1990 (7) TMI 80 - HC - Income Tax

Summary

Issues Involved:
1. Admissibility of an additional ground of appeal.
2. Deduction of estate duty liability in the computation of the principal value of the estate.
3. Interpretation of Section 50B of the Estate Duty Act, 1953.
4. Tax liability with reference to annuity deposit.

Summary:

1. Admissibility of an Additional Ground of Appeal:
The Tribunal admitted an additional ground of appeal raised by the accountable person for the first time, claiming deduction on account of estate duty liability from the principal value of the estate. The Tribunal justified this by stating that the ground raised a pure question of law requiring no further material. The Supreme Court decision in Addl. CIT v. Gurjargravures P. Ltd. [1978] 111 ITR 1 was cited by the Revenue, but the Tribunal's reliance on previous High Court decisions was deemed justified. The first question in Estate Duty References Nos. 24 and 34 of 1976 was answered in the affirmative and in favor of the accountable person.

2. Deduction of Estate Duty Liability:
The main question was whether the estate duty liability should be deducted in the computation of the principal value of the estate of the deceased. The court referred to sections 36 and 44 of the Estate Duty Act. Section 36 pertains to the estimation of the principal value of any property, while section 44 deals with deductions for debts and liabilities. The court concluded that estate duty liability cannot be deducted under section 44 as it is not a debt or encumbrance incurred by the deceased. The court also referred to section 74, which creates a charge on the property for estate duty payable, but this charge is created only after the estate duty is determined and a demand notice is issued. The main question in all four references was answered in the negative and in favor of the Department.

3. Interpretation of Section 50B of the Estate Duty Act, 1953:
The issue was how to determine the tax paid on capital gains for the purpose of claiming deduction from the estate duty payable u/s 50B. The accountable person computed the tax by determining the tax payable on the total income excluding capital gains and then reducing it from the total tax payable. The court found this method reasonable and affirmed the Tribunal's view. The third question in Estate Duty Reference No. 34 of 1976 was answered in the affirmative and in favor of the accountable person.

4. Tax Liability with Reference to Annuity Deposit:
Question No. 2 in Estate Duty Reference No. 30 of 1976 pertained to whether the tax liability with reference to annuity deposit was a burden and/or charge on such annuity deposit. The court held that the Tribunal should not have referred this question to the court u/s 64(1) of the Estate Duty Act, 1953, as it was not connected with the main question of law referred by the Tribunal. The question was returned unanswered.

Conclusion:
The judgment addressed the admissibility of additional grounds of appeal, the non-deductibility of estate duty liability from the principal value of the estate, the interpretation of tax paid on capital gains u/s 50B, and the irrelevance of tax liability with reference to annuity deposit in the context of the main questions. The court ruled in favor of the Department on the main issues and in favor of the accountable person on the interpretation of Section 50B.