PETITIONER:
CONTROLLER OF ESTATE DUTY, GUJARAT
Vs.
RESPONDENT:
KANTILAL TRIKAMLAL
DATE OF JUDGMENT19/07/1976
BENCH:
KRISHNAIYER, V.R.
KHANNA, HANS RAJ
GOSWAMI, P.K.
CITATION:
1976 AIR 1935 1977 SCR (1) 9
1976 SCC (4) 643
ACT
Estate Duty Act (34 of 1953), ss. 2(15), 5, 9 and 27--Scope
of.
’Other rights’, in Explanation 2 to s. 2(15), meaning of.
Interpretation of statutes--Estate Duty Act and other
taxing statutes-Principles.
Practice--Costs in tax matters when there is conflict among
High Courts.
HEADNOTE
Section 5 of the Estate Duty Act, 1953, authorises the
levy of duty upon all property which passes on the death of
a person. Section 9 provides that property taken under a
disposition made by the deceased purporting to operate as an
immediate gift whether by way of transfer, delivery etc.,
which shall not have been bona fide made two years or more
before the death of the deceased shall be deemed to pass on
the death. Explanation 2 to s. 2(15), which defines ’prope-
rty’, provides that the extinguishment at the expense of the
deceased of a debt or other rights shall be deemed to have
been a disposition made by the deceased in favour of the
person for whose benefit the debt or right was extinguished
and in relation to such a disposition the expression
’property’ shall include the benefit conferred by the extin-
guishment of a debt or right. Section 27 deems all disposi-
tions made by the deceased person in favour of his relations
as gifts, for the purposes of the Act, unless such disposi-
tion was made for full consideration or the deceased was
concerned in a fiduciary capacity with the property.
A member of a joint Hindu family, within two years
before his death entered into a partition of family proper-
ties bona fide, not as a colourable or sham transaction,
whereby, he received towards his share an allotment substan-
tially lower in value than would be his legal entitlement,
with a view to relieve himself of a part of his wealth and 7 3
who is a relative within the meaning of the Act.
HELD: The relative, as the accountable person under the
Act, is liable to pay estate duty, on the difference between
the share that the deceased was legally entitled to and
the share that the deceased actually took, that is, to
the extent of the benefit received by the accountable per-
son. [14 G, 12 .A.]
(1) Death duties are imposed on richer estates, the
fiscal policy being, (a) collection of revenue, and (b)
reduction of the quantum of inheritance on a progressive
basis towards equalisation by diminishing glaring dispari-
ties of wealth. Therefore, the Act uses words of the widest
import, legal fictions and deeming devices to. rope in all
kinds of dealings with property for inadequate or no consid-
eration within the statutory proximity of death. If the
words, however cannot apply to a particular species of
property, courts. cannot supply words to fulfil the unex-
pressed wishes of the legislature. In a taxing statute
one has to look merely at what is clearly said. There is no
room for any intendment. There is no equity about a tax. [13
D]
(2) The definition of ’property’ in s. 2(15) has to
inform and must be read along with ss. 9 and 27. It is not
a substantive rule of law operative by itself. Similarly,
the expression ’disposition’ in s. 9 must be read with the
definition in Explanation 2 to s. 2(15) since that is the
whole purpose of a ’deeming provision’ is the shape of a
definition. [17 B-C]
3--1003 SC1/76
10
(3) The definition of ’property’ in s. 2(15) is not
exhaustive but only inclusive and the supplementary opera-
tion of Explanation 2 takes in what is not conventionally
regarded as ’disposition’. The expression "other right" in
the Explanation is of the widest import and cannot be read
ejusdem generis with ’debt’. The process of extinguishment
of a right and the creation of a benefit thereby is statuto-
rily deemed to be a disposition in the nature of a
transfer. Therefore, the definition of ’disposition’ covers
the diminution in the share taken by one coparcener and
augmentation of the share taken by the other and impresses
the stamp of property on this process by the deeming provi-
sion. [18 F-G; 19 C]
(4) The case of Getti Chettiar [(1971) 82 ITR 599] dealt
with the expression ’transfer of property’ in s. 2(xxiv) of
the Gift Tax Act, 1958. This Court held that ’transaction’ 7 3
and it must be a ’transfer’ of property; and that since a
partition is not a transfer in the ordinary sense of law, a
mere partition with unequal allotments cannot be covered by
s. 2(xxiv). But the language of Explanation 2 to s. 2(15)
of the Estate Duty Act is different and wider and so the
reasoning of this case cannot control its amplitude. [20 C]
(5) This Court in Kancharla Kesava Rao [(1973) 89 ITR
261] placed on ’disposition’ in s. 24 of the Estate Duty Act
the same interpretation as was put in the case of Getti
Chettiar. But, whatever might be the interpretation of
’disposition’ in s. 24, under s. 27, a disposition in favour
of a relative not for full consideration, shall be treated
as a gift and under s. 9 if the disposition made by the
deceased is more than 2 years before death, the property
covered thereby shall not pass on the death unless it shaH:
not have been bona fide to say, even if the transaction were
more than 2 years before the death, if it were entered into
in bad faith, estate duty may Still attach to that property.
But so far as dispositions made within two years of the
death of the deceased are concerned there is no question of
mala fides or, bona fides, and all such transactions would
be liable to estate duty. [22 G; 23 F-G]
Valliammi Achi [1969] 73 ITR 806, approved.
In re. Stration’s Disclaimer [1958] 34 ITR 27 applied.
