IN THE HIGH COURT OF GUJARAT AT AHMEDABAD ESTATE DUTY REFERENCE NO. 4 OF 1987 For Approval and Signature: Hon'ble MR.JUSTICE R.K.ABICHANDANI and Hon'ble MR.JUSTICE KUNDAN SINGH ----------------------------------------------------- 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------- CONTROLLER OF ESTATE DUTY Versus PRATAPSINHJI RAMSINHJI -------------------------------------------------------------- Appearance: 1. ESTATE DUTY REFERENCE No. 4 of 1987 MR BB NAIK, Sr. Standing Counsel for the Revenue MR SN SOPARKAR, SENIOR ADVOCATE FOR MRS SWATI SOPARKAR & MR MK KAJI for Respondent -------------------------------------------------------------- CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH Date of decision: 22/03/2002 ORAL JUDGEMENT (Per : MR.JUSTICE R.K.ABICHANDANI for the Court) 1. This reference has been made by the Income Tax Appellate Tribunal, Ahmedabad Bench `A', under section 64 of the Estate Duty Act, 1953 and the following questions of law are referred for the opinion of this Court : "[1] Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal rightly came to the conclusion that at the time of the death of the deceased Shri Karansinhji Fatehsinhji of Sagbara, no property passed which was part of the `Sagbara Estate' and consequently no Estate Duty in respect thereof was payable? [2] Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal rightly held that the personal properties of the deceased Karansinhji Fatehsinhji also stood on the same footing as the estate of Sagbara and no property passed on the death of the deceased? [3] Whether, the finding of the Appellate Tribunal that no property either on account of `Sagbara Estate' or any personal property passed on the death of Shri Karansinhji Fatehsinhji Vasava in 1957 and there was no question of levy of any estate duty therefor, is correct in law and sustainable from the material on record?" 2. Shri Karansinhji Fatehsinhji, former Vasava of Sagbara Estate died on 17th April 1957 and an account in Form ED1 was filed by his eldest son Ramsinhji Fatesinhji under the provisions of the Estate Duty Act, 1953, stating that there was `Nil' property which the deceased was competent to dispose of at the time of his death, and he accordingly submitted a `Nil' Return. 2.1 The Deputy Controller of Estate, Western Zone, Bombay, however, held that the deceased had complete proprietary rights over the villages of the Estate before the Estate was taken over by the Government in 1948, and that the deceased had not accepted the fact of the dispossession and was fighting for his rights. It was held : "It will appear therefore that as at present the Vasava has complete proprietary rights over all the lands of 92 Khalsa villages. He has also proprietary rights over the 22 Dumala villages even though he is not getting any benefit from the same. The right of the Vasava in the lands was there before the estate was taken over by the Government of Bombay in 1948. The deceased had not accepted the fact of that dispossession and was fighting for his right to the best of his ability. Since he had initially a proprietary right in this land and since he was at no time legally divested of his right to the same, I must hold that the property belonged to him at the time of his death even though it was not in his actual possession. It is true that the property was in occupation of the Government but the Government in this country does not act in an autocratic manner. The right to own private property is guaranteed by the Constitution. It is possible that the Government which acts through human agency may make a mistake as to the effect of a particular law or the scope of its application. In that case, it has to set it right when the mistake is pointed out. The party who suffers from a wrongful decision has also the right to go to a court of law for redressing his grievances. Unless therefore a seizure of a property by the Government is legal, the owner never loses his title to the same, though for some time, as in this case, it may be that the legal owner did not have actual possession of what was rightly his. When this has been rectified, the original owner would regain the possession of the property which had all along belonged to him. It is abundantly clear from the order of the Government that it had recognised the fact that the dispossession was illegal. The Government had also decided to restore the income from the estate during the period of such dispossession to the original owner. This will show that the Government had recognised that the deceased was the legal owner of the properties at all times and had acted accordingly. Under the circumstances, I must hold that the deceased was liable to estate duty on the estate left by him at the time of his death." 2.2 We have set out in detail the reasoning of the Deputy Controller of Estate, Western Zone, Bombay in his order dated 11th March 1963, because, this very reasoning has been adopted before us for contending that the deceased was the legal owner of the properties which were purported to have been taken over by the Dominion of India in 1948, and that the estate property was liable to payable of the estate duty as it passed on his death. The estate duty was worked out at Rs.72,62,068=00 by the said assessment order under section 61(1) of the said Act and a demand notice was issued pursuant thereto. 