# M. CT. MUTHJAH & ANOTHER ETC v. THE CONTROLLER OF ESTATE DUTY, MADRAS ETC

- **Citation:** [1986] 3 S.C.R. 315
- **Court:** Supreme Court of India
- **Decided:** 1986
- **Case number:** Civil appeal No. 2086 of 1974
- **Bench:** R.S. Pathak, Sabyasachj Mukharjj
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-ct-muthjah-another-etc-v-the-controller-of-estate-duty-madras-etc-9178
- **Pages:** 30

## Headnote

Estate Duty Act 1953-Sections 2( 15), 5, 6, 15, 34(3)-Estate
duty-Property liable to estate duty-Personal accident Insurance
policy-Money received by heirs of deceased under the policyWhether forms part of estate of deceased, passes on death-Accident
policy and life policy-DistinCtion between.
Jurisprudence-Custom-Prevalence of-Matter of evidence-
'Dwyanamanus.hyana' form of adoption-Prevalence of in Madras
State.
The deceased was the Karla of a Hindn undivided family. He had
two sons. He gave his first son in adoption to his divided paternal uncle.
c
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He was joint with his second son throughout his life. He took out a
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personal accident insurance policy with the lnsurant-e Company and
effected a nomination in favour of his first son. During the currency of
the policy, the deceased die.: following the crash of the airliner in which
he had travelled, and the Insurance Company paid the nominee a sum
of Rs.2 lakhs, the benefit stipulated under the terms of the policy. At
the time of his death, the deceased had other properties and interests.
F
One was his interest as an undivided coparcener in his joint family
which consisted of himself and his second son.
Jn the assessment proceedings under the Estate Duty Act 195:1,
the accountable persons urged before the Deputy Controller of Estate
Duty: (i) that the amount of Rs.2 lakhs could not he aggregated with the
rest of the properties, but must be brought to charge independently as a
se~arate estate in itself, because the deceased had no interest at all in
the insurance money, and (ii) that the adoption in 1931 was on the basis
that notwithstanding adoption into another family, the ad op tee must
continue to retain his interest in the properties belonging to the family
of his birth and, therefore, he was entitled, as on the date of the. de-
:ns
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SUPREME COURT REPORTS
11986] 3 S.C.R.
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ceased's death, to an equal interest in the deceased's family properties, 'f
so that the quantum of the deceased's coparcenary interest was not
one-half hut only one third of the total value of the family properties. A
"Muri" (deed of adoption) that was executed was produced in this
regard.
B
c
The Deputy Controller rejected these' contentions and held: (i)
that the personal accident insurance money of Rs.2 lakhs paid by the
Insurance Company should be charged to estate duty and it had to be
aggregated with the rest of the properties passing on the deceased's
death; (ii) that the insurance money of Rs.2 lakhs was property which
the deceased was competent to dispose of by will; (iii) that the deceased
did have an interest in the insurance money; (iv) that the deceased's
interest in the coparcenary property, which had to be included in the
dutiable estate, extended to one half share of the joint properties on the
basis that the deceased and his second son were alone entitled as
coparceners to the said properties; (v) that the document produced in
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support of the plea of adoption was not genuine and even otherwise it
had no legal effect on the continued rights of the adopted son in the
family of his birth subsequent to his adoption. He, therefore, included
in the dutiable estate, one-half of the joint family properties as being the
measure of the deceased's coparcenary interest.
E
The accountable persons appealed against the above assessment to
the Central Board of Revenue. The Board held: (i) that the insurance
money of Rs.2 lakhs was chargeable to estate duty under s. 6; ('i) that
the deceased had interest in the insurance money; (iii) that the deceased
did have the power of disposition over the insurance money both by the
exercise of power of nomination under the policy and also indepenF
dently by the exercise of any testamentary power; (iv) that the Hindu
law of adoption makes the adopted son lose his property interests in the
family of his birth and that the "dwyamanushyana" form of adoption
had become obsolete in Madras, and no such custom was prevailing in
the Nattukottai Chettiar communit

## Text

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M. CT. MUTHJAH & ANOTHER ETC.
v.
THE CONTROLLER OF ESTATE DUTY, MADRAS ETC.
(AND VICE VERSA)
B
JULY 17. 1986
[ R.S. PATHAK AND SABYASACHJ MUKHARJJ, JJ.)
Estate Duty Act 1953-Sections 2( 15), 5, 6, 15, 34(3)-Estate
duty-Property liable to estate duty-Personal accident Insurance
policy-Money received by heirs of deceased under the policyWhether forms part of estate of deceased, passes on death-Accident
policy and life policy-DistinCtion between.
