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TMI Blog1984 (6) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... devolved on the heirs of the late Nawab Rais Yar Jung. The properties included large plot of land in Yousufguda, which was sold on July 27, 1964, for sum of Rs. 3,58,190. The assessee held a 1/8th share in the property and the capital gain corresponding to the assessee's share was determined at Rs. 15,974. Before the ITO, the assessee claimed that the amount of estate duty payable in respect of the property on the death of Nawab Rais Yar Jung should be allowed as a deduction and if such deduction is allowed, there would be no capital gain at all for purposes of computation. The ITO rejected the contention on the-ground that estate duty payable is not a valid deduction under s. 48 of the I.T. Act. The assessee carried the matter in appeal t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale of the property, the estate duty liability should be deducted. The CIT asked for a reference under s. 256(1) of the I.T. Act, as a question of law arose out of the Tribunal's order. That is how the present reference is before us. Learned standing counsel for the Income-tax Department, Sri M. Suryanarayana Murthy, urged that the liability to pay estate duty is a personal liability and is not attached to the property in question. The mere fact that a first charge was created against the property in favour of the Revenue under s. 74(1) of the E.D. Act, learned standing counsel urged, does not make the estate duty either part of " cost of acquisition " or " cost of improvements " so as to qualify for deduction under s. 48 of the I.T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a decision of the Division Bench of the Madras High Court in CIT v. V. Indira [1979] 119 ITR 837 (Mad), on which strong reliance was placed by the learned standing counsel. The Full Bench decision of the Madras High Court in S. Valliammai v. CIT [1981] 127 ITR 713, is directly on the point. In that case also, the question was whether the estate duty payable in respect of property which was inherited by an assessee could be allowed as a deduction while computing the capital gain. The Madras High Court held that such a deduction is not permitted by the provisions contained in s. 48, 49 or 55 of the Act and, therefore, the estate duty payable could not be considered to be a deduction in computing the capital gain. Learned counsel for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement " falling within the definition contained in s. 55 of the Act. The liability for payment of estate duty is personal liability of the accountable person and not a liability of the estate itself. Though estate duty is generally burdened on the property inheritled, it cannot be considered to be an encumbrance against the property and cannot, therefore, be related to the property as such. This view finds support in the decision of this court in CED v. Estate of late Om Prakash Bajaj [1977] 110 ITR 263, in the decision of the Karnataka High Court in V. Pramila v. CED [1975] 99 ITR 221, in the decision of the Gujarat High Court in Shantaben Narrottamdas v. CED [1978] 111 ITR 365 and finally in the decision of the Madras High Court in R. M. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in computing the capital gain. All that the Supreme Court held in Dhun Dadabhoy Kapadia v. CIT [1967] 63 ITR 651, was that normal commercial principles should apply in the determination of capital gain. It has not been suggested that the, application of the above principle would automatically lead to every item of expenditure incurred by an assessee to quality for deduction in computation the capital gain. The nature of the expenditure incurred and its proximate connection with the asset transferred would have a necessary bearing on the determination of the question. The facts in the decision of the Supreme Court are distinguishable. The Tribunal itself came to the conclusion, rightly in our opinion, that the principles set out by the Su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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