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PETITIONER: NAWAB MIR BARKAT ALI KHAN BAHADUR

       Vs.

RESPONDENT: CONTROLLER OF ESTATE DUTY

DATE OF JUDGMENT:       08/10/1996

BENCH: S.P. BHARUCHA, S.B. MAJMUDAR

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T      S.B. Majmudar,J.      This appeal by certificate of fitness to appeal granted by the  High  Court  of  Judicature.  Andhra  Pradesh  under Section  65  of  the  Estate  Duty  Act,  1953  (hereinafter referred  to  as  ’the  Act’)  is  moved  by  the  appellant accountable person  who has  felt aggrieved  by the  answers given by  the High  Court against  him on  five out  of  six questions referred  by the  income-Tax  Appellate  Tribunal, Hyderabad for  opinion of the High Court under Section 64(1) of the Act. The following six questions were so referred:      "1. Whether on the facts and in the      circumstances of  the case, the sum      of  Rs.1.56.971   relating  to  the      Estate of  late Mazharunnisa  Begum      is includible  in the estate of the      deceased as  passing under Sec.5 of      the Estate Duty Act.      2. Whether  on the facts and in the      circumstances of  the case, the sum      of  Rs.8.23.697,  representing  the      amount spent on the construction of      quarters    of    dependants    and      Khanazadas, is  includible  in  the      estate of  the deceased under Sec.9      of the Estate Duty Act.      3. Whether on the facts and in the      circumstances of the case the sums      of Rs.12,61,649 and Rs.8,85,850      representing respectively sale      proceeds of the property known as      ’persi polis’ belonging to Prince      Kuararam Jan and shares of      Hindustan Motors Ltd; belonging to      the Dependants and Khanazadas Trust      were held by the deceased in a      fiduciary capacity and whether they      are not includible in the estate of      the deceased under Sec.22 of the      Estate Duty Act.

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    4.  If  the  answer  to  the  above      question  is   in   the   negative,      whether on  the facts  and  in  the      circumstances  of   the  case,  the      claim for the allowance of the sums      of Rs.12,61,649  and Rs.8,85,850 as      debts due  was  hit  by  limitation      imposed by Section 49 of the Estate      Duty Act.      5. Whether  on the facts and in the      circumstances  of   the  case,  for      purposes   of   determining   under      Sec.36 of  the Estate  Duty Act the      Principal  value   of  the   estate      passing  on   the  death   of   the      deceased, the amount of estate duty      payable is  liable to be taken into      account and  the principal value of      the  estate   should   be   reduced      accordingly or  whether the  amount      could be deducted as a ’debt’ under      Sec.44 of the Estate Duty Act.      6. Whether  on the facts and in the      circumstances of  the case, the sum      of Rs.5,01,460  being the  value of      properties  in  the  occupation  of      Sahabzadas   and   Sahebzadis   was      includible  in  the  hands  of  the      deceased as property passing."      So far as Question No.3 is concerned it was answered in favour of  the appellant. Consequently in the present appeal we are  concerned  with  Questions  Nos.1.2.4.5.  and  6  as aforesaid. At  the time  of final  hearing  of  this  appeal learned  counsel   for  the  appellant  fairly  stated  that Question No.5 is covered against the appellant by a decision of this  Court in  the case  of P.  Leelavathamme  (Smt)  v. Controller of  Estate Duty. Andhra Pradesh, Hyderabad (1991) 2 SCC  299. Therefore,  it will  have to be answered against the appellant  and in favour of the respondent. We shall now deal with the remaining questions which were pressed for our consideration.      Question No.1      It has  to be  noted  that  the  appellant  accountable person was  called upon  by the authorities under the Act to furnish appropriate  return  disclosing  net  value  of  the estate of  the erstwhile  Nizam of  Hyderabad Mir  Osman All Khan,  who   died  on  24th  February  1967.  The  Assistant Controller computed  the value  of  the  estate  at  Rs.3.69 Crores by  making several additions. Question No.1 refers to the addition  of Rs.1.56.971/-  pertaining to  the estate of one Mazharunnisa  Begum who  died on  18th  June  1964.  The Assistant Controller  of Estate  Duty was  of the  view that said Begum  was  the  wife  of  late  Nizam.  He  drew  this inference from the fact that late Nizam impleaded himself as her legal  representative after  her death  in Original Suit No.14 of  1958 on the file of the High Court relating to the administration of  Kurshud Jahi  Paiga. He  also recorded in his order  that the representative of the accountable person had agreed  for inclusion  of this  amount. In appeal by the accountable person the submission of the appellant that said Begum was not the wife of late Nizam, was rejected. The said decision which  resulted into reference of Question No.1  to the High  Court, came  to be affirmed by the High Court. The High Court  came to  be affirmed by the High Court. The High Court noted  that it  was not in dispute that late Nizam was

