JUDGMENT T.P. Mukerjee, J.
1. This is a reference by the Board of Revenue under Section 64(1) of the Estate Duty Act, 1953, hereinafter referred to as " the Act", on the following question of law :
"Whether, on the facts and in the circumstances of the case, the share in the two properties known as Burlington Hotel and Hakman's Hotel, taken by the applicant under the decree dated the 1st September, 1950, of the Civil Judge, Lucknow, was correctly treated as property deemed to pass on the death of the deceased ?"
2. The material facts giving rise to this referrence are as follows : The two hotels, hereinafter referred to as the said property, belonged to late Sri Razzak Mohammad (hereinafter referred to as "the deceased"), who died on July 26, 1956. Before his death the deceased had executed a deed of transfer in respect of the said property conveying the same to his son, Sri Sultan Mohammad, by a registered instrument dated September 11, 1936. By this deed he transferred the whole of the said property to Sri Sultan Mohammad, his son, "inconsideration of his services, obedience and love and affection and in further consideration of a sum of Rs. 10,000 per year till my lifetime."
3. Sultan Mohammed died issueless in the year 1948, leaving behind him his widow, Smt. Sarvari Kahtoon, referred to hereinafter as "the applicant". After the death of Sultan Mohammad there was litigation between the applicant and the deceased for partition and separate possession of their respective shares in the property of the late Sri Sultan Mohammed. There was a preliminary decree of the civil court in the partition suit of September 1, 1950, a copy of which appears in the paper book as annexure "C" By this decree the claim of the applicant for one-fourth share in the said property was decreed and it was also declared that the share of Sri Razzak Mohammad, the deceased, would be 3/4th in the said property. It was further declared that the maintenance allowance of Rs. 2,500 for Sri Razzak Mohammed, the deceased, would be a charge on the share of the said property allotted to the applicant.
4. As already stated, Razzak Mohammad died on July 26, 1956. Thereafter, assessment of the estate left by the deceased was taken up by the Assistant Controller, Estate Duty, Lucknow. The Assistant Controller, Estate Duty, Lucknow, estimated the total value of the said property at Rs. 5,75,000. He held that as the deceased had reserved the benefit to himself in the shape of annuity of Rs. 10,000 per annum for the period of his life, the transfer of the said property amounted to a gift covered by the provisions of Section 7 of the Act. He further held that the fact that the donee had pre-deceased the doner would not affect the liability which would pass on to the legal heir of the donee, namely, the applicant. He, therefore, considered the applicant as an accountable person liable for duty on her 1/4th share in the said property. Accordingly, the Assistant Controller, Estate Duty, issued a notice of demand to her for payment of the sum of Rs. 19,396,54 as the proportionate amount of duty payable by her on her share of the said property.
5. The applicant preferred an appeal to the Board of Revenue under Section 63 of the Act, against the order of the Assistant Controller, Estate Duty, Lucknow, in which it was contended, inter alia, that she should not be treated as an accountable person as no property passed to her on the death of the deceased. The Board held that as the deceased had reserved the benefit to himself while making the transfer of the said properties in 1936, the provisions of Section 10 of the Act came into operation and the same would be deemed to pass on his death. The Board observed that inasmuch as l/4th share in the said property devolved on the applicant as a legal heir of the original donee she must be considered as an accountable person for the portion of her property. The Board, therefore, affirmed the assessment and dismissed the appeal.
6. The Board has now made the reference at the instance of the applicant on the question referred to above.
7. In the first place, Sri Pachauri, appearing for the applicant, raised the contention that the transaction evidenced by the deed of transfer dated September 11, 1936, did not amount to a gift and therefore the provisions of Section 10 of the Act were not attracted. On the other hand, learned standing counsel. Dr. Misra, objected that the applicant should not be permitted to raise this question as it was never raised either before the Assistant Controller, Estate Duty, or before the Board of Revenue in appeal. The objection of Dr. Misra, cannot, however, be accepted. The question before us, as referred by the Board, is whether the applicant's share in the said property should be "deemed to pass on the death of the deceased." Evidently, the question would depend on whether the transaction of 1936 was a gift or a transfer for consideration. There is no estoppel on a question of law and, even though this point had not been raised specifically, before the Assistant Controller or the Board, the applicant cannot be debarred from pressing the same in this reference. The relevant portion of the deed dated September 11, 1936, executed by Razzak Mohamrnad, which is annexure "F" in this case, reads as follows :
"Whereas, I, with all my senses and with clear mind and heart without any influence and with my own wish transfer the whole property as per lists A and B of this deed which was in my possession with all the rights which I had in the said property and buildings with attached lands, fixture and fittings inside and outside the buildings and without keeping anything for myself transfer the whole property to Sri Sultan Mohd., son of the executor, resident of Hussainganj, Lucknow, in consideration of his services, obedience and love and affection and in further consideration of a sum of Rs. 10,000 per year till my lifetime and since then the executor has withdrawn the rights of ownership and has handed over the same to the donee, who has accepted the rights of ownership and possession of the property ........"