Jurisprudence-Custom-Prevalence of-Matter of evidence-
'Dwyanamanus.hyana' form of adoption-Prevalence of in Madras
State.
The deceased was the Karla of a Hindn undivided family. He had
two sons. He gave his first son in adoption to his divided paternal uncle.
c
D
He was joint with his second son throughout his life. He took out a
E
personal accident insurance policy with the lnsurant-e Company and
effected a nomination in favour of his first son. During the currency of
the policy, the deceased die.: following the crash of the airliner in which
he had travelled, and the Insurance Company paid the nominee a sum
of Rs.2 lakhs, the benefit stipulated under the terms of the policy. At
the time of his death, the deceased had other properties and interests.
F
One was his interest as an undivided coparcener in his joint family
which consisted of himself and his second son.
Jn the assessment proceedings under the Estate Duty Act 195:1,
the accountable persons urged before the Deputy Controller of Estate
Duty: (i) that the amount of Rs.2 lakhs could not he aggregated with the
rest of the properties, but must be brought to charge independently as a
se~arate estate in itself, because the deceased had no interest at all in
the insurance money, and (ii) that the adoption in 1931 was on the basis
that notwithstanding adoption into another family, the ad op tee must
continue to retain his interest in the properties belonging to the family
of his birth and, therefore, he was entitled, as on the date of the. de-
:ns
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SUPREME COURT REPORTS
11986] 3 S.C.R.
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ceased's death, to an equal interest in the deceased's family properties, 'f
so that the quantum of the deceased's coparcenary interest was not
one-half hut only one third of the total value of the family properties. A
"Muri" (deed of adoption) that was executed was produced in this
regard.
B
c
The Deputy Controller rejected these' contentions and held: (i)
that the personal accident insurance money of Rs.2 lakhs paid by the
Insurance Company should be charged to estate duty and it had to be
aggregated with the rest of the properties passing on the deceased's
death; (ii) that the insurance money of Rs.2 lakhs was property which
the deceased was competent to dispose of by will; (iii) that the deceased
did have an interest in the insurance money; (iv) that the deceased's
interest in the coparcenary property, which had to be included in the
dutiable estate, extended to one half share of the joint properties on the
basis that the deceased and his second son were alone entitled as
coparceners to the said properties; (v) that the document produced in
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support of the plea of adoption was not genuine and even otherwise it
had no legal effect on the continued rights of the adopted son in the
family of his birth subsequent to his adoption. He, therefore, included
in the dutiable estate, one-half of the joint family properties as being the
measure of the deceased's coparcenary interest.
E
The accountable persons appealed against the above assessment to
the Central Board of Revenue. The Board held: (i) that the insurance
money of Rs.2 lakhs was chargeable to estate duty under s. 6; ('i) that
the deceased had interest in the insurance money; (iii) that the deceased
did have the power of disposition over the insurance money both by the
exercise of power of nomination under the policy and also indepenF
dently by the exercise of any testamentary power; (iv) that the Hindu
law of adoption makes the adopted son lose his property interests in the
family of his birth and that the "dwyamanushyana" form of adoption
had become obsolete in Madras, and no such custom was prevailing in
the Nattukottai Chettiar community, under which the adopted son
never loses his property rights in the family of his birth and, therefore,
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upheld the assessment of one-half of the value of the whole of the jQint
family property as the measure of the deceased's dutiable interest.
On reference, the High Court held that as the deceased was competent to dispose of the monies payable under the accident policy, the
sum of Rs.2 lakhs was includible in the principal value of the estate but
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the same was not liable to be aggregated with the other properties and
M.C. MIJTHIAH v. THE CONTROLLER [MUKHARJI, J. j
317
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had to be assessed as an estate by itself and that the type of adoption
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pleaded by the accountable person was recognised by the custom of the
Nattukottai Chettiar community, the terms of the 'muri' formed part of
the adoption and the adoption could not be considered de hors the
agreement and hence the deceased had only one-third share in the joint
family properties at the time of his death.
