Voluntary disclosure tax liability relates back to accrual year and is deductible as an estate debt.

Tax liability on concealed income disclosed under a voluntary disclosure scheme was held to relate back to the previous year in which the income accrued, because the scheme only settled an already existing liability and did not create a new one. On that basis, the liability had crystallised before the deceased partner's death and therefore constituted a debt deductible in computing the principal value of the estate under estate duty law.

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Issues: Whether tax paid under the voluntary disclosure scheme in respect of concealed income of a partnership firm was deductible as a debt in computing the principal value of the estate of the deceased partner.

Analysis: The charge under the Estate Duty Act arises on death, and deductions are governed by the provision relating to debts and encumbrances. The decisive question was whether the liability under the voluntary disclosure declaration was a new liability arising after death or a liability that had already accrued when the income was earned. The disclosure related to income of earlier previous years, and once accepted, it signified that the income had in fact accrued in those years and that the tax liability had already arisen then. The scheme only enabled settlement of that pre-existing liability without penalty or prosecution. The Court applied the principle that tax on concealed income crystallises at the end of the previous year in which the income was earned, and that a voluntary declaration does not change the character of the underlying tax liability.

Conclusion: The liability was a pre-existing debt of the deceased and was deductible in computing the principal value of the estate.

Ratio Decidendi: Tax liability on concealed income disclosed under a voluntary disclosure scheme relates back to the previous year in which the income accrued and, if it existed before death, is deductible as a debt in estate duty computation.

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