1968 (9) TMI 41 - HC - Income Tax

Estate Duty Act, 1953 - liability of Rs. 5,548 claimed as a deduction from the value of the properties of the Hindu undivided family in which the deceased had one-third share - claim is disallowed under section 46(1)(a) of the Estate Duty Act, 1953

Issues Involved:
1. Disallowance of a liability claimed as a deduction under section 46(1)(a) of the Estate Duty Act, 1953.
2. Addition of a sum under section 46(2) of the Estate Duty Act, 1953.
3. Disallowance of a liability claimed as a deduction under section 46(1)(b) of the Estate Duty Act, 1953.

Detailed Analysis:

Issue 1: Disallowance of a liability claimed as a deduction under section 46(1)(a) of the Estate Duty Act, 1953.

In the first reference, the court examined whether a liability of Rs. 5,548 claimed as a deduction from the value of the properties of a Hindu undivided family (HUF) in which the deceased had a one-third share was rightly disallowed under section 46(1)(a) of the Estate Duty Act, 1953. The deceased, A. Arunchalam Pillai, was a member of an HUF that had gifted agricultural lands to three female family members. The lands were sold, and the proceeds were managed by the family. At the time of the deceased's death, a balance due to one of the ladies, Saraswathi Ammal, remained with the family and was claimed as a liability eligible for deduction under section 44(a). However, the Assistant Controller of Estate Duty disallowed this claim under section 46(1)(a), which was upheld by the Central Board of Direct Taxes.

The court held that "property" as defined in the Act includes its sale proceeds. Therefore, the debt, the consideration for which are the sale proceeds, falls within the ambit of section 46(1)(a). The court rejected the contention that the provision applies only if there was an intention at the time of the gift to borrow the subject matter of the gift later as a liability. The court concluded that the debt in question satisfied the requirements of section 46(1)(a) and was rightly disallowed.

Issue 2: Addition of a sum under section 46(2) of the Estate Duty Act, 1953.

The second question in the first reference was whether a sum of Rs. 11,510 was rightly added under section 46(2) of the Estate Duty Act, 1953, in computing the value of the properties of the HUF. The Assistant Controller applied section 46(2) to the sum paid to the two ladies, resulting in the total sum of Rs. 16,500 being taken to pass on the death of Arunachalam Pillai.

The court found that since the payment to the two ladies was within two years of the deceased's death, section 46(2) was applicable. Therefore, the sum of Rs. 11,510 was rightly added, and the question was answered in favor of the revenue.

Issue 3: Disallowance of a liability claimed as a deduction under section 46(1)(b) of the Estate Duty Act, 1953.

In the second reference, the court examined whether a liability of Rs. 1,29,068 claimed as a deduction from the principal value of the estate of the deceased, Haji Mohammed Haji Moosa Sait, was rightly disallowed under section 46(1)(b) of the Estate Duty Act. The deceased had gifted Rs. 70,000 each to his two sons, who later used these sums to clear a liability incurred by the deceased.

The court held that the sons, having received the gift of Rs. 1,40,000 and discharged the father's debt, fell within the scope of section 46(1)(b). The sons were entitled to the sum derived from the deceased, and it was among their resources. The court rejected the contention that section 46(1)(b) required an interposition of persons between the deceased and the person from whom he had borrowed. The court concluded that the liability was rightly disallowed under section 46(1)(b).

Conclusion:

The court answered all the questions in favor of the revenue. The liability of Rs. 5,548 and Rs. 1,29,068 were rightly disallowed under sections 46(1)(a) and 46(1)(b), respectively. Additionally, the sum of Rs. 11,510 was rightly added under section 46(2). The revenue was entitled to its costs in both references, with counsel's fee set at Rs. 250 in each case.

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