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In the appeal to this Court, on behalf of the accountable persons it
was contended: (i) that it was a condition precedent for the attraction of
. ""''"'·
the duty that (a) the estate holder must have had possessed or enjoyed a
property or an interest in property; (b) the interest in a property might
be either vested or contingent; (c) but that interest should be with
regard to either an immovable property or a movable property which
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was capable of being ascertained during the lifetime or at the time of the
death of the estate holder; (d) a contingent interest could fall within the
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purview of the Act only if the interest of a tangible nature and was
capable of being ascertained (ii) that there had to be a passing of property or intertest as contemplated by s. 2(16). There has also to be a
change in the beneficial possession and enjoyment of property of the
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interest in that property; (iii) that an accident insurance policy could
not be construed as a movable property unlike a life insurance policy or
an annuity since a person who possessed it could not also be said to have
-1a contingent interest because there was every possibility of the accident
policy getting extinguished or rendered worthless during his lifetime;
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(iv) that in the case of a life insurance policy, there is always a tangible
continuing interest only that the value of that interest might be subjected to a change at the time of passing of the property; (v) that it was
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not necessary that during the lifetime of the deceased the property in
question should have 'attained' the full value e.g. 'Annuity'. Only a
future interest that crystalised after the death of the estate holder; (vi)
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that since the benefit in accident policy could only accrue after the death
of the estate holder, it became property for the first time after the
demise of the estate holder.
Allowing the appeal by the accountable persons and dismissing
the appeal of the Revenue, the Court,
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HELD: I. I. Under the personal accident insurance policy in
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question the insurance money became property only on happening of a
specified contingency. That property arose on the death of the deceased
during the subsistence of the accident policy. The property is the sum of
Rs.2 lakhs which became receivable by the nominee or the legal repH
318
SUPREME COURT REPORTS
[1986] 3 S.C.R.
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resentative of the deceased because of the death of the deceased in the y
air accident during the subsistence of the policy. That right to the sum
arose because (a) the deceased died; (b) in air accident; (c) during the
subsistence of the policy. The property came into being on that contingency after death. No property can, therefore, be deemed to pass on the
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death of the deceased. [3420-F]
1.2 During the lifetime of the deceased, an interest was vested
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totally and irretrievably in the hands of the beneficiary or the legatee or
the nominee. The death did not cause property to change hands. The
,.;•
fact that a person can nominate a beneficiary will not tantamount to a
•
disposition of the property. [342F-G]
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1.3 Whether a particular custom prevails in a particular community or not is a matter of evidence. [343C]
;:i...
2.1 Section 5 of the Estate Duty Act, 1953 provides that there shall
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be levied and paid upon the principal value ascertained in the manner
provided of all properties which passes on the death of a person. Three
factors are important: (1) there must be passing (2) of such property and
(3) such passing on must be on the death of a person. [326F]
2.2 Section 3(l)(a), (b) & (c) provides for certain situations in +
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which a person is deemed competent to dispose of property. Section 6
deals with property within disposing capacity and provides that property which the deceased was at the time of his death competent to
dispose of shall be deemed to pass on his death. [327 A-Bl
3.1 It was a condition precedent for the application of the Act
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that the estate holder must have possessed or enjoyed the property or
interest in property, the interest in property might be either vested or
contingent but interest should be that with regard to which either im-
-:
movable property or movable which was capable of being ascertained
during the lifetime or at the time of the death of the estate holder. The
property vested or contingent most be one which was capable of being
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ascertained. Even if these tests were satisfied then there has to be a
passing of that property or interest as contemplated under s. 2(16) of
the Act. Even if a person might have power to dispose of a property or
)--
interest in property, he cannot or his estate cannot be brought within
the purview of the Act solely because of that factor. In order for an
estate to be liable to estate duty, the power of disposition must be with
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regard to a property capable of being ascertainable during the lifetime
M.C. MUTHIAH v. THE CONTROLLER [MUKHARJI, J. I
319
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of the deceased or at the time of his death. There had to be a change in
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the beneficial possession and enjoyment of the property or the interest
in that property. In other words, the property or interest which is liable to
estate duty has to pass through the estate of the deceased. [340B-E]
3.2 Though the deceased might have a right of disposition as and
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when the property would be available in case the contingency happens,
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namely, the death of the deceased in an accident, but· that right is
\
different from the right to the money accruing or arising because of the
·-
death due to accident. [340E-F]
3.3 An accident insurance policy cannot be construed as a movable property unlike a life insurance policy or an annuity because as
c
laid down in s. 2(15) of the Act it is not only necessary for the person to
have property or interest in property but that interest must be in regard
~
to a movable property and his interest should also be capable of being
ascertainable during his lifetime or at the time of his death in that
movable property. Secondly, an accident insurance policy could not be
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construed as a property or an interest in property since a person who
possessed it cannot also be said to have a contingent interest because
there was every possibility of the accident policy getting extinguished or
rendered worthless during his lifetime; on the other hand; in the case of
--I
a life insurance policy, there was always a tangible continuing interest
only that the value of that interest might be subjected to change at the
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time of passing of the property. [340H; 341A-CJ
3.4 A contingent interest which did not get crystallised during the
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lifetime of the deceased but which interest would, with certainty, accrue
after the demise of the estate holder will be caught by s, 6 of the Act.
