Estate duty valuation of investment allowance reserve must reflect statutory restrictions and be included only at a discounted value.

The deceased partner's share in a partnership firm's investment allowance reserve was treated as property passing on death for estate duty purposes, because sections 5 and 6 of the Estate Duty Act bring within charge property passing on death or within the deceased's disposing capacity. However, the reserve was subject to the statutory limitations in section 32A(5) of the Income-tax Act and the related consequences under section 155(4A), so the interest could not be valued as an unrestricted asset. The deceased had a real but circumscribed right in the reserve, and valuation had to reflect the remaining utilisation period and surrounding facts, resulting in inclusion at a discounted amount rather than full face value.

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Issues: Whether the deceased's share in the investment allowance reserve of a partnership firm was includible in the principal value of the estate in full, and if includible, whether it had to be valued at a discounted figure having regard to the statutory restrictions under the Income-tax Act.

Analysis: The estate duty charge under sections 5 and 6 of the Estate Duty Act, 1953 applies to property passing on death or property within the deceased's disposing capacity. The investment allowance reserve was subject to the limitations created by section 32A(5) of the Income-tax Act, 1961 and the related consequence under section 155(4A), so the deceased's interest could not be treated as an unrestricted, full-value asset. At the same time, the deceased did possess a real right in the reserve, though that right was circumscribed by statutory conditions, the time period remaining before utilisation, and the surrounding facts affecting valuation.

Conclusion: The inclusion of the deceased's share in the investment allowance reserve was upheld in principle, but not at its full face value; the addition was directed to be restricted to a discounted amount, resulting in only a partial relief to the assessee.

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