ASHA DEVI SABOO Vs. CONTROLLER OF ESTATE DUTY

JUDGEMENT

(1.) In this reference under Section 64(1) of the Estate Duty Act, 1953, the following question of law has been referred to this court : "Whether, on the facts and in the circumstances of the case, estate duty liability is deductible from the value of the estate ?" Shortly stated, the facts are that Shri N. K. Saboo died on May 9, 1971. The accountable person filed his estate duty return showing the total estate at Rs. 5,15,678. During the assessment proceedings, the accountable person had claimed deduction of estate duty liability from the total estate for determining the estate duty payable. The Assistant Controller of Estate Duty disallowed the claim. On appeal, the Appellate Controller of Estate Duty allowed the claim of Rs. 90,186.50. However, the Appellate Tribunal reversed the order of the Appellate Controller of Estate Duty and disallowed the deduction of estate duty liability from the total estate. Section 44 of the Act provides that, in determining the value of an estate for the purpose of estate duty, certain debts and incumbrances shall be allowed as deduction. The question, therefore, is whether estate duty payable under the Estate Duty Act is a debt or an incumbrance. On a combined reading of Section 44 and Section 74(1), it would be evident that the estate duty is neither a debt nor an incumbrance within the meaning of Section 44. Deductions under Section 44 are allowable in determining the value of an estate for the purposes of estate duty. After ascertaining the principal value of the estate and after allowing deductions, the net principal value of the estate is determined and the amount payable as estate duty is quantified. The question of deduction of estate duty payable from the principal value of the estate cannot arise as deduction shall be allowed before determining the net principal value and quantification of the estate duty. Certain deductions, however, are allowable from the estate duty payable, e.g., the court fees for obtaining probate or letters of administration or succession certificate in respect of any property on which estate duty is leviable. Similarly if gift-tax is paid under the Gift-tax Act in respect of gift of any property where included in the estate of the donor as property passing on the death, the duty payable shall be reduced by the amount equal to the amount of gift-tax paid in respect of any such property. Similarly, relief is also given from estate duty where taxes have been paid on capital gains. What the accountable person contends is that the estate duty itself is deductible from the principal value of the estate. Section 74(1) of the Estate Duty Act provides that estate duty shall be the first charge on the immovable property passing on the death of the deceased. It also provides that the first charge must rank in priority after the debts and encumbrances allowable under Part VI of the Act. If it ranks in priority after the debts and incumbrances allowable under Section 44, then, it cannot form part of those debts and incumbrances after which it ranks in priority. We may also add that, in the United Kingdom, since the imposition of estate duty in 1894, it was never contended that duty is liable to be deducted in determining the principal value of the estate of a deceased person. All the reported judgments of our High Courts have unanimously taken the view that estate duty is neither a debt nor an incumbrance and is not also an encumbrance either within the meaning of Section 74(1) of the Act or within the broader meaning of the word "incumbrance" referred to in Section 44 or Section 74(1). We are in respectful agreement with the view expressed in V. Pramila v. CED [1975] 99 ITR 221 (Kar); CED v. Estate of Late Omprakash Bajaj ; Smt. Shantaben Narottamdas v. CED [1978] 111 ITR 365 (Guj) ; Govind Prasad v. CED ; Rm. Arunachalam v. CED [1981] 132 ITR 871 (Mad) and Bhawani Shankar Bagaria v. Asst. CED [1982] 137 ITR 801 (Gauhati).

(2.) For the foregoing reasons, we answer the question in this reference in the negative and in favour of the Revenue.

(3.) Mr. Bajoria appearing for the accountable person has asked for leave to appeal to the Supreme Court. Since there is no divergence of judicial opinion on this question and all the High Courts where this question came up for consideration unfortunately rejected the plea of the accountable person, we are not inclined to grant such prayer. But Mr. Bajoria had drawn our attention to the decision of the Andhra Pradesh High Court in the case of Nawab Mir Barkat Ali Khan Bahadur v. CED [1986] 158 ITR 259, where the Andhra Pradesh High Court, after holding that the estate duty payable cannot be deducted in the computation of the principal value of the estate, granted leave to appeal to the Supreme Court. In the above-noted case, the Andhra Pradesh High Court observed as follows :