http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7  

PETITIONER: COLLECTOR OF ESTATE DUTY

       Vs.

RESPONDENT: M/S R. KANAKASABAI AND ORS.

DATE OF JUDGMENT16/03/1973

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. REDDY, P. JAGANMOHAN KHANNA, HANS RAJ

CITATION:  1973 AIR 1214            1973 SCR  (3) 747  1973 SCC  (4) 169  CITATOR INFO :  D          1975 SC 435  (21)  D          1988 SC1511  (13)

ACT: Estate Duty Act, 1953 ss. 10 and 12-Applicability of.

HEADNOTE: R dies in 1959 leaving behind him four sons, some grandsons, wife  and daughter.  These accountable persons furnished  an account  of the properties passing on the death of R to  the Deputy  Controller  of Estate Duty.  The  Deputy  Controller added  to  the return made the value of  certain  properties settled  by  the deceased on his wife, sons,  grandsons  and daughter  on  the ground that the deceased had  reserved  to himself an interest for life in the properties comprised  in the  above settlements, within the meaning of s. 12  of  the Estate  Duty Act 1953.  The deed in favour of the  sons  and the minor grandsons contained a provision to the effect that these would have to pay to the deceased during his  lifetime a  sum of Rs. 1,000/- a year for his domestic expenses;  the deed  in favour of the daughter contained a  provision  that she  would  have  to maintain him and  his  wife  for  their lifetime;  the deed in favour of the wife expressed  a  hope that  she would support him in his lifetime.  In appeal  the Central Board of Direct Taxes held that the settlements fell within  the scope of s. 12 or at any rate that s. 10 of  the Act.   The High Court in reference held (1) that s.  12  was wholly inapplicable to the facts of the case; (ii) that even under s. 10, pot the entire value of the property settled on the various beneficiaries but only the value of the interest reserved  by  the deceased to himself during his  life  time could  be taken into consideration : (iii) that the deed  in favour of the wife did not reserve any benefit in favour  of the  deceased as it expressed only a hope., The  Revenue  as well as the assessees appealed to this Court. Allowing the appeal of the assessees, HELD  : (i) So far as the stipulation contained in the  deed in  favour of the wife of the deceased was concerned it  was merely  a hope and expectation and no enforceable  liability as such was created.  The High Court was therefore right  in holding that no part of the property settled on the wife  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7  

the deceased could be taken into consideration in  computing the  value of the property that passed on the death  of  the deceased. [751A-B] (ii) The High Court was further right in holding that s.  12 was  wholly inapplicable to the facts of the case.   It  was nobody’s case that the beneficiaries became entitled to  the properties settled on them after the death of the  deceased. There was no support for the contention of the Revenue  that an  interest in the properties settled was reserved  to  the deceased  during his lifetime or for any period  after  the properties were settled; nor was there any provision in  the deeds  enabling the deceased to reclaim the property or  its possession under any circumstances.  None of the  conditions laid  down  in  s. 12(1) were attracted  to  the  provisions contained in the deeds of settlement. [751D-F] (iii)  The  facts of the case also did not come  within  the scope  of  s.  10 The provisions  for  annual  payments  and maintenance  made  in  the deeds were  not  charged  on  the properties settled.  Hence the deceased could not be said to have  retained  any  interest  in  the  properties  settled. Therefore it could not be said that he retained any  benefit either  in  the properties settled or in  respect  of  their possession. [754 A-B] 748 If,  as  contended by the Revenue, the  expression  "of  any benefit  to him by contract or otherwise" in s. 10 mean  any benefit under the gift, the legislature should have said so. There was no difficulty in saying so.  It is a well accepted rule of construction that if a taxing provision is ambiguous and  is reasonably capable of more than one  interpretation, that interpretation which is beneficial to the subject  must be adopted.  It is impermissible for the court to read  into a taxing provision any words which are not there or  exclude words  which  are there.  The words found in  the  provision must be given their natural meaning. [753F-G] George  De  Costa v. Controller of Estate  Duty  Mysore,  51 I.T.R. 497, ,considered and applied. Mohammad Bhai and Anr. v. Controller of Estate Duty,  Andhra Pradesh, 69 I.T.R. 770, held inapplicable.

