Estate-duty valuation rules limit exemption to the deceased's share, exclude independently earned gift interest, and require firm-wide valuation.

Estate-duty valuation under the Estate Duty Act turned on four rules: constitutional validity of section 34(1)(c) could not be examined by statutory authorities, so aggregation of lineal descendants' shares for rate purposes was applied; exemption under section 33(1)(n) for a Hindu undivided family residential house was confined to the deceased's notional share on partition, not the entire house; interest on gifted amounts was includible only if it accrued naturally from the gifted property without the donee's intervention, so independently earned interest was excluded; and a deceased partner's share in a firm had to be valued on the firm's overall assets and liabilities, not by revaluing closing stock alone.

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Issues: (i) Whether section 34(1)(c) of the Estate Duty Act, 1953, permitting aggregation of the shares of lineal descendants for rate purposes, was liable to be struck down; (ii) whether exemption under section 33(1)(n) of the Estate Duty Act, 1953, extended to the entire residential house belonging to the Hindu undivided family or only to the deceased's share; (iii) whether interest accrued on amounts gifted within two years of death could be included under section 34(4) of the Estate Duty Act, 1953; and (iv) whether the deceased's share in a partnership firm could be revalued by valuing only the closing stock.

Issue (i): Whether section 34(1)(c) of the Estate Duty Act, 1953, permitting aggregation of the shares of lineal descendants for rate purposes, was liable to be struck down.

Analysis: The question of constitutional validity could not be examined by the statutory authorities constituted under the Act. The challenged provision operated as part of the statutory scheme for aggregation and rate fixation, and the authorities were bound to apply it.

Conclusion: The challenge failed and the inclusion for rate purposes was upheld, against the accountable person and in favour of the revenue.

Issue (ii): Whether exemption under section 33(1)(n) of the Estate Duty Act, 1953, extended to the entire residential house belonging to the Hindu undivided family or only to the deceased's share.

Analysis: Under the scheme of sections 33 and 39, only the interest passing on death is relevant. In the case of coparcenary property, a notional partition is assumed immediately before death, and exemption can be claimed only to the extent of the deceased's share, not in respect of the shares of other coparceners.

Conclusion: The exemption was confined to the deceased's 1/4th share, and the claim to the full value of the house was rejected, against the accountable person and in favour of the revenue.

Issue (iii): Whether interest accrued on amounts gifted within two years of death could be included under section 34(4) of the Estate Duty Act, 1953.

Analysis: The expression "accrued" contemplates income arising naturally from the gifted property without the intervention of the donee. Interest generated by the donees' independent investment of the gifted amount does not form part of the estate passing on death for estate duty purposes.

Conclusion: The addition of interest was not justified and had to be deleted, in favour of the accountable person and against the revenue.

Issue (iv): Whether the deceased's share in a partnership firm could be revalued by valuing only the closing stock.

Analysis: A partner has no right in specie in any particular partnership asset during subsistence of the firm. The deceased partner's interest had to be determined after taking into account the assets and liabilities of the firm as a whole, and not by isolating and revaluing a single asset such as closing stock.

Conclusion: The isolated revaluation of closing stock was impermissible and the addition was unsustainable, in favour of the accountable person and against the revenue.

Final Conclusion: The reference was answered partly for the revenue and partly for the accountable person, with the additions under the interest and partnership-valuation issues set aside and the remaining challenges rejected.

Ratio Decidendi: In estate-duty valuation, exemption and inclusion must be confined to the property or interest actually passing on death; income accrues only when it arises naturally from the gifted property without intervention of the donee, and a partner's share in a firm must be valued by considering the firm's assets and liabilities as a whole.

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