8. In conclusion the deed recites :
"The donee and his representatives will only be responsible to pay a sum of Rs. 10,000 per year to the executor till his lifetime. "
9. The transaction evidenced by the deed of 1936 does not conform to the definition of gift in Section 122 of the Transfer of Property Act. In that section "Gift" has been defined as follows :
'"Gift' is the transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person, called the donor, to another called the donee, and accepted by or on behalf of the donee."
10. In the present case, although the executant, namely, the deceased, referred to the transferee as the donee, it is obvious that the transaction does not amount to a gift within the meaning of Section 122 of the Transfer of Property Act, because it is not a transfer without consideration. In fact, the transferor while making the transfer reserved to himself substantial pecuniary consideration quite apart from the consideration of love and affection.
11. Section 27 of the Act is a special enactment designed to meet such cases in which a transfer is made by a person to his relative in consideration of an annuity or other life interest of some kind. Sub-section (2) of Section 27, which is relevant to our case, is reproduced below :
"27. (2) Where the deceased has made a disposition of property in favour of a relative of his, the creation or disposition in favour of the deceased of an annuity or other interest limited to cease on the death of the deceased or of any other person shall not be treated for the purposes of this section as consideration for the disposition made by the deceased".
12. Section 27(7)(i) defines the word "relative" to mean, among other persons, "children" of the deceased.
13. Again Clause (iii) of Sub-section (7) defines :
" 'Annuity' includes any series of payments, whether interconnected or not, whether of the same or of varying amounts, and whether payable at regular intervals or otherwise, ....... if the payments are liable to cease on the death, or the amounts thereof are liable to be reduced on the death, ...... "
14. Having regard to the special provisions of Section 27 of the Act it must be held that where a father transfers a property to his son or to his children in consideration of an annuity payable by the latter to the former, the transaction would not amount to a transfer for consideration under the special provisions of Section 27 of the Act. In such a case it would be a transfer without consideration or in other words it is a case of gift for the special purposes of the levy of estate duty. In the present case, therefore, although the deceased has reserved to himself a substantial annuity for himself, the payment of which was made a consideration for the transfer, the transaction evidenced by the deed of 1936 cannot be regarded as a sale or transfer without consideration, i.e., a gift, in respect of the said property.
15. If the transaction is regarded as a gift in respect of the said property, it would follow that the condition imposed by the deceased for payment of the sum of Rs. 10,000 per annum for the term of his life by the donee must be regarded as a condition in the nature of a benefit retained by the donor to himself. The transaction, therefore, falls within the mischief of Section 10 of the Act.
16. It is evident that if the donee, namely, Sri Sultan Mohammad. had been alive on the date of the death of the deceased the assessment of the duty on the estate in the hands of the donee will be governed by the provisions of Section 10 of the Act. As already stated, the donee, namely, Sri Sultan Mohammad, died in the year 1948, while the deceased died in 1956. The present applicant, admittedly, inherited l/4th share in the said property from her husband, the said Sri Sultan Mohammad.