The accident policy could only accrue after the death of the estate
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holder. It became property for the first time after the demise of the
estate holder. There was no element of property during the lifetime of
the estate holder. [341C-D]
3.5 The interest in an accident insurance policy did not pass
through the estate of the deceased as in the case of a life insurance policy
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or annuity and in the instant case, the interest directly went to the bene-
--{
ficiaries in the case of death by accident of the estate holder. [34 IE]
3.6 In the instant case, the property is really born on the death of
the deceased in an accident. The sum of Rs.2 lakhs was non-existent
before the death. There might have been some right of disposition in
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320
SUPREME COURT REPORTS
I 1986] 3 S.C. R.
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respect of the property which might accrue on the death of the dey.:
ceased. That right is different from the right to the movable property of
Rs.2 lakhs that is taking place. [340F-G]
Attorney·General v. Quixley, 1929 All England Reports Reprint
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696 and Controller of Estate Duty v. A. T. Sohani, New Delhi, 78
I. T .R. 508, distinguished.
Controller of Estate Duty v. Kasturi Lal Jain, 93 I.T.R. 435 and
Controller of Estate Duty, Patiala v. Smt. Motia Rani Malhotra, I.T.R.
42, approved.
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Bharatkumar Manila/ Dalal v. Controller of Estate Duty, GuD
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jarat, 99 I.T.R. 179, over-ruled.
Westminster Bank Ltd. v. Inland Revenue Commissioners (1957]
2 All E.R. 745 = 36 I.T .R. (ED) 3, Smit. Amy F. Anti v. Assistant
Controller of Estate Duty, Bombay 142 ITR 57, P. Indrasena Reddy &
Pingle Madhusudhan Reddy v. Controller of Estate Duty, 156 !TR 45,
Shri H. Anraj etc. v. Government of Tamil Nadu etc. [1986] (l) SCC
414, Smt. Sarabati Devi & Anr. v. Smt. Usha/ Devi, 1984(1) SCR 992
and Public Trustee v. Inland Revenue Commissioners, (1960] A.C.
398, referred to.
CIVIL APPELLATE JURISDICTION: Civil appeal No. 2086
of 1974 and 67 of 1975
From the Judgment and Order dated 20th September, 1973 of
the Madras High Court in Tax Case No. 310of 1967.
C. Ramakrishna, Mohan Parasaran and Mrs. Janaki Ramachandran, for the Appellants in C.A. No. 2086 of 1974 and for the
Respondent in C.A. No. 67 of 1975.
S.C. Manchande, Dr. Gauri Shankar. K.P. Bhatnagar and Miss
A. Subhashini, for the Appellant in C.A. No. 67 of 1975 and for the
Respondent in C.A. No. 2086 of 1974.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. These two appeals are from the
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judgment and order of the Madras High Court dated 20th September,
M.C. MUTHIAH v. THE CONTROLLER [MUKHARJI, J.]
321
1973 by certificates of fitness granted by the High Court under section
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65 of the Estate Duty Act, 1953, hereinafter called the Act.
Civil Appeal No. 2086 of 1974 is by accountable persons and
Civil Appeal No. 67 of 1975 is by the revenue. The judgment under
appeal is reported in 94 I.T.R. at page 323.
B
1
The accountable persons are the sons of one late M. Chindermbara Chettiar hereinafter called the deceased. The deceased was the
Karla of a Hindu undivided family. He gave his first son Muthiah, in
<...
adoption to his divided paternal uncle Pethachi Chettiar, and adoption
ceremony was held on 7th June, 1931. Subsequently his second son,
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also called Pethachi, was born in 1933, with whom the deceased was
joint throughout his life.
~
On 21 February, 1954, prior to proceeding to Malaya by air, the
deceased took out a personal accident insurance policy with the United India Fire and General Insurance Company Ltd. (hereinafter calD
led the Insurance Company). Under the terms of the said policy which
was to be in force for one month, the Insurance Company had agreed
that if at any time during the currency of the said policy, the deceased
should sustain any accident resulting in any injury or injury leading to
his death, then, the Insurance Company undertook to pay to the
....