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closely associated  with the said Begum and they were living like husband  and wife.  That after his death the Nizam took several legal  proceedings  holding  out  that  he  was  the husband of  said Begum. Nizam himself in several proceedings mentioned her  as his wife. On this evidence, therefore, the High Court  rightly came to the conclusion that Mazharunnisa Begum was the wife of late Nizam and consequently the amount relating to  her estate  passed on  to Nizam after her death and, therefore, was rightly includible in the estate of late Nizam. The  aforesaid finding  of the  High  Court  is  well sustained  on   evidence  on   record  and   calls  for   no interference. Question  No.1 is, therefore, answered against the appellant and in favour of the respondent. That takes us to the consideration of Question No.2.      Question No.2      This question  pertains to  the inclusion  of a  sum of Rs.8,23,697/-. It  was the  amount spent on the construction of quarters  for dependents  and Khanazadas of late Nizam in the open  land  surrounding  the  King  Kothi  Palace.  This property was  gifted on  21st March 1957 by an instrument in writing registered  in favour  of  Nizam’s  grandson  Prince Mukarram Jah.  Simultaneously with  the gift  the late Nizam took on  lease the  entire  King  Kothi  Palace  subject  to payment of  rent and a lease deed was duly registered. While the property was in his occupation, the Nizam constructed on the open  land  in  King  Kothi  Palace  some  quarters  for occupation of  certain descendants  of  the  Nizam’s  family known as dependants and khanazadas. The Assistant Controller of Estate Duty on evidence found that a sum of Rs.8,23,697/- spent by  late  Nizam  over  the  construction  of  quarters amounted  to  a  gift  by  the  deceased  within  two  years immediately preceding  his death and, therefore, this amount was includible  in the estate of late Nizam by virtue of the fiction contained  in Section 9 of the Act. This finding was upheld by  the Tribunal  and it  resulted into the aforesaid question which  was referred  for opinion of the High Court. The High  Court referred  to  the  evidence  on  record  and concluded that  even though  the  Khanazadas  had  right  of occupation and  the buildings  were given  to them  for that purpose no  liability was  attached to them towards the cost of construction.  And that  liability was  discharged by the late Nizam  by meeting  the cost  and,  therefore,  to  that extent this  would be  taken as  an  extinguishment  at  the expense of  deceased Nizam  of a  debt or  other right  and, therefore, it  amounted to  disposition or  property by  the late Nizam  within two  years of  his death and consequently under the  fiction of  Section 9  of the Act the property is deemed to  have passed  on his  death. The  High Court  also noted the stand taken by the concerned accountable person in wealth tax  proceedings wherein  it was  submitted that  the quarters  after   construction  were   handed  over  to  the Khanazadas and  the Nizam  had divested himself of the right over them  and as such they were in the nature of gifts made by him  to the  Khanazadas. Once the said stand was taken by the accountable  person in  wealth tax proceedings obviously the cost  of these  constructions had  to be  taken as gifts made by  the  Nizam  to  the  Khanazadas  and  as  the  said disposition of  property was  within two years of his death, in the  present estate duty proceedings there was  no escape from the  conclusion that these gifted amounts by fiction of Section 9  of the  Act were deemed to be property passing on his death.   Question  No.2 in our view was rightly answered against the  appellant by  the High  Court.  The said answer calls for  no interference in this appeal.  That takes us to the consideration  of  Question  No.4  which  has  a  direct

