TMI Blog1981 (9) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... is the accountable person. The entire property I belonged to the HUF and the Asst. Controller computed the total value of the property and took 1/3rd as the value representing the cesser of interest under s. 7. The assessee had claimed that the estate duty payable on the assessment was also an amount which should be deducted in order to raise the principal value of the estate. This claim was negatived by the Appellate Controller. The assessee being aggrieved by the order of the Appellate Controller preferred an appeal before the Tribunal. On a consideration of the claim of the assessee, the Tribunal rejected the claim of the assessee. The assessee then filed an application under s. 64(1) of the Act for making reference to this court for our consideration on the aforesaid question. The first ground taken up before the Tribunal was that the estate duty liability determined in the assessment to estate duty was itself deductible item and should be subtracted from the gross value of the estate. This claim was made before the Asst. Controller also. It was argued by him that the liability to estate duty is only in respect of the property in its entirety and this liability is embodied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted that the decision of the Mysore High Court is to be followed, being the decision of Division Bench, whereas the Madras High Court decision is that of single judge. It was argued on behalf of the department that the claim for deduction is not at all tenable. It was pointed out that estate duty is not a duty on any particular person. It is a duty on the property passing on the death, irrespective of the person, who will succeed to the properties. It was submitted that under the E.D. Act there cannot be an actual property passing but there will be an estate in respect of the property which changes hands between two persons, and that being determined by the death of the deceased. It was further submitted that s. 44 of the E.D. Act allows for certain liabilities but these liabilities are clearly those of the deceased himself. It is not possible to hold that estate duty is liability of the deceased. At this stage we may cite the charging section, s. 5 of the Act which runs as follows " 5. (1) In the case of every person dying after the commencement of this Act, there shall, save as hereinafter expressly provided, be levied and paid upon the principal value ascertained a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e holder of the encumbrance on the other hand in regard to the payment of the amount due under the encumbrance. There is no warrant for the inference that the deductions of the items mentioned in annexure 'B' are only further deductions to be made after meeting the estate duty or any other liability which may not come within the four corners of the items described in annexure 'B'. In the ultimate analysis, the Tribunal rejected the claim of the accountable person. Mr. J. P. Bhattacharjee, the learned counsel appearing on behalf of the accountable person, has submitted that as the amount of estate duty payable in respect of the estate left by the deceased was a charge on the estate, it had to be taken into account while determining the market value of the estate. It has been further claimed that in any case the estate duty leviable on the estate of the deceased being a charge on the estate left by the deceased was an encumbrance which had to be allowed as a deduction under s. 44 of the Act while determining the taxable value of the estate for the purposes of estate duty. In order to appreciate the contention raised on behalf of the accountable person, it is necessary to notice s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count the liability on the property, it should necessarily follow that the estate duty payable in respect of the property must necessarily be deducted from the market value at death. We have already noticed the observation of the Tribunal that the Mysore High Court made the aforesaid observation in connection with the amount of court fees payable on an application for probate under the Mysore State Court Fees Act and the decision does not give a correct clue for determining the principal value of the property passing on the death of the deceased, as required by the Act. Section 5(1) of the Act, which is the charging section, lays down that there shall be levied and paid upon the principal value of the property which passes on the death of a person, a duty called estate duty. According to s. 6 of the Act, the property which the deceased was, at the time of his death, competent to dispose of is considered to be the property which passes on his death. It is seen that the Act envisages levy and payment of estate duty on the principal value of the proprietary interest which the deceased had in the estate at the time of his death. Such proprietary interest has to be estimated under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different matter that while the property passes on the death of the deceased, it, because of the provisions contained in s. 74 of the E.D. Act, becomes burdened with a charge. That charge is something which attaches to the property which happens to vest in the heirs and legal representatives but does not affect the nature of the property that actually passes. We are clearly of opinion that while evaluating the principal value of the property which passes on the death of a deceased under the E.D. Act only such obligation or burden that came to be attached to the property while the deceased was alive can be taken into account. The obligation like the charge created under s. 74 of the Act which gets attached to the property of the deceased, not so long as he was alive, but as a consequence of death, is not to be taken into account in determining its principal value. The learned counsel for the accountable person next contended that even if the amount of estate duty charged by s. 74 on the estate of the deceased is not to be taken into consideration while evaluating its principal value as provided in s. 36 of the Act, none the less while determining the value of the estate for pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under