Capital gains tax computation under estate duty law turns on actual tax burden, assessed liability, and loan repayment treatment.

The article examines section 50B of the Estate Duty Act, 1953, on three related points. For tax paid in respect of capital gains, the proper computation is the actual additional tax burden attributable to those gains, measured by the difference between tax on total income including capital gains and tax on income excluding them, rather than by an average rate. Estate duty payable refers to the assessed gross liability under the Act, not the balance after part-payment. Repayment of borrowings taken to discharge estate duty, when repaid from sale proceeds of the capital asset, may also be treated as payment towards estate duty within the statutory scheme.

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Issues: (i) computation of "tax paid in respect of capital gains" under section 50B of the Estate Duty Act, 1953; (ii) meaning of "estate duty payable" under section 50B of the Estate Duty Act, 1953; (iii) whether amounts borrowed for payment of estate duty and discharged out of sale proceeds can be treated as payment towards estate duty under section 50B of the Estate Duty Act, 1953.

Issue (i): computation of "tax paid in respect of capital gains" under section 50B of the Estate Duty Act, 1953.

Analysis: The expression had to be construed by reference to the tax burden attributable to the capital gains themselves. The higher tax incidence arose only because capital gains were added to other income, and the relevant computation was therefore the difference between the tax on total income including capital gains and the tax on total income excluding capital gains.

Conclusion: The expression was to be computed on the difference method and not by applying an average rate of tax; this issue was decided in favour of the assessee.

Issue (ii): meaning of "estate duty payable" under section 50B of the Estate Duty Act, 1953.

Analysis: The expression was held to bear a uniform meaning throughout the Act and to denote the assessed liability itself. Part-payment may reduce the outstanding balance, but it does not alter the gross estate duty liability referred to by the statute.

Conclusion: "Estate duty payable" meant the assessed estate duty before deduction of part-payments; this issue was decided in favour of the Revenue.

Issue (iii): whether amounts borrowed for payment of estate duty and discharged out of sale proceeds can be treated as payment towards estate duty under section 50B of the Estate Duty Act, 1953.

Analysis: The repayment of borrowings made for discharging estate duty, where such borrowings were repaid from the sale proceeds of the property from which capital gains arose, was treated as part of the payment made towards estate duty. The construction adopted was intended to advance justice and to give effect to the statutory scheme.

Conclusion: Such repayment was included within payment towards estate duty; this issue was decided in favour of the assessee.

Final Conclusion: The reference was answered partly in favour of the assessee and partly in favour of the Revenue, with the principal computation questions under section 50B resolved by applying the statutory scheme and the binding approach earlier approved by the Supreme Court.

Ratio Decidendi: A statutory expression referring to tax paid on capital gains must be construed by measuring the actual tax burden attributable to the capital gains, and borrowings repaid out of sale proceeds may be treated as payment towards estate duty where the statute so permits.

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