Estate duty deductions are limited to the deceased's enforceable liability at death, while bona fide compromise payments remain deductible.

For estate duty, a debt is deductible only to the extent of the deceased's enforceable liability existing at the date of death. Where a decree was against a partnership firm and the deceased held only a one-third share, only that proportion of the decree debt was allowable as a deduction; possible future recovery or contribution rights did not enlarge the estate's liability. A separate sum paid to compromise a suit was deductible because the settlement was bona fide, realistic, and reflected an actual liability arising from the deceased's management of minors' estate. The estate therefore obtained deduction only for the one-third partnership liability and the compromise payment in full.

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Issues: (i) Whether only one-third of the decree debt in OS No. 232 of 1961 was admissible as a deduction in computing the principal value of the estate; (ii) Whether the sum of Rs. 1,75,000 paid to compromise the suit in OS No. 254 of 1956 was deductible in computing the principal value of the estate.

Issue (i): Whether only one-third of the decree debt in OS No. 232 of 1961 was admissible as a deduction in computing the principal value of the estate.

Analysis: The liability had to be determined with reference to the rights and obligations of the deceased at the date of death. Since the decree was against the partnership firm and the deceased had only a one-third share, the estate could be treated as liable only to that extent. Possible future recovery, execution, or contribution rights did not enlarge the estate duty liability beyond the deceased's own share.

Conclusion: Only one-third of the decree amount, namely Rs. 1,99,465, was admissible as a deduction, and the rest was not deductible.

Issue (ii): Whether the sum of Rs. 1,75,000 paid to compromise the suit in OS No. 254 of 1956 was deductible in computing the principal value of the estate.

Analysis: The deceased had been in management of the minors' estate and had a liability arising from that relationship. The compromise was accepted as bona fide and realistic, and there was no material to displace the finding that the settlement represented a real liability of the deceased.

Conclusion: The sum of Rs. 1,75,000 was deductible.

Final Conclusion: The estate was entitled to deduction only to the extent of the deceased's one-third share in the partnership decree debt, while the compromise amount was fully allowable as a deduction.

Ratio Decidendi: For estate duty purposes, a debt is deductible only to the extent of the deceased's enforceable liability existing at the date of death, and a bona fide compromise settlement of an admitted liability is an allowable deduction.

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