3. Thereafter, the Accountable Person preferred Estate Duty Appeal No. GUJ-16/62-63 under section 62 of the said Act before the Appellate Controller of Estate Duty, New Delhi. The Appellate Controller, by his order dated 20th October 1970, upheld the finding of the Deputy Controller that the deceased left an estate which passed on his death and in respect of which, estate duty was payable. In paragraph 6 of the order, he held :- "In my opinion, the deceased at the time of his death had an `Actionable Claim' which materialised when the Government of Bombay passed the resolution dated 13th January 1958, by which the rights of the Vasava over the Sagbara property were restored to the present Vasava in January 1958. Section 2(16) of the Estate Duty Act states that the property passing on death includes the property passing either immediately on the death or after any interval either certainly or contingently. In this case, property passed after an interval. The Sagbara Estate was in the possession of the Government which held the property as a constructive trustee for the benefit of the real owner i.e. the deceased. Therefore, on the death of the real owner of the property, the beneficial interest in the property passes. The Accountable Person himself asserted in his letter dated 27th July 1967, addressed to the General Secretary, Government of Bombay, that the property of the deceased was held by the Government in Trust. This assertion was a firm establishment of his rights over the property as the successor of the deceased. Once the claim is established, the Accountable Person cannot now abandon his previous position. Under these circumstances, I hold that the Deputy Controller was correct in coming to the conclusion that the deceased left an estate which passed on his death and in respect of which, estate duty is payable." 3.1 The Appellate Controller, however, in view of the fact that an amount of Rs.30 lakhs was determined as payable to the Accountable Person by way of compensation under The Sagbara & Mevasi Estates (Proprietary Rights Abolition etc.) Regulation Act, 1962, held that the net value of the estate works out at Rs.30 lakhs minus Rs.36,000=00 (which were due to one Jayantilal) i.e. Rs.29,64,000=00 as against Rs.77,62,068=00 determined by the Deputy Controller. The assessment order was accordingly revised. 4. The Accountable Person carried the matter further to the Income Tax Appellate Tribunal under section 63 of the Act, requiring the Tribunal to adjudicate upon the issue, whether there was any Estate left by the then Vasava of Sagbara, and if so, what was its value? The Tribunal noted that the relationship between the Feudatory State, whose head was known as Vasava, and the Princely State of Rajpipla was regulated by an agreement which was approved by the Government of India under their resolution dated 20-9-1890. As per that agreement, the Vasava admitted his subordination to the Rajpipla State and agreed to submit to the general control of his administration by that State, as mentioned in Article 1 of the agreement. It was observed that the Vasavas of the Sagbara Estate were semi-independent Chieftains of their Estate and exercised full authority and power subject to general control of Rajpipla State till 10th June 1948. The Ruler of Rajpipla State like other such States entered into an agreement with the Dominion of India, as per which, Rajpipla State merged into the Province of Bombay in 1948 and the Government of Bombay took over the charge of the estate by appointing an Administrator. The Tribunal noted in paragraph 6 of the order that the Government of India, in 1948, proceeded under the assumption that Sagbara Estate was a part of the Rajpipla State and took over the full control and entire administration without any separate agreement with the Vasava. The Vasava thereafter protested to the Government of Bombay by taking a stand that the accession of Rajpipla State did not affect the status and right of Sagbara since it was a distinct and separate political entity. On 16-11-1950, the Government of Bombay sanctioned Rs.2,000=00 per month for his life on the application of the Vasava of the Sagbara Estate for maintenance allowance. The then Vasava Karansinh made an application on 29th August 1953 to the Government of India for sanction of a privy purse for him. The Government of India, however, informed him by letter dated 28-6-1954 that he could not be recognised as a Ruler and therefore, no privy purse can be allowed, and further that, the villages which were claimed by him as private properties could not be restored to him. It was, however, stated that the income of those villages was taken into account in fixing his allowance at Rs.2,000=00 per month. The Tribunal also noted that, after the death of Vasava Karansinhji on 17-4-1957 apparently leaving no personal property, his son Ramsinhji took up the matter, from where it was left off, by making a representation to the Government of Bombay on 29th July 1957, repeating the claim made by his father earlier for restoring the income from the property and a settlement to be made treating him as a feudatory chief. The Government of Bombay thereafter made a resolution on 13-1-1958 holding that the status of Vasava of Sagbara was akin to the status of the chieftains of Mevassi Estate in West Khandesh i.e. of a superior holder, and therefore, the action taken by the Government in past in respect of the Sagbara Estate was required to be regularised. As a consequence, therefore, the Government canceled with retrospective effect the monthly grant of Rs.2,000=00 and the adhoc grant of Rs.10,000=00 given as advance and ordered recovery of these payments. The Government accepted that the three Dumala villages and four buildings situated at Sagbara and Korai were private and personal properties of the Vasava and ordered that their possession should be handed back to the Vasava alongwith income from those villages realised from the date of take-over i.e. 1-8-1949. It was also ordered that Vasava was liable to pay land revenue in respect of his estate. The Tribunal noted that Vasava was refunded Rs.1,24,365=00 on settlement of accounts as per the noting of the Revenue Department dated 12-4-1960. After the Gujarat State was formed, `The Sagbara And Mehwasi Estates Regulations 1962' were framed, which came into force from 1-12-1962 and as per the said regulations, tenure of the Sagbara Estate, Dumala villages and Mehwasi Estate was abolished, and compensation was fixed by the Collector for the Vasava Ramsinh at Rs.30,15,926=00, which was enhanced by the Revenue Tribunal, by its order dated 1-2-1974 to Rs.68,72,370=00. 