Grimwade v. Federal Commissioner of Taxation [1949] 78
C.L.R. 199 referred to.
[Principles for awarding costs in matters of general
public importance where there is conflict in the High Courts
on a question of Law, reiterated.]
JUDGMENT
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1095 of
1970. and 1677 of 1973.
From the Judgment and Order dated 26/27-9-1968 of the
Gujarat High Court in Estate Duty Reference No. 3/67.
S.C. Manchanda and R.N. Sachthey, for the Appellant (In
CA 1095/70).
K.B. Kazi and 1. N. Shroff, for the Respondents in CA
1095/70.
S.T. Desai and J. Ramamurthi, for the Intervener.
S.T. Desai and J. Ramamurthi, for the Appellants in CA
1677/73.
S.P. Nayar, for the Respondent in CA 1677/73. 73
KRISHNA IYER, J. Is it permissible for judges to specu-
late on the philosophical edge of a human problem hidden by
the litigative screen before settling down to examine its
forensic facet ? If it is, we may make an observation about
the question posed in this case without pejorative impli-
cations. For many men in advancing age arrives a stage in
life when to be or not to be stampedes them into doing
things
11
dubious before God and evasive before Caesar--and we have a
hunch both the appeals before us smack of such a disposition
as will be evident when the narration of facts and discus-
sion of law unfold the story.
A brief statement of the circumstances leading to the
single critical legal issue, proliferating into a plurality
of points, may now be made. We begin with the facts in the
Gujarat Appeal [Kantilal Trikamlal(1)] since the Madras
Appeal [Ranganayaki Ammal(2)] raises virtually the same
question, is plainer on the facts and may conveniently be
narrated immediately after. To appreciate the complex of
facts we choose to enunciate the principal proposition of
law canvassed before us by the Revenue in the two appeals.
Does a relinquishment by a decedent of a slice of a share
or a partition of joint property in such manner that he
takes less than his due effected within two years of his
death with a view to relieve himself of a part of his wealth
and pro tanto to benefit the accountable person, a near
relation have to suffer estate duty under the Estate Duty
Act, 1953 (for brevity, the Act) ?
One Trikamlal Vadilal (hereinafter referred to as the
deceased) and his son Kantilal (referred to later as the
accountable person) constituted a Hindu undivided family.
They continued as members of a joint and undivided Hindu
family until November 16, 1953 when an instrument styled
’release deed’ was executed by and between the deceased
and Kantilal. Considerable controversy between the parties
turns on the interpretation of this instrument and it will
therefore be necessary for us to refer to its terms briefly
later. Suffice it to state for the present that, under this
instrument, a sum of rupees one lakh out of the joint family
properties was taken by the deceased in lieu of his share in
the joint family properties and he relinquished his interest
in the remaining properties of the joint family which were
declared to belong to Kantilal as his sole and absolute
properties and Kantilal also, in his turn, relinquished his
interest in the amount of rupees one lakh given to the
deceased and declared that the deceased was the sole and
absolute owner of the said amount. Within two years from 7 3
died and on his death the question arose as to what was the
estate duty chargeable on his estate. Kantilal, who is
the accountable person before us, filed a return showing
the status of the deceased as individual and the principal
value of the estate as Rs. 1,0.6,724. The Assistant Con-
troller was, however, of the view that the instrument dated
November 16, 1953 operated as relinquishment by the deceased
of his interest in the joint properties in favour of Kanti-
lal and that the consideration of rupees one lakh for which
the one-half share of the deceased in the joint family
properties at the date of the said instrument was Rs.
3,44,058 and there was, therefore, a disposition by the
deceased in favour of a relative for partial consideration
and it was, accordingly by reason of s. 27, sub-s. (1 ),
liable to be treated as a gift for the purpose of s. 9,
sub-s. (1), and its value, viz., Rs. 3,44,058 after
deducting Rs. 1,06,724 (being the amount received by the
deceased together with interest) was includable in the
principal value of the estate of the
(1) (1969) I.T.R. 353. (2) (1973) 88 I.T.R. 96.
12
deceased. The Assistant Controller, accordingly, included a
sum of Rs. 2,37,334/- being the difference between Rs.
3,44,058/- and Rs. 1,06,724/- in the principal value of the
estate of the deceased.
On appeal by the accountable person, the assessment made
by the Assistant Controller was confirmed by the Central
Board of Revenue. Though the main ground on which the Cen-
tral Board based its decision was the same as that which
found favour with the Assistant Controller, viz., that under
the instrument there was a disposition by the deceased of
his interest in the joint family properties in favour of
Kantilal for partial consideration and it was therefore by
reason of s. 27, sub-s. (1 ), liable to be treated as a gift
for the purpose of s. 9, sub-s. (1). Another argument also
appealed to the Central Board and that was one based on s.
2(15), Explanation 2. The ’Board held that, in any event,
under the instrument there was extinguishment at the ex-
pense of the deceased of his interest in the joint family
properties and there was therefore a deemed disposition by
the deceased of the benefit which accrued to Kantilal as a
result of such extinguishment and the charge to estate duty
was accordingly attracted under s. 9, sub-s. (1), read
with s. 27, sub-s. (1).
