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Issues:
- Whether estate duty payable by the accountable person is deductible in computing the net principal value of the deceased's estate? Analysis: The case involved a reference made by the Income-tax Appellate Tribunal seeking the High Court's opinion on the deductibility of estate duty in the calculation of the deceased's estate value. The deceased left behind an estate, and the legal heir filed the estate duty account, claiming deduction for the estate duty liability as a charge on the estate. However, the Assistant Controller of Estate Duty denied the deduction, stating that the estate duty was not a debt or encumbrance under section 44 of the Act. The Appellate Controller and the Tribunal upheld this decision. Section 44 of the Act allows deductions for funeral expenses, debts, and encumbrances incurred or created by the deceased, provided they were bona fide. The liability for estate duty arises after the owner's death and is created by the statute, not by the deceased. While section 74 establishes the estate duty as a first charge on the property, it does not automatically classify it as a debt or encumbrance under section 44. The High Court analyzed previous judgments from different High Courts, including Karnataka, Andhra Pradesh, Gujarat, Gauhati, and Madras, all of which supported the view that estate duty is not deductible under section 44. The court emphasized that the estate duty liability, although a first charge under section 74, does not qualify as a debt or encumbrance under section 44, as it is a personal liability of the accountable person and not of the estate itself. Ultimately, the High Court ruled against the accountable person, stating that the estate duty liability does not fall within the ambit of section 44 for deductions. The court's decision was based on the nature of the estate duty liability and in line with the interpretations of other High Courts, concluding that the estate duty is not considered a debt or encumbrance under section 44 of the Act.
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