17. Mr. Pachauri on behalf of the applicant contended that as the applicant got her interest in the said property by the inheritance from the donee and not by gift from the deceased, Section 10 of the Act does not apply. He referred to the express terms of Section 10(1) which applied only when "property" is "taken under any gift." Mr. Pachauri contended that it is only when property is taken under any gift, that such property "shall be deemed to pass on the donor's death" to the extent specified in Section 10. In this case he contended that, as the property was not taken by the applicant under any gift, it shall not be deemed to pass on the donor's death to any extent. The contention, though ingenuous, does not stand scrutiny. Part VII of the Act lays down the method of collection of duty. Section 53 of the Act provides for the accountability of the legal representatives of the deceased and every trustee, guardian, committee or other persons. Clause (c) of Sub-sestion (1) of Section 53 provides as follows :
18. The applicant is evidently a person vested in possession by virtue of alienation made by the donor though not directly to her. In any event she is a person vested in possession by virtue of a derivative title, namely, by reason of succession from the donee. Section 53(1)(c) therefore makes the applicant accountable for the whole of the estate duty on the dutiable assets. Her liability to duty has been limited to the extent of [the assets she has actually received, i.e., to l/4th share of the said property. Under the English law the position is very much the same. Dymond has observed in his Treatise on Death Duties as regards the effect of Section 38(7) of the Finance Act of 1957 as follows at page 249.
"If the donee predeceases the donor, Sub-section (1) to (6) above, are to apply as if he had not died, and as if the act of his personal representatives were his acts, and property taken under his testamentary disposition, intestacy or partial intestacy, were taken under a gift made by him at the time of his death,"
19. It is clear, therefore, that the applicant who has got l/4th share in the said property under a derivative title, as successor or legal heir of the donee, is liable as an accountable person for the estate duty but her liability would be limited to the extent of what is inherited by her from her husband, the original donee. The provisions of Section 53(1)(c) are clear and unambiguous on the point of liability, of the applicant and we are unable to accept the contention advanced by Mr. Pachuari that the applicant cannot be considered as an accountable person in view of the fact that she has got the interest in the said property by virtue of inheritance from the original donee.
20. Nor can we accept the argument of the learned counsel for the applicant that Section 53(l)(c), which has been quoted above, applies only to the case where any "property passes on the death" of the deceased and it does not apply to a case where " property is deemed to pass on the death " of the deceased. Learned counsel pointed out that Section 5 which imposes the liability to pay estate duty relates to the property which passes on the death of the deceased. Sub-section (1) of Section 5 runs as follows :
"In the case of every person dying after the commencement of this Act, there shall, save as hereinafter expressly provided, be levied, and paid upon the principal value ascertained as hereinafter provided of all property, settled or not settled, including agricultural land situated in the States specified in the First Schdule to this Act, which passes on the death of such person, a 'duty called ' estate duty' at the rates fixed in accordance with Section 35."
21. He also pointed out that property is deemed to pass under the section as provided for in Sections 6 to 17 of the Act. But in none of these sections a charge for the levy of estate duty has been created on such property.
22. The argument of the learned counsel, though effective, cannot be accepted. It is true that under Section 5 of the Act charge for the payment of estate duty has been created only on property which passes on the death of the deceased. The expression " passes on the death "means" changes hands on the death". Section 5 obviously relates to properties which devolve on another person on the death of the deceased. Section 6 of the Act lays down "property which the deceased was at the time of his death competent to dispose of shall be deemed to pass on his death". This section was, evidently, intended to cover cases of properties Which do not actually change hands on the death of the deceased but which deceased was competent to dispose of at the time of his death. For instance, where the deceased was entitled to a power of appointment in respect of a given property he had disposing capacity in the same because he could appoint in his own favour, Thus, where the deceased was a trustee in respect of a property for the term of his life and under the terms, of the deed of trust it was provided that on the death of the deceased the property would devolve on such person as the trustee might appoint and in default of appointment it would Revolve on, say A, in such a case a trustee had a general power of appointment given to him by the trust deed and even if he did not exercise the power of appointment and the property goes to B the property would be deemed to pass to A on the death of the trustee. Section 7 lays down that property in which the deceased had an interest ceasing on his death shall be deemed to pass on his death to the extent to which a benefit accrues or arises by the cesser of such interest including, in particular, a coparcenary interest in the joint family property of a Hindu governed by the Mitak-shara, Marumakkattayam or Aliyasantana law. We need not refer to all the sections under which property is deemed to pass. It is relevant to refer to the provisions of Sections 9 and 10 of the Act which relate to property gifted by the deceased before his death. Under section 9 property gifted by the deceased before his death shall be deemed to pass on his death. Section 10 may be quoted in extenso :
"10. Property taken under any gift, whenever made, shall be deemed to pass on the donor's death to the extent that bona fide possession and enjoyment of it was not immediately assumed by the donee and thenceforward retained to the entire exclusion of the donor or of any benefit to him by contract or otherwise :
Provided that the property shall not be deemed to pass by reason only that it was not, as from the date of the gift, exclusively retained as aforesaid, if, by means of the surrender of the reserved benefit or otherwise, it is subsequently enjoyed to the entire exclusion of the donor or of any benefit to him for at least two years before the death."
