Estate duty is not deductible from estate value because it is neither a debt nor an encumbrance under the Act.

Estate duty liability is not deductible from the value of the estate because section 44 allows deductions only for debts and encumbrances when computing the net principal value, and estate duty does not fall within either category. The scheme of the Estate Duty Act treats the duty as a charge arising after deductible liabilities are taken into account, while section 74(1) makes it a first charge on immovable property passing on death. That ranking is inconsistent with treating the duty itself as a deductible item. The reference was answered in the negative, in favour of the Revenue.

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Issues: Whether estate duty liability is deductible from the value of the estate.

Analysis: The relevant scheme of the Estate Duty Act shows that deductions under section 44 are made while determining the value of the estate and before arriving at the net principal value on which estate duty is quantified. Estate duty payable is neither a debt nor an encumbrance within the meaning of section 44. Section 74(1) makes estate duty a first charge on immovable property passing on death, but that charge ranks after the debts and encumbrances deductible under the Act, which is inconsistent with treating the duty itself as one of those deductible items.

Conclusion: Estate duty liability is not deductible from the value of the estate, and the answer to the reference is in the negative, in favour of the Revenue.

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