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Issues Involved:
1. Applicability of Section 46 of the Estate Duty Act, 1953, regarding the abatement of a debt of Rs. 50,000. 2. Applicability of Section 10 of the Estate Duty Act, 1953, concerning the inclusion of the value of goodwill in the deceased's estate. Issue-wise Detailed Analysis: Issue 1: Applicability of Section 46 of the Estate Duty Act, 1953 The deceased was a member of a Hindu Undivided Family (HUF) and had a debt of Rs. 1,24,831 to the HUF. On December 15, 1964, he transferred Rs. 50,000 from his self-acquired property into the common hotchpot of the HUF, evidenced by a havala entry in his personal books. This increased his indebtedness to Rs. 1,86,003, and eventually to Rs. 2,11,449 at the time of his death. The accountable person claimed a deduction for this debt under Section 44 of the Estate Duty Act. However, the Assistant Controller of Estate Duty argued that the Rs. 50,000 debt was artificially created and attracted Section 46, resulting in abatement. Alternatively, it was considered a gift under Section 10, as the deceased retained possession and beneficial enjoyment of the amount. The Appellate CED upheld that Section 46 applied, leading to abatement of Rs. 50,000. The Income-tax Appellate Tribunal also found that the transaction amounted to giving Rs. 50,000 to the HUF and borrowing it back, thus applying Section 46 correctly. The court analyzed Sections 44 and 46, noting that debts must be bona fide for full consideration for the deceased's use and benefit. Section 46 imposes limitations if the consideration for the debt consisted of property derived from the deceased or was given by someone entitled to such property. The court concluded that the transaction was not merely havala entries, as the deceased made a clear transfer of Rs. 50,000 to the HUF. The Tribunal's finding that the transaction involved giving Rs. 50,000 to the HUF and borrowing it back established a nexus between the loan and the property derived from the deceased, falling under Section 46(1)(a) or (b). Thus, the Tribunal was correct in abating Rs. 50,000. Issue 2: Applicability of Section 10 of the Estate Duty Act, 1953 The deceased's proprietary business was converted into a partnership with his sons, and his share was gradually reduced, ultimately to 10%. The Assistant Controller of Estate Duty included the deceased's share of goodwill (10% of Rs. 1,44,540) and an additional 34% share relinquished in favor of his sons, totaling Rs. 51,623, under Section 10. The court referred to the Supreme Court decision in CED v. R. V. Viswanathan [1976] 105 ITR 653 (SC), which held that if a gift is made without reservation, any subsequent benefit to the donor does not attract estate duty under Section 10. The court noted that the deceased retained a share in the firm, and the gift was not subject to reservation or condition. Consequently, the court held that the inclusion of the value of goodwill under Section 10 was not justified, answering the second question in the negative, in favor of the assessee. Conclusion: - Question 1: Answered in the affirmative, in favor of the revenue. - Question 2: Answered in the negative, in favor of the assessee. There was no order as to costs of this reference.
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