On reference, the High Court held in favour of the
assessee and the Revenue has appealed hopefully, relying on
a ruling of the Madras High Court which itself is the sub-
ject matter of the sister appeal. Here the tables were 7 3
High Court as contrary to the ratio of this Court’s pro-
nouncements. Were it so, it were bad; but judgments, even
of the summit court, are not scriptural absolutes but rela-
tive reasonings and there is in them, read as a human whole,
more than meets the legal eye which looks at helpful lines
here and there. We will examine them closely, especially
because several High Courts are split on the construction of
’disposition’ in the Act, and seek to resolve the conflict
of views and values. Behind everyone’s attitude to tax is
an unspoken value judgment!
Before we move into the arena of argument we may silhou-
ette the facts of the Madras case. The deceased, Bheema
Naidu, and his predeceased son’s widow and children consti-
tuted a Hindu undivided family. A little within the
two-year pre-mortem line drawn by the Act he effected a
partition and turnnig abnegator took a smaller share instead
of his legal half, benefiting the others to the extent of
the difference. This difference was taxed as disposition of
property under the Act and fiscal hierarchy was upheld by
the High Court. The assessees assail that decision before
us.
The forensic focus has been rightly turned on the inter-
pretation of the critical provisions in the Act bearing on
this controversy. The social design, the legislative
intent and the grammar of statutory construction visa vis
the Act may have to be briefly surveyed while studying the
language of the text and the impact of the context.
The scheme and spirit of the Act need to be understood
first, for every social legislation has a personality and
taxing statute a fiscal
13
philosophy without a feel of which a correct perspective to
gather the intent and effect of the separate clauses cannot
be gained. Over four centuries ago Plowden said: "Each law
consists of two parts viz., of body and soul; the letter of
the law is the body of the law and the sense and reason of
the law is the soul of the law." It is well known that death
duties imposed on richer estates have a socialistic savour
being motivated by the State’s policy of paring of unearned
accumulation of inheritances and of diminishing glaring
disparities of wealth. This comprehensive but slow egalitar-
ian purpose fulfils itself fully only when it operates on
property at death and near death; nor is there any rational
ground to save some types of disposition or subtle transfer-
ence of wealth from exigibility, having due regard to the
plain language of estate duty measures. The broad object
also includes inhibition of dispositions, unsupported by
reasonable consideration, made on the eve of death or within 7 3
or manoeuvres, though sincere, being manifestly likely to
defeat death duties posthumously flowing from properties
covered thereby. The fiscal policy is dual: (i) the collec-
tion of revenue; and (ii) reduction of the quantum of inher-
itance on a progressive basis directed towards a gentle
process of equalisation. The draftsman’s efforts have been
exerted to use words of the widest import and, where the
traditional use of words iS likely to limit, to use legal
fictions, by deeming devices, to expand the semantics there-
of and to rope in all kinds of dealings with property for
inadequate or no consideration within the statutory prox-
imity of death. The sweep of the sections which will be
presently set out must therefore be informed by the lan-
guage actually used by the legislature. Of course, if the
words cannot apply to any recondite species of property,
courts cannot supply new logos or invent unnatural sense to
words to fulfil the unexpressed and unsatiated wishes of the
legislature. Law, to a large extent, lives in the language
even if it expands with the spirit of the statute.
It is good to remember that the Indian Act has some
English genetic touch, being largely based on the English
Finance Acts of 1854 Onwards. This historical factor has
current relevance for one reason. ’We may usefully refer to,
although we may not be blindly bound by, English authorities
under the corresponding statute and both sides have sought
trans-Atlantic light on this footing.
A skletal projection of the Act to the extent that
concerns us here may now be made. This Act exacts estate
duty. The charging section (s. 5) authorizes the levy of a
duty upon all property which passes on the death of a person
dying after the commencement of the Act. Two questions
immediately arise. What is property as envisaged in the
charging section ? When does property pass on the death of
a person ? The answer to the first question is furnished
in an inclusive definition of ’property’ in s. 2(15). It is
a wide-ranging definition supplemented by two expansive
definitions. Of immediate moment is Explanation 2 which
reads:
"Explanation 2.--The extinguishment at the
expense of the deceased of a debt or other rights
shall be deemed to have been a disposition made by
the deceased in favour of the
14
person for whose benefit the debt or fight was
extinguished, and in relation to such a disposition
the expression ’property’ shall include the benefit
conferred by the extinguishment of a debt or 7 3
What property passes on the death of a person is
indicated in an inclusive definition set out in s.
2(15). It covers property passing either immedi-
ately on the death or after any interval and ’on
the death’ includes ’at a period ascertainable
only by reference to the death’. A glance at ss. 9
and 27 gives more comprehension. Section 9, among
other provisions, introduces a legal fiction and
since the meaning and implication of this section
has been the subject of some disputation we had
better allow the provision, in the first instance,
to speak for itself:
"9. Gifts within a certain period before death :--
(1 ) Property taken under a disposition
made by the deceased purporting to operate as an
immediate gift inter vivos whether by way of
transfer, delivery, declaration of trust, settle-
ment upon persons in succession, or otherwise,
which shall not have been bona fide made two years
or more before the death of the deceased shall be
deemed to pass on the death."
