Estate duty on inherited property is not deductible as acquisition cost or improvement cost for capital gains

Under the capital gains scheme, only deductions expressly permitted by section 48 are allowable, and where property devolves by will or succession, section 49 substitutes the previous owner's cost. A statutory charge for estate duty on immovable property creates only a priority for recovery and does not transfer any interest in the asset to the State. Payment of estate duty therefore does not make the transferee's title incomplete or amount to an improvement of the property. The claim to treat the duty as cost of acquisition or cost of improvement failed.

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Issues: Whether the estate duty paid in respect of properties devolved under a will could be deducted, for capital gains purposes, as part of the cost of acquisition or as cost of improvement.

Analysis: Under the capital gains scheme, only expenditure falling within the statutory deductions in section 48 is allowable, and where property comes by will or succession, section 49 deems the cost to be that of the previous owner. The charge created by section 74(1) of the Estate Duty Act on immovable property does not transfer any interest in the property to the State; it only gives priority for recovery. Consequently, payment of estate duty does not make the title of the transferee incomplete or imperfect, nor does it amount to an addition or alteration to the asset itself so as to constitute improvement.

Conclusion: The estate duty paid could not be treated either as cost of acquisition or as cost of improvement, and the claim for deduction failed.

Ratio Decidendi: A statutory charge on property for recovery of estate duty does not create any interest in the property, and payment of the duty therefore is not deductible as cost of acquisition or cost of improvement in computing capital gains unless the expenditure falls within the express provisions of the capital gains scheme.

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