Estate duty is not a deductible debt or encumbrance when valuing property passing on death under the Estate Duty Act.

Under the Estate Duty Act, 1953, the principal value of property passing on death is to be taken at its open-market value at the time of death. Estate duty itself arises only on death and is treated by the charging provision as distinct from liabilities attached to the property during the deceased's lifetime. On that basis, estate duty payable on the property passing on death is neither a debt nor an encumbrance deductible under the valuation provisions, and it cannot reduce the principal value of the estate.

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Issues: Whether estate duty payable on property passing on death is deductible as a debt or encumbrance while determining the principal value of the estate.

Analysis: The statutory scheme under sections 5, 6 and 36 of the Estate Duty Act, 1953 requires valuation of the property as it passes on death at its open-market price at the moment of death. The liability to estate duty arises only upon death and the charge created by section 74(1) attaches as a consequence of death. The Court held that only obligations attached to the property during the deceased's lifetime can affect the principal value. Estate duty is neither a debt nor an encumbrance of the kind contemplated by section 44, and the charging provision in section 74(1) itself shows that Parliament treated estate duty as distinct from deductible liabilities.

Conclusion: Estate duty payable on the property passing on death is not deductible in computing the principal value of the estate, and the contention of the accountable person fails.

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