The proceeds of life insurance policies should be aggregated with the general estate of the deceased for determination of rate of duty payable under the Estate Duty Act, 1953 (34 of 1953).

( 1 ) THE above three reference are made to this court under the E. D. Act, 1953 (34 of 1933) (the Act), relevant to the estate of Pingle Venkatrama Reddy, who died on 3/06/1965. The questions in the reference relate to three life insurance policies obtained by the deceased. Two of the policies relate to a company, by name, Phoenix Assurance Company (Bombay company); the third, relates to the standard Life Insurance Company (the Calcutta company ). The question principally is :whether the proceeds of the policies should be aggregated with the general estate of the deceased, for determination of rate to ascertain the duty payable under the Act.

( 2 ) THE three policies the assured obtained for Rs. 50,000 each. On the Bombay policies, the assured on 13/10/1941, and, for the second time on 15/10/1981, (sic) had taken loans from the Bombay company. From the statement of facts, it is not known what sums were borrowed. On the Calcutta company policy, the assured obtained on 8/06/1933, a sum of Rs. 30,000 and on 17/11/1951, another sum of Rs. 58,000. The undischarged debts on the policies were ascertained to be 71,250. The assured, during his lifetime, on 27/09/1954, assigned interest in the policies to his seven grandchildren. The last testament of the deceased was executed on 4/02/1959, and in that, the testator directed that the undischarged debts on the insurance policies be paid from his general estate and not from the proceeds of the policies.

( 3 ) THE accountable person submitted the return of 30/03/1973. On Mar 12/03/1975, the value of the deceaseds estate, at first, was determined in the amount of Rs. 13,51,296. This sum was varied, in the course of the proceedings, once to Rs. 12,28,010 and again re-fixed at Rs. 14,32,813. The variations were as a result of orders passed by the authorities affecting the three insurance policies. The question was, whether these policies should be aggregated for purposes of rate of duty payable under the Act, or, whether the insurance policies are to be separately assessed. Further, whether the undischarged loan amount of Rs. 71,250 be deducted from the proceeds of the policies. It is convenient to took at the subject of references from the standpoint of orders of the Appellate Tribunal for answering the questions.

( 4 ) ON 12/03/1975, the Tribunal held that the three insurance policies are to be separately assessed. The amounts in the policies are not to be aggregated for rate under s. 34 of the Act. The debts arising out of the three policies were orders to be deducted from the proceeds of the policies. Three question thereupon were referred to this court in the first of the three references. One among them was at the instance of the Revenue - whether separate assessment of these policies was proper. The two questions were made at the instance of the accountable person - whether the loan amount of Rs. 71,250 be deducted from the general estate; the payment of duty exigible under the Act. whether to be deducted from the estate of the deceased.

( 5 ) ON August, (or 18/10/1975, the Assistant Controller of Estate Duty, it is stated in the course of a discussion with the Revenue representative, was "informed" that the correct method was to aggregate the proceeds of the policies with the general estate of the deceased. The relevant law was indicated in a Gujarat decision showing two tests laid; one (for short) we refer as "disclaimer test"; the other, "test of benefits". We will return to this subject later with more details. Assessments were thereupon reopened. The proceeds of the policies were aggregated with the general estate. The Tribunal on 27/10/1977, confirmed the order of reopening of the assessments. On facts relevant to the Calcutta policy, it was held, since the assured was not shown to have "exercised interest", the Calcutta policy was ordered to be assessed separately. Relevant to assessment, two questions are referred - whether the reopening of assessment was proper a