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TMI Blog1985 (3) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... herself an interest for life and was in fact in enjoyment of the income. He accordingly included the full value of the said properties covered by the said deed of settlement in the estate of the deceased. The deceased had been taking periodical loans from the trust. These loans were advanced to her out of the income of the trust. The outstanding liability as on the date of death was Rs. 61,917. The accountable person claimed a deduction of liability to the extent of the said amount as it was found that the amount was owed by the deceased to the trustees of the settlement referred to above. The Assistant Controller held that the trust was created by the deceased by. transferring her own property mainly for her own benefit and benefit of her children and the money was lent out to the deceased by the trustees out of the properties transferred by the deceased. Accordingly, he disallowed the said liability as claimed by the accountable person under section 46(1) of the Estate Duty Act. The Assistant Controller found that the deceased bad an account with the said trust created by the deceased and within two years of the death of the deceased, the deceased paid in several counts Rs. 25, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in treating the said amount as property deemed to be included in the property passing on the death of the deceased under section 46(2) of the Act. In the result, the authorities below were directed not to include the same in the estate of the deceased. On the aforesaid facts, at the instance of the Controller of Estate Duty, the following two questions under section 64(1) of the Estate Duty Act, 1953, were referred to this court : " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that Rs. 61,917 or any part thereof should be allowed as a deduction from the total value of the estate of the deceased ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 25,011 was not liable to be included in the estate of the deceased ? " The respondent in its reply to the application of the Controller asking for reference on the aforesaid questions has suggested that a further question of law arises out of the order of the Tribunal. The Tribunal referred the following question as suggested by the respondent in its reply which is the third question in the statement of case : " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funeral expenses and debts and encumbrances in determining the chargeable value of the estate. Section 45 imposes limitation on debts deductible. Section 46 provides further limitation on the debts deductible. Broadly speaking, under section 46 a debt which the deceased incurred by borrowing monies from a person to whom he had previously made a gift is disallowed. The abatement of or disallowance of the debt which falls within the mischief of section 46 is proportionate to the value of the consideration given therefor by the person who derived property from the deceased. Section 46(1) provides that any debt incurred by the deceased or any incumbrance created by the deceased will not be allowed as a deduction, notwithstanding the provisions of section 44, to the extent to which such debt or incumbrance consisted of (a) a loan or incumbrance, the consideration for which was given out of property derived from the deceased ; or (b) a loan given by or incumbrance created in favour of a person who had at any time included within his resources property derived from the deceased, unless the proviso to sub-section (1) applies to the case. Section 46(2) of the Act provides as follows : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1953. It appears that the Tribunal was of the view that if the borrowing was made for the purpose of acquiring any properties which are included in the estate, the debt should not be disallowed. This is not, however, the correct reading of the said provisions. It is only in case where the debt itself forms part of property which is included in the estate under section 12 that a question of double inclusion would arise. The following passage from Hanson's Death Duties (10th edition) would make the position clear : " If the settled property (including the debt due from the deceased) is chargeable with estate duty upon the deceased's death, however, it seems that the principle of section 7(10) of the Finance Act, 1894, should be applied to prevent what would otherwise amount to double taxation (p. 730). " Similar view is taken in Dimond's Death Duties (12th edition). The relevant passage is as follows : " If the debt itself is liable to duty (e.g., where it is a debt due to trustees and forms part of the assets of a settled fund which passed on the death), section 7(10) of the Finance Act, 1894, precludes a double charge of duty; but the mere fact that the ' property derived f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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