assured or to the legal representative of the assured in case of the
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assured's death, such sum as might be appropriate in the Table of
Benefits appended to the Policy. The Table of Benefits mentioned that
in case of death or total disablement the benefit payable was Rs. 2
t
lakhs, in case of partial disablement, Rs. 1 lakh·, in case of temporary
disablement, a weekly payment of Rs.1200 or Rs.300 according to the
nature of the disablement. The policy, inter alia, provided that "the
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policy is unassignable and the company shall not be affected by notice
of any trust or purported to be imposed upon assignment of or of
any charge or lien imposed or purported or any dealing with the policy
and the receipt of the insured or the executors or administrators of the
insured for any moneys payable thereunder shall in all cases be any
effectual discharge to the company". A sum of Rs.250 was paid or
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credited as paid by the deceased as and towards the premium and
other charges for the aforesaid personal accident insurance policy. It
'
also appeared that in the proposal Form dated 20th February, 1954
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filed by the deceased with the Insurance Company, the deceased had
effected a nomination in favour of his son M. Ct. Muthiah. On the 13th
March, 1954, the deceased died following the crash of the airliner in
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SUPREME COURT REPORTS
[1986] 3 S.C.R.
which he had travelled. On his death the Insurance Company paid the
nominee, the appellant No. 1 herein a sum of Rs. 2 lakh which was the
benefit stipulated to be paid, in such an event, under the terms of the
policy. At the time of his death the deceased had other properties and
interests. One was his interest as an undivided coparcener in his joint
family which consisted (after the adoption away of his first son A.
Muthiah) of the deceased and his second son Pethachi.
In the assessment under the Estate Duty Act, 1953 (hereinafter
called the 'Act'), the Deputy Controller of Estate Duty was of the view
that the personal accident insurance money of Rs. 2 lakhs paid by the
Insurance Company should be charged to estate duty and further that
it had to be aggregated with the rest of the properties passing on the
deceased's death. He held further that the insurance money of Rs. 2
lakhs was property which the deceased was competent to dispose of by
will. Before the Deputy Controller, it was urged that the amount of
Rs. 2 lakhs could not, in any case, be aggregated with the rest of the
properties, but must be brought to charge independently as a separate
estate in itself, the contention being that the deceased had no interest
at all in the said insurance money. The Deputy Controller rejected this
contention as untenable, holding that the deceased did have an interest in the insurance money. As in respect of the deceased's interest
in the coparcenary property, which had to be included in the dutiable
estate, the Deputy Controller took the view that such interest extended to 1/2 share of the joint properties on the basis that the deceased
and his second son Pithachi were alone entitled as coparceners to the
said properties. He rejected the contention that M. Ct. Muthiah who
had been adopted away from this family in 1931 was nevertheless
entitled, as on the date of the deceased's death, to an equal interest in
the deceased's family properties, so that the quantum of the
deceased's coparcenary interest was no one-half but only-one-third
of the total value of the family properties. It was urged before the
Deputy Controller that the adoption of M. Ct. Muthiah in 1931 was on
the basis that notwithstanding his adoption into another family, M. Ct.
Muthiah must continue to retain his interest in the properties belonging to the family of his birth. A "Muri" in Tasil in curdgeon-leaf
purported to have been executed on 7th June, 1931 was produced
before the Deputy Controller in support of the above plea. The
Deputy Controller did not accept the genuineness of the said document. But even otherwise, the Deputy Controller proceeded to hold
that the "Muri" had no legal effect on the continued rights of adopted
son in the family of his birth subsequent to his adoption. He accord-
I
M.C. MUTHIAH v. THE CONTROLLER IMUKHARJI, J.]
323
ingly included, in the dutiable estate, one-half of the joint family properties as being the measure of the deceased's coparcenary interest.
The accountable persons appealed against the above assessment
to the Appellate authority which at that time, as the law then was, the
Central Board of Revenue.
The Central Board held that the insurance money of Rs. 2 lakh
was chargeable to estate duty under section 6 of the Act. The Board
took the view that under the terms of the policy, the deceased had the
right to nominate a person to take the moneys on the deceased's death
and also the capacity to dispose of the amount by testamentary
disposition.
On the question as to whether the amount of Rs. 2 lakhs must, in
any event, be charged as a separate estate in itself, segregated from the
rest of the properties, the Central Board rejected the accountable
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persons' contention that the deceased never had any interest in the
0
said insurance money. On the terms of the accident policy, the Board
was of the view that the deceased did have the power of disposition
over the insurance money both by the exercise of the power of nomination under the policy and also independently by the exercise of any
testamentary power.
On the point relating to the exact quantum of the deceased's
interest in coparcenary property, the Board accepted the genuineness
of the "Muri". Before the Board, an Agreement in writing dated 19th
August, 1976 between A. Muthiah and Pethachi, the two sons of the
deceased, was produced to further support the claim that Muthiah
retained his coparcenary interest in the family of his birth despite his
adoption into another family.
