Controlled company assets are excluded from estate duty where the statutory fraction under the deeming provision cannot be worked out.

Section 17(1) of the Estate Duty Act, 1953 deems the assets of a controlled company to pass on death only to the extent computed under section 17(2). Proviso (a) to section 17(2) merely regulates how aggregate net income is calculated where one or more accounting years show a loss; it does not expand the charge to include the company's entire assets when the statutory fraction cannot be worked out. Where the aggregate net income produces a loss and the deemed proportion becomes negative, no deemed passing arises and the company's assets are excluded from the principal value of the estate.

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Issues: Whether, on the facts and in the circumstances of the case and having regard to proviso (a) to section 17(2) of the Estate Duty Act, 1953, the value of the assets of the controlled company could be excluded from the principal value of the estate where the aggregate net income of the company for the relevant three years was a loss.

Analysis: Section 17(1) of the Estate Duty Act, 1953, deems the assets of a controlled company to pass on death only to the extent determined under section 17(2). The quantification depends on a proportion or slice worked out by comparing the deceased's benefits with the company's net income for the relevant period. Proviso (a) to section 17(2) merely governs the computation of aggregate net income where loss occurs in one or more accounting years. It does not enlarge the charge so as to cover the whole of the company's assets when the resulting net figure is a loss and the fraction cannot be worked out. As the slice in this case worked out to a negative figure, no deemed passing could arise.

Conclusion: The value of the controlled company's assets was rightly excluded from the principal value of the estate, and the question was answered in the affirmative and against the Revenue.

Ratio Decidendi: Where the proportion of a controlled company's assets deemed to pass under section 17(2) of the Estate Duty Act, 1953 cannot be worked out because the aggregate net income yields a loss, the deeming provision does not authorise inclusion of the whole of the company's assets in the estate.

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