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Judgment
Srinivasan, J.—These Writ Petitions raise questions of some importance relating to the assessment and levy of estate duty. On 16th October
1953 Kunjanujan, the then Zamorin of Calicut, died. There were successive deaths of succeeding Zamorins on 9th July 1954, 2nd May 1958 and
23rd December 1960. The last Zamorin who died was the Petitioner. On his death, his successor, Kunhunni Thamburan, became the Zamorin of
Calicut, and has been brought on record as the Petitioner in these writ petitions. In writ petition 582 of 1960, the proceedings of the Deputy
Controller of Estate Duty, dated 29th January 1960, and the further proceedings, dated 4th May. 1960, are in issue. By the first of these
proceedings, an estate duty of Rs. 1,26,676 has been assessed and allocated among certain accountable persons. In writ petition No. 583 of 1960
also the two orders impugned were passed on the 29th of January 1960, and the 13th of May 1960. The levy of estate duty in this case is Rs.
89,979. In the third writ petition, the orders impugned were made by the Deputy Controller on 12th July 1960 and on 6th September 1960. The
estate duty levied hereunder is Rs. 6,45,204. The second of the orders referred to are the demand notices issued by the Deputy Controller.
Certain broad facts have to be set out, in order to appreciate the controversy raised in these Writ Petitions. The Zamorin of Calicut is the senior
most male member in a group of three families which are independent of each other in so far as the property owned by each group is concerned.
There are five sthanams known as the Zamorin, the Eralpad, the Munalpad, the Edatralpad and the Nedutralpad. The larger family unit from which
the Zamorins are drawn is known as the Nediyiruppu Swaroopam, which is a Hindu joint family governed by the Marumakattayam Law. This
family has three branches. For the purpose of filling the five sthanams referred to, the seniormost male member in this group of three families is
chosen. The peculiar feature regarding these sthanams is that whenever one of the sthanams falls vacant by the death of the holder of the sthanam,
a person next in age to him takes his place. He is generally the one who is holding the sthanam next below. For instance, if the Zamorin should die,
the holder of the Eralpad sthanam becomes the Zamorin. the holder of the Munalpad sthanam takes up the Edatralpad sthanam and so on in
succession, and finally, to fill what may be called the junior most sthanam, that of Nedutralpad, the next seniormost member of the family becomes
entitled to it. Another feature is that each of these sthanams except the last has immovable properties attached to it. In addition, the sthanam
holders are entitled to receive certain amounts of malikhana allowance from the Government. Such succession to the sthanams of the Zamorin and
the other four sthanams took place on the death of the Zamorin in 1953, 1954 and later. The Deputy Controller of Estate Duty held that since the
deceased Zamorin rose by successive steps to that post, he had an interest in the properties of each of the five sthanams at some time or other
during his life. He was of the view that the properties of the sthanams were therefore aggregable ""and chargeable to estate duty on the death of the
Zamorin.
Originally when the Estate Duty Act was passed, it excluded agricultural lands from its scope. In 1955 such lands were also brought within the
scope of the levy of estate duty. The estate of the Zamorin also includes various unsurveyed forests which have been let out on long leases to
several persons. The Controller accordingly valued these forests for the purpose of computation with reference to the income as disclosed by the
lease deeds. Other properties such as house properties, including lands appurtenant to these buildings, were also valued at a particular figure by the
Controller.
The Controller also valued the interest which the deceased Zamorin had in the properties of the joint family to which he belonged. As these
properties were the subject-matter of a partition suit and were in the possession of a receiver, the value of the deceased. Zamorin''s share was
taken on the basis of the values adopted in the partition suit and the receiver was treated as the accountable person in so far as those properties
were concerned.
What has been stated above is a broad picture of the scope of the assessment undertaken by the Deputy Controller. It may be mentioned that
up Jo the date of the notification u/s 5 of the Estate Duty Act which was issued in 1955 to include agricultural properties, the Controller excluded
agricultural lands and it was only in the last of the orders that the value of the agricultural lands has also been included for the purpose of estate
duty.
One of the principal contentions raised by the Petitioner is that he cannot be regarded as the accountable, person in respect of each and every
one of these assessments notwithstanding that he is the present Zamorin. Objection has also been taken to any levy of duty in so far as the four
sthanams other than that of the Zamorin are concerned.
According to the Petitioner, the deceased Zamorin had interest only in the Zamorin Raja''s sthanam properties at the time of his death, and that
he had no interest at all in any of the properties of the other sthanams. The contention is that only the estate which, comprised of the Zamorin''s
sthanam properties is liable for estate duty and not the properties of the other sthanams. The view taken by the Deputy Controller, that because the
deceased Zamorin had at some time or other during his lifetime an interest in the other sthanam properties they were also aggregable for the
purpose of estate duty is disputed. Another line of attack is that under the Hindu Succession Act, Act XXX of 1956, the devolution of the
properties of sthanams of this kind has been altered, and the Act provides that on the death of a sthani, the sthanam property was to devolve upon
the members of the family of the sthani and his personal heirs as if the property, had been divided per capita immediately before the death of the
sthanamdar. It is the contention of the Petitioner that the members of his family, that is, that Nediyiruppu Swaroo-pam, took the sthanam properties
as their separate properties on the death of the late Zamorin and that the Zamorin as one of the members of the family, owned only 1/705 share. In
addition to this, an Act was passed by the Kerala State, Act XXVIII of 1958. This Act also made certain provisions with regard to the devolution
of sthanam properties and provided for the Government to take over the management of the properties in certain cases. It is claimed that by virtue
of this Act also, the order of the Deputy Controller taking the entirety of the properties for the purpose of the computation, of estate duty is
improper; as also the order of the Deputy Controller treating the Zamorin who succeeded as the accountable person.