s. 44 of the Act. In our considered view, the accountable person cannot claim deduction of the estate duty payable on the estate left by the deceased under s. 44 of the Act. If the Legislature would have intended that the estate duty is deductible for the purpose of evaluation of the taxable value of the estate definitely the Legislature would have made the provision as it has done in s. 44 for the deduction of the value. The claim of the accountable person is for the deduction of the estate duty payable on the property passing on the death of the deceased under s. 44 of the Act. That is the only section which provides for deductions. The principal value of the property passing on death has to be ascertained in the manner provided by the Act. If estate duty payable on the estate of a deceased does not fall under s. 44 of the Act, the accountable person is not entitled to claim deduction for the same. That the estate duty payable on the estate of a deceased does not come under s. 44 of the Act is clear from sub-s. (1) of s. 74 of the Act. The said sub-section has been set out in the earlier part of this judgment. It provides that, after the debts and encumbrances allowab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in Pt. VI. The importance of the first circumstance, namely, that the charge in respect of the estate duty will operate only in respect of the immovable property cannot be overemphasised. If the argument of the learned counsel for the assessee were right, the entire estate including the movable property passing on the death would, at the very moment of death and the identical moment of passing, be burdened by incumbrance arising in the context of the exigibility to pay the estate duty. Under s. 74(1), however, the charge will operate in respect of only the immovable property and not the movable property. This would introduce a fatal contradiction in the argument, for, if the estate of the deceased were to contain only movable property, s. 74(1) will not be attracted and estate duty payable thereon cannot be deducted from the value of the estate passing on the death of the deceased. The second point of significance is that s. 74(1) itself draws a distinction between the liability to pay estate duty on the one hand and debts and incumbrances to be excluded from the estate on the other. It postulates that the liability to pay the estate duty is not otherwise deductible fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dictionary, sixth edition, at page 173, as meaning 'a charge or mortgage upon real or personal estate'. The Act itself defines the expression 'incumbrance' as 'including mortgages and terminable charges', as per section 2(10). In Wharton's Law Lexicon, 'incumbrance' has been defined as meaning 'a claim, lien or liability, attached to property'. Now, the liability simpliciter to pay the duty not giving rise to any charge even if created by a statute cannot be said to be an incumbrance. Nor can it be said to have been created by the deceased. A reading of clauses (a) and (b) of section 44 reveals that the legislature had in mind the incumbrance created by the deceased. If this was not so, clause (a) would not have referred to an incumbrance created by disposition by the deceased whilst making a provision for exclusion of certain types of incumbrances from the purview of the first paragraph of section 44. It is, however, argued that the expression 'incumbrance' must be read and construed in the sense of a burden on the estate passing on the death of the deceased person which burden arises instantaneously with the death of the deceased by virtue of its exigibility to pay tax under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the point of time when passing of the estate takes place. Passing of property must follow the death of necessity, and, therefore, death and passing cannot be simultaneous. We "are fortified in the view that we are taking by Smith (decd.), In re: Executor Trustee and Agency Co. of South Australia Ltd. v. Inland Revenue Commissioners [1951] Ch. 360; 3 EDC 188, 193, 194 (Ch D). Danckwerts J., has dealt with this aspect as under : `It seems fairly clear that it is not until the life tenant is dead that there can be any passing or any liability to duty. It is not the life but the death of the life tenant which attracts the duty; and so long as the life tenant is still alive, even though he or she be in extremis, no claim for duty can possibly be made. It is only when the person in question has expired, after the last breath has left the body, that the property passes and the liability to estate duty arises. Although, from one point of view, one may regard those events as occurring simultaneously, it seems to me that in fact from a common sense point of view one must treat them as being in some sort of sequence, and, on any view, the ownership of the life tenant cannot be the test, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was rejected by the court. There is, therefore, no escape from the conclusion that a passing of the property as well as the exigibility to estate duty both arise at a point of time, however so small, next to the point of time at which death of the deceased takes place. In this view of the matter, the argument advanced on behalf of the assessee cannot survive for one moment. Therefore, we find that so far as the question referred to is concerned, the field is completely covered by the decision of Constance Lubeck [1970] 78 ITR 199 (Mad), Pramila [1975] 99 ITR 221 (Kar), CED v. Estate Of Late Omprakash Bajaj [1977] 110 ITR 263 (AP), Blanche Nathalia [1964] 53 ITR (ED) 64 (Mys), Shantaben Narottamdas [1978] 111 ITR 365 (Guj) and CED v. Smt. P. Leelavathamma [1978]112 ITR 739 (AP). There is, therefore, no escape from the conclusion, for the reasons stated above, that a passing of the property as well as the exigibility to estate duty both arise at a point of time, however so small, next to the point of time at which death of the deceased had taken place. In this view of the matter, the argument advanced on behalf of the accountable person cannot survive. In the conclusion, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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