The Board however held that the Hindu law adpotion makes the
adopted son lose his property interests in the family of his birth and
that the "dwamushayana" form of adoption pleaded by the accountE
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able persons had become obsolete in Madras. The Board rejected the
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claim that there was a custom prevailing in the Muttukttsi Chettiar
community, to which the deceased belonged, under which the adopted
son never loses his property rights in the family of his birth. On these
findings, the Board upheld the assessment of one-half of the value of
the whole of the joint family property as the measure of the deceased's
dutiable interest.
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324
SUPREME COURT REPORTS
[1986] 3 S.C.R.
After the decision of the Board, the following questions of law
were referred to the High Court.
"l. Whether the deceased was competent to dispose of the
moneys payable under the accident policy and whether the
sum of Rs.2,00,000 is includible in the principal value of
the estate?
2. If the sum of Rs. 2 lakhs was liable to be assessed to duty
whether the said amount could be aggregated with the
other properties or should be assessed as an estate by
itself?
3. Whether the share of the deceased Chindambaram
Chettiar in the property of the joint family at the time of his
death was one half or one third of the property?"
The High Court by the judgment under appeal answered the first
question in favour of the revenue and against the accountable person
and the second and third questions were answered against the revenue
and in favour of the accountable person.
Being aggrived by the answer against the first question, the accountable person has preferred the appeal being appeal No. 2086 of
1974 and on the certificate granted by the High Court and on the
subsequent two questions, the revenue obtained the certificate of fitness to appeal to this Court which is appeal No. 67 (NT) of 1975.
The High Court in the judgment under appeal held that under
section 5 of the Act, all properties which passed on the death of the
person were liable to estate duty. Under section 6 of the Act, property
which the deceased was at the time of his death competent to dispose
of should be deemed to pass on his death and under section 3(1)(a), 'a
person was deemed competent to dispose of property if he has such an
estate or interest therein or such general power as would, if he were sui
juris, enable him to dispose it of. General power included every power
of authority enabling the holder thereof to appoint or dispose of property as he thought fit, whether exercisable by instrument inter vivos or
hy will or both. A personal accident policy was not a contract of
indemnity. The amount payable on death of the insured was fixed in
the policy itself. It was in the contemplation of the parties even at the
time of the contract that in the case of death the amount would be
M.C. MUTH!AH v. THE CONTROLLER {MUKHARJI, J. I
325
payable either to the nominee or the legal representative and not to
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the assured. It was thus in the nature of a provision made by the
deceased for such person. The deceased had no interest in the money
as such because that came into existence the moment after his death
and was payable to the nominee or legal representative. But he had a
right in the payment on his death to his legal representatives. In other
words, he had interest over the payment of money and not in the
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money itself. He had a right to take away that right of the legal representatives to receive the money and to vest it in some other person
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by will. He could nominate a person to whom the amount should be
paid. Nomination in such a case was in the nature of a disposition by
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will and as such till he breathed his last he could cancel such nomination and nominate another. The nominee, unlike an assignee of life
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policies, got title to the money on death, for the property itself came
into existence by reason of the death and was payable to the nominee
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by virtue of the power of disposition by will which deceased had over
the sum. The High Court further held that the money paid on death
was property and that was clear. This property, according to the High
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Court, came into existence at the time of death. The High Court
further held that though the property was not in existen.ce before his
death, since it came in at the time of his death, the deceased was
competent to dispose of the same by will. It was this power, according
to the High Court, of disposal that attracted the provisions and made it
~ property which was deemed to pass on his death under section 6 of the
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Act. The beneficial interest in the policy which accrued or arose on
death was the sum paid out under the policy and this beneficial interest
having been purchased by the deceased, the provisions of section 15 of
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the Act were also attracted. Further, the estate had been depleted to
the extent of the premium paid and the beneficial interest purchased
and the deceased not having received a full equivalent for what he has
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paid and having regard to the nature of the policy, the intention from
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the beginning was to make a provision. The principal value of the estate
that was deemed to pass under section 6 and which accrued or arose
under section 15 was that sum which was paid out under the policy. As
there was no devolution of interest from the deceased to another person
and from the very inception the amount was payable only to the
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nominee or legal representative, section 5 of the Act was not applicable.
