1974 (11) TMI 32 - HC - Income Tax

Court disallows part of principal amount under Section 46, deems the rest allowable under Section 44.

The High Court held that under Section 46(1)(a), Rs. 1,43,770 of the principal amount was disallowable, and under Section 46(2), Rs. 6,230 of the ... Revenue Receipt, Sales Tax Issues Involved:1. Applicability of Section 46(1)(a) of the Estate Duty Act, 1953.2. Applicability of Section 46(1)(b) of the Estate Duty Act, 1953.3. Interpretation of 'property derived from the deceased' under Section 16(2) of the Estate Duty Act, 1953.4. Applicability of Section 46(2) of the Estate Duty Act, 1953.Issue-wise Detailed Analysis:1. Applicability of Section 46(1)(a) of the Estate Duty Act, 1953:The primary issue addressed was whether the interest amount of Rs. 1,16,205 credited to the accounts of the deceased's minor sons could be disallowed under Section 46(1)(a) of the Estate Duty Act, 1953. The Assistant Controller of Estate Duty and the Appellate Controller both concluded that the entire sum of Rs. 1,83,705 (including the interest) should be disallowed as it constituted 'property derived from the deceased' under Section 46(1)(a) read with Section 16(2). However, the Tribunal held that both the principal amount of Rs. 1,50,000 and the interest amount of Rs. 1,16,205 constituted 'property derived from the deceased' and should be disallowed. The High Court, however, found that only the principal amount of Rs. 1,50,000 could be disallowed under Section 46(1)(a) because the consideration for the debt must have been in existence on the date when the debt was incurred, and future interest could not constitute consideration.2. Applicability of Section 46(1)(b) of the Estate Duty Act, 1953:The Tribunal also considered whether the interest amount could be disallowed under Section 46(1)(b), even though the revenue did not rely on this provision. Section 46(1)(b) deals with cases where the consideration for the debt was given by a person who was entitled to or amongst whose resources there was any property derived from the deceased. The High Court interpreted that Section 46(1)(b) would apply to cases where the consideration for the debt did not consist of the property derived from the deceased but was paid by a person who was entitled to or amongst whose resources there was any property derived from the deceased. However, the Court concluded that no part of the interest accrued could be subjected to abatement under Section 46(1)(b).3. Interpretation of 'property derived from the deceased' under Section 16(2) of the Estate Duty Act, 1953:The Court examined the definition of 'property derived from the deceased' under Section 16(2) and concluded that it includes not only the property which was the subject-matter of a disposition made by the deceased but also any annual or periodical payment made or payable under or by virtue of a trust, covenant, agreement, or arrangement. In this case, the gift of Rs. 1,50,000 and the subsequent deposit or loan arrangement were considered associated operations, making the interest payable part of the 'subject-matter' under Section 16(2). However, the Court clarified that this does not mean the entire principal and interest due from the deceased are to be disallowed under Section 46(1).4. Applicability of Section 46(2) of the Estate Duty Act, 1953:Section 46(2) provides that money paid or applied towards the satisfaction or discharge of a debt, which would have been subject to abatement under Section 46(1) if not paid within two years before the death, shall be treated as property deemed to be included in the property passing on the death. The Court found that only Rs. 6,230, out of the Rs. 82,500 paid within two years before the death, could be disallowed under Section 46(2) as it was part of the principal amount of Rs. 1,50,000. The remaining Rs. 76,270, which was paid as interest, could not be disallowed under Section 46(1) or 46(2).Conclusion:The High Court concluded that under Section 46(1)(a), Rs. 1,43,770 of the principal amount would be disallowable, and under Section 46(2), Rs. 6,230 of the principal amount would be disallowable, making the total disallowable amount Rs. 1,50,000. No part of the interest amounting to Rs. 1,16,205 could be disallowed under Section 46(1). Only the balance of Rs. 39,935, which was outstanding, would be allowable under Section 44 of the Estate Duty Act, 1953. The reference was answered accordingly, with each party bearing their respective costs.