one and a half times the amount of the income-tax and super-tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income.'

9. It is pertinent to point out that Section 28(l)(c)of the Indian Income-tax Act, 1922, uses the expression 'his income'. There were certain provisions in the Indian Income-tax Act, 1922, which authorised the Income-tax Officer to include in the income of the assessee certain incomes not belonging to him, but belonging to others, and assess the same in the hands of the assessee. One such provision was contained in Section 16(3) of that Act. That statutory provision provided :

' 16. (3) In computing the total income of any individual for the purpose of assessment, there shall be included-

(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly-

(i) from the membership of the wife in a firm of which her husband is a partner;

(ii) from the admission of the minor to the benefits of partnership in a firm of which such individual is a partner ;

(iii) from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart; or

(iv) from assets transferred directly or indirectly to the minor child, not being a married daughter, by such individual otherwise than for adequate consideration.'

10. The income referred to in Section 16(3)(a)(i) of the Indian Income-tax Act, 1922, was certainly the income of the wife belonging to her as partner in the firm. So also under Section 16(3)(a)(ii) the income was the income of the minor belonging to him or her as having been admitted to the benefits of the partnership. Similarly, under Section 16(3)(a)(iii)the income referable to the transferred assets belonged to the wife. Under Section 16(3)(a)(iv), the income referable to the transferred assets belonged to the minor child. Notwithstanding the fact that the income belonged to the wife or the minor child, as the case may be, the statute provided that the said income should be assessed in the hands of the assessee along with his income. But that provision will not in any way render the income of the wife or the minor child as the income of the husband or the father, as the case may be. Consequently, so long as Section 28(l)(c) of the Indian Income-tax Act, 1922, used the expression 'his income', the assessee could not be penalised under that section for not including in his return the income of his wife or his minor child coming within the scope of Section 16(3) of that Act. It is this position which was pointed out by a Bench of this court in V. S. Arulanandam v. Commissioner of Income-tax : [1968]67ITR305(Mad) .

11. In that case also proceedings for levy of penalty under Section 28(1 )(c) of the Indian Income-tax Act, 1922, were taken on the ground that the assessee had omitted to include in his return the interest credited to his wife in the books of the firm, the capital deposit having been made from assets transferred by him to her. This court held that the obligation under Section 22(1) of that Act was only to return the total income that had accrued or arisen or deemed to have accrued or arisen to the assessee, that there was nothing in Section 16(3)(a)(iii) which cast an obligation on the assessee to include his wife's income in his return and that Section 28(l)(c) did not cover a wife's income not included by the husband in his return of his total income, since Section 28(l)(c) used the expression 'his income'. This court pointed out (page 308):

'Section 28(l)(c) speaks of concealment of the particulars 'of his income'. To our minds this indication is unmistakable that the income there referred to is the income of the assesses himself and not the income of someone else which because of the specific provision in that regard, is to be included by the Income-tax Officer for purposes of assessment in the total income of the assessee. In our opinion Section 28(1 )(c) does not cover a wife's income not included by the husband in his return of his total income.'

12. We are of the opinion that this analogy clearly applies to the present case also. We have already pointed out that Section 60(1)(c) of the Act uses the expression 'the property of the deceased' and the property contemplated by Section 12 of the Act is certainly not the property of the deceased. The deeming provision contained in Section 12 of the Act does not invalidate or nullify the settlement itself and the right acquired by the settlee under the settlement still continues and all that the section has done is to create a fiction that the property must be deemed to pass on the death of the settlor, in view of the reservation made by him, notwithstanding the fact that both in law and in fact the property had already passed to the settlee by virtue of the settlement deed. So long as the property covered by Section 12 of the Act cannot be said to be the property of the deceased--on this there can be no doubt whatever because the section itself creates only a fiction-the provisions of Section 60(1)(c) of the Act cannot be applied.

13. Mr. Jayaraman, learned standing counsel for the department, contended that the form prescribed under the Act for the purpose of filing the account compels the accountable person to include the property covered by Section 12 of the Act in the account and that so long as he has failed to include the same he will be liable to penalty under Section 60(1)(c) of the Act. We are unable to accept this argument. We have already referred to the fact that the accountable person in this case filed his account in Form E.D. 1-A. Our attention was drawn to certain paragraphs in this form and in particular to paragraphs 18 and 19 which have been sworn to by the accountable person in the present case. We may also point out that the form itself having contained those paragraphs, the accountable person had no option but to fill in those paragraphs in the account. Paragraph 18 as filled up by the accountable person is:

' 18. That the deceased made no disposition of property at any time in respect of which the donee did not assume bona fide possession to the immediate and entire exclusion of the donor, or where a benefit was reserved or secured to the deceased by contract or otherwise, save those described and valued in exhibit......... which have beenentered inaccount(s)No. (s).........'

14. Obviously this paragraph is with reference to the provisions contained in Section 10 of the Act, since it uses the language of that section. -Th& nextparagraph is paragraph 19, which as contained in the account filed by the accountable person is ass follows :

' 19. That there is no other property falling under the following descriptions (10) save those described and valued in exhibits.........which have been entered in the appropriate accounts as indicated in exhibit.........

(a) Property in which: the deceased or some other person had an interest which ceased on the death of the deceased.

(b) Property which the deceased had enjoyment of or interest in for life, or for some period determinable by reference to his/her death, under an express or implied trust in a settlement made by himself/herself.

(c) Property which the deceased caused to be vested in himself/ herself and some other person jointly either by disposition, or purchase so that the other person takes by survivorship.

