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Issues Involved:
1. Whether the estate duty payable on the estate was deductible while computing the estate duty payable on the principal value of the estate passing on the death under the Estate Duty Act. Detailed Analysis: 1. Facts and Background: The deceased expired on June 4, 1971. The estate duty assessment was completed by the Assistant Controller of Estate Duty on July 29, 1972, computing the net principal value of the estate at Rs. 3,68,518. The accountable person contended that the estate duty payable should have been allowed as a liability in computing the net principal value of the estate. The Appellate Controller rejected this contention, and the Appellate Tribunal later held that the estate duty payable should be deducted while computing the principal value of the estate. The revenue then referred the question to the High Court. 2. Relevant Provisions of the Estate Duty Act: - Section 5(1): Estate duty is levied on the principal value of all property passing on the death of the deceased. - Section 36(1): The principal value of any property is estimated as the price it would fetch if sold in the open market at the time of the deceased's death. - Section 44: Allows for deductions for debts and encumbrances but specifically excludes certain types of debts. - Section 74(1): Creates a first charge on property passing on the death of the deceased for estate duty, after debts and encumbrances allowable under Part VI of the Act. 3. Contentions: - Accountable Person: Argued that estate duty is a debt or, alternatively, an encumbrance under section 74(1) of the Act. - Revenue: Contended that debts and encumbrances must be those incurred or created by the deceased during their lifetime and not post-death liabilities like estate duty. 4. Court's Analysis: - Interpretation of Sections 5, 36, and 44: The court emphasized that the charge is on the property passing on the death of the deceased, and the valuation is based on the time of death, not the passing of the property. Debts and encumbrances must be those existing at the moment of death. - Section 74(1): The court noted that estate duty ranks in priority after debts and encumbrances allowable under Part VI, implying that estate duty cannot be included as a debt or encumbrance under section 44. - Personal Liability: Under section 53, the accountable person is personally liable for estate duty, limited to the assets received from the deceased. This personal liability indicates that estate duty is not a debt of the estate itself but of the accountable person. - Market Value Consideration: The court referred to the Supreme Court's interpretation in Pandit Lakshmi Kant Jha's case, emphasizing that the market value of the property should be the gross amount without deductions for estate duty. 5. Conclusion: The court concluded that estate duty is neither a debt nor an encumbrance under section 44 or section 74(1) of the Estate Duty Act. Therefore, the estate duty payable on the estate was not deductible while computing the estate duty payable on the principal value of the estate passing on the death. The question was answered in the negative, in favor of the revenue and against the accountable person. The accountable person was ordered to pay the costs of the reference to the Controller of Estate Duty, with advocate's fees set at Rs. 250.
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