Both the appeals deal with deceased persons who are mem-
bers of joint Hindu families and the subject matter of the
dispositon was linked up with their share in the HUF (acro-
nymically speaking). For this reason our attention has to
be rivetted to ss. 7 and 39 which resolve a likely difficul-
ty in ascertaining the interest in property which’ passes on
the death of a deceassed coparcener in the joint family
property the pristine rule of Hindu law being his share
lapses in favour of the survivors and is not a descendible
estate or a predictable fraction. Sections 7 and 39, by a
deeming process, circumvent this contretemps and crystallize
a clear share in the coparcener at the point immediately
before death. Had the properties of the coparcener been
partitioned immediately before the death what share in the
joint family property would have been allowed to the de-
ceased represents the principal value of such share for
the purposes of computation of death duty. Section 27 is a
strategic provision which deems as a gift all dispositions
made by the deceased person in favour of his relations
unless such disposition was made for full consideration or
the deceased was concerned in a fiduciary capacity with the
property. ’Relative’ means, in this context, near rela-
tions set out in s. 27(2) and it is sufficient, for our pur-
pose, to know that in both the appeals the accounting
persons are relatives failing within the statutory compass.
One more provision is pertinent to our enquiry and that
deals with gifts within a certain period before death.
While there are other provisions dealing with gifts before 7 3
already been read and will later be explained.
Now to the boxing ring. The bout has been fought over
the import and amplitude of ’property’ as widened by s.
2(15), especially Explanation 2 thereto. Sri S. T. Desai,
appearing for the accountable per-
15
son in the Madras case, and Shri Manchanda, arguing for the
Exchequer in the Gujarat case, have levelled multi-pointed
attacks, but the crucial issue which is decisive of both
cases is the same. What is ’property’ for the purpose of
this fiscal law ?
Is it a misfortune for any legal system that a battle of
semantics, where able judges and erudite advocates fundamen-
tally disagree on meanings of words pivotal to the very
levy, should be a bonanza of the draftsman ? Simplicity and
certainty is basic to the rule of law but is a consummation
devoutly to be wished in our corpus juris. Here we find
ranged on both sides more than one High Court taking con-
trary but scholarly views. A radically new legislative art
is the urgent contemporary need if comprehensibility to the
laity is to be a democratic virtue of law.
We will first unlock Explanation 2 to s. 2(15), discover
the signification of ’property’ expanded by the deeming
clause and then read it in that wider sense along with the
comprehensive provisions of ss. 9, 27 and 5. The key con-
cept that underlies this fasciculus of sections is property,
the tax being charged on property passing on death. Consid-
erable controversy has raged not only on the boundaries of
the notion of ’disposition’ as specially defined, by import-
ing a legal fiction, but on the slightly ticklish and tricky
placement in s. 9 of the expression ’bona fide made two
years or more before the death of. the deceased’.
If we surmount these constructional difficulties, the
answer to the core question arising in these appeals fol-
lows without much ado.
In fairness to counsel we must, at the threshold, set
out the seven propositions formulated by Shri Desai for
pin-pointing the discussion. They are:
"1. Partition is merely a process in and by
which joint enjoyment is transferred into
an enjoyment in severalty. Since in such a case
each one of the coparceners had an antecedent
title which extended to the whole of the joint
family properties and had therefore full interest 7 3
his share, no creation of right or interest in such
specific property takes place in his favour nor
does any extinguishment of any right or interest in
the other property take place to his detriment.
2. Sections 9(1) and 27(1) form part of a
single scheme. The word ’disposition’ in section 27
(1 ) cannot be treated in isolation and must take
its colour and meaning from the sense in which
the word has been used in sec. 9 (1).
3. ’Disposition’ means ’giving away or giving
up by a person of something which was his own (82
ITR 599, 606 SC). No meaning howsoever wide and
comprehensive of the expression ’disposition’ can
possibly take in its ambit or coverage, parti-
tion (89 ITR 261, SC).
4. The mere fact that on a partition a copar-
cener takes a lesser share than he could have
demanded does not mean
16
that there is ’disposition’ as contemplated in
Explanation 2 to s. 2(15) which defines ’proper-
ty’. In such a partition, there is no extinguish-
ment, at the expense of such coparcener of any
’debt’ or ’other right’. In a partition whether
equal or unequal, there is no disposition by a
coparcener in favour of any relative nor can it be
said that there is any purported gift nor can it
be treated as a gift. Of course, the partition
must be bona fide and not to evade duty.
5. The scope and ambit of Explanation 2 to s.
2(15)
becomes more clear when it is read in juxtaposi-
tion with
Explanation 1. The ’extinguishment’ contemplated
in Expla-
nation 2 can be only in respect of any debt or
other right
which could have been created by the deceased and
could
have been enforced against him. In a partition,
no such
thing takes place.
6. A definition is not a substantive rule of
law operative by itself. The definition of
’property’ in section 2(15) has to be read along
with sections 9 and 27 and not in isolation. 73
7. Disposition, in s. 9, even if read along
with Explanation 2 to s. 2(15), can only be of
something the disponer had as his own at the time
of the alleged extinguishment. If it is of any
interest in property it must be of an interest
which was already vested in the disponer at the
time of the disposition. If of any other right, it
must be of a right which had vested in him even
when he gives it up."
This 7-point programme of submission really brings out
all the issues and sub-issues, legal and factual, and the
last two, over-lapping in some respects, deserve first
attention. Before that, we must state, in precis form, the
facts with reference to which the statute must speak. The
life of the law is not idle abstraction or transcendental
meditation but fitment to concrete facts to yield jural
results--a synergetic action, not isolated operation. Our
discussion will therefore be conditioned by the material
facts found in the two cases. They are, tersely, though
simplistically put, that the deceased person, being a member
of a joint Hindu family, within two years before his death,
entered into a partition of family properties bona fide, not
as colourable or sham transaction, whereby he received
towards his share an allotment substantially lower in value
than would be his legal entitlement thus gladly suffering a
diminution which would to that extent benefit the account-
able person by giving him a larger slice of the joint cake
than was his due.
