Estate duty deduction for accrued interest on gifted amounts was allowed because section 46 did not extend to income earned on the property.

Interest accrued on amounts gifted by a deceased to donees, and later treated as debts payable by the estate, was deductible from the estate duty computation. Section 44(a) allowed deduction of bona fide debts incurred for full consideration in money or money's worth and wholly for the deceased's own use and benefit, while section 46(1) imposed only a limited abatement where the consideration consisted of property derived from the deceased. That limitation applied to the property actually disposed of by the deceased and did not extend to income earned on it. The accrued interest was not property derived from the deceased, and section 16(2)(c) did not apply because the interest was not an annuity or periodical payment under the disposition.

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Issues: Whether interest accrued on amounts gifted by the deceased to donees, which were later treated as debts payable by the estate, was deductible from the estate notwithstanding section 46 of the Estate Duty Act.

Analysis: Section 44(a) permitted deduction of debts incurred bona fide for full consideration in money or money's worth and wholly for the deceased's own use and benefit, but section 46(1) imposed only a limited abatement where the consideration consisted of property derived from the deceased. The limitation operated on the actual amount of property disposed of by the deceased and did not extend to income earned thereon. The accrued interest was not itself property derived from the deceased for the purpose of abatement, and section 16(2)(c) did not assist the revenue because the interest was not an annuity or periodical payment provided by virtue of the disposition.

Conclusion: The interest accrued on the principal amounts was allowable as a deduction from the estate and was not hit by section 46.

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