Objection has also been taken to the method of ascertaining the price of the properties, which, according to the Petitioner, is in contravention of
Section 36 of the Estate Duty Act. Another complaint is that certain lands attached to Thiruvaohira Palace have been assumed by the Controller to
comprise partly of non-agricultural lands, which is factually incorrect, as the lands are cultivated with paddy and coconut. It is also contended that
the valuation of the Thiruvachira Palace at rupees two lakhs is erroneous, for. according to the computation made by the Controller himself, it was
originally fixed at rupees one lakh and fifty thousand.
The Petitioner next complains that it was not proper to adopt the book figures with regard to the arrears of rent for the purpose of computing
the value of the estate. It is firstly contended that agricultural income should be wholly excluded and that, in any event, having regard to the tenancy
laws which prevent the realization of such arrears to their full extent, only such amounts as could reasonably be regarded as realizable should have
been taken into account. The valuation of forest lands and the inclusion of the malikhana dues are also objected to.
Following certain demands made by the Deputy Controller, which could not be met by the Petitioner, penalties have also been imposed by the
Deputy Controller. It may be repeated that these assessments were made in 1960 for the first time when at least three Zamorins had died. By that
time, successive assessments had to be made, the result, being that besides an ascertained demand of rupees two lakhs, another sum of rupees six
and a half lakhs (provisionally assessed) became due by reason of the death of the third Zamorin on 2nd May 1958. The Deputy Controller
demanded that some properties should be sold and a substantial portion of the amount should be paid. The Petitioner had paid only a negligible
amount of rupees twenty thousands or so. But the Controller holding that the Petitioner was personally liable for the payment of the estate duty
imposed penalties. The view of the Controller that a heavy amount of duty would become payable as a result of the third death is challenged as
incorrect for the reason that by the provisions of the Hindu Succession Act, the entire properties of the Zamorin''s estate could not be regarded as
property of the deceased Zamorin which passed at his death. The basis for the imposition of the penalty is thus attacked as wholly erroneous in
law.
On behalf of the Controller of Estate Duty, it is pointed out that the several issues raised by the Petitioner with regard to the quantum, valuation
and other incidents of assessment have been challenged in regular appeals filed by him to the Central Board of Revenue and that the Petitioner
could obtain appropriate relief at the hands of the Appellate Tribunal. It is stated that the estate duty becomes livable in respect of all properties
passing on the death of the deceased, whether such properties belong to the deceased or not, and that, therefore, the inclusion of the properties
attached to the sthanams other than that of the Zamorin is justified by the provisions of the Act.
It is also denied that the Petitioner is not the accountable person. It is pointed out further that, even under the Kerala Act of 1958, the
management of a sthanam estate is vested in the Karnavan of the tarwad, who, in other words, is the seniormost male member of the family, which
the Petitioner admittedly is. It is, therefore, claimed that it is the Petitioner who is in charge of the estate and that read also in the light of the Estate
Duty Act he alone is the accountable person.
Next it is urged that while it is true that the Act requires valuation of the property on the basis of a sale in open market, it is hardly possible to
obtain any evidence of such market value in the case of properties of this kind, so that the usual method of valuation of properties has been
adopted. It is further pointed out that this valuation has followed more or less the value furnished by the Petitioner himself on the occasion of the
first two deaths. With regard to the lands of the Tiruvachira Palace, the contention is that the -accountable persons themselves indicated these
lands as non-agricultural and furnished a particular value. Notwithstanding that some paddy and coconut is grown on these lands, they are lands
appurtenant to the palace so that it would be incorrect to describe them as agricultural lands. While it was true that the initial valuation that was
placed was rupees one lakh and fifty thousand it was adopted only provisionally. From the accounts of the Petitioner himself and from some
instances of sales of land in the neighbourhood, the market value of the property was finally determined at rupees two lakhs. It is claimed that there
is no lack of jurisdiction in the Controller to deal with the matter in that way. With regard to arrears of rent again, while the figure that was originally
furnished by the Petitioner was at rupees one lakh and eighty-nine thousand and odd, he subsequently deleted time-barred items and furnished
such arrears of agricultural rent at rupees one lakh and twenty-four thousand and odd. In the absence of anything to indicate that this amount was
not recoverable, the whole amount was taken as part of the outstanding due to the estate.
Another important point canvassed in the counter-affidavit is that by a subsequent order, dated 15th September 1960, the Deputy Controller
has allowed quick succession relief to which the estate is entitled, so that the estate duty payable on the second death became reduced from rupees
eighty-nine thousand and odd to rupees forty-five thousand and odd only.
The contentions raised in the other writ petitions are similar and it is not necessary to set them out at length.
Two important questions of law are raised. The first of them is, the properties of the sthanam, that is, of the Zamorin, alone pass and that the
devolution of the interest in the properties attached to the remaining sthanams cannot be taken into account for the purpose of levying estate duty.
In amplification, what is contended is that since the Zamorin, on the eve of his death was interested only in the properties attached to that sthanam,
notwithstanding by reason of his death there is a succession to the next four sthanams, such succession to another sthanam cannot bring in the
properties attached to that sthanam for the purpose of levy of estate duty. While it may be true that the Zamorin before he became the holder of
that sthanam was the holder of the next sthanam, it was in his capacity as Zamorin that he had any interest in the properties attached to that
sthanam. It is claimed, therefore, that the Zamorin as a distinct person has to be separately treated, and if that is so, the fact that on the Zamorin''s
death the properties attached to the next sthanams changed hands would not be an incident relevant to the levy of estate duty on the Zamorin''s
death. This question calls for an examination of the relevant provisions of the Act.
