1977 (5) TMI 12 - HC - Income Tax

Estate duty not deductible from estate value for valuation under Estate Duty Act, 1953. Accountable person can't claim deduction.

Smt. Shantaben Narottamdas (AP. Of Late Shri Narottamdas K. Shah) Versus Controller Of Estate Duty, Gujarat

Smt. Shantaben Narottamdas (AP. Of Late Shri Narottamdas K. Shah) Versus Controller Of Estate Duty, Gujarat - [1978] 111 ITR 365, 1977 CTR 497 Issues Involved:1. Whether estate duty payable on an estate passing on the death of a person can be claimed as a deduction in making the valuation of the estate of the deceased.Summary:Issue 1: Deductibility of Estate Duty from the Value of the EstateThe core issue in both Reference No. 7 of 1974 and Reference No. 9 of 1974 is whether the estate duty payable on the estate of the deceased can be deducted from the value of the estate for the purpose of valuation under the Estate Duty Act, 1953.1. Legal Background and Arguments: - The accountable person argued that the estate duty payable is an incumbrance on the estate and should be deductible u/s 44 of the Estate Duty Act, 1953. - Section 44 allows for deductions for funeral expenses, debts, and incumbrances but excludes debts or incumbrances not incurred bona fide for full consideration or those with a right to reimbursement. - The counsel for the assessee relied on section 5(1) (charging section) and section 74(1) (which makes estate duty a first charge on immovable property) to argue that estate duty is an incumbrance.2. Judicial Precedents: - The case of Mrs. Blanche Nathalia Pinto v. State of Mysore was cited, where the Mysore High Court allowed deduction of estate duty for court fee valuation purposes. - Contrarily, the Karnataka High Court in Smt. V. Pramila v. Controller of Estate Duty held that estate duty is neither a debt nor an incumbrance deductible u/s 44, emphasizing the distinction made in section 74(1).3. Court's Analysis: - The court noted that section 74(1) explicitly provides that estate duty is a first charge on immovable property only after debts and incumbrances allowable under Part VI, indicating that estate duty is not considered a deductible incumbrance u/s 44. - The court emphasized that the expression 'debts' in section 44 refers to the debts of the deceased, and 'incumbrances' refer to those created by the deceased during their lifetime. - The court rejected the argument that the liability to pay estate duty constitutes an incumbrance, noting that a statutory liability does not automatically create a charge on all properties unless explicitly provided by law.4. Conclusion: - The court concluded that the estate duty payable on the estate of the deceased is not deductible from the value of the estate passing on the death of the deceased. - The court answered the referred question in the affirmative, in favor of the revenue and against the assessee, holding that the Tribunal was justified in its decision.Final Judgment:The court held that the estate duty payable on the estate of the deceased is not deductible from the value of the estate for the purpose of valuation under the Estate Duty Act, 1953. The accountable person is not entitled to claim such a deduction, and the references were answered in favor of the revenue. The assessee was ordered to pay the costs of each reference to the revenue.