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Issues: (i) Whether the deceased's liability due to the firm was liable to be abated under section 46(1)(b) of the Estate Duty Act, 1953. (ii) Whether only a proportionate portion of the liability could be subjected to abatement on the basis of the value of the property brought into the firm by the recipients of the gifted assets.
Issue (i): Whether the deceased's liability due to the firm was liable to be abated under section 46(1)(b) of the Estate Duty Act, 1953.
Analysis: The liability arose from a loan advanced by the new firm in which the recipients of the deceased's gifted properties became partners after bringing those properties into the firm as capital. The statutory scheme under section 46(1), and specifically clause (b) with its proviso, governed abatement where the consideration for the debt was traced to property derived from the deceased. The Tribunal's approach that the debt had to be examined under section 46(1)(b) was accepted.
Conclusion: The question was answered in the affirmative, against the assessee and in favour of the Revenue.
Issue (ii): Whether only a proportionate portion of the liability could be subjected to abatement on the basis of the value of the property brought into the firm by the recipients of the gifted assets.
Analysis: The proviso to section 46(1) required abatement to be limited to the extent that the firm's resources were attributable to the property derived from the deceased. Where the firm's resources were not wholly made up of such property, the debt could not be wholly abated and the abatement had to be apportioned by reference to the ratio between the gifted property brought in and the net value of the firm's resources. The proportional formula adopted by the Tribunal correctly reflected the statutory nexus.
Conclusion: The question was answered in the affirmative, in favour of the assessee and against the Revenue.
Final Conclusion: The reference was answered on a split issue-wise basis, with the first question decided for the Revenue and the second for the assessee, and the abatement under the statute confined to the proportion attributable to property derived from the deceased.
Ratio Decidendi: Where a debt is traceable to resources of a firm that include property derived from the deceased, abatement under the estate duty law is limited to the proportion attributable to such property and cannot extend to the whole debt unless the firm's resources are wholly so derived.
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