The charge to estate duty is laid by Section 5 of the Act and the duty is levied upon the principal value of all property which passes on the
death of such person. The expression which passes on the death of such person has to be interpreted. Section 2(76) defines this expression as
including property passing either immediately on the death or after any interval, either certainly or contingently, and either originally or by way of
substantive limitation.
Sections 6 to 17 of the Act deal with property which is deemed to pass, which means that property which the deceased has at the time of his
death competent to dispose of (Section 6); interests ceasing on death being deemed to pass to the extent to which a benefit accrues or arises
(Section 7); property taken as gift made in contemplation of death (Section 8) gifts made within a certain period before death (Section 9); and
other cases which are not necessary for our present purpose. Even from the charging section and the definition of the expression property passing
on death it is apparent that it is not only property in which the deceased had an interest that is covered by that expression. For instance, if A should
die and if by reason of his death property should pass from B to C, that would still be passing of property occasioned by the death within the
meaning of the relevant provisions of the Estate Duty Act. It is certainly strange that the passing of property as between two persons who may both
be alive at that time should be brought within the scope of the estate duty. But that is inevitable, for the incident which gives rise to the passing of
property as between those two persons is related to the death of a third person, and as that death should be the occasion for the passing of
property as between totally different parties, that would nevertheless be a taxable event in the eye of the law. Passing of property in other words
means only property changing hands and nothing more.
In Attorney-General v. Beech 1 E.D.C. 171 a deed of trust was executed where under some property was settled upon the son of the
executrix absolutely subject to her own life interest. Subsequently, the life interest was surrendered by a farther deed. On the death of the executrix
some years later, the question, arose whether the value of the properties so surrendered was property passing on the death. The contention of the
Crown was that under the charging section, which is in identical terms with Section 5(1) of the Estate Duty Act, the property in question passed by
reason of the death. The Crown also relied upon Section 2 of the English Act, which is similar to Section 7 of our Act, in support of its contention.
When the question came before the House of Lords, it was pointed out that the passing of property from the mother to the son had taken place
Inter Vivos and that the moment the mother executed the trust deed, the son was completely the master of the situation and could have sold the
property the very next day. It followed, therefore, that there was no passing on the death of the mother. Though on the facts of that decision, that
result followed, HALSBURY L.C. said,
what the statute intended to make liable to pay duty is the succession between a person from another upon death; I do not say necessarily from the
person who has died. There may Be such a thing, of course, as a succession by reason of the death of a person not immediately a former owner of
the property in popular language but some death settled between the parties as the period at which the estate should vest.
It is clear, therefore, from this decision that it is not necessary for the purpose of attracting the taxing provision that the property should have
passed from the deceased person to another. In another decision of the House of Lords Earl Cowley v. Commissioner of Inland Revenue 1
E.D.C. 195, Lord Macnaughton stated:
The principle on which, the Finance Act on 1894 was found is that whenever property changes hands on death, the State is entitled to step in and
take tell of the property as it passes without regard to its destination Or to the degree of relationship, if any, that might have subsisted between the
deceased and the person or persons succeeding Again, he observed:
What the Act has in view for the purpose of taxation is property passing on death not the interest of the deceased, which if it be a limited interest,
can never pass.
From these observations, it is certainly clear that the contention that it is only property in which the deceased person was interested at the time
of his death that can be had regard to for the purpose of levying estate duty is not supported by the provisions of the Act. That this is the proper
construction of the provision also receives some support from Section 34, which deals with aggregation of property and rates of duty. Sub-section
(3) of the section states that any property passing in which the deceased never had an interest 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. This provision
contains an indication that even property in which a deceased person never had any interest could be property passing on death liable to pay estate
duty, but by reason of this Sub-section is entitled to be treated as a separate estate by itself.
Certain observations of the House of Lords in The Attorney-General v. Mine 2 E.D.C. 9 lend further support to the above proposition. Lord
Dunedin stated that while the charging section which uses the word passes is naturally associated with the idea of from and to and on the death
thereby directing attention to the death of a person who leaves property behind him, that section does not stand alone and it is modified by Section
2 of the English Act which is analogous to Section 7 of our Act. He observed:
By Sections 1 and 2, a tax is imposed whenever, to use very untechnical language, a death occurs and somebody in consequence gets property
which he did not have before and this tax is imposed on the property according to its value, irrespective of the question of the kind of interest
which the new taker gets and of his or her relation to the deceased person.
Again
That duty, the regular estate duty, is imposed quit(c) irrespective of who is the taker of the passing property or of what his interest therein is.
It is seen, therefore, that on a proper interpretation of the relevant provisions, the result must follow that even if the deceased person possessed
no interest in the property at the time of his death, if that property should change hands by reason of his death, it becomes liable to estate duty
under the charging section. The question whether it should nor should not be aggregated is a different one which I shall consider later.
In this context again it may be worthwhile noticing that Section 7 which deals with interest ceasing on death, provides thus:
Subject to the provisions of this section property in which the deceased or any other person had an interest ceasing on the death of the deceased,
shall be deemed to pass on the deceased''s death.