We assume, for the purpose of argument, that the divi-
sion in status and the partition made by metes and bounds
have taken place simultaneously on the execution of the deed
in question. We also take it that the release, relinquish-
ment or division in the cases on hand has been bona rule
made in the sense that one sharer has not over-reached the
other or played fraud or together the sharers have not gone
through a mere simulacrum of a partition or exercise in
colourable division. We proceed on the further footing--and
that is law well-established
16
now--that ’partition is really a process in and by which a
joint enjoyment is transformed into an enjoyment in several-
ty. Each one of the sharers had an antecedent title and,
therefore, no conveyance is involved in the process, as a
conferment of a new title is not necessary’.
Now to the 7 points of Shri Desai. The 6th point is a
shade platitudinous and the other side does not dispute its
soundness. Certainly the’ definition of ’property’ in s.
2(15) has to inform and must be read along with s. 9 and s.
27 and cannot be functional in isolation. It is not a
substantive rule of law operative by itself. Similarly,
point no. 7, stated the way it has been, may not be and has
not been disputed before-us, for the expression ’disposi-
tion’ in s. 9 must be read with the definition in Explana-
tion 2 to s. 2(15) since that is the whole purpose of
a"deeming provision’ in the shape of a definition. Granting
that, the disponer cannot extinguish or part with what is
not his--rather a trite statement though--since A can give
or give up only what he has at the time of alienation or
abnegation. Shri Desai contends, and rightly, that the
deceased could not dispose of any interest in property which
did not earlier vest in him or at least at the time of the
disposition. No right can be given up without its being
vested in him when he gives up. This hypothesis in law
turns the searchlight on the existence, at the time of the
release or partition, of what has been disposed of under
that deed. What then was disposed of ? And did the
deceased own at the time of disposition what he thus made
over or extinguished ? An answer to these twin questions
may be readily given, once we clear the confusion that has
crept in at certain stages of the argument, by a process of
inept importation and imperfect understanding of the rule
of Hindu law regarding coparcenary.
The proposition is trite that in an undivided Hindu
family coparceners have no predictable or defined shares but
each has an antecedent title in every parcel of property and
is jointly the owner and in enjoyment with the others. But
surely it is well-established that at the very moment mem-
bers decide upon a partition eo instanti, a division in
status takes place whereupon the share of the demanding
members gets crystallised into a definite fraction and if
there is division by metes and bounds the allotment of
properties vivifies and specifies such shares in separate
ownership. These two processes or stages may often get
telescoped when by consensus the coparceners jointly divide
the properties. Unequal divisions of properties knowingly
made may not spell invalidity and mathematical equality
may not be maintained always in a partition while, ordi-
narily, substantial fairness in division is shown. Granting
these legal positions, the more serious question which has
been agitated before us is as to whether a willing, al-
beit’ bona fide, arrangement whereby a substantially reduced
share is taken by the decedent consequentially vesting a
proportionately larger estate in the recipient is a dispo-
sition falling within Explanation 2 to s. 2(15) and there-
fore ’property’ within the substantive definition. In this
context we may have to read ss. 9 and 27 for property taken
under a disposition made. by the deceased may be deemed to
be a gift in favour of the accounting person in the circum-
stances mentioned in s. 9. Similarly, s. 27 also tracks down
certain dispositions made by deceased
18
persons in favour of relatives by treating them as ’gifts’.
The basic concept of disposition looms important in such
circumstances.
This introductory statement of the law takes us to the
other points of Shri Desai which we will tackle together,
guided by the text of the sections aforesaid read in the
light of the citations, aplenty, of cases-Indian and Eng-
lish. We may compendiously state, forgetting for a moment
the complication in the Gujarat Case of the release deed
executed by the decedent being either a relinquishmere or a
partition that in both the appeals, the decedents and the
recipients were members of an undivided Hindu family and
within the two years proximity of death the partition ar-
rangement was effected where under a lesser share than due
was allotted to the latter. And indeed, it is this differ-
ence between what was due to the right of the deceased and
what was actually taken that was treated as a ’gift’ by the
Revenue based on the definition in s. 2 (15 ), Explanation
2, plus ss. 9 and 27. The cornerstone of the whole case of
the Revenue is thus the concept of ’disposition’ which we
may point out, right at the outset, is not a term of art not
legalese but plain English with wide import. What is more,
this word has acquired, beyond its normal ambit, an abnormal
semantic expansion on account of a special definition with
an Explanation super added. In short, ’disposition’ in the
Estate Duty law of India enjoys an extended meaning. Even
so, does it go so far as to cover a mere taking of a less-
than-equal share by the deceased, the benefit on account of
which has gone to the accountable person ?
Before we enter the thicket of judicial conflict regard-
ing the meaning of ’property’ as extended by Explanation 2
to s. 2(15), we may remind ourselves as courts that in a
taxing statute one has to look merely at what is clearly
said. There is no room for any intendment. There is no
equity about a tax. While the rulings on the point in the
Act and in the allied Gift Tax Act will be adverted to
presently, we may begin an incisive understanding of the
Explanation 2 aforesaid. The spirit thereof is obvious.
