1996 (7) TMI 92 - HC - Income Tax

Summary

Issues:
1. Determination of principal value of a house for estate duty exemption.
2. Allowance of liability on life insurance policies as deduction.

Analysis:
Issue 1: The deceased owned a residential property in Madras valued at Rs. 70,000. The accountable person sought exemption from estate duty under section 33(1)(n) of the Estate Duty Act. The Appellate Controller allowed full exemption of Rs. 70,000, rejecting the deduction of liability. However, the Tribunal held that the property was encumbered due to the mortgage and the value should be reduced. The accountable person argued that the property would be free from encumbrance after the deceased's death, entitling them to full exemption. The court agreed, stating that the property's value should not be reduced due to the security offered for a loan.

Issue 2: The deceased had taken a loan of Rs. 38,668 against life insurance policies. The Department contended that this amount should be deducted from the property's value. The court disagreed, stating that the loan amount was already deducted from the insurance amount payable to the legal heirs. The court referenced decisions from the Wealth-tax Act to support its stance that the property's value should not be diminished by the loan amount.

The court rephrased the questions posed by the Tribunal to focus on whether the deduction of the liability on life insurance policies should be from the property value or the insurance amount received. Ultimately, the court ruled in favor of the accountable person, stating that the deduction should not be from the property value. The court also noted that certain expenses like Housing Board amount and property tax were deductible. The judgment favored the accountable person, rejecting the Department's argument for deduction and upholding the exemption under the Estate Duty Act.