In re; National and Gridlays Back Ltd. Madras

Palaniswamy, J.—This office note raises an Important question on court fee. The point was whether estate duty payable on an estate, which

vests in the executor, is an item to be deducted from the value for the estate in ascertaining the market value for the purpose of court fee under the

Madras Court Fees and Suits Valuation Act, 1955 (Madras Act XIV of 1955) hereinafter referred to as the Act. The matter has arisen in this

way. The petitioner, National and Grindlays Bank Ltd., Madras, has applied for the grant of probate of the Will of one Mrs. Canstance Lubeck

dated 25th January 1968. Along with the petition, an affidavit of assets, as contemplated under S. 55 of the Act, is filed. In Annexure B, of the

affidavit of assets a sum of Rs. 11,043-46 is shown as provisional estate duty under the heading ''Amounts of debts due and owing from the

deceased payable by law out of the estate''. The office felt a doubt whether estate duty is a debt due from the deceased and whether it can be

deducted from the value of the estate for the purpose of payment of probate duty. When this position was pointed out, the advocate fro the

petitioner relying upon the decision of the Mysore High Court in Mrs. Blanche Nathalia Pinto v. State of Mysore (1964) 53 ITR 64 contended that

the estate duty is a debt and should be deducted from the market value of the estate. That decision no doubt supports the contention urged on

behalf of the petitioner. The question is whether that decision lays down the correct law. The relevant provisions of the Act may be adverted to.

Omitting sub-sec. (2) which is no: relevant, Sub-Sec. (1) of S. 55 reads thus :-

55 (1). Every application for the grant of probate or letters of administration shall be accompanied by a valuation of the estate in duplicate in the

form set forth in part I of Schedule III.

Omitting portions which are not relevant, S.56 reads thus :-

56 (1)(a). The fee chargeable for the grant of probate or letters of administration shall comprise-a fee at the rate or rates prescribed in Art. 6 of

Sch. I, computed-(a) where the application is made within one year of the date of death of the deceased, on the market value of the estate on such

date; or (b) where the application is made after the expiry of one year from such data, on the market value of the estate on the date of the

application;...

(2) For the purpose of the computation of fee -- (a) the value of the items mentioned in Annexure B to part I of Sch. III shall be deducted from the

value of the estate; (b)"".

The form of valuation is prescribed and it is given in part I of Sch. III. The relevant portion of the affidavit reads thus:

I (A.B) solemnly affirm/Make oath and say that I am the executor or one of the executors or one of the next of kin of deceased and that I have

truly set forth in annexure A to this form of valuation all the estate of which the abovenamed deceased died possessed or to which he was entitled

at the time of his death, and which has come, or is likely to come, to my hands.

Annexure A in that schedule prescribes the form of valuation of the moveable and immovable property of the deceased. In that form various

items are described. Omitting which are not relevant, the relevant portion reads thus:--

Annexure A.

Valuation of the moveable and immovable property of deceased....

Immovable property consisting of... (State description and market value on the date of the death of the deceased or on the date of the application,

as the case may be)....

-----

Total -----

Deduct items shown in Annexure B in the manner ---

provided in Sub-Sec. (2) of S. 56

Net value of the estate ----

Annexure B reads thus:

Annexure B. Schedule of debts, etc.,

Amount of debts due and owing from the deceased

legally payable out of the estate. Rs.

Amount of expenses connected with funeral rites and

ceremonies.

Amount of mortgage incumbrances.

Property held in trust not beneficially or with general

power to confer a beneficial interest.

Other property not subject to duty. ---

Total Rs.

It would be seen from Annexures A and B of Sch. III that in determining the net value of the estate, upon which court-fee is payable, the

Legislature has indicated all the items of debts which are liable to be deducted. The question is whether estate duty is an amount of debt due and

owing from the deceased and legally payable out of the estate. It is true that estate duty is legally payable out of the estate of the deceased. But is it

a debt due and owing from the deceased? There can be no two opinions on the answer to this question, the answer being that the estate duty was

certainly not a debt due and owing from the deceased. The Legislature has taken care to specify what debts are liable to be deducted from the

market value of the property for the purpose of arriving at the net value of the estate. The amount of expenses connected with the funeral rites and

ceremonies and the amount of mortgage encumbrances are debts which are liable to be deducted from the value of the estate. Though the amount

of expenses connected with the funeral rites and ceremonies is one to be incurred after the death of the owner of the estate, the legislature has

made specific provision that the said amount also is liable to be deducted as a debt.

Reliance is placed upon the form of affidavit which is required to be filed and the relevant portion of it has been extracted above. That affidavit

no doubt refers to the estate as the estate of which the deceased died possessed of or to which he was entitled at the time of his death and which

has come or likely to come to the hands of the applicant applying for probate. The estate should be not merely the estate which the deceased died

possessed of or to which he was entitled when he died but also of the estate which has come or is likely to come to the hands of the executor.