This provision accordingly takes into account property in which any other person had an interest. It would appear, therefore, if by reason of
the death of the Zamorin, the property of the next sthanam changed hands from one person to the other, it shall be deemed to pass on the
deceased''s death within the meaning of Section 7. Whether under the charging section itself or u/s 7, there is no doubt that the property attached
to the four sthanams other than that of the Zamorin did indeed pass or change hands on the death of Zamorin.
u/s 5 of the Estate Duty Act, the principal value of the property included agricultural lands situated in certain States only specified in the First
Schedule to this Act is liable to Estate Duty. Sub-section (2) of Section 5 empowers the Central Government by notification to add the names of
any other States to the First Schedule, where resolutions have been passed by the Legislatures of those States adopting this Act, the Estate Duty
Act, in respect of estate duty on agricultural lands situate in those States. The State of Madras and the State of Travancore-Cochin, as it then was,
were included in the First Schedule by notifications, dated 6th June 1955 and 22nd April 1955, respectively. With effect from these dates, the
agricultural lands situate in these States also became liable to estate duty. It would accordingly appear that since the deaths of the first Zamorin
took place on 16th October 1953, there could be no levy of estate duty upon agricultural lands which passed on that death; nor would those lands
(situate in Madras and the present State of Kerala) be liable to estate duty on the second of the deaths which took place on 9th July 1954, since
both of these dates are prior to the dates of the notifications Though the value of the lands cannot be taken for the purpose of imposing estate duty,
that for purposes of determining the rate of duty the value of these lands are liable to be aggregated is laid down in Section 34 which states:
In the case of agricultural land so passing if any, situate in any State not specified in the First Schedule, its value shall be aggregated so as to form
one estate, and estate duty shall be levied thereon at the rate or rates applicable in respect of the principal value thereof.
Sub-section (4) of Section 34, however, provides, where any such estate as is referred to in Sub-section (1) includes any property exempt from
state duty, the estate duty livable on the property not so exempt shall be that part of the total amount of duty which is in the same ratio as the value
of the property not exempt bears to the value of the whole estate. By reason of these provisions, the value of agricultural land which was exempt is
taken into consideration for the purpose of fixing the rate of duty, but the tax is actually collected only in respect of the property passing which is
not exempt. I am unable to agree with the learned Counsel for the Petitioner that in effect the tax has been imposed upon agricultural lands prior to
the date of the notification referred to. It is conceded by the department that no duty is livable in respect of the first two deaths on the agricultural
lands, though the value of these lands is liable to be aggregated in determining the total value of the estate. It must, therefore, follow in so far as the
contention that even the aggregation should not be effected is concerned, that must fail.
I may next deal with the arguments rested upon the Hindu Succession Act and the Sthanam Properties (Assumption of Management and
Control) Act, Act XXVIII of 1958, of the Kerala State. The Hindu Succession Act came into force on the 17th June 1956 that is on a date
between the second and the third deaths. The question that has been argued on behalf of the Petitioner is the extent to which the provision of this
Act vary the rules of devolution of property that previously obtained, with the result that it is not the whole of the estate that passes on the death
but only a part thereof, determined in accordance with the provisions of the Hindu Succession Act. u/s 7 of the Estate Duty Act, it is provided by
Sub-section (3) that if a member of any tarwad or thavazhi, governed by the Marumakattayam rule of inheritance, dies, then the provisions of Sub-
section (1) shall not apply with respect to the interests of the deceased in the property of the tarwad or thavazhi, unless the deceased had
completed his 18th year. Sub-section (1), deals with a case where a deceased possessed an interest which ceased on the death; such interest shall
be deemed to pass to the extent to which a benefit accrues by the cesser of such interest, including a coparcenary interest, in the joint family
property of a Hindu family governed by the Marumakattayam law. The need for this provision was that under that law of devolution peculiar to
such families, no member of a tarwad or thavazhi was entitled to partition and to possession of a separate interest in the properties of the tarwad or
thavazhi. For the purpose of the Estate Duty Act. however, it was deemed that in the case of a person who had completed his 13th year at the
time of his death, his interest could be evaluated for the purpose of determining the extent of the property which passed on his death. Sub-section
(4) of Section 7 also lays down that no duty will be chargeable if the property was one in which the deceased had an interest only as a holder of an
office. Before dealing with the changes effected by the Hindu Succession Act in this regard. it may be helpful to state briefly what the position was
before the passing of the Act in so far as tarwads and sthanams are concerned. A Malabar tarwad or thavazhi is a corporate unit not dissimilar
from the Mitakshara, Hindu joint family. The property held by the family is normally impartible. No member has a definite share, nor can he
enforce a right to partition. The Management is vested in the seniormost male member called the Karnavan. The principle of survivorship known to
the Mitakshara does not operate and any member of the tarward is entitled to be maintained by the tarwad and that right enured only for his life.
No doubt, the birth or death of a member in the family may reduce or increase the benefits which the other members of the family derive. But apart
from these, the property forms a unit which is incapable of division. In the case of sthanams, it is a well-recognized custom which has existed on the
West Coast that certain families set apart certain property in order that the Chief member of the family might keep up his position and prestige.
There can be more than one sthanam in the same family and separate properties appertained to each sthanam and they vest in the holder of the
office for the time being and descend to the successor in office. It would also appear that when a person obtained a sthanam, he ceased to have
interest in the property of his tarwad and the members of his tarwad had only reversionary rights in the sthanam properties. The sthani''s right over
the properties attached to the sthanam were absolute in the sense that he was absolutely entitled to the income from those properties during his
lifetime. The Hindu Succession Act of 1956 made a fundamental change in the character of the property owned by the tarwad and by the sthani.
