Estate duty deduction and pre-existing charge depend on who created the encumbrance, not merely beneficiary consent.

Section 44(a) of the Estate Duty Act, 1953 does not disallow a debt or encumbrance where the charge was created by a surviving trustee, not by the deceased, and the estate passed subject to that pre-existing liability. The commentary explains that the later endowment deed, read with the original settlement, showed the surviving trustee retained control and authority over the trust property, while the sons' recorded consent did not make them authors of the disposition. The transaction was not void ab initio, and the unpaid sum linked to the charitable arrangement remained deductible in estate duty computation.

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Issues: (i) Whether the surviving trustee or the deceased son made the disposition and created the charge under the deed dated 19 September 1940; (ii) Whether the disposition was void and whether deduction of the unpaid sum of Rs. 3,50,000 was allowable in computing the estate of the deceased; (iii) Whether a valid debt and encumbrance to the extent of Rs. 1,16,667 were created so as to escape disallowance under section 44(a) of the Estate Duty Act, 1953.

Issue (i): Whether the surviving trustee or the deceased son made the disposition and created the charge under the deed dated 19 September 1940.

Analysis: The trust property remained under the control of the surviving trustee while she was alive, and the later endowment deed was construed in the light of the original settlement deed. The recorded consent of the sons did not make them the authors of the disposition. The operative transfer of funds and creation of the charge were attributable to the surviving trustee, who had power under the earlier deed to act within the trust framework.

Conclusion: The disposition and the charge were created by the surviving trustee and not by the deceased son.

Issue (ii): Whether the disposition was void and whether deduction of the unpaid sum of Rs. 3,50,000 was allowable in computing the estate of the deceased.

Analysis: The later transaction was not void ab initio. The surviving trustee, as legal owner of the trust properties during her lifetime, could validly transfer the trust property, and the beneficiaries who concurred could not later impeach the transaction. The charitable arrangement had already been partly implemented by acquisition of land for the hospital.

Conclusion: The disposition was not void, and deduction of the unpaid sum was not barred on that ground.

Issue (iii): Whether a valid debt and encumbrance to the extent of Rs. 1,16,667 were created so as to escape disallowance under section 44(a) of the Estate Duty Act, 1953.

Analysis: Section 44(a) disallows only debts incurred or encumbrances created by the deceased without the required consideration and personal benefit. On the facts, the charge and corresponding debt were created by the surviving trustee, not by the deceased, and the deceased's estate took the property subject to the existing charge. The statutory disallowance therefore did not apply.

Conclusion: A valid debt and encumbrance to the extent of Rs. 1,16,667 were created, and section 44(a) was not attracted.

Final Conclusion: The reference was answered in favour of the accountable person on all material questions, and the claimed deduction was upheld in estate duty computation.

Ratio Decidendi: For the purpose of section 44(a) of the Estate Duty Act, 1953, a debt or encumbrance is not disallowable where the charge is created by a person other than the deceased and the estate passes subject to that pre-existing liability; a transaction validly entered into by the legal owner of trust property is not rendered void merely because beneficiaries recorded their assent.

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