The framers of the Act desired by a deeming provision
regarding ’disposition’ to cover extinguishments of debts
and all other rights at the expense of and made by the
deceased in favour of the beneficiary. The substantive
definition of ’property’ in s. 2(15) is not exhaustive but
only inclusive and the supplementary operation of Explana-
tion 2 takes in what is not conventionally regarded as
’disposition’. Indeed, ’disposition’, even according to law
dictionaries, embraces ’the parting with, alienation of, or
giving up property...a destruction of property’ (Black’s
Legal Dictionary). The short question before us is whether
the dispositive fact of giving up by a coparcener of a good
part of what is due to him at the time of division to his
own detriment and to benefit of another coparcener, can be
called ’disposition’ in law. Undoubtedly this operation, to
use a neutral expression, is made up of simple jural facts
that modify and extinguish jural relations and create in
their place new rights whereby one gives or gives up and
another gains. This legal result, produced by voluntary
’action, is ’disposition’ within the scope of Explanation 2
to s. 2(15).
The assessee’s contention, effectively presented by
counsel, takes a legalistic course, ignoring the purpose,
language and amplitude of
19
Explanation 2. Argues Shri Desai, in a partition, equal or
unequal, there is no element whatsoever of consideration,
partial or full, since in a partition there is only an
adjustment of rights and substitution of joint enjoyment by
enjoyment in severalty. In his view it is a confusion to
mix up unequal partition with inadequate consideration and
it is a worse confusion to talk in terms of bona fide and
main fide partition where the shares are merely unequal by
choice. What is forgotten in this chain of reasoning is the
office of Explanation 2 which-is deliberately designed to
take into its embrace what otherwise may not be ’disposi-
tion’. Once we reconcile ourselves to the enlargement of
sense imported by the Explanation, we part company with the
traditional concept. We have also to stress the expression
’other right’ in the Explanation which is of the widest
import and cannot be constricted by reading it ejusdem
generis and ’debt’. ’Other right’, in the context, is
expressly meant considerably to widen the concept and there-
fore suggests a somewhat contrary intention to the applica-
tion of the ejusdem generis rule. We may derive instruction
from Green’s construction of the identical expression in the
English Act Is. 45(2). The learned author writes:
"A disclaimer is an extinguishment of a right
for this purpose. Although in the event the person
disclaiming never has any right in the property, he
has the right to obtain it, this inchoate right is
a ’right’ for the purposes of s. 45(2), The ejusdem
generis rule does not apply to the words ’a debt or
other right’ and the word ’right’ is a word of the
widest import. Moreover, the expression ’at the
expense of the deceased’ is used in an ordinary
and natural manner; and is apt to cover not only
cases where the extinguishment involves a loss to
the deceased of a benefit he already enjoyed, but
also those where it prevents him from acquiring the
benefit.
The words ’the person for whose benefit the
debt or other right was extinguished’ do not neces-
sitate a conscious intention to benefit some per-
son; it is sufficient that some person was in fact
benefited. ’The motive or purpose of the deceased
appears to me to be immaterial’, provided the
transaction was gratuitous and did in fact benefit
the other person concerned.
The extinguishment of a right may also cover
the release of his interest by one joint tenant in
favour of another."
(Green’s Death Duties, 7th Ed., Butterworths, p.
149)
Shri Desai and also Shri Kazi, appearing for the ’ac-
counting persons’ in the respective cases, urged that this
expansive interpretation taking liberties with traditional
jural concepts is contrary to this Court’s pronouncement in
Getti Chettiar(1). That was a case under the Gift Tax Act,
1958 and the construction of s. 2(xxiv) fell for decision.
Certainly, many of the observations there, read de hors the
particular statute, might reinforce the assessee’s stand.
This Court interpreted the expression ’transfer of property’
in s. 2(xxiv) and held that the expression ’disposition’
used in that provision should be read in the
(1) [1971] 82 I.T.R. 599.
20
context and setting of the given statute. The very fact
that ’disposition’ is treated as a mode of transfer takes
the legal concept along a different street, if one may use
such a phrase, from the one along which that word in the
Estate Duty Act is travelling. Mr. Justice Hegde rightly
observed, if we may say so with respect, that
’Words in the section of a statute are not to
be interpreted by having those words in one hand
and the dictionary in the other. In spelling out
the meaning of the words in a section, one must
take into consideration the setting in which those
terms are used and the purpose that they are in-
tended to serve."
(p. 605-606)
The word ’transaction’ in s. 2(xxiv) of the Gift
Tax Act takes its The word that is it must be a
’transfer’ of property colour from the main clause
that is , it must be a ’transfer’ of property in
some way. Since a partition is not a ’transfer’ in
the ordinary sence of law, the Court reached the
conclusion that a mere partition with unequal
allotments not being a transfer, cannot be
covered by s. 2(xxiv). A close reading of that
provision and the judgment will dissolve the mist
of misunderstanding and discloses the danger of
reading observations from that case for application
in the instant case. The language of s. 2 (15 ),
Explanation 2, is different and wider and the
reasoning of Getti Chettiar (supra) cannot there-
fore control its amplitude. It is perfectly true
that in ordinary Hindu law a partition involves no
conveyance and no question of transfer arises when
all that happens is a severance in status and the
common holding of property by the coparcener is
converted into separate title of each coparcener_as
tenant-in-common. Nor does subsequent partition
by metes and bounds amount to a transfer. The
controlling distinction consists in ’the difference
in definition between the Gift Tax Act [s. 2(xxvi)]
and the Estate Duty Act is. 2(15).
