Estate duty debt deduction limited only when gifted property has a real nexus with the loan and creditor resources.

Section 46 of the Estate Duty Act, 1953 applies only where there is a real nexus between property derived from the deceased and the debt sought to be deducted. Although section 44 allows deduction of bona fide debts for full consideration, that deduction is restricted if the consideration for the debt consists of gifted property or if the lender's resources included such property. On the facts, the gifted amount had been withdrawn, the creditor had independent funds, and the later advances in the running account were not shown to have been made by reference to the gift. Section 46 therefore did not apply, and the debt deduction could not be scaled down.

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Issues: Whether the debt claimed against the estate was liable to be scaled down under section 46 of the Estate Duty Act, 1953 on the ground that the creditor had earlier received property gifted by the deceased.

Analysis: Section 44 permits deduction of debts incurred bona fide and for full consideration, while section 46 restricts the deduction where the consideration for the debt consists of property derived from the deceased, or where the lender's resources at any time included such property. The decisive requirement is a real connection between the gifted property and the debt sought to be deducted. On the facts, the gifted amount had been withdrawn and there was no direct nexus between that gift and the later loan transactions reflected in the running account. The creditor also had independent funds and the later advances were not shown to have been made with reference to or with a view to facilitating the debt.

Conclusion: The provisions of section 46 did not apply, and the deduction could not be scaled down.

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