1987 (1) TMI 11 - HC - Income Tax

Summary

Issues:
1. Liability abatement under section 46(1)(b) of the Estate Duty Act, 1953
2. Proportionate abatement of liability based on property value gifted

Analysis:

Issue 1: Liability abatement under section 46(1)(b) of the Estate Duty Act, 1953
The case involved the liability of a deceased individual to a firm, M/s. New Guna Shenoy Co., and whether it is liable to be abated under section 46(1)(b) of the Estate Duty Act, 1953. The deceased had gifted properties to family members who later formed a partnership firm, including the value of the gifted properties. The Tribunal held that the computation of the estate value should be made with reference to section 46(1)(b) due to the recipients becoming partners in the new firm and granting a loan to the deceased. The Tribunal determined the nexus between the loan granted and the proportionate value of assets brought in by the recipients, leading to a direction for proportionate abatement of the liability based on the net value of the firm's resources. The judgment cited the Madras High Court decision and the principle from Mc Dougal's Trustees case to support the Tribunal's decision.

Issue 2: Proportionate abatement of liability based on property value gifted
The second question referred to whether only a portion of the liability could be subjected to abatement based on the ratio of the value of the property gifted to the net value of the firm's resources. The Tribunal directed that only the proportionate portion of the liability, as determined by the ratio of the property value gifted to the net value of the firm's resources, could be subjected to abatement. This direction was deemed warranted by the proviso to section 46(1) of the Estate Duty Act, as supported by legal precedents.

In conclusion, the High Court answered question No. (1) in favor of the Revenue and against the assessee, while answering question No. (2) in favor of the assessee and against the Revenue. The parties were directed to bear their respective costs in the tax referred cases, with a copy of the judgment to be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.