the essay of 1 May 2024 · the untouched capture
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<p align="left"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>MAY 01, 2024</strong></font></p>
<p align="center"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Tax - on Death and Contemplation</strong></font></p>
<p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><u>Vijay Kumar</u></font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>SAM</strong> Pitroda whose Twitter (X) states that he is a telecom inventor, entrepreneur, development thinker, and policy maker. He doesn't claim to be a tax technocrat, but his recent taxing remarks created a political turmoil. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">In America, there is an inheritance tax. If one has $100 million worth of wealth and when he dies, he can only transfer probably 45% to his children, 55% is grabbed by the government. That's an interesting law. It says you in your generation, made wealth and you are leaving now, you must leave your wealth for the public, not all of it, half of it, which to me sounds fair. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">In India, you don't have that. If somebody is worth $10 billion and he dies, his children get $10 billion and the public gets nothing... So, these are the kinds of issues people will have to debate and discuss. When we talk about redistributing wealth, we are talking about new policies and new programs that are in the interest of the people and not in the interest of the super-rich only. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Sam was not saying<em> "eureka". </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>"Inheritance Tax" </em>is a tried, tested and miserably failed concept in Indian Taxation. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While we joke about the certainty of death and taxes, it is well known that there used to be a death tax, called 'Estate Duty'. Imagine tax collectors hovering around corpses to find out how much wealth the survivors had inherited and to tax them on the inheritance. If your rich relative died, the Government did not want you to enjoy all the inherited wealth, without sharing it with the Government. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Introducing the Estate Duty Bill in May 1953, the then Finance Minister CD Deshmukh told the Parliament: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#ACDFFB">Death duties in one form or another constitute an important element in the scheme of taxation of most progressive countries. In India, the imposition of such duties was recommended as far back as 1924-25 by the Taxation Enquiry Committee. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#ACDFFB">Actually, the Bill to impose such a duty was introduced in the Legislative Assembly in 1946. On the dissolution of that Assembly, this Bill was again introduced in the Provisional Parliament in 1948. This Bill could not be taken up in the Provisional Parliament and it lapsed with the dissolution of that Parliament in 1952. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#ACDFFB">The present Bill seeks to impose a duty on property passing on death and on property which is deemed to pass on death. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Participating in the discussion, a Member remarked, </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">Sir, I feel as if we are called upon to take part in a funeral function, and the sense of death overwhelms the zest for life. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The lofty principle behind Estate Duty is, why should Mukesh Ambani enjoy all the wealth left behind by Dhirubhai Ambani? Let us take part of it and make him a little poorer. You cannot make all Indians rich, but you can certainly try to make the Ambani brothers poorer! </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Maybe the wealthy people were not very patriotic and did not die as fast as it could reasonably be expected of them and so the treasury was not exactly overflowing with estate duty. Wealth was vulgar and had to be taxed. In 1957, the government brought in the Wealth Tax with ambitious objects: </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">The object of this Bill is to impose an annual tax on the net wealth of individuals, Hindu undivided families and companies. The proposed tax is an important constituent of an integrated tax structure which Government have been aiming at for some time. With Income-tax, Estate Duty and a tax on Capital gains already in existence and with the addition of the Wealth-tax and a tax on large personal expenditures (separately being proposed) the direct taxes will form a composite system made up of complementary elements. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the same year the expenditure tax was also brought in: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#ACDFFB">The object of this Bill is to impose an annual tax on personal expenditure above a prescribed level, of individuals and Hindu undivided families. Such a tax in addition to being a deterrent to excessive personal expenditure and an incentive for savings also forms a significant part of an integrated tax structure. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In his 1957 Budget speech Finance Minister TT Krishnamachari stated: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">I come now to two new tax measures designed to alter the tax structure in a way that will ensure a more effective and at the same time a more equitable basis for taxation. My first proposal is to levy a Tax on Wealth. It is recognised that income as defined by existing income Tax laws and practice is not a sufficient measure of tax paying capacity and that the system of taxation on incomes has to be supplemented by taxation based on wealth. This is more equitable and it also promises, over a period, to reduce the possibilities of tax evasion. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span">The Tax on Expenditure: This is a form of taxation which has no backing as yet of historical experience. It is however, a tax which given effective administrative arrangements, can be a potent instrument for restraining ostentatious expenditure and for promoting savings. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Inheritance is taxed, wealth is taxed, expenditure is taxed. What remains? In his Budget speech in 1958, the Finance Minister Jawaharlal Nehru stated: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#C1DFE8" span="span">My first proposal is to introduce a tax on gifts which will fill a gap in the scheme of direct taxation and would not only make evasion or avoidance difficult but also spread the tax burden more equitably. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#C1DFE8" span="span">The transfer of properties through gifts to one's near relations or associates is one of the commonest forms of avoidance of not only the Estate Duty but also of Income-tax, Wealth Tax and even the Expenditure Tax. The only way of effectively checking this practice is to levy a tax on gifts. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#C1DFE8" span="span">The actual collections of Estate Duty have fallen short of even the modest expectation we had at the time of passing that measure. This is partly due to the practice of making large gifts inter vivos which will, hereafter, be checked by the levy of the Gift Tax. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Obviously, all these measures attracted attention, not revenue. So, they started the return journey. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The 'estate duty' continued ingloriously for 33 years till it was abolished in 1985 by VP Singh. Apparently, smart rich people found ways to avoid the tax. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In his Budget speech of 1985, Finance Minister, VP Singh said, </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#DFF3CB" span="span"><em>As both wealth-tax and estate duty laws apply to the property of a person, the former applying to his property before death and the latter after his death, the existence of two separate laws with reference to the same property amounts to procedural harassment to the taxpayers and the heirs of the deceased who have to comply with the provisions of two different laws. Having considered the relative merits of the two taxes, I am of <font color="#FF0000">die</font> view that estate duty has not achieved the twin objectives with which it was introduced, namely, to reduce unequal distribution of wealth and assist the States in financing their development schemes. I, therefore, propose to abolish the levy of estate duty in respect of estates passing on deaths occurring on or after 16th March 1985. </em></font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">[Yes, the official text shows it as <font color="#FF0000">die</font> view] </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In his 1998 budget speech Finance Minister Yashwant Sinha said, </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#D1D1E7" span="span">Gift-tax has been levied in India since 1958. The revenue yield from this tax has been insignificant. The Gift-tax Act has also not been successful as an instrument to curb tax evasion and avoidance. I, therefore, propose to discontinue the levy of gift- tax on gifts made after 30th September 1998. At the same time, to ensure that there are no leakages of income tax revenue through the mechanism of gifts, I propose to tax the gifts under the Income-tax Act itself in the hands of the recipients. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Gift Tax Act gone, not the tax! </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Even wealth tax had to go. In his 2015 budget speech Finance Minister Arun Jaitley stated: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#C1DFE8" span="span">Should a tax which leads to high cost of collection and a low yield be continued or should it be replaced with a low cost and higher yield tax? The rich and wealthy must pay more tax than the less affluent ones. I have therefore decided to abolish the wealth tax and replace it with an additional surcharge of 2% on the super-rich with a taxable income of over Rs.1 crore. </font></p>
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<p align="justify"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Gift in <em>contemplation of death </em>- What if the donor doesn't die? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Property as a gift made in contemplation of death was also covered under the Estate Duty and Gift Tax. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Somebody is in the death bed and wants to make a gift. For that good act, God is pleased with him and allows him a little more stay on Earth. He doesn't die. What happens to the gift and the tax on it? When should one <font color="#FF6633"><em>contemplate</em></font> death? How many days/years before the happening? Since early childhood, we all know that one day we will have to die and so can't we contemplate from that early childhood? </font></p>
<p align="justify"><em><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Gift before taking up sanyas - Is renouncing the world contemplation of death? </font></em></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Somebody is fed up with this world, but he is not contemplating death. Instead, he wants to take sanyas. But before that he wants to gift his property to his friends. Should the friends pay tax? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This is not a hypothetical issue. One such case reached the ITAT. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">One Miss Preeti Jaswantlal Shah is claimed to have renounced the world and became a <em>'Sadhvi'</em> under Swetambar Jain Sect on 26.1.1991. Before that on 14.1.1991 she issued the declaration that she has decided to renounce the world and become a Sadhvi. This act presupposes that she shall not have any worldly attachments. She was a partner in several firms. Before becoming a Sadhvi, she divided her property between her brothers. And tax was demanded. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The ITAT held that the donor must be ill and expect to die shortly of the illness; 'gifts in contemplation of death' implies reference to natural death alone. There is nothing to suggest it also takes care of gifts in contemplation of a civil death. (<strong><a href="https://taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=39&filename=legal/itat/2006/2006-TIOL-35-ITAT-MUM.htm" target="_blank">2006-TIOL-35-ITAT-MUM</a></strong>) </font></p>
<p align="justify"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Definition of gift <em>made in contemplation </em>of death. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Interestingly, the Indian Succession Act defines this term. </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">191. Property transferable by gift made in contemplation of death. - </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">(2) A gift is said to be made in contemplation of death where a man, who is ill and expects to die shortly of his illness, delivers, to another the possession of any moveable property to keep as a gift in case the donor shall die of that illness. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"style="background-color:#F3DBCF">(3) Such a gift may be resumed by the giver; and shall not take effect if he recovers from the illness during which it was made; nor if he survives the person to whom it was made. </font></p>
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<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Can a donor who made a gift in contemplation of death, get back the gift if he does not die? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">An Example: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>Ferdinand Bullard took to his sick bed with pneumonia as diagnosed by his doctor. He was sure that he was going to die and told his good buddy Hershel that he could have his shotgun. Hershel took the gun home with him. Ferdy miraculously survived and wanted his gun back. Hershel said, "Go fly a kite." Ferdy went to see his lawyer instead and got his gun back. Since he had not died, the gift was revoked. </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A pamphlet by a political party in those days reads as: </font></p>
<p align="center"><font color="#009900" size="2" face="Verdana, Arial, Helvetica, sans-serif">If you produce, you pay excise duty </font></p>
<p align="center"><font color="#009900" size="2" face="Verdana, Arial, Helvetica, sans-serif">If you import, you pay customs duty </font></p>
<p align="center"><font color="#009900" size="2" face="Verdana, Arial, Helvetica, sans-serif">If you earn, you pay Income Tax </font></p>
<p align="center"><font color="#009900" size="2" face="Verdana, Arial, Helvetica, sans-serif">If you spend, you pay sales tax </font></p>
<p align="center"><font color="#009900" size="2" face="Verdana, Arial, Helvetica, sans-serif">If you work, you pay professional tax </font></p>
<p align="center"><font color="#009900" size="2" face="Verdana, Arial, Helvetica, sans-serif">If you accumulate, you pay wealth tax </font></p>
<p align="center"><font color="#009900" size="2" face="Verdana, Arial, Helvetica, sans-serif">If you are generous, you pay gift tax </font></p>
<p align="center"><font color="#009900" size="2" face="Verdana, Arial, Helvetica, sans-serif">If you die, you pay estate duty </font></p>
<p align="center"><font color="#009900" size="2" face="Verdana, Arial, Helvetica, sans-serif">If you want to go to hell, don't do anything; you are already there. </font></p>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until next week </font></p>
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