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos.  1770  of 1970 and 474 1973. Appeals  by special leave from the judgment and order  dated April 9, 1969 of the Madras High Court in Tax Case No. 2 of 1966 (Reference No. 1 of 1966). N.  D. Karkhanis, S. P. Nayar and R. N.  Sachthey, for  the appellant (in C.A. No. 1770/70) and for respondents (in  No. 474/73). M.  C. Setalvad, K. Srinivasan and T. A.  Ramachandran,  for respondents  (in C.A. No., 1770/70 and for appeals (in  C.A. No. 474/73). The Judgement of the Court was delivered by HEGDE,  J. Both these appeals, by special leave  arise  from the  judgment  of the High Court of Madras  in  a  Reference under s.  64(1)  of  the  Estate  Duty  Act,  1953  (to   be hereinafter referred to  as the Act). The question of law referred in that case is               "Whether,   on   the   facts   and   in    the               circumstances  of  the  case,  the  properties               settled  by the deceased by the six  deeds  of               settlement (two of them dated 26th June,  1951               and four of them dated 30th June 1951)  valued

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7  

             at Rs. 7,38,656/- or any part thereof was  not               liable  for  inclusion in the  estate  of  the               deceased  as  property deemed to pass  on  his               death." The  High Court answered that question partly in  favour  of the Revenue and partly in favour of the assessee.  It opined that the value of the property gifted in favour of the  wife of  the deceased is not to, be taken into consideration  in computing the value of the property that passed on the death of  the  deceased.  In respect of the properties  gifted  to the-sons,  grandsons and the daughter of the  deceased  only the annual payments that had to, be made to the deceased  as well  as his right to maintenance should be valued  for  the purpose  of determining the extent of the right that  passed on his death. 749 The  facts of the case material for the purpose of  deciding the  question of law formulated above as could  be  gathered from the case stated are as follows : One  Ratnasabapathy Pillai was the owner of  the  properties with  which  we  are concerned in this  case.   He  died  on February    5, 1959 leaving behind him his four  sons,  some grandsons,  wife  and  daughter  who  are  the   accountable persons.   They  furnished  an  account  of  the  properties passing  on  the  death  of  the  deceased  to  the   Deputy Controller  of  Estate Duty, Madras who  was  the  assessing authority.   The  Deputy  Controller  did  not  accept   the correctness  of  the return made by them.  He added  to  the return   made, the value of the following properties settled by the deceased on his wife, sons, grandsons and daughter.                                    Value of property settled                                                   Rs. 1. Deed dated the 26th June, 1951 settling 67.600-1/2  acres of agricultural lands on Shri D. Nataraja Pillai, son                                                   1,10,408 2.  Deed dated the 25th June, 1951 settling 74.91  acres  of agricultural lands on Shri R. Ramali- ngam Pillai, son                                                   1,12,365 3.   Deed dated the 30th June, 1951 settling 80.72 acres  of agricultural lands on Shri R. Subramania Pillai, son                                                   1,21,080 4.   Deed  dated the 30 June, 1951 settling 67.95  acres  of agricultural lands on Ganapathi Pillai  and        Sivakumar Pillai, minor grandsons of the deceased                                                   1,01,925 5.   Deed dated the 30th June, 1951 settling 133.55 acres of agricultural lands of Smt.  T. Sivakumu Ammal, daughter                                                   1,99,623 6.   Deed dated the 26th June, 1951 settling 68.17 acres  of agricultural lands on the wife, Smt. Rajambal                                                   1,02,255                                         --------------------                         Total                7,38,656 By the deeds in question the deceased settled the properties in  favour  of the beneficiaries absolutely  and  with  full power  of alienation.  The deeds in favour of his  sons  and the minor grandsons contained a provision as under: "You have to pay me during my life time a sum of Rs.  1000/- per year for my domestic expenses." The deed in favour of the daughter contained a provision "You  have  to maintain myself and my wife during  our  life time." The  deed  in  favour of the wife  contained  the  following

