K KRISHNAVENI Vs. CONTROLLER OF ESTATE DUTY

JUDGEMENT

(1.) AT the instance of the accountable person, the Tribunal referred the following two questions for the opinion of this court under section 64(1) of the Estate Duty Act, 1953, hereinafter referred to as the Act "(1) Whether, on the facts and circumstances of the case, the honourable Tribunal was right in determining the principal value of the house at 25, Damodaran Street, Madras, after deducting of the liability on the life insurance policies and thus allowing exemption on Rs. 29, 137 only instead of Rs. 70, 000 ?(2) Whether, on the facts and circumstances of the case, the honourable Tribunal was right in not allowing the liability of Rs. 40, 863 which is secured on life insurance policies and house property and treating the entire liability as secured on the house?"

(2.) THE deceased, Shri Samraj, died on August 25, 1979. He owned a property at Damodaran Street, Madras-10, which was used for residential purpose. THE value of this property was adopted at Rs. 70, 000 and there was no dispute about that. Since this was a residential house the accountable persons claimed exemption from levy of estate duty under section 33(1)(n) of the Act. This property was offered as collateral security to the Life Insurance Corporation of India where the deceased also took life insurance policies.

(3.) THEREFORE, the accountable person claimed exemption under section 33(1)(n) of the Act. Under the abovesaid provision, if the value of the dwelling house is less than Rs. 1 lakh, it would be deemed to be an exempted asset in the matter of levying estate duty. THEREFORE, the claim made by the accountable person is perfectly justified. The accountable person is entitled to claim the dwelling house as an exempted asset under section 33(1)(n) of the ActThe deceased also took four insurance policies and on those policies the assessee also took a loan from the Life Insurance Corporation of India to an extent of Rs. 38, 668. The deceased died on August 25, 1979. On the death of the deceased, the Life Insurance Corporation is liable to pay the insurance amount to the accountable person. The total insurance amount payable by the Life Insurance Corporation comes to Rs. 1, 87, 606 out of which the loan taken by the deceased is to be deducted. If Rs. 38, 668 is deducted out of Rs. 1, 87, 606 the balance would come to Rs. 1, 48, 938 which is the insurance amount passing on the death of the deceasedInstead of that, the Tribunal considered that the security as a matter of fact would depress the value of the property. As soon as the death occurred, the accountable person is entitled to the insurance amount and the collateral security offered for the loan would also get discharged. THEREFORE, on the death of the deceased, the property would be without any encumbrance. In such a case, the value of the property would not get diminished on account of the security which was offered earlier. In these circumstances, the Department cannot deduct Rs. 38, 668 out of Rs. 70, 000 since this amount of Rs. 38, 668 was already deducted out of the insurance amount payable by the Life Insurance Corporation of India to the legal heirsFor the purpose of the proposition that if a property is offered as security, the value of the said property would get diminished to the extent of the security offered, learned standing counsel relied on a decision in CWT v. Smt. Shirinbanoo 1976 (102) ITR 735 (Guj) wherein, while considering section 7, Schedule, Part I, paragraph A, clause (c) Part B, rule 2, as it stood before amendment by the Finance Act, 1970, of the Wealth-tax Act and the Wealth-tax Rules, the Gujarat High Court held that the Tribunal was perfectly justified in reaching the conclusion that while estimating the value of an encumbered asset in the particular assessment year under reference the assessee was entitled to claim deduction of the amount of the mortgage debt in evaluating the encumbered assetAnother decision relied on by learned standing counsel was that in CIT v. K. S. Vaidyanathan 1985 (153) ITR 11, 1985 (47) CTR 101, 1985 (23) TAXMAN 169, 1985 (47) CTR(Mad) 101 (Mad) [FB].