1989 (6) TMI 5 - HC - Income Tax

Court rules estate duty not deductible from estate value for estate duty purposes. Estate duty is first charge on immovable property.

The court held that estate duty liability is not deductible from the total estate value for estate duty purposes as it does not qualify as a debt or ... Offences And Prosecution, Prima Facie Case, Wilful Attempt To Evade Tax Issues:1. Deductibility of estate duty liability from the value of the estate for estate duty purposes.Analysis:The case involved a reference under section 64(1) of the Estate Duty Act, 1953, regarding the deductibility of estate duty liability from the total estate value for determining estate duty payable. The accountable person claimed deduction of estate duty liability, which was disallowed by the Assistant Controller but allowed by the Appellate Controller. However, the Appellate Tribunal reversed the decision, leading to the reference. The key question was whether estate duty liability qualifies as a debt or incumbrance under section 44 of the Act, which allows certain deductions. The court analyzed sections 44 and 74(1) and concluded that estate duty is neither a debt nor an incumbrance. Deductions under section 44 are allowed before determining the net principal value of the estate and quantifying the estate duty.The accountable person argued that estate duty should be deductible from the principal value of the estate. However, section 74(1) of the Act states that estate duty is the first charge on immovable property but ranks after allowable debts and incumbrances. The court highlighted that estate duty has never been considered deductible in the UK since its imposition in 1894. Various High Court judgments unanimously held that estate duty is not a debt or incumbrance. The court referenced decisions from different High Courts supporting this view. Consequently, the court answered the reference question in the negative, favoring the Revenue.Regarding the request for leave to appeal to the Supreme Court, the court noted that there was no divergence in judicial opinion on the matter, as all High Courts rejected similar pleas. Despite referencing a decision by the Andhra Pradesh High Court granting leave to appeal to the Supreme Court in a similar case, the court declined to grant such leave in this instance. However, considering the identical question pending before the Supreme Court based on certificates granted by the Andhra Pradesh High Court, the court granted a certificate for appeal to the Supreme Court under section 65 of the Estate Duty Act, 1953. The court ordered the issuance of a separate certificate and made no ruling on costs. Both judges concurred with the decision.