The Madras High Court in Valliammai Achi(1) took
the correct view when it said on similar facts:
"The facts of this case, in our opinion,
seem to square with the second Explanation to
section 2(15). That, no doubt, is an Explanation
to the inclusive definition of property. But the
language of it seems to go further and coins a
deemed disposition in the nature of a transfer.
The mechanics of the transfer for the purposes of
Explanation 2 consist in the extinguishment at the
expense of the deceased of a right and the accrual
of a benefit in the form of the right so given up
in favour of the person benefited. Transfer in a
normal sense and as understood with reference to
the Transfer of Property Act connotes a movement of
property or interest or right therein or thereto
from one person to another in praesenti. But in
the kind of disposition contemplated by the second
Explanation, one can hardly trace such a transfer
because of the mere fact of extinction of a certain
right of the deceased which does not involve a
movement, a benefit is
[1969] 73 I.T.R. 806, 808.
21
created in favour of the person benefited thereby.
In the present case the son who was a quondam
coparcener had a pre-existing right to every part
of the coparcenary property, and if by a partition
or a relinquishment on the part of one or more of
the coparceners, the joint ownership is severed in
favour of severalty, the process, having regard to
the peculiar conception of a coparcenary, in-
volves no transfer .... But Explanation 2 is
concerned not with that kind of situation, but an
extinguishment of a right and creation of a bene-
fit thereby and this process is statutorily deemed
to be a disposition which is in the nature of a
transfer."
This line of reasoning has our general approval.
From what we have said, the bold lines of
opposing views emerge and they hinge on the conno-
tation of ’disposition’. The High Courts, in their
divergent stands, have lined up before both strands
of reasoning. Madras, a Full Bench of the Punjab
High Court, and the classic observations in In re
Stratton’s Disclaimer(1) support the point of view
championed in Ranganayaki Ammal. The contrary
thinking finds support in Andhra Pradesh and
Punjab as welt as in Gujarat (Kantilal). The sense
of our statutes modelled as they are on a series of
English Acts, is best expressed so far as the
concept of ’disposition’ is concerned, by Jenkins
L.J., in In re: Stratton’s Disclaimer(1) relating
to s. 45 of the Finance Act, 1940 [which runs
similar in strain to s.2(15). Noting the strength
of the sweeping and unparticularized reference to
’a debt or other right’, Jenkins L.J., repelled the
application of the ejusdem generis rule and impart-
ed to the word ’right’ the widest import:
"Mr. Russel did not seek to limit the effect
of the words ’debt or other right ’by an applica-
tion of the ejusdem generis rule, and, in my view,
it would not be possible to do so. In the absence
of any such restriction on its meaning the word
’right’ is a word of the widest import, and if, in
accordance with my view, Mrs. Stratton can properly
be held to have had a right in respect of the
specific bequest and devise pending disclaimer, I
see no ground for holding that it was not a right
within the meaning of section 45 (2)."
* * *
*
"I confess that I am disposed to deprecate
recourse in revenue legislation to sweeping gener-
alities of this kind, but the mere fact that an
enactment is couched in general and comprehensive
terms affords no ground for excluding from its
operation transactions falling fairly within its
provisions, general though they may be.
Roxburgh J., emphasized the impact of the legal
fiction and observed:
"A certain state of facts is to be deemed to
be a different state of facts, and the line between
fact and hypothesis seems to me to be drawn by the
word ’deemed’. If this be
(1) [1958] 34 I.T .R. (Estate Duty) 47.
22
so, only three actual facts are expressed to be
necessary in order to involve the hypothetical
situation, (1) the existence of a right, (2) its
extinguishment, (3) its extinguishment at the
expense of the deceased. When those three facts
concur, the hypothesis goes into action, and the
hypothesis is that these facts are equivalent to a
disposition made by the deceased in favour of the
person for whose benefit the right was extin-
guished. These words, ill my opinion, all form
part of the hypothesis and the concluding words are
necessary to define the hypothetical
disponee."
The conventional construction of ’disposition’ has to submit
to the larger sweep of the hypothetical extension by defini-
tion.
The Gujarat High Court has gravitated towards the nar-
rower construction of ’disposition’ and ’or right’. It
makes no specific reference to Stratton’s Disclaimer (supra)
and the learned judges have insisted on transfer of inter-
est as a necessary indicium of every disposition. Partition
does not involve a transfer and therefore, cannot be a
disposition, runs the logic of the Gujarat judgment. Like-
wise, ’other right’, in Explanation (2), it is argued,
cannot cover the case of partition as in the learned
Judges’ view a transfer is a sine qua non. We cannot agree,
for reasons already stated, with this approach which defeats
the intendment of the Act and the express object of Explana-
tion 2 to s. 2(15). The peculiar definition of ’disposi-
tion’ injecting a triple hypothesis and fictional expan-
sion covers the diminution in the share taken by the copar-
cener and augmentation of the share taken by the other and
impresses the stamp of property on this process by the
"deeming’ provision. Sections 9 and 27 strengthen this
conclusion.