(d) The deceased's severable share of property of which he/she was a joint tenant or joint owner with another or others.

(e) Policies which the deceased effected on his/her life, and kept up wholly or partly for the benefit of a donee, whether nominee or assignee.

(f) Annuities or other interests which the deceased either alone or by arrangement with any person purchased or provided, including annuities purchased or provided, whereby or partially by some person who was at any time entitled to any property derived from the deceased.

(g) Gifts by way of creation of a burden or release of a right.' Our attention was drawn to sub-paragraphs (a) and (b) of paragraph 19 and it was contended that those two sub-paragraphs required the accountable person to give the value of the property covered by Section 12 of the Act. There are two answers to this contention. In the first place, even if those two sub-paragraphs compelled the accountable person to give particulars of the property coming within the sope of Section 12, still his failure to do so will not attract Section 60(1)(c) of the Act because the content of the form cannot control or qualify or enlarge the scope of the penal provision contained in Section 60(1)(c) of the A.c. As we have pointed out already, Section 60(1)(c) of the Act is concerned only with the property of the deceased and it does not concern itself with the property deemed to pass on the death of the deceased. Therefore, even if paragraph 19 required the accountable person to include the value of the property falling within the scope of Section 12 of the Act and the accountable person had failed to do so, that would not expose the accountable person to liability under Section 60(1)(c) of the Act, in view of the language of that very section.

15. We shall illustrate this position also on the basis of an analogy of Section 34(l)(a) read with Section 16(3) of the Indian Income-tax Act, 1922.Section 34(l)(a) of the Indian Income-tax Act, 1922, enabled the Income-taxOfficer to reopen an assessment, if he had reason to believe that by reasonof the omission or failure on the part of the assessee to make a return of his income under Section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment. .

16. In V. D. M. RM, M. RM. Muthiah Chettiar v. Commissioner of Income-tax : [1969]74ITR183(SC) , the assessee had not included in his return the minor's share of income, in the partnership firm coming within the scope of Section 16(3)(a)(ii) of that Act. The question that came up for consideration before the Supreme Court was whether the failure of the assessee to include in his return the minor's share of income could be said to constitute failure on his part to disclose fully and truly all the necessary particulars for the assessment of his income. The Supreme Court held that there was no provision in that Act obliging the assessee to include in his return the income of his minor son in the firm. One of the contentions that was put forward before the Supreme Court was that in the forms of return prescribed, certain notes of guidance for drawing up the return were printed, whereby the assessee was informed that he had to disclose the income received by his wife and minor children from a firm of which the assessee was a partner. With reference to such an argument, the Supreme Court held (page 188):

'Assuming that there were instructions printed in the forms of return in the relevant years, in the absence of any here under which the income of the wife or minor child of a partner whose wife or a minor child was a partner in the same firm, could be shown, by not showing that income the taxpayer cannot be deemed to have failed or omitted to disclose fully and truly all material facts necessary for his assessment. Section 16(3) imposes an obligation upon the Income-tax Officer to compute the total income of any individual for the purpose of assessment by including the items of income set out in Clauses (a) (i) to (iv) and (h), but thereby no obligation is imposed upon the taxpayer to disclose the ncome liable to be included in his assessment under Section 16(3). For failing or omitting to disclose that income proceedings for reassessment cannot, therefore, be commenced under Section 34(l)(a).'

17. As a matter of fact, the case under the Act (the Estate Duty Act) with which we are dealing will stand on a stronger footing. Section 34(l)(a) of the Indian Income-tax Act, 1922, used the expression 'by reason of the omission or failure on the part of an assessee to make a return of his income under Section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year.' Even though the section uses the expression 'his income' in relation to the omission or failure to make a return, with regard to the disclosure it uses only the expression, ' necessary for his assessment for that year.' In the present case, Section 60(1)(c) of the Act expressly and categorically refers to the property of deceased, there being no scope whatever for any ambiguity. Consequently, even if there had been an obligation on the part of the accountable person, by virtue of the form of return, to include the value of the property coming within the scope of Section 12 of the Act as a part of the assessable estate, still we are of the opinion that that will not attract Section 60(1)(c) of the Act.

18. We may also point out that from a reading of sub-paragraphs (a) and (b) of paragraph 19 of the return, there is no obligation cast upon the accountable person even by those terms of the return to include the value of the property coming within the scope of Section 12 of the Act. As we have pointed out already, our attention was drawn only to paragraphs 19(a) and 19(b). Paragraph 19(a) refers to the property in which the deceased or some other person had an interest which ceased on the death of the deceased. Consequently, this paragraph speaks the language of Section 7 of the Act and, therefore, it cannot have any reference to Section 12. Particular emphasis was laid on paragraph 19(b). We have extracted both Section 12(1) and paragraph 19(b). Paragraph 19(b) refers to 'trust' while no such 'trust' is mentioned in Section 12 of the Act. Consequently, having regard to the use of the expression 'trust' in paragraph 19(b), which will necessarily restrict the scope of Section 12 which itself does not use that expression, we are of the opinion that paragraph 19(b) of the form also cannot be construed to require the accountable person to give the value of the property deemed to pass under Section 12 of the Act as part of the assessable estate. Under these circumstances, we are clearly of the opinion that the Tribunal was right in holding that to the facts of this case Section 60(1)(c) of the Act was not attracted. Accordingly, we answer the question referred to this court in the affirmative and in favour of the accountable person. The accountable person is entitled to his costs from the Controller of Estate Duty, Madras. Counsel's fee is fixed at Rs. 500 (Rupees five hundred only).