Estate duty inclusion turns on section 46(2) discharge of debt and section 10 exclusion through donor's continued benefit.

Section 46(2) of the Estate Duty Act applied because the deceased's withdrawal within two years of death discharged a liability that would have fallen within section 46(1), so the amount was correctly included in the estate. House No. 85, Nallagunta was not includible under section 10 because the donee had taken bona fide possession and enjoyment, and the donor was not shown to have retained a prohibited benefit, so exclusion from the estate was allowed. The N.G.P. notes and the Pioneer Bazar, Bolarum house properties were includible under section 10 because the deceased continued to receive and use the income, showing that the donee had not enjoyed the property to the donor's entire exclusion.

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Issues: (i) Whether the amount of Rs. 22,630 was rightly included in the estate under section 46(2) of the Estate Duty Act; (ii) Whether house No. 85, Nallagunta was includible in the estate under section 10 of the Estate Duty Act; (iii) Whether the N.G.P. notes of Rs. 21,249 and the house properties at Pioneer Bazar, Bolarum were rightly included in the estate under section 10 of the Estate Duty Act.

Issue (i): Whether the amount of Rs. 22,630 was rightly included in the estate under section 46(2) of the Estate Duty Act.

Analysis: Section 46(2) treats money or money's worth applied by the deceased in satisfaction or discharge of a debt or encumbrance, within two years before death, as property deemed to pass on death where section 46(1) would have applied had the debt remained outstanding. The amount withdrawn within the statutory period was found to represent discharge of a liability falling within that provision.

Conclusion: The amount was correctly included in the estate and the finding was against the assessee.

Issue (ii): Whether house No. 85, Nallagunta was includible in the estate under section 10 of the Estate Duty Act.

Analysis: Section 10 applies only where the donee does not immediately assume bona fide possession and enjoyment of gifted property to the entire exclusion of the donor. A residential house gifted by a husband to his wife, in which the spouses continued to reside together, did not satisfy the statutory requirement for inclusion, as the donor was not shown to have derived a prohibited benefit within the meaning of the section.

Conclusion: House No. 85, Nallagunta was not includible in the estate and the finding was in favour of the assessee.

Issue (iii): Whether the N.G.P. notes of Rs. 21,249 and the house properties at Pioneer Bazar, Bolarum were rightly included in the estate under section 10 of the Estate Duty Act.

Analysis: The concurrent findings showed that the assets were gifted by the deceased, but the income from the house properties and the interest from the notes continued to be received and utilised by the deceased, and the donee was not shown to have enjoyed the property to the exclusion of the donor. On those facts, the statutory condition of complete exclusion was not satisfied.

Conclusion: The N.G.P. notes and the house properties at Pioneer Bazar, Bolarum were rightly included in the estate and the finding was against the assessee.

Final Conclusion: The reference was answered partly in favour of the assessee and partly against the assessee, with the inclusion of the cash amount and the Bolarum properties upheld, while the inclusion of house No. 85, Nallagunta was disallowed.

Ratio Decidendi: Under section 46(2), a payment made by the deceased within two years before death in discharge of a debt falling within section 46(1) is deemed to pass on death, and under section 10 a gifted property is excluded from the estate only if the donee assumed and retained bona fide possession and enjoyment to the entire exclusion of the donor.

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