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Issues Involved:
1. Whether the estate duty payable on the estate of the deceased could be deducted while computing the value of the estate for levy of estate duty. 2. Whether the estate duty payable constitutes a debt or encumbrance deductible under Section 44 of the Estate Duty Act. Issue-wise Detailed Analysis: 1. Deductibility of Estate Duty Payable in Computing Estate Value: The accountable person contended that the estate duty payable should be considered a charge on the estate and thus should be deducted while determining the market value of the estate. This claim was based on the argument that the estate duty liability burdens the property, reducing its market value. The accountable person relied on the Mysore High Court's decision in Mrs. Blanche Nathalia Pinto v. State of Mysore, which suggested that the market value of the property should account for such liabilities. However, the court disagreed with this argument, emphasizing that the principal value of the property under the Estate Duty Act is the value of the property at the time of the deceased's death, free from any charges that arise post-death. The court clarified that the property passes to the heirs only after the deceased's death, and any obligations arising thereafter, such as the estate duty charge, do not affect the principal value of the property at the time of death. The court concluded that the observations made in the Mysore High Court case were not applicable for determining the principal value of the property under the Estate Duty Act. The court emphasized that the estate duty charge created under Section 74 of the Act attaches to the property after the death of the deceased and thus should not be considered while evaluating the principal value of the property. 2. Estate Duty as Debt or Encumbrance under Section 44: The accountable person further argued that the estate duty should be considered a debt or encumbrance under Section 44 of the Estate Duty Act, which allows for deductions of certain liabilities when determining the value of the estate for estate duty purposes. The court examined Section 44, which permits deductions for funeral expenses, debts, and encumbrances, but explicitly excludes certain types of liabilities. The court noted that the estate duty charge under Section 74 is not considered a debt or encumbrance for the purposes of Section 44. The provision in Section 74(1) that the estate duty liability is a first charge on the property after allowable debts and encumbrances under Part VI of the Act further supports this interpretation. The court found no merit in the argument that the estate duty charge should be deducted under Section 44, as it is not a debt or encumbrance contemplated by that section. The court cited supporting decisions from the Karnataka, Andhra Pradesh, Gujarat High Courts, and its own court, which consistently held that estate duty is not deductible under Section 44. Conclusion: The court answered the referred question in the affirmative, holding that the estate duty payable on the estate of the deceased could not be deducted while computing the value of the estate for levy of estate duty. The court ruled in favor of the revenue, affirming that the accountable person is not entitled to claim the estate duty payable as a deduction under Section 44 of the Estate Duty Act. The Controller was entitled to costs assessed at Rs. 250.
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