1975 (9) TMI 8 - HC - Income Tax

Issues Involved:
1. Disallowance of debts amounting to Rs. 22,820 under Section 46(1) of the Estate Duty Act.
2. Disallowance of debts amounting to Rs. 20,000 under Section 46(1) of the Estate Duty Act.
3. Inclusion of sums of Rs. 23,500 and Rs. 59,112 by invoking Section 46(2) of the Estate Duty Act.

Detailed Analysis:

1. Disallowance of Debts Amounting to Rs. 22,820 under Section 46(1) of the Estate Duty Act:
The deceased had gifted a house property to his two sons, who were minors at the time. The rent from the property was deposited in the deceased's proprietary concern, amounting to Rs. 22,820 at the time of his death. The accountable persons claimed this amount as a debt deductible under Section 44(a) of the Estate Duty Act. However, the Assistant Controller disallowed this claim under Section 46(1)(b), and the Appellate Controller confirmed this disallowance. The Tribunal applied Section 46(1)(a), considering the loan as property derived from the deceased. The court held that Section 46(1)(a) applies because the rent collected from the property gifted by the deceased to his sons is considered "property derived from the deceased." The court referenced Ratnakumari Kumbhat v. CED, where interest payable on a loan taken from gifted money was also considered property derived from the deceased. Therefore, the disallowance of Rs. 22,820 was valid under Section 46(1)(a).

2. Disallowance of Debts Amounting to Rs. 20,000 under Section 46(1) of the Estate Duty Act:
The deceased had gifted Rs. 10,000 each to his two daughters, which were initially in the form of fixed deposits but later brought back as deposits in the deceased's proprietary concern. The Assistant Controller and Appellate Controller included this amount in the estate assessment under Section 46(1). The court held that the disallowance was proper under Section 46(1)(a) because the sums were the very gifts made by the deceased, and the conversion of the property did not affect the applicability of Section 46. The court referenced Kandaswami Pillai v. CED, where it was held that Section 46 applies to converted property as well.

3. Inclusion of Sums of Rs. 23,500 and Rs. 59,112 by Invoking Section 46(2) of the Estate Duty Act:
The deceased had gifted another property to his son, who deposited the income from this property in the deceased's proprietary concern. Part of these debts, amounting to Rs. 59,112, was discharged by the deceased within two years preceding his death. Additionally, Rs. 23,500 was withdrawn by the two sons from the rent collected from the gifted property. The Assistant Controller added these amounts back under Section 46(2), confirmed by the Appellate Controller and Tribunal. The court held that Section 46(2) applies because it aims to counter avoidance of estate duty by discharging loans or debts within two years of death. Since the income from the property is considered property derived from the deceased under Section 46(1)(a), Section 46(2) is also attracted. Therefore, the inclusion of Rs. 23,500 and Rs. 59,112 was valid.

Conclusion:
The court answered all three questions in the affirmative and against the accountable person, confirming the applicability of Sections 46(1)(a) and 46(2) of the Estate Duty Act. The Revenue was awarded costs of Rs. 250.

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