By Section 7(1) it was provided that in the case of Hindu governed by the Marumakattayam Law who dies after the commencement of this Act,
his interest in the property of a tarwad or a thavazhi shall no longer devolve according to the Marumakattayam Law but by testamentary or
intestate succession. The explanation to this Sub-section further provided that the interest of such a person shall be deemed to be the share in the
property of the tarwad that would have fallen to him if a partition of the property per capita had been made immediately before his or her death
among all members of the tarwad and such share shall be deemed to have been allotted to him absolutely. By Sub-section (3) where a sthanamdar
dies after the commencement of this Act, the sthanam property held by him shall devolve upon the members of the family to which the sthanamdar
belongs and the heirs of the sthanamdar as if the sthanam property had been divided per capita immediately before the death of the sthanamdar
among himself and all members of his family then living. An explanation to this Sub-section provides that the family of a sthanamdar shall include
every branch of that family, whether divided or undivided, the male members of which would have been entitled by custom or usage to succeed to
the position of the sthanamdar, if this Act had not been passed. It would be seen from these provisions that the process of the customary law which
was in vogue previously in respect of tarwad and sthanam properties was completely displaced and the law provides that a member of a tarwad or
a sthanamdar is deemed to have owned or possessed only that share in the property of the tarwad or sthanam as would have fallen to him if a
partition had been effected of the properties immediately before his death. If that should be the position then it must necessarily follow on the death
of the sthanamdar, it is not the entirety of the properties of the sthanam that passes on the death, for by operation of the law, a moment prior to his
death, the property is deemed to have been divided, and the extent of the sthanamdars interest is limited by the provisions of this Act. The
contention advanced by Mr. Kuttikrishna Menon, learned Counsel for the Petitioner is that most certainly after the passing of the Hindu Succession
Act, it is not open to the Estate Duty authorities to hold that the entirety of the sthanam property passed, or to take the value of the entirety of
those properties for the purpose of calculation of the estate duty. It is pointed out that the limited rights of a member of a tarwad which he
possessed prior to the passing of the Hindu Succession Act or the absolute rights which a sthani possessed in the sthanam properties previously
have been enlarged or curtailed, as the case may be, and since by operation of this law a devolution is postulated as having taken place prior to the
death of the member of the tarward or the sthani, logically it should follow that only that portion of the interest of that person can at all pass on the
death of that person. It is no doubt true that the devolution is fictional, for the interest which the deceased member of the tarwad or the sthani
possessed on the eve of his death is the result of a notional partition. It is contended that nevertheless the logical result of this fiction must be given
effect to. In East End Dwellings Company, Limited v. Finsbury Borough Council 1952 A.C. 109 the House of Lords had to consider a provision
which postulated a fictional position. The provision was in these terms.
26.1 The value of the interest for purposes of compensation payable in respect of the compulsory purchase shall, subject to the provisions of this
section be taken to be the value which it would have if the whole of the damage had been made good before the date of the notice to treat.
One of the learned Law Lords observes:
In assessing the compensation for an expropriated interest in land, the section bids the assessing authority to imagine contrary to the fact that the
damage had been made good before the acquiring authority served the notice to treat The assessing authority is bidden in this last even to imagine a
replacement of the old by a new building.... If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from
doing so, also imagine as real the consequences and incidents which if the putative state of affairs had in fact existed must inevitable have flowed
from or accompanied it.... The statute say that you must imagine a certain state of affairs. It does not say that having done so you must cause or
permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs
To a like effect are the following observations of the Supreme Court in The State of Bombay Vs. Pandurang Vinayak Chaphalkar and Others,
. In that case, the Bombay Building (Control on Erection) Act, 1948, provided that the earlier ordinance was repealed and
28.1 It is hereby declared that the provisions of Sections 7 and 25 of the Bombay General Clauses Act, 1904 shall apply to the repeal as if that
ordinance were an enactment.
The concluding words as if that ordinance were an enactment had to be interpreted by Their Lordships, and they observed:
When a statute enacted that something shall be deemed to have been done which in truth and effect was not done, the court is entitled and bound
to ascertain for what purposes and between what persons a statutory fiction has to be resorted to and full effect must be given to the statutory
fiction and it should be carried to its logical conclusions.
They refer to the earlier House of Lords decision which has been cited. It should follow on the principles laid down in these decisions that it
considering the extent of the property which passed on the death of the Zamorin, only the interest which the sthani held in accordance with the
principles of the Hindu Succession Act can be deemed to pass, for under that law, his interest has been limited in a specified manner. It is only that
limited share of the sthani or the property of the tarwad which passes on the death, and to that extent-only can the Estate Duty Act operate. It is
seen that in contradistinction with the position that obtained before the passing of the Hindu Succession Act, when the entire sthanam property did,
in fact pass from one sthani to the other, the character of the property was destroyed by the Act, and it became ordinary partible property in which
the sthani as a member of the family defined in Section 7(3) of the Act was possessed only of a limited interest, which alone passed on his death.
To the extent therefore to which the assessment does not deal with the position OH the footing of the Hindu Succession Act, the assessment has
undoubtedly been illegally made.
Reference has also been made on behalf of the Petitioner to the Kerala Act, the Sthanam properties (Assumption of Temporally Management
and Control) and Hindu Succession Amending Act, 1958, which received the assent of the President on the 12th of May 1958. Section 3 of the
Act states that notwithstanding any custom or usage to the contrary, when a sthanamdar, who is a member of a Mapilla Marumakattayam family,
dies after the commencement of this Act, the sthanam property held by him shall devolve on the members of the family to which the sthanamdar
belonged and the heirs of the sthanamdar, as if the sthanam property had been divided per capita immediately before the death of the sthanamdar
among himself and all members of his family then living, and the shares falling to the members of his family and heirs of the sthanamdar shall be held
by them as their separate property. This provision is almost analogous to Section 7 of the Hindu Succession Act. It is not quite clear, however,
whether it applies to any sthanamdar other than one who is a member of a Mapilla Marumakattayam family. This Act purports to have been
passed for the purpose of preserving the properties till such time as the properties are divided in the manner set out in Section 3 thereof and
confers powers upon the Government to assume temporary management of the properties. Section 4, however, purports to apply to all sthanams;
the management of the estate of a deceased sthanamdar which is not taken over by the Government vests in the seniormost of the Karnavans
among the various tarwads. The argument advanced on the basis of this provision has reference to the contention that the Petitioner is not the
accountable person, which I shall deal with later.
