1981 (9) TMI 32 - HC - Income Tax

Issues Involved:
1. Applicability of Section 47 of the Estate Duty (ED) Act, 1953.
2. Interpretation of foreign debts and their deduction in estate duty calculations.
3. Requirement of Indian domicile for the deceased to apply Section 47 of the ED Act.
4. Repayment or adjustment of estate duty concerning foreign debts.

Issue-wise Detailed Analysis:

1. Applicability of Section 47 of the Estate Duty (ED) Act, 1953:
The primary question referred to the court was whether the Tribunal was justified in invoking Section 47 of the ED Act, 1953, and applying it to the facts of the present case. Section 47 deals with the allowance of debts due from the deceased to persons resident out of India.

2. Interpretation of Foreign Debts and Their Deduction in Estate Duty Calculations:
The deceased, Marzook J. Boodai, had significant foreign liabilities amounting to Rs. 82,20,000, which included debts to the National Bank of Kuwait and Md. Kharafi. The Assistant Controller initially did not allow deductions for these debts under Sections 44 and 47 of the ED Act, leading to a dispute. The Appellate Controller accepted the existence of these foreign liabilities and directed a modification of the assessment. The Tribunal upheld this decision, recognizing the debts and the foreign assets valued at Rs. 15,00,000, resulting in a deficit of Rs. 67,20,000.

3. Requirement of Indian Domicile for the Deceased to Apply Section 47 of the ED Act:
The Department argued that no allowance should be given for the deficit of Rs. 67,20,000 because the deceased was not domiciled in India. The court noted that Section 47 is based on Section 7(2) of the UK Finance Act, 1894, which assumes a British domicile for the allowance of foreign debts. However, the court found that the requirement of Indian domicile is not explicitly stated in Section 47 of the ED Act. The court concluded that the latter part of Section 47 does not necessitate the deceased to possess an Indian domicile for its application.

4. Repayment or Adjustment of Estate Duty Concerning Foreign Debts:
The court clarified that the term "repayment of estate duty" in Section 47 does not imply an actual refund but rather an adjustment or credit against the duty on the estate. The estate duty should be computed on the estate liable under the Act, and the deficit from foreign debts should be credited against this duty before any demand is made for payment. In this case, the estate liable for duty was computed at Rs. 50,00,000, and the deficit from foreign debts was Rs. 67,20,000, leading to no valid demand for duty on the accountable person.

Conclusion:
The court concluded that by interpreting the latter part of Section 47 of the ED Act, 1953, it was applicable to the facts of the present case. The Tribunal was correct in applying Section 47. The Department was directed to pay the costs of the reference to the accountable person.

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