Research › Browse › Judgment

Karnataka High Court · body

1974 DIGILAW 19 (KAR)

V. PRAMILA v. CONTROLLER OF ESTATE DUTY

1974-01-30

GOVINDA BHAT, SRINIVASA IYENGAR

body1974
GOVINDA BHAT, J. ( 1 ) THE Appellate Tribunal, Bangalore Bench, under S. 64 (1), Estate Duty act, 1953 (hereinafter called the Act), has stated a case and referred the following question for the opinion of this Court : " Whether on the. facts and in the circumstances of the case the estate duty payable by the accountable persoa is deductible in computing the net principal value of the estate of the deceased? " ( 2 ) ONE Varadaraja Setty died on 6-5-1965. The Accountable Person filed return before; the Assistant Controller of Estate Duty in which he. claimed that a sum of Rs. 2,59,757 should be deducted from the principal value of the estate. The said sum of Rs. 2,59,757 included a sum of Rs. 2,500 being the estimate of the estate duty payable by the Accountable Person. The assistant Controller disallowed the claim for deduction of the amount of estate duty. The Appellate Controller of Estate Duty as also the Appellate tribunal affirmed that part of the order of the Assistant Controller on tha ground that estate duty payable by the Accountable Person is not a debt or encumbrance corning within the scope of S. 44 of the Act. The short question that arises for decision is whether in determining the value of an estate for the purpose of estate duty allowance or deduction shall be made for estate duty under S. 44 of the Act. ( 3 ) SEC. 5 (1) of the Act is the charging section which charges to duty all property which passes on the death of a person, the duty being determined on the principal value of the property so passing ascertained in the manner provided by the Act. S. 36 (1) of the Act provides that the principal value of any property shall be estimated to be the price which, in the opinion of the Controller, it would fetch, if sold in open market at the time of his death. Ss. 44 to 50b which come under Part VI provides for deductions in determining the value of an estate for the purpose of estate duty. S. 44 which is the material section reads thus : sec. 74 (1) of the Act provides that the estate duty payable in respect of property passing on the death of the deceased shall be a first charge, on property liable thereto. S. 44 which is the material section reads thus : sec. 74 (1) of the Act provides that the estate duty payable in respect of property passing on the death of the deceased shall be a first charge, on property liable thereto. The said sub-section reads : ( 4 ) THE Act is modelled after its counterpart in the United Kingdom and not infrequently do we refer to the English Law and Practice on most of the issues arising under the Act. S. 5 (1) of the Act corresponds to S. 1 of the u. K. Finance Act, 1894 (57 and 58 Vict. Ch. 30 ). S. 44 of the Act corresponds to S. 7 (1) of the U. K. Finance Act, 1894. The languages of S. 44 the Act and of Sec. 7 (1) of the U. K. Finance Act, 1894 are identical. Although estate duty has been in force in the United Kingdom since 1894 it was never contended under the said Act that estate duty is liable to be deducted in determining the principal value of the estate of a deceased person. It was conceded by Sri K. Srinivasan, learned Counsel for the accountable Person that according to the practice prevailing in the United kingdom, estate duty payable on the estate is not one of the items fox which deduction is given as a debt or encumbrance under S. 7 (1) of the Finance act, 1894. The contention of the learned Counsel was that estate duty is a capital levy similar to wealth-tax and that the difference between wealth-tax and estate duty consists in the fect that while wealth-tax is an annual tax levied on the net wealth of a person on the valuation date, estate duty is a tax levied on the net wealth of a, deceased at the time of his death; further that in the case of wealth-tax the Supreme Court in Setu parvati Bai v. Commr. of Wealth-tax (S. C.) , (1968) 69 ITR. 864. has held that wealth- tax liability of an assesseee on the valuation dati is a, debt owed within the meaning of S. 2 (m) of the Wealth-tax Act, 1957 and therefore, should be deducted from the estimated value of the assets as on the valuation date and the ratio of that decision has to be applied while determining the principal value of the estate of the deceased. He argued that S. 74 (1) of the Act creates a statutory charge on the property passing on death, that the liability to estate duty gets crystallised on the death and therefore, it is an encumbrance on the estate of the deceased for which allowance has to be made under Section 44 of the Act. ( 5 ) SRI Rajasekhara Murthy, learned Counsel for the Department submitted that the ratio in Setu Parvati Bai's case (1) cannot be applied to cases arising under the Estate Duty Act since the provisions of the two acts are not in pari materiat He further submitted that the debts and encumbrances for which allowance has to be made under S. 44 of the Act are debts of the deceased existing before the death and similarly encumbrances of the estate are those existing at the time of death. The Accountable Person claims 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 property passing on death has to be ascertained in the manner provided by the Act. If estate duty payable on the esta,te 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 estate duty payable on the estate of a deceased does not come under S. 44 of the Act is clear from sub-sec. (1) of s. 74 of the Act. The said sub-section has been set qut in the earlier part of this judgment. It provide that after the debts and encumbrances allowable under Part VI of the Act the estate duty shall be a first charge on the immovable property passing on the death of the deccased. The, intention of the Parliament that estate duty is neither a, debt nor an encumbrance allowable under Part VI of the Act is clear from sub-sec. (1) of s. 74 of the Act. The debts and encumbrances allowable under Part VI of the Act take priority over the state duty payable. The, intention of the Parliament that estate duty is neither a, debt nor an encumbrance allowable under Part VI of the Act is clear from sub-sec. (1) of s. 74 of the Act. The debts and encumbrances allowable under Part VI of the Act take priority over the state duty payable. If estate duty is either a debt or encumbrance allowable under S. 44 which occurs under Part; VI of the Act, S. 74 (l) could not have stated that the debts and encumbrances allowable under Part VI shall rank above estate duty for which charge is created. Therefore it is clear that estate duty payable on the estate of a, deceased person is neither a debt nor an encumbrance liable to be deducted under Section 44 of the Act. ( 6 ) IN that view, the contention urged by the learned Cqunsel for the accountable Person has to be, rejected and the question referred has to, be answered in the negative against the Accountable Person. We answer the question accordingly. The Accountable Person will pay the costs of the Department. (Advocate's fee Rs. 250 ). --- *** --- .