We were confronted by Shri Desai with Kancharla
Kesava Rao(1) for contending that giving away or giving up
could not in all cases be disposition where the transaction
is a partition. This Court, in the above ruling, held that
a partition in a coparcenary was just an adjustment of
rights, not a transfer in the strict sense. Shri Justice
Hegde, speaking for the Court, placed on s. 24 of the Act
more or less the same intepretation as was put in Getti
Chettiar (supra) by this Court. Whatever might be the
interpretation ’disposition’ in s. 24 of the Act, we are
satisfied that the only straight-forward construction of
that expression in s. 27 is as we have explained at length
above. Section 9, dealing with gifts takes in property
under a disposition made by a deceased, throwing up the
question ’What is a gift?’. Section 27 supplies the answer:
’an dispsition made by the deceased in favour of a relative
of his shll be treated for the purposes of this Act as a
gift’. Unless: of course, it is made for full considera-
tion. There is no limitation, environmental or by the
society of words, warranting the whittling down of the
unusually wide range of explanation 2 to s. 2(15).
Kesava Rao (supra) cannot cut back on the liberality of s.
27. In the realm of legal fiction, law cannot be confined
within traditional
(1) [1973] 89 I.T.R. 261.
23
concepts. It is pertinent that as between the Gift Tax Act
and the Estate Duty Act there is basic difference in that
the tax effect in the first is on transaction inter vivos
and in the second on the generating source of transmission
by death. Comparisons in construction cannot therefore be
pushed too far.
Before winding up tihis part of the discussion, we may
refer to Grimwade v. Federal Commissioner of Taxation (1)
where Williams J., dealing with the expression ’disposition
of property’ defined somewhat in similar lines as in our
Act, observed:
"The whole emphasis of paragraph (f) is upon’
a transaction entered into by one person, which
seems to me to mean that where there is an act done
by one person with the requisite intent, and as a
result there is a transfer of value from any
property of that person to the property of another
person, the conditions of liability are satisfied.
Each statute has its own mint and the coinage of words bears
a special stamp. That is our only comment when we depart
semantically from other judicial’ annotations of the expres-
sion ’disposition’. If A is entitled to a moiety in
property worth rupees five lakhs (or let us assume that
much of cash in the till belongs jointly to A and B) and by
a partition relinquishment, disclaimer or otherwise A
accepts something substantially less than his due, say
rupees one lakh as against rupees two-and-a-half lakhs and
the remainder goes to. the benefit of B who gets four lakhs
as against two-and-a-half lakhs, commonsense, concurrently
with Explanation 2, draws the inference that A has made over
at his expense and to the benefit of B a sum of rupees one-
and-ahalf lakhs which may be designated a ’disposition’ by
him in favour of B.
Shri Desai rightly stressed in construing s. 9 we should
not confess between a mala fide transaction and unequal
partition. He is right. But the simpIe scheme of s. 9 may be
stated to erase misapprehension. What the provision declares
is that if the disposition made by the deceased is more than
two years before death.,, the property covered thereby shall
not pass on the death unless it shall not have been bona
fide. That is to say, even if the transaction were more than
two years before the death, if it were entered into in bad
faith, estate duty may still attach to that property. So
far as dispositions made within two years of the death of
the deceased are concerned, there is no question of mala
fides or bona fides. All such transactions are caught
within the coils of s. 5 read with ss. 9 and 27. The re-
quirement of ’bona fides’ has nothing to do. with disposi-
tions within 2 years and has much to do with those beyond 2
years. The marginal obscurity in s. 9 is due perhaps to
compressed draftsmanship.
Now to costs. We have already indicated how serious
arguments have appealed in contrary ways to several fudges
of the High Courts and certain observations of this Court
have themselves been capable of different shade of sense
from what we have read into them. Indeed the point involved
in the case is of general public importance which
(1) [1949] 78 C.L.R. 199.
24
on account of the conflict in the High Courts, needs to be
decided by the Supreme Court. One of the major functions of
this Court is to declare the law for the country under Art.
141 of the Constitution, although under our adversary system
it is only when litigation spirals up the Court acts and
declares the law.
While dealing with a similar situation, this
Court in Trustees Port, Bombay(1) observed:
"Is it fair in these circumstances that one
party, albeit the vanquished one, should bear the
burden of costs throughout for providing the occa-
sion--not provocation--for laying down the correct
law in a controversial situation ? Faced with a
similar moral-legal issue, Lord Reid observed:
"I think we must consider separately costs
in this House and costs in the Court of Appeal.
Cases can only come before this House with leave,
and leave is generally given because some general
question of law is involved. In this case it
enabled the whole vexed matter of non est factum to
be reexamined. This seems to be a typical case
where the costs of the successful respondent should
come out of public funds.
The Evershed Committee on Supreme Court
Practice and Procedure had suggested in England
that the Attorney-General should be empowered to
issue a certificate for the use of public funds in
appeals to the House of Lords where issues of
outstanding public importance are involved."
Maybe, a scheme for a suitors’ fund to indem-
nify for costs as recommended by a Sub-Committee of
Justice is the answer, but these are matters for
the consideration of the Legislature and the
Executive. We mention them to show that the law in
this branch cannot be rigid. We have to make a
compromise between pragmatism and equity and modify
the loser-pays-all doctrine by exercise of a flexi-
ble discretion. The respondent in this case need
not be a martyr for the cause of the certainty of
law under section 87 of the Act, particularly when
the appellant wins on a point of limitation. (The
trial Court had even held the. appellant guilty of
negligence). In these circumstances we direct that
the parties do bear their costs throughout."
We adopt the same course and while. allowing Civil Appeal
No. 1095 of 1970, and dismissing Civil Appeal No. 1677 of
1973 the parties in both the appeals are directed to bear
their respective costs throughout.
V.P.S.
C,4. 1095 of 1970 allowed. CA 1677
of 1973 dismissed.
(1) [1974] 4 S.C.C. 710, 738.
25