Rm. Arunachalam vs Controller of Estate Duty

Ratnavel Pandian, J.—The following question is referred by the Income Tax Appellate Tribunal, Madras Bench "" B "", Madras, under the

provisions of Section 64(1) of the E.D. Act, 1953 (hereinafter referred to as "" the Act ""), at the instance of the accountable person, for the opinion

of this court:

Whether the Tribunal was right in holding that the estate duty payable in respect of the estate of the deceased, AR. RM. Umayal Achi, was not an

admissible deduction in computing the principal value of the estate ?

The accountable person is one Sri RM. Arunachalam, who is the adopted son of Smt. AR. RM. Umayal Achi, who passed away on August 20,

1964. The accountable person is also the residuary legatee by the will dated July 20, 1961, executed by the said Umayal Achi. During the hearing

of the appeal before the Tribunal, an additional ground was raised with the permission of the Tribunal, and it was contended on behalf of the

appellant that immediately on the death of Umayal Achi taking place, the estate duty became a charge on the property and if the true market value

of the estate had to be estimated under the provisions of Section 36 of the Act, the estate duty payable would have to be deducted and that the

estate duty payable should itself have been allowed as a deduction in computing the principal value of the estate. This plea was opposed by the

departmental representative who drew inspiration from the ratio of the judgment of this court in In Re: Mrs. Constance Lubeck, and it was

contended that no such deduction was permissible. The Tribunal agreed with the contention of the revenue and rejected the plea of the assessee.

Hence, this reference.

Mr. Subrarnaniam, counsel for the assessee, would contend that if the true market value of the property had to be determined under the

provisions of Section 36 of the Act, the estate duty payable would have to be deducted. He drew the attention of this court to the decision of the

Mysore High Court in Mrs. Blanche Nathalia Pinto v. State of Mysore [1964] 53 ITR 64 wherein, while examining the computation of the court-

fee payable u/s 53 of the Mysore Court-Fees and Suits Valuation Act of 1958, on an application by the executor for the grant of a probate, the

High Court of Mysore observed that if any estate duty was payable under the Act in respect of such asset, the estate duty so paid or payable

should be deducted from the estimate so made and what remained after such deduction was the amount on which court-fee was payable.

Learned counsel for the revenue, resisting the above contention, would submit that the liability to pay estate duty cannot be said to be an incum-

brance, nor can it be said to have been created by the deceased, and, therefore, the estate duty was not deductible from the value of the estate

passing on the death of the deceased. In support of her contention, the following decisions were relied upon, namely, (i) In Re: Mrs. Constance

Lubeck, V. Pramila Vs. Controller of Estate Duty, Bangalore, Controller of Estate Duty Vs. Estate of Late Omprakash Bajaj, and Shantaben

Narottamdas (A.P. of Late Narottamdas K. Shah) Vs. Controller of Estate Duty, Gujarat, .

In Pramila''s case, a Division Bench of the Karnataka High Court, while considering the question about the determination of the value of the

property passing on the death under the provisions of the Act, held that the estate duty payable on the estate of the deceased person was not liable

to be deducted u/s 44 of the Act, thereby confirming the order of the Tribunal in that case which had distinguished the decision in Blanche''s case

[1964] 53 ITR 64 on the ground that the said decision had proceeded on a phraseology of the provisions of the Mysore Court-Fees and Suits

Valuation Act, while in the case before it, the question was whether the estate duty payable was deductible under s, 44 of the K.D. Act.

The decision in Blanche''s case [1964] 53 ITR 64 came up for consideration before a single judge of the Madras High Court in In Re: Mrs.

Constance Lubeck, , wherein the question arose whether the estate duty payable on an asset which vested in the executor was an item to be

deducted from the value of the estate in ascertaining the market value for the purposes of court-fee under the Madras Court-Fees and Suits

Valuation Act, 1955. Palaniswamy J., disagreeing with a view expressed by the Mysore Court in Blanche''s case, held that though estate duty was

legally payable out of the estate of the deceased, it was not a debt due and owing from the deceased and, hence, could not be included as an item

to be deducted from the value of the estate in ascertaining the market value for the purpose of calculation of court-fee chargeable on the

application for the grant of probate or letters of administration u/s 56(1)(a) of the Madras Court-Fees and Suits Valuation Act, 1955.

In Controller of Estate Duty Vs. Estate of Late Omprakash Bajaj, , the Andhra Pradesh High Court took the view that the estate duty payable

on an estate is not a ""debt or incumbrance "" within the meaning of Section 44 of the Act and, hence, it is not deductible while computing the

principal value of the estate and that the liability for payment of the estate duty is a personal liability of the accountable person and not a liability of

the estate itself and, hence, it cannot be said that it is a debt contemplated by Section 44 of the Act.

The Gujarat High Court in Shantaben Narottamdas (A.P. of Late Narottamdas K. Shah) Vs. Controller of Estate Duty, Gujarat, had the

opportunity of referring to the various decisions mentioned above except CED v. Estate of Late Om Prakash Bajaj while examining the scope of

Sections 44 and 74 of the Act. In this decision, the said High Court explained the position of law and finally held that the expressions "" debts "" and

incumbrances "" in Section 44 of the Act referred to debts and incumbrances created by the deceased during his lifetime and the liability to pay

estate duty, even if it were created by statute, could not be said to be an incumbrance nor could it be said to have been created by the deceased,

and, therefore, the estate duty was not deductible from the value of the estate passing on the death of the deceased.

We are in full agreement with the view expressed by the Gujarat High Court in Shantaben Narottamdas (A.P. of Late Narottamdas K. Shah)

Vs. Controller of Estate Duty, Gujarat, . We, accordingly, hold that the estate duty payable on the estate of the deceased in the hands of the

accountable person is not deductible, and answer the reference in the affirmative and against the accountable person and in favour of the revenue.

The revenue will have its costs. Counsel''s fee Rs. 250.