Estate Duty Act nexus test and deduction rule: earlier gift must fund the loan, and estate duty payable is not deductible.

Section 46(1)(b) of the Estate Duty Act applied only where a proved nexus showed that the creditor's loan was made from resources including the earlier gift or receipt; mere lapse of time between the gift and the later advance was insufficient, and on the facts no such connection was established, so the provision was not attracted. On deduction of estate duty in computing the dutiable estate, the governing Supreme Court ruling settled that estate duty payable was not deductible, so the deduction was disallowed.

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Issues: (i) Whether section 46(1)(b) of the Estate Duty Act, 1953 was attracted on the facts so as to link the deceased's loan with the earlier gift received by the lender's wife. (ii) Whether estate duty payable was deductible in computing the dutiable estate.

Issue (i): Whether section 46(1)(b) of the Estate Duty Act, 1953 was attracted on the facts so as to link the deceased's loan with the earlier gift received by the lender's wife.

Analysis: The provision applies only where the amount received by the deceased from the creditor forms part of that creditor's resources and is available for being utilised towards the loan. A mere lapse of time between the gift and the later advance does not by itself establish the statutory connection. On the facts, there was no material to show that the gifted amount remained with the wife or that it formed part of the resources from which the loan was later made.

Conclusion: Section 46(1)(b) was not attracted. This issue was decided in favour of the assessee.

Issue (ii): Whether estate duty payable was deductible in computing the dutiable estate.

Analysis: The question was controlled by the Supreme Court's declaration on the point, which settled that the estate duty payable was not liable to deduction in computing the dutiable estate.

Conclusion: The deduction was not allowable. This issue was decided against the assessee and in favour of the Revenue.

Final Conclusion: The reference was answered partly in favour of the assessee on the section 46 question, while the deduction issue was answered in favour of the Revenue.

Ratio Decidendi: For section 46(1)(b) to apply, there must be a proved nexus showing that the creditor's loan was made out of resources that included the earlier gift or receipt; mere temporal proximity is insufficient.

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