Mr. Ranganathan, for the department, contends that the fiction of a division is intended only for the purpose of determining the heirs and the
respective shares and does not amount to a statutory division having been effected even during the lifetime of the sthanamdar. Reference has been
made by the learned Counsel to a decision of the Supreme Court in The Commissioner of Income Tax, Bombay Vs. The Elphinstone Spinning and
Weaving Mills Ltd., . That decision dealt with a fiction created by the First Schedule of the Finance Act, which was to the effect that the excess
dividends shall be deemed to be one of the undistributed profits of one or more years preceding the previous year. The question arose as to the
extent to which this fiction would operate, and their Lordships observe that all that the fiction does is to bring the profits of the back years into the
immediately preceding previous year, but that that fiction did not go to the extent of saying that those profits were to be treated as the total income
of that previous year. I am unable to see what support this decision gives to the contentions of the Respondent. The fiction in that case was limited
in its scope, and their Lordships held that fiction operated only to the extent which the words clearly specified. Even applying the principle of this
decision, it seems clear that the fiction contemplated by Section 7(3) of the Hindu Succession Act is not carried beyond its scope by holding that
the interest which the deceased possessed was only that share of the property which he would have obtained if the partition had taken place
immediately before his death. The decision in MOTILAL HARILAL AND CO. LTD. Vs. COMMISSIONER OF Income Tax, BOMBAY
NORTH., is also to a like effect. In that case, by reason of the fiction created by Section 23-A of the income tax Act, the department sought to tax
these dividends as income of the company. The learned Judges of the Bombay High Court held that the fiction cannot be carried in every respect
to its logical conclusions and that the fiction u/s 23-A is intended only to taxing the income in the hands of the shareholders and cannot be extended
to taxing it as the income of the company. These decisions do not be little the force of the arguments advanced by the learned Counsel for the
Petitioner as to the applicability of the fiction created by Section 7 of the Hindu Succession Act to the question of determination of the quantum of
interest that passes on the death of the sthani.
The next contention of the Petitioner is that he cannot be regarded as the accountable person in respect of all of these deaths. Accountable
Person has been defined by Section 2(12-A) to mean
The person accountable for estate duty within the meaning of this Act and includes every person in respect of whom any proceeding under this Act
has been taken for the assessment of the principal value of the estate of the deceased.
Under Section 53 of the Act, the duties and liabilities of persons accountable are specified. Sub-section (1) states that
Where any property passes on the death of the deceased, every accountable person has to deliver an account of all the properties in respect of
which estate duty is payable.
Among the accountable persons are every legal representative to whom such property so passes or every other person in whom any interest in
the pro-pertv so passing or the management thereof has at any time vested. A legal representative is under this Act defined very broadly to mean a
person who in law represents the estate of the deceased person and includes any person who takes possession or intermeddles with the estate of a
deceased person or any part thereof. While it is no doubt true that the Petitioner is the fifth of the Zamorins upon whom this sthanam devolved by
reason of the four prior deaths, undoubtedly he is in possession of a part of the property of each and every one of his deceased predecessors, so
that in so far as the estate duty is concerned, he can be regarded as the legal representative, or at least a person in whom any interest in the
property that passed or the management thereof has at any time vested. The words at any time are important. On a consideration of all of these
features, though the Petitioner may not be the immediate successor to the Zamorin who died in 1953 or 1954 or 1958, since the property which
passed on the death of these persons is vested in possession or management of the present Petitioner, he is undoubtedly an accountable person.
But the argument of Mr. Kutti Krishnan Menon is rested u/s 4(2) of the Kerala Act and it is contended that since the management is vested by that
provision upon the seniormost of the karnavans, this Petitioner is not liable. The short answer to this argument is that even if the Petitioner is not the
seniormost Karnavan (how that can be so is not stated) that Karnavan who is in such management by reason of Section 4(2) of the Kerala Act
may also be an accountable person. There can be a multiplicity of accountable persons under the Estate Duty Act and it cannot be denied that the
present Petitioner fulfills the definition of accountable person under this Act. This argument must therefore fail.
The above discussion disposes of two main contentions. From what has been stated, the result is that in so far as the estate duty assessments
were made following the deaths of the then Zamorin of Calicut on 16th October 1953 and 9th July 1954, these assessments have been properly
made. In the case however of the subsequent death on 2nd May 1958 by reason of the passing of the Hindu Succession Act, the interest of the
Zamorin in the properties does not cover the entirety of the property, but is limited only to his interest as a member of the family as specified in the
relevant provision of the Act. The third assessment (provisional) not having been made on that footing, is erroneous in law and has to be quashed.