4.1 After considering the historical background, the Tribunal considered the rival contentions raised before it on the question whether the Sagbara Estate passed on the death of Vasava Karansinhji so as to attract the provisions the said Act. It held that the Government of India did not keep in mind that the Sagbara was not a part of Rajpipla State when the administration was taken over on 10th June 1948. Not only the possession of the Estate was taken over, but the personal properties of the Vasava consisting of three Dumala villages were also taken over. It was held by the Tribunal in paragraph 24 of the order that such action of the Government of India amounted to annexation of the said territory. It was, therefore, held that the Sagbara became part of the then Indian territory by `Act of State'. The Tribunal took note of the letter dated 28th June 1954 written by the Government of India, Ministry of States in response to the representation of the Vasava informing him that, after carefully considering the matter, the Government of India regretted that it was not possible for it to recognise him as a Ruler and therefore, there was no question of fixation of a privy purse for the Vasava. It was held in terms that it will not be possible to restore Dumala villages to him since he had failed to produce supporting evidence before the Bombay Government. However, those villages were taken into account in calculating his allowance. He was further informed that a sum of Rs.4,000=00 approximately was recoverable from him as a result of initial advances taken by him from the treasury. The Tribunal noted that there was no ambiguity in this letter and the Government did not recognise any of the Vasava's rights over the Estate or over the other Dumala villages. The Tribunal, therefore, held that the Estate vested in the Government of India as a part of Indian territory and the Vasava could not claim any right in respect thereof, and there was no question of any of the rights in regard to the Estate remaining in the Vasava on his death on 17th April 1957. The Tribunal held that, any subsequent recognition on 14th March 1958 was, in the above background, a fresh grant only. It was noted that there was a lot of difference in the nature of the rights of the deceased Vasava before 1948 and the rights given to his son in 1958, and that, by the letter dated 19-1-1958, the Government of India wanted to regularise the take-over of the estate. It was held that the content of the rights of the successor was completely different from the rights of his predecessor and it cannot be said that it was only recognition of the existing rights. The Tribunal held that, after the Act of State, the property vested in the Government of India and therefore, there was no question of the property passing after an interval, as was held by the Appellate Controller. As regards the personal properties of the deceased Vasava, the Tribunal, on the basis of the material on record, came to a finding that the personal properties of the deceased also stood on the same footing as the Estate of Sagbara. On the basis of the correspondence, it was held that the deceased Vasava was asking for compensation not only in respect of Sagbara Estate, but also in respect of Dumala villages, which were taken over alongwith the Estate. It was held that, as a matter of fact, no distinction was maintained between the Sagbara Estate and the Dumala properties of the Vasava, which were taken over by the Act of State. It was held that the effect of the Memorandum of 1954 was repudiation of the claim of the former Vasava. On this finding, the Tribunal held that no property passed on the death of Vasava and therefore, there was no question of levy of any estate duty thereon. The question of valuation of the properties, therefore, did not survive. 5. The Reference came to be made by the Tribunal in view of the order dated 20th April 1987 of the Hon'ble Supreme Court of India in Civil Appeal No. 1256 (NT) of 1987. Earlier, a Division Bench of the High Court (Coram : Hon'ble Mr. Justice B.J.Divan, CJ & Hon'ble Mr. Justice S.B.Majmudar, J.) had rejected the Estate Duty Application No.3 of 1980 on 21-10-1980, by observing that the Tribunal had interpreted the grant to Ramsinhji as a fresh grant, and that the same contention was also urged before the Division Bench of this Court in First Appeal No.157 of 1972, which was disposed of on 28-9-1976, in which, it was held that there was a fresh grant to Ramsinhji, because, by an Act of State, the grant which was earlier in favour of Karansinhji had come to an end. It was noted that an application for leave to appeal filed against that decision before the Supreme Court, was rejected by the Supreme Court and therefore, the decision of the High Court in first Appeal No.157 of 1972 had become final. It was held that the tribunal, on its own analysing the terms of the grant in the historical background, had also come to the same conclusion. It was then observed : "If the decision of the first appeal had not been there in the case of this very Estate of Sagbara, we would have granted