1965 PLP 236 (PTD)

Estate Duty - Value of estate - Deductions - Debts and liabilities-Income-tax and penalty in respect of assessment for years prior to death of deceased-Estate Duty Act, 1953, S.

44. Where in determining the value of the estate of the deceased for the purposes of estate duty, the Assistant Controller refused to deduct the sum of Rs. 1,51,215 for income-tax and Rs. 27,000 for penalty, in respect of assessments for certain years prior to the death of the deceased on the ground that those amounts levied by the Income-tax Officer were deleted on appeal by the Appellate Tribunal, but later, on a reference, the High Court made an order the effect of which was to restore the order of the Income-tax Officer, and no appeal was taken from the decision of the High Court: Held, that the sums of Rs. 1,51,215 for income-tax and Rs. 27,000 for penalty were allowable deductions in computing the value of the estate. HEGDE, J.-This is a reference under section 64(1) of the Estate Duty Act, 1953. The question of law referred is: "Whether, on the facts and in the circumstances of the case, the claim for the deduction of the liability of Rs. 1,51,215 for tax and Rs. 27,000 for penalty under the Income-tax Act was properly disallowed in computing the principal value of the estate of the deceased?" This reference arises out of the estate duty assessment of the estate of Shri Matmari Nagappa, who died on the 25th September 1957 (hereinafter referred to as the deceased). The relevant facts of the case are as follows: (i) On the death of the deceased, his widow, Mrs. Lakshmamma (the applicant in the present case), being the accountable person under the Act, filed the estate duty account and the connected statements before the Assistant Controller of Estate Duty, Bangalore. After scrutinising these and discussing the details with the authorised representative, the Assistant Controller determined the principal value of the estate at Rs. 3,46,078 and the estate duty payable thereon at Rs. 28,161,70 nP. A copy of the assessment order is made part of the statement of the case and is marked Annexure "B". (ii) The applicant thereafter preferred an appeal to the Board under section 63 of the Act against the order of the Assistant Controller. The main objection raised in the appeal related to the refusal of the Assistant Controller to allow any deduction for income-tax liability. (iii) The Board found that, in the income-tax assessment of the deceased, the Income-tax Officer concerned had fixed a liability of Rs. 1,51,215 for income-tax and Rs. 27,000 for penalty in respect of the assessments for the years prior to the death of the deceased. Appeals against the liabilities thus fixed were filed by the deceased and the Income-tax Appellate Tribunal deleted the entire demand. This position of Incometax liability was known to the Assistant Controller before he completed the estate duty assessment. Consequently, no deduction for income-tax liability was allowed by him. (iv) It was urged before the Board that the liability had been fixed by the Income-tax Officer and did exist at the time of the death, and that the cancellation of the liability after the death could not be taken into consideration for valuing the estate of the deceased as on the date of death. The Board held that the appeal against the income-tax assessments brought into existence an interest in or a right to property, which would crystallise and was expected to crystallise in due course in a material form; that the quantum of income-tax demand does not become final until all the appeal and reference proceedings are concluded; that the Assistant Controller bad full right to evaluate the income-tax liability as on the date of death and that, if on consideration of all the circumstances including the proceedings before the Income-tax Tribunal, the Assistant Controller came to the conclusion that the liability for income-tax prior to the death should be valued at all, no mistake could be said to have been committed by him. The Board accordingly held that the Assistant Controller was justified in treating the liability fixed by the Income-tax Officer in this case as an incorrect liability and in disallowing it. The Central Board of Revenue disallowed the deductions claimed solely on the ground that the tax liability determined by the Income-tax Officer had been set aside in appeal by the Income-tax Appellate Tribunal. From the order of the Central Board, it is clear that if the order of the Income-tax Officer had remained intact, the Board would have allowed the deduction claimed. The order of the Income-tax Appellate Tribunal is no more in existence in view of the order of this Court in I. T. R. C. No. 15 of 1959. The effect of the order of this Court in that case is to restore the order of the Income-tax Officer. That fact is not disputed. We are informed that no appeal to the Supreme Court has been filed as against the order of this Court in I. T. R. C. No. 15 of 1959 and that the order of this Court has become final. Hence, our answer to the question of law referred is that, on the facts and in the circumstances of the case, the claim for the deduction of the liability of Rs. 1,51,215 for the tax and Rs. 27,000 for penalty under the Income-tax Act should have been allowed in computing the principal value of the estate of the deceased. In other words, our answer is in favour of the assessee and against the revenue: No costs. Question answered in favour of the assessee.