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linkage with  the answer given by the High Court to Question No.3 in favour of the appellant.      Question No.4      While  answering   Question  No.3   in  favour  of  the appellant the High Court has noted that the sale proceeds of the property known as ’persi polls’ at Bombay which belonged to Principle  Mukarram Jah  and shares  of Hindustan  Motors Limited belonging  to dependents and Khanazadas were held by the deceased  in fiduciary  capacity  and,  therefore  these amounts held  in trust by the late Nizam were not includible in his  estate under  Section 22  of the  Act.    Once  that finding was  reached by  the High  Court in  favour  of  the appellant. it  is difficult to appreciate how Question No. 4 could have  been answered  against the  appellant,  Question No.4 centers  round the  applicability of  Section 46 of the Act.   The said  Section  seeks  to  impose  limitation  for excluding from  allowances and  deductions  available  under Section 44  of the  Act the amounts of debts incurred by the deceased as  mentioned in clause (a) of Section 44 under the circumstances mentioned  in  Section  46.  Now  before  such exclusion can  be effected  it  should  be  shown  that  the concerned amount  was a  debt incurred  by the deceased. The amounts of Rs.12,61,649/- and Rs.8,85,850/- were held by the deceased Nizam  as trust  money on  behalf of  the concerned beneficiaries. These  trust amounts lying deposited with the late Nizam  could not  form part  and parcel  of his estate. Consequently there would remain no occasion to include these amounts in his estate. Only on this ground, therefore, these amounts were  required  to  be  excluded.  There  was  jural relationship  between  Nizam  on  the  one  hand  and  these beneficiaries on the other, who were the equitable owners of these amounts only as trustees and beneficiaries. No debtor- creditor relationship  existed  between  them.  Consequently Section 46  was out  of picture. In our view the High Court, therefore, was  not justified  in treating  these amounts as debts due  from the Nizam to the concerned beneficiaries and in invoking  Section 46(1)  in that connection. It could not be said  that the claim for allowances of the aforesaid sums was hit  by the limitation imposed by Section 46 of the Act. Question No.4. therefore, will have to be answered in favour of the  appellant and  against the respondent. That takes us to the consideration of the last question.      Question No.6      It refers to an amount of Rs.5,01,460/- being the value of the  properties  in  the  occupation  of  Sahebzadas  and Sahebzadees. The  said amount  was included by the Assistant Controller as  property passing on the death of the deceased Nizam. The High Court has answered the said question against the appellant  relying on  decision of  the  High  Court  in Commissioner of  Income Tax  v. Barkat  Ali Khan  1974  (12) T.L.R. 90.  The said decision was confirmed by this Court in the case  of Commissioner  of Income-Tax v. Nawab Mir Barkat Ali Khan  (1991) 188  I.T.R. 231. In our view as there is no clear evidence  on record  to show that the aforesaid amount represented the  value of  properties which were occupied by way  of   full  ownership   by  the   said  Sahebzadas   and Sahebzadees, the  said amount  was rightly  included in  the estate of the deceased. On the scanty material on record, it is not  possible for us to take any view contrary to the one taken by the High Court as well as by the authorities below. Question No.6.  therefore, will  also have  to  be  answered against the appellant and in favour of the respondent.      In the  result this  appeal stands  partly allowed only with reference  to the  answer to  Question No.4. However it will stand dismissed so far as the answers given by the High

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Court against  the appellant  on the remaining questions are concerned. Orders  accordingly. There will be no order as to costs.