this rule under section 64(3) of the Estate Duty Act because the question whether it was a fresh grant to Ramsinhji or whether there was any retrospective operation of the grant, would have been required to be gone into." It was observed that, even before the Supreme Court the same position would have prevailed, because, the Supreme Court rejected the Special Leave Petition and as between the parties to that first appeal, the matter had now become final and the result was that, when karansinhji died in 1957, he had no right in the Sagbara Estate property as such. In the Civil Appeal No. 1258 (NT) of 1987, the Supreme Court, observing that the Special Leave Petition against the decision in First Appeal was rejected in limine and there was nothing to indicate that the Supreme Court expressed any view on the merits of the controversy between the parties, held that the High Court's refusal to call for the statement of the case on the questions of law suggested by the Appellate Controller of Estate Duty on the ground that the dismissal of the Special Leave Petition seeking to appeal against the decree passed in First Appeal No.157 of 1972 concluded the matter, was erroneous. The Supreme Court observed that the questions suggested called for consideration and that a statement of case should be referred to the High Court by the Appellate Tribunal. The Appellate Tribunal was accordingly directed to refer the questions of law suggested by the appellant, which we have reproduced hereinabove, from the reference made by the Tribunal. 6. It was contended by the learned senior standing counsel on behalf of the revenue that the Sagbara Estate was not a separate Estate and therefore, there was no question of taking over the possession of the Estate whereby the rights of the holders of the Estate would be abolished. It was submitted that the merger agreement was entered into between the Rajpipla State and Dominion of India and the Vasava Karansinhji who was the Chieftain of the Sagbara Estate was not a party to any such merger agreement in respect of his Estate. It was therefore submitted that the initial take over of the Estate could not have been validly done under the treaty between the State of Rajpipla and Dominion of India and the Government officials could not have forcibly taken over the Estate. It was submitted that, because the old initial take-over was erroneous, the Government of India restored the Estate to the Vasava in January 1958. It was argued that the Government realised that the possession of the Estate property was wrongly taken over as it was not the property of the Rajpipla State and therefore, on the representation by the Vasava, the possession of the Estate was restored under the resolution dated 13-1-1958 alongwith the personal properties to Ramsinhji as the heir apparent of the deceased Karansinhji. It was submitted that since the income derived from 10-6-1948 was also to be returned, and the cash amount seized from the treasury in 1948 to be accounted for, that would show that the Estate continued to be of late Karansinhji till it came to be abolished under The Sagbara & Mevasi Estates (Proprietary Rights Abolition etc.) Regulation Act, 1962, and even the compensation came to be paid under those Regulations to Ramsinhji. Therefore, on the date of death of Karansinhji i.e. on 17-4-1957, Ramsinhji should be deemed to be holding the Estate which passed to him on the death of his father. It was then contended that there was a compromise decree between the heirs of Karansinhji showing that the compensation in respect of the Sagbara Estate was distributed between them as the heir of Karansinhji. It was further argued that the judgement in First Appeal No.157 of 1972 of this Court (Coram : J.B.Mehta and M.C.Trivedi, JJ.) delivered on 28th September 1976, was rendered in context of suits filed by the forest contractors claiming rights under the agreements executed in their favour by the deceased Vasava Karansinhji, and that the said decision should not be taken to be conclusive on the issue whether estate duty was payable under the said Act on the ground that the property passed on the death of Karansinhji to his heir apparent. It was also argued that there could not have been granted any fresh estate on 13-1-1958 in view of the constitutional set up under which such estates were to be abolished. The learned standing counsel supported the orders of the Deputy Controller and the Appellate Controller on their finding that the deceased left his estate which passed on his death in respect of which, the estate duty was payable. 7. The learned senior counsel appearing for the Accountable Person contended that, in view of the findings rendered by the Division Bench in First Appeal No.157 of 1972 and First Appeal No. 431 of 1972 in their judgement dated 28-11-1976 that, on the eve of the death of Karansinhji, no property had vested in him by virtue of the properties having already vested in the State, the property did not pass on his death and therefore, no estate duty was payable. He submitted that the State of Gujarat was a party in those appeals and the question, whether the property had vested in the State or had continued to remain with Karansinhji after the merger of the Rajpipla State alongwith the Estate on 10th June 1998, was directly and substantially in issue and it was held that, by recognising the status of Ramsinhji, the Government had done purely an act of bounty and no other person could claim title, because, "the root of title of this family after the death of Karansinhji was only the Government Order exh. 237 of January 13, 1958". He relied upon the finding that ".... during the intervening period, the Act of State having