Proportionate estate duty relief and actual capital gains tax basis govern transfer of assets sold to meet duty liability

Estate duty relief under sections 50 and 50B is confined to the deceased's actual interest in the property chargeable to duty, not the entire joint family or trust property. Where estate duty is leviable only on a notional share in joint family assets, deductions for probate fees and related relief must be applied proportionately to that limited charge. For section 50B, the capital gains tax used in the computation is the actual tax paid on the transfer of the property sold to meet estate duty, and not a notional net average rate. The proportionate approach to relief and the actual-tax basis for computation were therefore accepted.

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Issues: (i) Whether relief under section 50B of the Estate Duty Act, 1953, in respect of assets sold by a hindu undivided family or trust for payment of estate duty is confined to the proportion referable to the deceased's interest in the property on which estate duty is leviable. (ii) Whether relief under section 50 of the Estate Duty Act, 1953, in respect of probate fees is to be restricted proportionately where the estate duty is leviable only on the deceased's interest in the property. (iii) Whether, for section 50B relief, the capital gains tax paid on sale of the relevant assets is to be taken at the actual tax paid and not on the basis of the net average rate of tax.

Issue (i): Whether relief under section 50B of the Estate Duty Act, 1953, in respect of assets sold by a hindu undivided family or trust for payment of estate duty is confined to the proportion referable to the deceased's interest in the property on which estate duty is leviable.

Analysis: The expression "property" for the purposes of estate duty includes an interest in property under section 2(15) of the Estate Duty Act, 1953. Estate duty is leviable only on the deceased's interest in the joint family property, determined on a notional partition basis, and not on each specific asset as if the deceased owned a fixed fractional share in every asset. The statutory relief under section 50B applies where property on which estate duty is leviable is transferred and capital gains tax is paid on that transfer. Since the relevant property for estate duty purposes is only the deceased's interest, the relief cannot exceed the proportion of the tax referable to that interest and the proceeds applied towards payment of estate duty.

Conclusion: The restriction of section 50B relief to the deceased's proportionate interest was and the claim for full relief failed.

Issue (ii): Whether relief under section 50 of the Estate Duty Act, 1953, in respect of probate fees is to be restricted proportionately where the estate duty is leviable only on the deceased's interest in the property.

Analysis: Section 50 operates in the same statutory setting and grants deduction from estate duty payable in relation to the property on which estate duty is leviable. Where the estate duty liability extends only to the deceased's one-third interest in the family property, the related deduction cannot be claimed on the footing of the entire property or on gross duty without regard to that limited charge. The proportionate approach adopted by the Assistant Controller was therefore consistent with the scope of the provision.

Conclusion: The proportional restriction under section 50 was upheld and the broader claim for full relief was rejected.

Issue (iii): Whether, for section 50B relief, the capital gains tax paid on sale of the relevant assets is to be taken at the actual tax paid and not on the basis of the net average rate of tax.

Analysis: The computation under section 50B turns on the actual tax paid on capital gains arising from the transfer of the property used for payment of estate duty. Since capital gains is one of the heads of income recognised under section 14 of the Income-tax Act, 1961, and the assets were sold specifically to discharge estate duty, the statute did not justify substituting a notional net average rate for the actual tax burden incurred on the transfer.

Conclusion: The actual capital gains tax paid was the correct basis, and the department's challenge on the net average rate was rejected.

Final Conclusion: The relief provisions were applied on a proportionate basis linked to the deceased's interest in the property, while the actual capital gains tax paid on the relevant transfers remained the proper basis for computation.

Ratio Decidendi: For estate duty relief on transfer of property sold to meet estate duty, the deductible amount is confined to the portion attributable to the property or interest actually chargeable to estate duty, and capital gains tax is to be computed on the actual tax paid on such transfer rather than on a notional average rate.

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