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7  

words: "In the hope that you will support me during my life-time, I do hereby settle. . . ." 750 The Deputy Controller held that the deceased had reserved to himself an interest for life in the properties comprised  in the  above settlements, within the meaning of S. 12  of  the Act.  He accordingly included the value of those  properties for  the purpose of determining the value of the  properties that  passed on the death of the deceased.  The  accountable persons  appealed to the Central Board of Direct Taxes,  New Delhi.  They contended ’before the Board that the conditions or  stipulations  contained in the deeds  of  settlement  in favour  of  the sons, minor grandsons  and  daughter  merely amounted to an expression of a desire and hence could not be interpreted as a reservation within the meaning of s. 12  as those  conditions or stipulations did not detract  from  the absolute  character of the settlements.  With regard to  the settlement made in favour of the wife, it was argued  before the  Board that the deceased had expressed only a hope  that his wife would support him and maintain him during his  life time,  and  the  words  used in  the  deed  were  vague  and unenforceable  in  law as a stipulation.  The  Board  reject these  contentions.  It opined that the main point in  issue in  the  case was whether an interest in  the  property  was reserved by the deceased.  It held that all the  settlements fell within the scope of S. 12 or at any rate it came within s.  10  of  the  Act.  Thereafter at  the  instance  of  the accountable  persons,  the  question  set  out  earlier  was referred to the High Court. We have earlier set out the answer given by the High  Court. The  High Court held that s. 12 was wholly  inapplicable  to the facts of the case and the case has to be considered only under s. 10. Even under that section, the High Court opined, the  entire  value of the property settled  on  the  various beneficiaries cannot be taken into consideration.  All  that can be taken into consideration is the value of the interest reserved  by the deceased to himself during his  life  time. Further it held that the value of the properties settled  on the  wife  of the deceased should be Wholly  exclusion  from consideration  as  the expression of a wish  that  his  wife should support him during his life time did not amount to  a retention of any benefit in the property settled.  On behalf of the Revenue, the conclusion reached by the High Court was challenged.   It is contended that the value of  the  entire property settled by the deceased should have been taken into consideration.   But, on the other hand it was contended  on behalf of the accountable persons that neither s. 12 nor  s. 10  is applicable to the facts of the present case.   Before considering  whether  ss.  10 and 12 or either  of  them  is applicable  to  the facts of the case, it  is  necessary  to mention  that in respect of the amount made payable  by  the sons  and  grandsons  to  the deceased,  no  charge  on  the property  settled  was  created.  Similarly  no  charge  was ’created on the property settled on the daughter in  respect of her liability to maintain her father and mother.  So  far as the stipulation contained in the deed in favour 751 of  the  wife  of the deceased, it was  merely  a  hope  and expectation,  and  no  enforceable  liability  as  such  was created.   Hence  we are. in agreement with the  High  Court that  no  part of the property settled on the  wife  of  the deceased  can be taken into consideration in  computing  the value  of  the  property that passed on  the  death  of  the deceased.  We are also in agreement with the High Court "hat