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It was further held by the High Court that in the case of a
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personal accident policy, the property was not the policy but the ultimate money that was paid and that should be deemed to pass on death
of the deceased because of his competency to dispose of the same by
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will and the holder of the policy had a right to have the amount paid to
his legal representative or nominee. The right was with respect to the
disposition of the money payable under the policy and not a right in
the money itself. But in case of a life insurance policy, both the policy
and the money payable thereon was property which could be settled
during the lifetime of the insured. As the deceased never had any
interest during his lifetime in the money paid on death under the
personal accident policy, though he was competent to dispose of the
same by will, the sum paid under the policy was not aggregatable with
the other estate of the deceased and was to be treated as an estate by
itself under section 34(3) of the Act. The High Court held that though
as the deceased was competent to dispose of the moneys payable under
the policy, the sum of Rs. 2 lakhs was includible in the principle value
of the estate but the same was not liable to be aggregated with the
other properties and had to be assessed as an estate by itself.
Regarding adoption, the High Court was of the view that the
type of adoption set out by the accountable person was recognised by
the custom of the N attukottai Chettiar community, the terms of the
muri formed part of the adoption and the adoption could not be considered de hors the agreement and hence the deceased had only onethird share in the joint family properties at the time of his death.
In order to appreciate the question involved in Civil Appeal No.
2086 of 1974, it is necessary to bear in mind the scheme of the Act.
Section 5 deals with levy of estate duty. It states that there shall be
levied and paid upon the principal value ascertained in the manner
provided of all properties which passes on the death of such person.
Therefore, three factors are important; (1) there must be passing, (2)
of such property and (3) such passing on must be on the death of a
person. Section (2)(15) of the Act defines 'property' as inclusive of any
interest in property movable or immovable, the proceeds of sale
thereof and any money or investment for the time being representing
the proceeds of sale and also includes any property converted from one
species into another by any method. There are two Explanations which
are not nec~sary to be set out in detail.
Section 2(16) deals with 'property passing on the death' and
includes any property passing either immediately on the death or after
any interval, either certainly or contingently, and either originally or
by way of substitutive limitation, and 'on the death' includes 'at a
period ascertainable only by reference to the death'.
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M.C. MUTHIAH v. THE CONTROLLER [MUKHARJI, J. ]
327
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Section 3(1)(a), (b) & (c), inter alia, provides for certain situaA
!ions in which a person is deemed competent to dispose of property.
Section 5 as we have noted before deals with the levy of estate duty.
Section 6 deals with property within disposing capacity and provides
that property which the deceased was at the time of his death competent to dispose of shall be deemed to pass on his death.
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Section 14 deals with policies kept up for a donee. It is not
necessary to set out the actual terms of the said provisions. Section 15
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deals with annuity or other interest purchased or provided by the
deceased and provides that any annuity or other interest, purchased or
provided by the deceased, either by himself alone or in concert or by
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arrangement with any other person shall be deemed to pass on his
death to the extent of the beneficial interest accruing or arising, by
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survivorship or otherwise, on his death.
Section 34 of the Act provides for aggregation and stipulates that
for purposes of determining the rate of the estate duty to be paid or
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any property passing on the death of the deceased, what kinds of
property should be aggregated. Except sub-section (3) of section 34,
nothing is material for our present purpose. Sub-section (3) of section
34 reads as follows:
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"(3) Notwithstanding anything contained in sub-section
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(1) or sub-section (2), any property passing in which the
deceased never had an interest, not being a right or debt or
benefit that is treated as propetty by virtue of the Explana-
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tion to clause (15) of section 2, 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
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of the principal value thereof."
Sree C. Ram Krishan, learned counsel for the accountable
persons in the first appeal before us and who was the advocate who
had appeared before the High Court made various submissions. He
submitted that it was a condition precedent for the attraction of the
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duty that (a) the estate holder must have had possessed or enjoyed a
property or an interest in property; (b) the interest in a property might
be either vested or conting~nt; (c) but that interest should be with
regard to either an immovable property or a movable property or an
interest in immovable or movable property which was capable of being
ascertained during the lifetime or at the time of the death of the estate
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holder; (d) a· contingent interest could fall within the purview of the
Act only if the interest was of a tangible nature and was capable of
being ascertained, that is to say, the estate holder must always be
having a possibility to enjoy or possess that interest either actually or
constructively during his lifetime itself. He cited the example of a life
insurance policy.