Even with regard to the assessments which I have held to be valid, certain minor questions have been raised. One of the contentions advanced
is that u/s 5 of the Act estate duty is livable upon the principal value of all property which passes on the death of such person. The method of
estimation of the principal value of any property is laid down in Section 36 Sub-section (1) thereof states that the principal value of any property
shall be estimated to be the price which, in the opinion of the Controller, it would fetch if sold in the open market at the time of the deceased''s
death. Under Sub-section (2), the Controller is directed to fix the price of the property according to the market price at the time of the deceased''s
death. The complaint of the Petitioner is that the valuation has not been done in accordance with the principle above. In the counter-affidavit of the
department, it was contended that the methods usually adopted in the valuation of various types of property were adopted in this case and that in
fact the Petitioner himself had declared a certain valuation on the basis of which also, after discussion with his representative, the Deputy Controller
proceeded to estimate the market value. It was pointed out that the nature of the property was such that in respect of some of them at least there
was and could be no evidence as to market value of similar properties. According to the accounts submitted by the Petitioner, the non-agricultural
and agricultural properties were valued at more or less identical figures, both with reference to the date of death in 1953 and to the date of death in
1954. It is pointed out that it is only an estimate, in the opinion of the Controller, that has to be reached. The essentials of an estimate are that it
should be honest and not arbitrary or capricious. In the light of the circumstances that this estimate followed closely upon the figures furnished by
the Petitioner himself, it is contended that no attack could be leveled against it. It seems to me that the contention of the department in this regard
has to be accepted. An estimate u/s 36 of the Act is not expected to be based upon any actual data relating to sale of similar properties, unless
such sales should be available. In the absence of such data, the estimate has to be made on the opinion of the controller as to the price it would
fetch if sold in open market. In this case, the learned Counsel for the Petitioner did not suggest that the estimate was made on any arbitrary basis.
This contention has therefore to be rejected.
It was next contended that in so far as arrears of rent from tenants are concerned, the Deputy Controller erred in taking the figure at the book
value. Mr. Kuttikrishna Menon argues that the spate of tenancy legislation had made it virtually impossible for the landlord to collect all the arrears
of rent and that therefore the adoption of the book value of the arrears would not represent the true valuation of this item of asset. As against this,
Mr. Ranganathan, for the department, points out that originally the accountable persons showed a much larger figure than that finally adopted as
the amount of arrears due to the estate. But after it was pointed out that part at least of the arrears could not be recovered by reason of limitation,
revised figures were furnished by the accountable person himself which were adopted The question whether these figures should be accepted as
such or whether they should be taken at a lower figure by reason of the difficulty of realization is one which is exceedingly difficult to answer. That
they represent debts owed to the estate is beyond doubt; that they are also legally recoverable cannot be denied. It is true that this item of property
is in the nature of a chose-in-action and the incidence of tenancy laws may prevent the Petitioner from realizing the amount in full. The Controller is
not compelled by statutory provision to adopt the book figures in that regard; indeed he is required to value any kind of property, u/s 36 of the
Act. It would certainly be open to the Controller to value it at a figure different from the book value. He has jurisdiction to do so. But whether he
should, in a particular state of. things, take a lesser value is a conclusion that is entirely within his jurisdiction. The question of the proper value to be
adopted is nevertheless canvassable in appeal and may be more properly dealt with in that proceeding. I leave the 8 matter there.
The next point urged is that forest land has been valued at rupees one lakh and odd, which is contended has followed an un-understandable
method of valuation. Firstly, the argument is that these lands should have been altogether excluded as they are in the possession of tenants under
lease agreements and the rental realized is only a sum of Rs. 1,475 as found or Rs. 1,425 as furnished in the accounts. It is argued that the
valuation of rupees one lakh and odd adopted by the Controller has not followed any ascertainable principle. It is claimed that if the Controller was
dissatisfied with the accounts that had been furnished by the accountable person, he ought to have given an opportunity to the Petitioner to furnish a
correct account. In his order, the Controller stated that the forests are mostly unsurveyed and had been let out on long leases to various persons.
The valuation was, therefore, made with reference to the income as disclosed by the lease deeds. It appears also that at the time the leases were
given, certain premia were collected by the lessor which were not disclosed till after the lease deeds themselves were examined. In the view of the
Controller, a premium was also in the nature of advance rent collected for the lease. He accordingly distributed the premium over the entire period
of the lease and took the resulting figure as the annual rental on the basis of which a valuation was made. If the premia collected by the lessor
would in fact be taken to represent advance rents, the method of valuation cannot be attacked. A statement giving particulars of the leases was
produced at the time of the hearing. It is certainly not disputed by the Petitioner that certain sums were in fact collected but the contention was that
it was income in respect of tender sold This was not accepted by the Controller. Having regard to the nature of the lease transaction, the view
taken by the Controller seems to be substantially correct. The annual rental specified in the document, alone cannot be taken into account and the
valuation based on these premia as well seems to be in accordance with the law and I can see no error herein.
I see no substance in the complaint that the Petitioner was not given an opportunity before the Controller choose to value the properties
differently from what was set out in the accounts. On behalf of the Respondent-Controller, it has been stated that the tentative valuation of the
properties was communicated to the Petitioner and the Petitioner was asked to put forward any objections that he might have. The Petitioner
sought a personal hearing. He was granted the personal hearing. He also submitted his objections in writing. This was followed by an interview
between the Petitioner''s advocate and the Deputy Controller, at which a detailed discussion took place, and the objections were fully considered.
It is stated that the opportunity, which the statute by Section 61 contemplates, had been furnished to the Petitioner and that the Petitioner cannot
have any grievance in this regard. That these incidents happened are not denied by the Petitioner; nevertheless the contention is that far from these
objections and the interview resulting in any measure of relief to the Petitioner, some portions of the valuation of the properties actually resulted in
an enhancement. Whatever might have been the result, I am satisfied that the Petitioner was not denied the opportunity which the law requires to
be given to him.