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7  

s. 12 is wholly inapplicable to the facts of the case.  That section to the extent material for our present purpose-reads               12(1)  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 reclaim the absolute interest in               such  property shall be deemed to pass on  the               settlor’s death." [The  provisos  to the Section, the explanation as  well  as sub-s.(2) of  s.  12  are  not  relevant  for  our   present purpose.] So far as the applicability of s. 12(1) is concerned, it  is no body’s case that the beneficiaries became entitled to the properties settled on them after the death of the  deceased. There is no sup-port for the contention of the Revenue  that an  interest in the properties settled was reserved  to  the deceased  during his life time or for any period  after  the properties  were settled; nor is there any provision in  the deeds  enabling the deceased to reclaim the property or  its possession under any circumstance.  None of the,  conditions laid  down  in  s. 12(1) are  attracted  to  the  provisions contained in the deeds of settlement. Now turning to s. 10, the portion that is material for  our present purpose is found in the main section.  The  provisos to that section are not relevant.  The material part of  the section: reads               "Property taken under any gift, whenever made,               shall  be deemed to pass on the donor’s  death               to  the extent that bona fide  possession  and               enjoyment of it was not immediately assumed by               the  donee and thenceforward retained  to  the               entire  exclusion  of  the  donor  or  of  any               benefit to him by contract or otherwise." This  section  provides that unless a bona  fide  possession and’ enjoyment of the property gifted is assumed immediately after  the, gift by the donee and thenceforward retained  to the  entire exclusion of the donor or of any benefit to  him by  contract or otherwise, the said property will be  deemed to have passed on the death of 752 the  donor.  In other words the section has two  parts  viz. (1)  the ,donee must bona-fide have assumed  possession  and enjoyment of the property which is the subject matter of the gift to the exclusion of the donor immediately upon the gift and  (2) the donee must have retained such  possession  and enjoyment  of the property ,to the entire exclusion  of  the donor  or  of any benfit to him by  contract  or  otherwise. Both these conditions are cumulative.  Unless each of  these conditions  is  satisfied the property would  be  liable  to estate duty under section 10 of the Act-see the decision  of this  Court in George Da Costa v. Controller of Estate  Duty Mysore(1).   Therein  the  scope  of  s.  10  came  up   for consideration.    Speaking  for  the  Court  this  is   what Ramaswami J. observed ,in that case :               "A  gift  of immovable property  under  s.  10               will.  however, be dutiable unless  the  donee               assumes  immediately exclusive and  bona  fide               possession and enjoyment of the subject-matter               of  the  gift  and  there  is  no   beneficial

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7  

             interest reserved to the donor by contract  or               otherwise.  The section must be  grammatically               construed  as follows: "Property  taken  under               any  gift,  whenever made, of  which  property               bona  fide possession and enjoyment shall  not               have  been  assumed by the  donee  immediately               upon the gift, and of which property  bonafide               possession  and enjoyment shall not have  been               thenceforward  retained  by the donee  to  the               entire  exclusion  ,of  the  donor  from  such               possession and enjoyment, or of any benefit to               him,  by contract or otherwise".  The crux  of               the  section lies in two parts: (1) the  donee               must  bona  fide have assumed  possession  and               enjoyment  of  the  property,  which  is   the               subject  matter of the gift, to the  exclusion               of  the donor, immediately upon the gift,  and               (2)   the  donee  must  have   retained   such               possession  and enjoyment of the  property  to               the  entire exclusion of the donor or  of  any               benefit to him, by contract or otherwise As  a               matter of construction we are of opinion  that               both these conditions are cumulative.   Unless               each  of  these conditions is  satisfied,  the               property would be liable to estate duty  under               s. 1 0 of the Act".               Proceeding further the learned judge observed               "The second part of the section has two limbs:               the  deceased must be entirely  excluded,  (i)               from  the property, and (ii) from any  benefit               by  contract or otherwise.  It was argued  for               the appellant that the expression "by contract               or otherwise" should ’he construed (1) 53 I.T.R. 497. 753 ejusdem  generis and reference was made to the  decision  of Hamilton  J. in Attorney General V. Seccombe (1911)2, K.  B. 688.  On this aspect of the case, we think that the argument of  the  appellant  is justified.  In  the  context  of  the section,  the  word "otherwise" should in  our  opinion,  be construed ejusdem generis and it must be interpreted to mean some   kind   of  legal  obligation  or   some   transaction enforceable  at  law or in equity which, though not  in  the form of a contract, may confer a benefit on the donor. It  was  contended  on  behalf  of  the  assessee  that  the expression   "  of  any  benefit  to  him  by  contract   or otherwise" in s. 10 must be in the property settled and  not a  benefit  arising from the transaction  resulting  in  the gift.   To put it differently the assessee’s contention  was that the benefit by contract or otherwise must be referrable to  the property gifted because all the  earlier  conditions stipulated in the section refer to the property gifted.   If it was otherwise, the Counsel for the assessee urged, s.  10 cannot be considered to have two parts as held in Da Costa’s case (supra);. but it must be held to have three parts  viz. (1)  that the donee must bona fide have  assumed  possession and enjoyment of the property which is the subject matter of the gift to the exclusion of the donor immediately upon  the gift;  (2) the donee must have retained such possession  and enjoyment  of  the property to the entire exclusion  of  the donor and (3) the donor should not have retained any benefit to  him  by contract or otherwise under the  gift.   It  was further urged that it is impermissible for the court to  add the  words "under the gift" after the words "of any  benefit to him by contract or otherwise".  On the other hand it  was

