1977 (10) TMI 13 - HC - Income Tax

Court rules on deduction of gifted properties from estate value under Section 46

The High Court clarified that Section 46 did not apply to the scenario where a deceased individual had gifted properties to his children and later ... Estate Duty Act, Firm Consisting Issues:Interpretation of Sections 44 and 46 of the E.D. Act in relation to estate duty payable on the death of an individual who had gifted properties to his children and later borrowed money from them, leading to liabilities at the time of his death.Analysis:The judgment pertains to a reference made by the CED, Madras, regarding the estate duty payable on the death of an individual who had gifted properties to his children and later borrowed money from them, resulting in liabilities at the time of his death. The deceased had gifted properties and borrowed sums from his children, totaling Rs. 1,80,000, which were later transferred to a firm. The accountable persons sought to claim this amount as a deduction under Section 44 of the E.D. Act. The Tribunal allowed a deduction of Rs. 1,90,000, which was challenged in the reference. The questions referred to the High Court sought clarification on the application of Section 46 in abating the allowance for debts due under Section 44 and the impact on the debts amounting to Rs. 1,20,000.The High Court found the questions posed to be confusing but interpreted them to address the applicability of Section 46 to the debts owed by the deceased at the time of his death. The Court noted discrepancies in the figures mentioned but clarified that the total liability was Rs. 1,80,000. The Tribunal's decision to allow a deduction of Rs. 1,90,000 based on Section 46(1)(b) was deemed erroneous as the section did not apply to the given scenario. The Court emphasized the necessity to consider both limbs of Section 46(1)(a) and (b) and the proviso when assessing the impact of gifts and loans on estate duty calculations.Furthermore, the Court highlighted the crucial requirement that the donees, who became creditors, must have vested the gifted properties in themselves as partners of the firm to trigger the application of Section 46. Since there was no evidence that the properties gifted to the partners became assets of the firm, Section 46 was deemed inapplicable. The Court concluded that no abatement could be made under Section 46, allowing the accountable persons to deduct the full amount of Rs. 1,80,000 from the estate value. Consequently, the Court answered the posed questions in favor of the accountable persons and made no order as to costs in the case.