One of the items of properties is what is called Tiruvachira Palace which has appurtenant to it an extent of about 45 acres of land. Originally,
this property seems to have been tentatively valued at rupees one lakh and fifty thousand. Among the contentions put forward by the Petitioner was
one, namely that the land is in reality agricultural land and cannot be treated as appurtenant to the palace with the result that it cannot be included in
the assessment of estate duty. If it is regarded as agricultural land, quite obviously for the first two assessments at any rate no duty would be
payable thereon, though the value of the agricultural land is aggregable for the purpose of ascertaining the rate of duty. If, on the other hand, it is
regarded as appurtenant to the palace, duty would be payable on the value of the land as well. The order of the Controller says that of this extent
of forty-five acres, about twenty acres are in the possession of Zamorin covered by various buildings, out-houses, coconut gardens, tanks, wells,
etc. He accepted the value of the structures as rupees eighty thousand which figure was furnished by the Petitioner himself. The Petitioner had also
furnished the value of the lands as rupees fifty-seven thousand and five hundred but on the basis of the prevailing values in and around Calicut
town, within two miles of which this palace is situated, the Controller adopted rupees fifty per cent for the extent of twenty acres in the possession
of the Zamorin and rupees eight per cent for the twenty-five acres in the possession of the tenants, who had apparently acquired certain rights in
respect of those lands. On the question whether the lands were agricultural or not, the finding recorded by the Controller that they are appurtenant
to the palace cannot be questioned in these proceedings. Though it is true that provisionally the Controller was inclined to value the palace and the
lands at rupees one lakh and fifty thousand, that was not a final determination of the question. At the stage of the final assessment, he was, to my
mind, entitled to adopt correct figures for the purpose of such valuation. The fact that for the final assessment this item of property was valued at
rupees two lakhs does not mean that the Controller has exceeded his jurisdiction. This contention accordingly fails.
A question of some importance is as regards the demand notices that have been issued. These demand notices it may be mentioned, have not
taken note at all of the fact that there were successive deaths which entitle the Petitioner to quick succession relief u/s 31 of the Act. Section 31
states:
Where estate duty has become payable on any property on the death of, any person and subsequently within five years estate duty has again
become payable on the same property or any part thereof on the death of the person to whom the property passed on the first death, the amount
of estate duty on the second death in respect of the property so passing shall be reduced.
The section gives the extent of the reduction where the second death occurs within one, two, three, four or five years of the first death. That
there have been deaths which entitle the accountable person to allowance of quick succession relief is admitted by the department. The section
says nothing about the assessment of the estate duty. It deals only with the amount of estate duty payable on the second death and that amount is
liable to be reduced in certain proportions. While no doubt an assessment even on a second or third death may be made ignoring the fact that the
later death has taken place within the period of the time specified in the second and the amount of estate duty chargeable on such death may be
assessed, the actual amount that is payable is reduced in the manner specified in the section. It follows, therefore, that before the accountable
person can be called upon to pay any amount, Section 31 of the Act must be given effect to. In the present case that has not been done. For
instance, on the second death, the net duty that was chargeable was computed at Rupees eighty-nine thousand nine hundred and seventy-nine The
estate which passed on the death which took place on 16th October became again liable to estate duty by reason of the death on 9th July a death
which took place within one year of the previous death. u/s 31 of the Act, the amount of estate duty payable on the second death has to be
reduced by fifty per cent. It is not denied that on the date on which the Controller made the assessment to estate duty on the second death, he was
fully aware that there had been an assessment by reason of the first death within one year previously. It is conceded in the counter-affidavit that the
duty payable on the second death is only a sum of Rupees forty-four thousand, three hundred and thirty-six and twenty-three naye Paise. In
paragraph 16 of the counter-affidavit, it has been stated that an order has been passed by the Controller on 15th September 1960 giving effect
thereto. But, nevertheless, on 13th May 1960 itself, the Controller issued an order of demand under the appropriate section demanding payment of
duty of Rupees eighty-eight thousand six hundred and thirty-two and fifty-three naya Paise and that as the duty had not been paid, a penalty of
Rupees four thousand five hundred was levied. It was argued by Mr. Ranganathan, for the department, that since the relief has to be granted by the
Board, that is, the Central Board of Revenue, an authority different from the assessing authority under the Act, effect to this provision could be
given only subsequently, and that, therefore, the demand for the full amount of tax was correctly made. I am not disposed to agree with this
argument. As I have indicated, the Controller can and should make the assessment ignoring the fact of an earlier death and the assessment would
be perfectly valid. But when it comes to the question of demand of duty, Section 31 reduces the amount of estate duty payable in a particular
manner. Before a demand can therefore be issued to the accountable person calling upon him to pay estate duty Section 31 must be applied and
the demand can there-fore issue only for that amount of duty payable as reduced by the application of that section. It is clear then that the demand
for the full amount of tax is illegal, equally the imposition of penalty for non-compliance with an illegal demand is illegal.
Having regard to the entire circumstances of the case, it seems clear that the penalties imposed for non-compliance with the demands in all
these writ petitions have been improperly imposed. In the case of the last assessment covered by Writ Petition No. 1104 of 1960, the provisional
demand was for a sum of Rupees six lakhs, forty-five thousand and two hundred and four. I have stated that the inclusion of the entirety of the
properties of these families is opposed to the principles of devolution of property brought about by the provisions of the Hindu Succession Act. It
should follow that the assessment in this case is liable to be quashed. Equally the demand which again has not-given effect to the provisions of
Section 31 and the penalty imposed in this regard have to be quashed.
The result is that the validity of the assessments relevant to the first two deaths is upheld. But the order imposing penalty do not comply with
the law, and are quashed. Both the demand and the penalty in the case of the second assessment have to be quashed for failure to comply with the
requirements of Section 31 of the Act. In the case of the third death, the assessment demand and the order imposing penalty are all quashed.
There will be no order as to costs in any of these petitions.