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7  

con-tended  on  behalf of the Revenue that if the  donor  is entitled to any benefit under the gift,, whether the same is charged  on  the properties settled or not,  the  properties gifted must be deemed to have passed on his death.  The main part  of  s. 10 is not happily worded.  It is  difficult  to find out the true effect of the expression, "of any  benefit to  him by contract or otherwise".  Do these words mean  any benefit  under the gift ? If that was so,  the  legislatures should have said so.  There was no difficulty in saying  so. If a taxing provision is ambiguous and is reasonably capable of  more than one interpretation, that interpretation  which is  beneficial  to the subject must be adopted.  This  is  a well accepted rule of construction.  It is impermissible for the  court to read into a taxing provision any  words  which are  not there or exclude words which are there.  The  words found in the provision must be given their natural  meaning. In  Da Costa’s case, this Court opined that there  are  only two  parts  to  the section.  We have set  out  those  parts earlier.  The contention of the Revenue runs counter to  the reasoning  adopted  in  Da  Costa’s  case.   The  contention advanced on be-- 754 half  of  the  assessee  finds  support  from  some  of  the observations  found in Da Costa’s case.  The provisions  for annual  payments and maintenance made in the deeds  as  seen earlier  are not charged ,on the properties settled.   Hence the  deceased cannot be said to have retained any  interest in  the  properties settled.  Therefore ’it cannot  be  said that he retained any benefit either in the properties -settled or in respect of their possession. Hence  inour opinion the facts of case do not-  come  within the scope ofs. 10.  We, accordingly, allow the appeal of the assessee andhold  that the value of  the  properties gifted or any part thereofis  not liable to be  included in  computing  the value of the estate that  passed  on  the death  of the deceased.  In this view, it is  not  necessary for us to consider the meaning of the word "extent" found in s.  10.   The decision of the Andhra Pradesh High  Court  in Mohammad Bhai and Anr. v. Controller of Estate Duty,  Andhra Pradesh(1) rendered by one of us (Reddy J.) does not bear on the question of law that we have decided. In  the  result we allow the appeal of the  assessee  (Civil Appeal  ’No.  474 of 1973), vacate the answer given  by  the High Court and answer the question referred by the  Tribunal in  the  affirmative  and in favour of  the  assessee.   The appeal  of  the Revenue (Civil Appeal No. 1770 of  1970)  is dismissed.   The  Revenue  shall  pay the  costs  of   the assessee-one hearing fee. G.C                     C. A. No. 474 of 1973 allowed.                    C.A. No. 1770 of 1970 dismissed. (1) 69 I.T.R. 770. 755