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TMI Blog1977 (5) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... d, is no ground for making a sceptical approach. That no such point was raised so far is not by itself a circumstance which reflects on the merits of the argument in support of the proposition which must be examined with an objective eye and approached with an unbiassed mind. No doubt, the problem must be examined closely, carefully and thoroughly inasmuch as if the proposition were to be upheld, it would result in unsettling an unquestioned position in the sphere of taxation after a lapse of such a long time. The point involved is question of law and it is unnecessary to state any facts in order to resolve the question referred by the Income-tax Appellate Tribunal, Ahmedabad. In Reference No. 7 of 1974, the deceased died on November 21, 1966. In Reference No. 9 of 1974, the deceased died on April 7, 1963, and the accountable person filed the estate duty account on October 10, 1963. In both these matters, the Controller of Estate Duty, the Appellate Controller of Estate Duty who is the appellate officer, and the Income-tax Appellate Tribunal have concurrently taken the view that the accountable person is not entitled to claim deduction of the amount payable as estate duty from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... death. " The learned counsel argues that the property passing on the death of a person is exigible to estate duty by virtue of the charging section contained in the Act. Reliance is placed on section 5(1) of the Act which forms part of Part II of the Act relating to imposition of estate duty. Section 5(1) is the charging section for the levy of estate duty and it is in these terms : " In the case of every person dying after the commencement of this Act, there shall, save as hereinafter expressly provided, be levied and paid upon the principal value ascertained as hereinafter provided of all property, settled or not settled, including agricultural land situate in the territories which immediately before the 1st November, 1956, were comprised in the States specified in the First Schedule to this Act, which passes on the death of such person, a duty called 'estate duty ' at the rates fixed in accordance with section 35. " Counsel contends that in view of section 5, the estate passing on the death of a person is exigible to tax at the very moment of the death of the person concerned and, therefore, it constitutes an incumbrance on the estate so passing. He calls our attention to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear that the estate duty paid by the petitioner was a charge on the properties which vested in her capacity as an executor under the will of her husband, and that estate duty became payable on the passing of the property by death, the property which vested in the executor was the property burdened with the liability to pay the estate duty and its market value which is relevant for the purpose of section 53 of the Court Fees and Suits Valuation Act must necessarily be the value of the estate at the time of death reduced by the sum payable by way of estate duty. " The said argument was countered on behalf of the revenue in the following manner : " The competing argument pressed on us by Mr. Government Pleader was that on the death of the deceased, there was the passing of the property and the vesting of it in the executor and that the market value of the property which so vested was the market value at the time of death and not its value which abated by reason of the charge created by section 74 of the Estate Duty Act in respect of the liability for the payment of estate duty. " The opinion formed by the court was expressed in the following words : " It is thus clear that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the estate of a deceased does not come under section 44 of the Act is clear from sub-section (1) of section 74 of the Act. The said sub-section has been set out in the earlier part of this judgment. It provides that after the debts and, incumbrances allowable under Part VI of the Act, the estate duty shall be a first charge on the immovable property passing on the death of the deceased. The intention of Parliament that estate duty is neither a debt nor an incumbrance allowable under Part VI of the Act is clear from sub-section (1) of section 74 of the Act. The debts and incumbrances allowable under Part VI of the Act take priority over the estate duty payable. If estate duty is either a debt or incumbrance allowable under section 44 which occurs under Part VI of the Act, section 74(1) could not have stated that the debts and incumbrances allowable under Part VI shall rank above estate duty for which charge is created. Therefore, it is clear that estate duty payable on the estate of a deceased person is neither a debt nor an incumbrance liable to be deducted under section 44 of the Act. " The learned counsel for the assessee contends that the case of Smt. V. Pramila [1975] 99 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 74(1), however, the charge will operate in respect of only the immovable property and not the movable property. This would, introduce a fatal contradiction in the argument for if the estate of the deceased were to contain only movable property, section 74(1) will not be attracted and estate duty payable thereon cannot be deducted from the value of the estate passing on the death of the deceased. The second point of significance is that section 74(1) itself draws a distinction between the liability to pay the estate duty on the one hand and debts and incumbrances to be excluded from the estate on the other. It postulates that the liability to pay the estate duty is not otherwise deductible from the valuation of the estate passing on the death of the deceased. If that was not so, there was no point in providing that the charge will operate only after the debts and incumbrances allowable under section 44 and other provisions of Part VI of the Act are accounted for. Section 74(1) gives a clue to the legislative mind and indicates that the legislature has proceeded on the assumption that the estate duty payable on the estate passing on the death of the deceased would not fall within th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reading of clauses (a) and (b) of section 44 reveals that the legislature had in mind the incumbrance created by the deceased. If this was not so, clause (a) would not have referred to an incumbrance created by disposition by the deceased whilst making a provision for exclusion of certain types of incumbrances from the purview of the first paragraph of section 44. It is, however, argued that the expression "incumbrance" must be read and construed in the sense of a burden on the estate passing on the death of the deceased person which burden arises instantaneously with the death of the deceased by virtue of its exigibility to pay tax under section 5 of the Act. It is no doubt a statutory liability but the mere fact that the liability is created by the statute will not make it a liability coupled with a charge on all the properties, movable and immovable, comprised in the estate of the deceased. A charge will not fasten itself on the properties unless a charge is created by the parties or by operation of law. Even under section 74 a charge would be created only in respect of the immovable properties and not in respect of the movable properties. What is more, it would not fall within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability to duty. It is not the life but the death of the life tenant which attracts the duty ; and so long as the life tenant is still alive, even though he or she be in extremis, no claim for duty can possibly be made. It is only when the person in question has expired, after the last breath has left the body, that the property passes and the liability to estate duty arises. Although from one point of view, one may regard those events as occurring simultaneously, it seems to me that in fact from a common sense point of view one must treat them as being in some sort of sequence, and, on any view, the ownership of the life tenant cannot be the test, because, as I have said, when the event occurs the life tenant has died. But the question is what happens then." There is, therefore, no escape from the conclusion that passing of the property as well as exigibility to estate duty both arise at a point of time, however so small, next to the point of time at which death of the deceased takes place. In this view of the matter, the argument advanced on behalf of the assessee cannot survive for one moment. It would appear that upon death of a person, the property which passes on the d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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