P BALAMMAL Vs. CONTROLLER OF ESTATE DUTY

JUDGEMENT

(1.) THIS is a reference under the Estate Duty Act, 1953. One K.Periaswamy died on 28.8.1975. At the time of his death, he was a partner in a firm styled M/s Amarjothi Fabrics. Subsequent to the date of death of K.Periaswamy, the other partners of the firm disclosed under the Voluntary Disclosure of Income and Wealth Act, 1976 the stock valued at Rs.2,97,000/ - and also paid tax on the said amount. The stocks so declared represented the concealed income of the firm and the proportionate tax liability of K.Periaswamy was deducted from his share of the income disclosed under the Voluntary Disclosure Scheme and necessary entries were also made in the account books of the firm. The accountable person in the estate duty proceedings of K.Periaswamy claimed that the proportionate amount of tax paid by the firm under the Voluntary Disclosure Scheme in relation to K.Periaswamy's share should also be taken into account in determining the principal value of the estate of the deceased. The Assistant Controller rejected the claim of the accountable person on the ground that the tax liability arose after the death of the deceased K.Periaswamy and there was no subsisting liability or charge at the time of his death and hence, the claim for deduction of the tax paid could not be allowed. On appeal, the Appellate Controller of Estate Duty confirmed the order of the Assistant Controller. On further appeal by the accountable person, the Income Tax Appellate Tribunal held that there was no subsisting liability or charge at the time of the death of K.Periaswamy with reference to the liability to tax paid under the Voluntary Disclosure Scheme and the claim for deduction of the liability was inadmissible. The accountable person, aggrieved by the order of the Tribunal, sought for a reference and the Appellate Tribunal has stated a case and referred the following question of law: -

(2.) MR . P.P.S.Janarthana Raja, learned counsel for the applicant submitted that the liability towards tax was a pre -subsisting liability of the firm on the date of death of K.Periaswamy and what the firm has done was to declare the undisclosed income which was in the form of stocks and since the stocks were taken into account, the tax liability in proportion to the stock should also be taken into account.

(3.) WE have carefully considered the submissions of the learned counsel for the parties. The chargeable event in the Estate Duty Act is the death of a person and the charge is on the properties passing on the death of the person. Part VI of the Estate Duty Act deals with the deductions in determining the principal value of the estate and Section 44 of the said Act deals with the deduction of 'debts and encumbrances'. There is no dispute that if the debt was a subsisting debt on the date of death of the deceased, it is deductible. The decisions relied upon by the learned senior standing counsel for Revenue, reported in "P.LEELAVATHAMMA v. CONROLLER OF ESTATE DUTY" (188 I.T.R. 803) and "NAWAB MIR BARKAT ALI KHAN BAHADUR v. CONTROLLER OF ESTATE DUTY" (222 I.T.R.612) dealt with the deductibility of estate duty paid in determining the principal value of the estate either under Section 36 or 44 of the Act. The Supreme Court held that the amount of estate duty paid is not liable to be taken into account in determining the principal value of the estate either under Section 36 of the Act, nor deductible under Section 44 of the Act as the estate duty liability under the Estate Duty Act arose subsequent to the death and therefore, not liable to be taken into account. A similar view was taken by the Punjab and Haryana High Court in "KASHMIRI LAL TALWAR .VS. CONTROLLER OF ESTATE DUTY" ( 223 I.T.R.747).