Controller of Estate Duty vs A.V.S. (P.) Ltd.

V. Ramaswami, J.—These are references under the Estate Duty Act, 1953 (''the Act''). The widow of one deceased A.V. Srinivasalu

Naidu as an accountable person, submitted a return. Two deductions are in question. The first related to a decree debt in O.S. No. 232 of 1961

on the file of the Court of the Subordinate Judge of Coimbatore and the other a compromise decree against the deceased A.V. Srinivasalu Naidu

in O.S. No. 254 of 1956 on the file of the same Court, amounting to Rs. 1,75,000.

Shortly stated the facts in Tax Case Nos. 77 to 79 of 1977 are these: The deceased A.V. Srinivasalu Naidu was a partner in a firm called

R.G.C. Naidu & Co., Coimbatore, which were the managing agents of Coimbatore Spg. & Wvg. Mills Ltd., a public limited company. In respect

of certain misappropriations committed by the managing agents, the managed company filed O.S. No. 232 of 1961 above referred to, claiming

damages in a sum of Rs. 8,27,449. That suit was decreed for a sum of Rs. 5,83,493 insofar as the firm was concerned. The deceased had one-

third share in the partnership firm and his liability is determined at Rs. 1,99,465. However, the accountable person claimed the entire decree

amount as an admissible deduction u/s 44 of the Act. Though the Assistant Controller rejected the said claim, the Appellate Controller allowed the

claim to the extent of one-third as stated above on the ground that the deceased was liable only to that extent. The department as well as the

accountable person claiming that the entirety of the decree amount should have been allowed as a deduction and the department claiming that

nothing was deductible on that ground. The Tribunal confirmed the order of the Appellate Controller. Both the accountable person and the

department filed applications for reference and a consolidated question has been referred and that forms the first question that has been referred to

in Tax Case Nos. 77 to 79 of 1977.

The deceased appeared to have been in management of certain estate belonging to his nephews. On the ground that the deceased had secreted

certain moneys belonging to the estate of his nephews and that he had not fully accounted for the income derived from the estate, his nephews filed

O.S. No. 254 of 1966 on the file of the Court of the Subordinate Judge, claiming large amounts, that is, over Rs. 3 lakhs and also for accounting.

That suit was compromised and the accountable person submitted to a decree for a sum of Rs. 1,75,000. This amount was sought to be deducted

from the estate of the deceased. The Assistant Controller rejected this claim also on the ground that there is no evidence to show as to how the

said amount of Rs. 1,75,000 was arrived at and whether it was reasonable. On an appeal preferred by the accountable person, the Appellate

Controller, however, held that the facts established that there was absolutely no defence for the defendant, that a compromise was more

advantageous and that the decree against the deceased was a real and bona fide one. In that view, it allowed the deduction of that money also. The

appeal preferred by the revenue to the Tribunal having failed, at the instance of the revenue, the second question in Tax Case Nos. 77 to 79 of

1977 has been referred.

The two questions that are referred to this Court in Tax Case Nos. 77 to 79 of 1977 read as follows:

Whether, on the facts and in the circumstances of the case, any portion of the entire amount covered by the decree passed in O.S. No. 232 of

1961 on the file of the Subordinate Judge, Coimbatore, was admissible as a deduction in computing the principal value of the estate of the

deceased?

Whether, on the facts and in the circumstances of the case, the sum of Rs. 1,75,000 paid by the accountable person Smt. Vijayammal to

compromise the suit filed against the deceased by his nephews in O.S. No. 254 of 1956 was deductible while computing the principal value of the

estate?

As already stated, the decree in O.S. No. 232 of 1961 is a decree against the firm of the managing agents. The deceased of course had one-

third share in that firm. The learned counsel for the revenue contended that the decree could be executed against the other partners fully and that

ultimately the deceased or the accountable person may not be liable for anything at all and, therefore, the entire amount should not be allowed. On

the other hand, the learned counsel for the accountable person contended that since the decree is one against the firm, the liability is joint and

several and, therefore, the decree might be executed against the estate of the deceased fully and in fact execution proceedings have been taken

only against the estate of the deceased. He also contended that the liability is in the nature of a liability for tort, that is, for misappropriation of the

money and, therefore, the accountable person may not be able to claim any contribution at all from the other partners. Both these extreme

contentions are not acceptable. We have to find out the rights and liabilities of the deceased on the date of his death. It is not possible for us to

consider as to what will happen later. It may be, the estate of the deceased may not be able to satisfy the decree or, it may be, the decree-holder

may not proceed against the estate of the deceased. It is also possible that even if the deceased paid the entire amount, he might be able to recover

the contributions from the other debtors or he might not be able to recover anything. But these are all questions which cannot arise at all while

considering as to what was the liability of the estate on the date of the death. We have to theoretically consider the extent of liability of the estate on

the date of death. There is also a right to recover or get an indemnity in respect of the other shares of the debt from the other partners. In such

circumstances we have to take it that the liability of the deceased was only to the extent of one-third of the decree amount, viz., Rs. 1,99,465 as

stated already. The Tribunal was, therefore, right in its conclusion that the deduction is allowable only in respect of the said sum. Accordingly the

answer to the first question will be that only Rs. 1,99,465 being one-third of the decree amount in respect of the decree in O.S. No. 232 of 1961

will be admissible as a deduction.

So far as the next question is concerned, there can be no doubt that the deceased was in management of the estate of his nephews when they

were minors. He was an accountable person to the income received by the estate of the minors. It is not possible to hold that the compromise

decree was in any way unrealistic or that it did not take into account the exact liability of the deceased. Bona fides in entering into the compromise

could not be disputed at this stage. This question is unarguable for the revenue. There is no evidence to show that the compromise was not entered

into bona fide by the accountable person.

In such circumstances, we have to answer the second question in the affirmative and against the revenue, and it is accordingly answered.

In Tax Case Nos. 77 to 79 of 1977 the accountable person will be entitled to her costs. Counsel''s fee Rs. 500 one set.

In Tax Case No. 76 of 1977 the respondent is A.V.S. (P.) Ltd., Coimbatore. The deceased, his wife and two others are the only share holders

of the company. There is no dispute that it is a controlled company within the meaning of section 17 of the Act. The sum of Es. 1,75,000 paid

towards discharge of the decree debt in O.S. No. 254 of 1956 was stated to have come from that company. It is in these circumstances that no

separate question is referred to this Court in Tax Case No. 76 of 1977 and the respondent in this case is only interested in the answer relating to

the second question in Tax Case Nos. 77 to 79 of 1977. In view of this, the answer relating to the second question already given will cover this

case also. There will be no orders as to costs in this case. For the reasons stated in Tax Case Nos. 77 to 79 of 1977 the decision given in those

cases will cover the questions in Tax Case Nos. 1354 and 1355 of 1977 also, since the matters are related and same questions as have been

referred to in Tax Case Nos. 77 to 79 of 1977 have been referred to in Tax Case Nos. 1354 and 1355 of 1977 also. Accordingly Tax Case Nos.

1354 and 1355 of 1977 are disposed of with reference to the answers given to the two questions referred to in Tax Case Nos. 77 to 79 of 1977.

There will be no order as to costs in this case also.