Back
1998 Supreme(SC) 664
1998(6) Supreme 126
Supreme Court of India
(From Andhra Pradesh High Court)
Sujata V. Manohar & D.P. Wadhwa, JJ.
P. Madhusudhan Reddy (Dead) by LRs. -Appellants
versus
The Controller of Estate Duty -Respondent
Civil Appeal Nos. 356-58 of 1985
Decided on 20-7-1998
Counsel for the Parties :
For the Appellant : A. Subba Rao, Advocate.
For the Respondent : T.L. Iyer, Sr. Advocate (Tara Chand Sharma) Advocate for B.K. Prasad, Advocate.
Important Point
The Three Insurance Policies in the facts of this case have to be considered as a part of the general estate of the deceased and they cannot be aggregated individually or collectively to form a separate estate or estates for the purpose of calculating the rate of estate duty.
Headnote:(i) Estate Duty Act, 1953-Sections 2(15), 2(16) and 34-Property and property passing on death-Deceased had three Insurance Policies of Rs. 50,000/- each -During life time he assigned those policies in favour of his grand children-Whether u/s. 34 of the Act LIPs can be treated as property passing on the death of the deceased? (Yes).
Held : By virtue of Section 14(1) money under a life insurance policy which is kept up by the donee for the benefit of his nominee or assignee is deemed to pass on the death of assured. This is a clear deeming provision whereby even after the assignment of his policy by the assured, if the assured keeps up the policy for the benefit of his assignee, the insurance policy will constitute a part of the estate of the deceased. (Para 12)
The contention of the appellants that the deceased did not have any interest in the insurance policies passing on his death must, therefore, be rejected in the light of Section 14. (Para 14)
The deceased must be considered to have an interest in these policies passing on his death for the purposes of estate duty. (Para 16)
(ii) Estate Duty Act, 1953-Section 34(3)-Separate estate under for the purpose of determining rate of Estate duty-3 LIPs assigned by deceased during his life time u/s. 38 of Insurance Act, 1938-Treated as property passing on the death of the deceased-Whether should be treated as separate estate u/s. 34(3) as “deceased never had an interest”? (No)-Result-Amounts under LIPs form a part of the general estate of the deceased.
Held : Applying the test as laid down in Re Hodson’s Settlement (supra) to the present case, prior to the assignment, the deceased clearly had an interest in the life insurance policies. Even after the assignment, had the assignees disclaimed their interest in the policies, the benefit under the policies would have resulted to the deceased or his representatives. Therefore, it cannot be said that the deceased never had an interest in the life insurance policies for the purposes of Section 34(3) of the Estate Duty Act, 1953. The amount under the three life insurance policies is, therefore, liable to be aggregated with the general estate of the deceased. (Para 26)
In the premises, we hold that the amount under the three life insurance policies forms a part of the general estate of the deceased and that the amounts under the three life insurance policies have to be aggregated with the general estate of the deceased for the purpose of determining the rate of estate duty. The appeals are, therefore, dismissed. In the circumstances, however, there will be no order as to costs. (Para 28)
Judgment
Mrs. Sujata V. Manohar, J.-These appeals arise out of the estate duty proceedings in respect of the estate of the deceased P. Madhusudhan Reddy. During his lifetime the deceased had taken out three life insurance policies of Rs. 50,000/- each. Two policies were from the Phoenix Assurance Company, Bombay and one policy was taken from the Standard Life Insurance Company, Calcutta. During his lifetime the deceased had obtained loans on the security of his two life insurance policies taken out from Phoenix Assurance Company, Bombay. It seems that the total loan amount was Rs. 78,400/-. The deceased had also, from time to time, repaid a part of the loan. The amount due in respect of the loans so taken at the time of the death of the deceased was Rs. 71,260/-.
2. During his lifetime on or about 29th of August, 1954 the deceased executed an assignment in respect of each of these three lie insurance policies in favour of his grand children. The deeds of assignment have been registered on 27.9.1954. A notice of the assignment was given to the insurance company in accordance with the provisions of Section 38 of the Insurance Act, 1938 and the assignments were registered with the Insurance Companies.
3. The deceased made a Will dated 4.2.1959 in respect of all his properties. In his Will, in the list of properties he mentioned, at item No. 30, as follows :-
“There are three Policies of Life Insurance, as detailed below of Rs. 50,000/- each, which are already assigned in favour of my six grandsons and a grand daughter (i.e. the sons and daughter of my two sons). 1. The Standard Life Insurance Co., Fifty thousand. 2. The Phoenix Assurance Co., two policies of Fifty thousand each.’’
In the Will, he also mentioned in the list of dues, payment of dues to insurance companies amounting to Rs. 71,250/-. Under his Will he provided that after his death the amount of his three life insurance policies, that is to say, Rs. 1,50,000/- plous bonuses that will be received thereon, should be distributed equally among his surviving six grandsons and grand daughter in whose favour he had already assigned irrevocably and transferred the policies. He also provided that the dues of the insurance companies (inter alia) should be paid out of the general estate.
4. In the estate duty proceedings the Assistant Controller of Estate Duty initially treated the three policies as a separate estate for the purpose of calculation of the rate of estate duty. In appeal, before the Appellate Tribunal, the Tribunal held that each of the three policies should be separately assessed to estate duty. However, after reopening the assessments the Assistant Controller of Estate Duty treated the three policies as a part of the main estate of the deceased and levied estate duty accordingly. In the several proceedings which took place dealing with the initial assessment as well as the reopening of the assessment, the Appellate Tribunal ultimately held that the two insurance policies taken out from Phoenix Insurance Company framed a part of the general estate of the deceased while the third policy constituted a separate estate. The Appellate Tribunal, however, rectified its order as a mistake and ultimately held that all the three policies formed a part of the general estate of the deceased and could not be separately assessed.
5. In respect of these various proceedings, depending on the view then taken, three sets of questions were framed by the Tribunal and referred to the High Court in three reference applications which arose from these proceedings. The three sets of questions are as follows :-
Set No. 1 :
“1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that there should be separate assessments in respect of each of the three insurance policy amounts assigned by the deceased in favour of his grand-children (At the instance of the Revenue).
2. Whether the loan amount