According to counsel, if the above tests were satisfied then there
had to. be a passing of that property or interest as contemplated by
section 2(16) of the Act. Even though a person might have a power to
dispose of a property or interest in property, he could not or his estate
could not be brought within the purview of the Act solely because of
the above factors. Because over and above this, in order for an estate
to be liable for estate duty the power of disposition must be with
regard to a property capable of being ascertainable during his lifetime
or at the time of his death. It was urged that a property or interest in
property has necessarily to change hands in order to attract estate
duty. There has also to be a change in the beneficial possession and
enjoyment of the property or the interest in that property. In other
words, it was submitted, the property of interest which was liable for
estate duty under the Act has to pass through the estate of the deceased. According to the counsel, applying the above principles it
could not be said that an accident insurance policy had the characteristics of a property or interest in property and therefore was not
liable for estate duty because an accident insurance policy could not be
construed as a movable property unlike a life insurance policy or an
annuity because as laid down in section 2( 15) it was not only necessary
for a person to have property or interest in property but that interest
must be in regard to a movable property and his interest should also be
capable of being ascertainable during his lifetime or at the time of his
death in that movable property. An accident insurance policy, according to him, could not be construed as a property or an interest in
property since a person who possessed it could not also be said to have
a contingent interest because there was every possibility of the accident policy getting extinguished or rendered worthless during . his
lifetime; on the other hand in the case of a life insurance policy, there
is always a tangible continuing interest only that the value of that
interest might be subjected to a change at the time of passing of the
property. Further it was submitted that it was not necessary that during the lifetime of the deceased the property in question should have
'attained' the full value e.g. 'Annuity'. An annuity could mature even
after the death of the est.ate holder. But it must be noted that the
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M.C. MUTHIAH v. THE CONTROLLER [MUKHARJJ, J.]
329
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estate holder in the case of an annuity deposit knew precisely the value
of the contingent interest that would mature at a future date. Consequently even a contingent interest which did not get crystalised during
the lifetime of the deceased but which.interest would, with certainty,
accrue after the demise of the estate· holder will be caught by section 6
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as a property passing from the deceased to the beneficiary. Thus
though only a future interest that crystalised after the death of the
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estate holder would be deemed as a property of the estate holder.
Learned counsel submitted that an accident policy is not property,
because it lacks the well known characteristic of property namely, that
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it should be capable of being mortgaged or pledged as a security. It
lacked the characterists of a security. Consequently an accident policy
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was not a property, accordir.g to counsel.
Since the benefit in accident policy could only accrue after the
death of the estate holder, it became property for the first time after
the demise of the estate holder. There was, according to the counsel
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for the accountable person, no element of property during the lifetime
of the estate holder. Therefore, there could not be any passing of
property in a case like this. A possession of accident policy could not
be construed as a property in the hands of the estate holder. It was
further submitted that in the case of an accident insurance policy,
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there cannot be passing because there was no change in the beneficial
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possession or enjoyment of the property or interest in the policy. The
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interest in accident insurance policy did not pass through the estate of
the deceased as in the case of a life insurance policy or annuity. But
here the interest directly went to the beneficiary in the case of the
death by accident of the estate holder. It was in the premises submitted
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that it cannot be accepted that the deceased had any power of disposition over the accident policy during his lifetime because the interest in
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an accident policy could not also be elevated to that of a contingent
interest since there is always the chance for the accident policy being
rendered worthless during the lifetime of the deceased. There is also
no chance for the deceased to bear the fruition of the policy during his
lifetime because in the case of an accident policy the condition of the
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policy itself was to the effect that the policy would bear fruition only if
the estate holder did not die due to natural causes but in an accident.
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A large number of authorities both Indian and English and a
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large number of dictionaries relevant for this purpose were relied
upon.
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So far as the first appeal is concerned, namely, Civil Appeal No.
2086 of 1974, the question of assessability to estate duty of the amount
received as a result of the death of the assured is involved. This question has been examined by various authorites to some of which our
attention was drawn.
Before we do so, it may be worthwhile to refer to the dictionary
meaning of certain words to which our attention was drawn.
In Worth and Phrases Legally Defined-Vol. 1 !969 (second
Edn.) at page 332, it has been said that "Contingent Liability". is a
phrase with no settled meaning in English law because Danckwerts, J.
thought it necessary to resort to dictionary used. The Court of Appeal
regarded its meaning as an open question. A conditional obligation, it
has been said there, or an obligation granted under a condition which
is uncertain, had no obligatory force till the condition was purified. All
this was relied in aid of the submission that until the accident happened or death resulted, the beneficiary of the insurance policy or the
nominee of the assured does not get any benefit. In order words, the
birth of the property and the right to get it accrues on the death of the
deceased. The property which the legatee or the nominee receives was
property nntil the accident during the lifetime of the deceased.
In Worth and Phrases Legally Defined-Vol. 4 at page 200,
"Property" has been defined as to what belongs to a person exclusively
of others and can be the subject of bargain and sale. It includes
goodwil, trade marks, licences to use a patent, book debts, options to
purchase, life policies and other rights under a contract.