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Impact of section 46 of the E.D. Act on interest payable by deceased to donees who received cash gifts. Analysis: The judgment of the Andhra Pradesh High Court in this reference case dealt with the impact of section 46 of the E.D. Act on the interest payable by the deceased to the donees who had received cash gifts. The deceased had made cash gifts to his foster daughter, her husband, and his wife during his lifetime. The accountable person, the deceased's wife, claimed deduction of the total amount of these gifts, including the principal amounts and the accrued interest, from the deceased's estate. The Tribunal allowed deduction only for the principal amounts and disallowed the interest accrued on the gifts totaling to Rs. 36,631.86. The revenue appealed, leading to the question of whether the interest accrued on the principal debt was allowable as a deduction from the deceased's estate. The court analyzed sections 44 and 46 of the E.D. Act to determine the deductibility of the interest accrued on the cash gifts. Section 44 allows deductions for debts incurred by the deceased if they were incurred bona fide for the deceased's own use and benefit. However, section 46 imposes limitations on deductible debts, especially those incurred by the deceased through dispositions. It states that deductions for such debts shall be subject to abatement to an extent proportionate to the value of considerations given from the deceased's property. The court noted that the interest accrued on the principal amounts did not abate under section 46(1) as it was not proportionate to the value of the consideration given by the deceased from his property. The court further considered the revenue's argument regarding section 16(3) of the E.D. Act, which relates to annuities or other interests purchased out of property derived from the deceased. The revenue contended that the interest accrued on the gifts should be treated as annuities or other interests under section 16(3) and hence not deductible. However, the court rejected this argument, stating that the interest accrued did not fall under the definition of "subject matter" in section 16(2)(c) as it was not a periodical payment made or payable by virtue of the dispositions. In conclusion, the court held that the interest accrued on the principal amounts of the debts was allowable as a deduction from the deceased's estate. The court relied on a previous decision of the Madras High Court to support its conclusion. The judgment favored the accountable person, ruling against the revenue, and no costs were awarded considering the circumstances of the case.
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