Therefore, even if there was any estate which was in the possession of the deceased or to which he was entitled at the time of his death, if that

estate had not come or was not likely to come to the hands of the executor, it is not necessary far the executor to include that asset in assessing the

value under S. 55 of the Act. The question is whether on account of that recital which the executor-applicant is required to make in swearing to the

affidavit, the estate duty which is not a debt required to be included in Annexure B, can be included in arriving at the not value of the estate. The

plain meaning of the words found is Annexure B dealing with the schedule of debts has to be given effect to, and if the expression ""debt due and

owing from the deceased"" is given its natural and plain meaning, there is no room for the argument that estate duty, which was certainly not a debt

due and owing from the deceased, is also a debt to be included merely because it is a debt which is legally payable out of the estate of the

deceased.

The Mysore High Court was dealing with similar provisions of the Mysore Court Fees and Suits Valuation Act, 1958. Ss. 52 and 53 of that Act

correspond, word for word, to Ss. 55 and 56 of the Madras Act. The Mysore Court Fees Act also contains Sch. III consisting of part I with

Annexures A and B containing similar language as we find is Sch. III of the Madras Act. In the case before the Mysore High Court, the District

Judge against whose decision the appeal was taken, took the view that in the computation of the court-fee, the estate duty paid by the petitioner

should not be taken into consideration. After referring to Ss. 52 and 53 of the Mysore Court Fees Act and the relevant portion of Schedule III

containing the affidavit, the Bench consisting of Somanatha lyer and Kalagat, JJ. hold :

The scheme of the Estate Duty Act and of its provisions make it clear that immediately on the death of a person, estate duty becomes exigible is

respect of his property which passes on his death. The liability comes into being even before it passes and what brings into existence that liability is

the death of the person to whom the property be longs. In that situation, to whomsoever the property may pass, the property which so passes is

the property on which the liability for the payment of estate duty had already become fastened, and it is that property with the burden whose

market value has to be determined under the provisions of S. 53 of the Court fees and suits Valuation Act.

Sub-S. (2) of S. 53 of the Mysore Court fees Act corresponds to Sub-S. (2) of S. 56 of the Madras Court fees Act. This provision lays down

that for the purpose of computation of the fee, the value of the items mentioned in Annexure B, part I of Sch. III shall be deducted from the value

of the estate. As already noticed, estate duty cannot be brought under the category of a debt due and owing from the deceased which is provided

for is that annexure. Placing reliance upon this provision, it was contended before the Mysore High Court that Sub-S. (2) specified the only

deduction to be made from the value of the estate and if these deductions were of the amounts which represented the debts of the deceased, it was

impossible for the petitioner to sustain the contention that the estate duty which was not a debt payable by the deceased could be deducted from

such value. Rejecting this contention, the Bench observed:

But this submission overlooks the pre visions of S. 53(1) which contain the plainest indication that the deductions to be made under Sub-S. (2) are

the further deductions to be made from the market value of the estate which has come or was likely to come to the hands of the executor and that

that estate is an estate burdened with the liability to pay the estate duty.

With great respect to the learned Judges, I am unable to share this view. From the mere use of the expression ""market value"" it does not mean

that certain liabilities to which the estate is subject should be deducted in the first instance and that further deductions should be made of the items

mentioned in annexure B. ""Market value"" is the value which a willing purchaser would be prepared to pay for a property to a willing seller. The

property may be burdened with liability. But the liability cannot reduce the market value. It is a mattes of adjustment between the purchaser or the

seller on the one hand and the holder of the encumbrance on the other in regard to the payment of the amount due under the encumbrance. There

is no warrant for the inference that the deductions of the items mentioned in annexure B are only further deductions to be made after meeting the

estate duty or any other liability which may not come within the four corners of tic items described in Annexure B. From the value arrived at by

adding the items given in Annexure A what is requited to be deducted are only the items shown in Annexure B. It is not provided that in calculating

the market value under Annexure A, the value of the property after deducting any liability thereon should alone be shows. Reading the scheme of

Ss. 55 end 56 and Annexures A end B of Sch. III of the Madras Act, I have no doubt in holding that estate duty is not a debt due and owing from

the deceased and is not an item which can be deducted from the market value of the property for the purpose of arriving at the net value of the

estate.

In this connection, reference may be made to S. 50 of the Estate Duty Act, which provides that where any fees have been paid under any law

relating to court fees in force in any State far obtaining probate, Letters of Administration Succession Certificate in respect of any property for

which estate duty is leviable under that Act, the amount of estate duty payable shall be reduced by an amount which is equal to the court fees so

paid. From this provision it is reasonable to inform that the Legislature has taken note of the fact that in the determination of the market value of the

estate for the purpose of obtaining probate or letters of administration the estate duty payable in respect of the estate would not have been taken

into consideration and that relief should be given to a person who has already paid court fee for obtaining probate or letters of administration. I find

that the estate duty payable is not an item of debt to be included in Annexure B of Sch. III of the Act and that the position taken up by the

petitioner is the instant case is not correct. The office will accordingly return the petition for making necessary correction and for payment of

necessary court fee in the light of the foregoing observations.