23. A second proviso to the section was subsequently introduced by the Finance Act of 1965, but we are not concerned with that proviso.
24. The Board has observed as follows on the applicability of Section 10 of the Act to the facts of the present case :
"Since the deceased reserved a benefit to himself in the properties gifted in 1936, under Section 10 of the Estate Duty Act all those gifted pro. parties will be deemed to pass on his death ; and since the appellant got part of those properties as a legal heir of the original donee, she must be considered an accountable person for the portion of the property out of the entire gifted property which came to her. In this view of the matter, I hold that the assessment on the appellant was correctly made."
25. Before the decision of the Supreme Court in the case of George Da Costa v. Controller of Estate Duty, [1967] 63 I.T.R. 497; [1967] 1 S.C.R. 1004 (S.C.) there was conflict of opinion on the interpretation of Section 10 between the Madras and the Calcutta High Courts. We need not, for the purpose of this appeal, dilate upon the nature of difference between those High Courts. It would suffice to say that the Supreme Court has laid down in the above case that the conditions necessary to attract the operation of Section 10 are :
(1) The deceased must be entirely excluded from the property as well as from any benefit, therein by contract or otherwise.
(2) That the donee must have assumed possession and enjoyment of the property, which is the subject-matter of the gift, bona fide and to the exclusion of the donor immediately upon the gift, and the donee must have retained such possession and enjoyment of the property thereafter.
26. Both these conditions are cumulative and unless each of these conditions is satisfied the property would be liable to estate duty. The property will be deemed to pass on the death of the donor and will be subject to levy of estate duty. Applying the principles laid down by the Supreme Court in the above case to the facts of the case before us, we find that in the deed of 1936 the deceased was not entirely excluded from any benefit to him by contract or otherwise. As already stated, under the deed of 1936, the deceased was entitled to get an annuity of Rs. 10,000 per annum from the donee, namely, his son Sultan Mohammad. The deceased thus retained to himself the benefit under the agreement and it cannot be said that the donee had assumed possession and enjoyment of the property gifted and retained such possession enjoyment of the property to the entire exclusion of any beqefit to the donor. That being the case, the provisions of Section 10 are immediately attracted. As the benefit retained by the donor related to the entire property gifted by him it would follow that if the donor had pre-deceased his son the whole of the said property will be liable to estate duty. The donor in this case survived the donee and on the death of the latter, the donor became an heir in respect of 3/4th share in the property. The remaining l/4th share vested in the applicant who was liable to pay the sum of Rs. 2,500 per annum to the deceased. From what we have stated above the whole of the l/4th share in the said property held by the applicant would be deemed to pass on the death of the deceased under Section 10 of the Act.
27. The decision of the Supreme Court in the case of George Da Costa may also be regarded as an authority for the view that the estate duty is payable even in regard to property which is deemed to pass on the death of the deceased. In fact, as already stated, that was a case under Section 10 of the Act in which property was deemed to pass on the death of the deceased who was the donor thereof. It would be relevant here to refer to the dictum laid down by Lord Asquith in classical terms in the case of East End Dwellings Co. Ltd. v. Finsbury Borough Council, [1952] A.C. 109.
"If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it... The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs."
28. In that case Lord Asquith only reiterated in his own language what has always been regarded as the law in point, namely, that a legal fiction must be followed to its logical consequence. In the present case, as already stated, the legislature has laid down in Sections 6 to 17 of the Act cases in which property is deemed to pass on the death of the deceased. These cases would be regarded as at par with the case of a property which passes on the death of the deceased under Section 5 of the Act, and such property being liable to estate duty, it follows as a logical corollary that estate duty would also be leviable in regard to property which is deemed to pass on the death of the deceased.
29. We find, therefore, no force in the contention of Mr. Pachauri in point. We would, therefore, affirm the view taken by the Board of Revenue that the applicant is an accountable person liable to pay the duty on l/4th share of the said properties in her possession. The question referred by the Board is, therefore, answered in the affirmative and against the applicant. The respondent will get Rs. 200 as costs of this reference from the applicant. Counsel's fee is also assessed at the same figure.