N.K.AGRAWAL,J. - (1.)THIS is a reference made by the Income-tax Appellate Tribunal (for short, "the Tribunal")under Section 64 (1) of the Estate Duty Act, 1953 (for short, "the Act"), seeking the opinion of this court on the following question of law :
" Whether, on the facts and in the circumstances of the case, the estate duty payable by the accountable person, is deductible in computing the net principal value of the estate of the deceased ? "

(2.)PANNA Lal Talwar of Amritsar died on December 14, 1975, leaving behind certain estate. His legal heir, Kashmiri Lal Talwar, filed the account of the estate duty in the status of an accountable person in response to the notice issued by the Assistant Controller of the Estate Duty, Amritsar, under Section 58 (2) of the Act. Deduction on account of liability of the estate duty was claimed by the accountable person from the principal value of the estate on the plea that it was in the nature of a charge on the estate of the deceased. However, the Assistant Controller of Estate Duty took the view that the amount of estate duty payable under the Act was neither a debt nor an encumbrance within the ambit of Section 44 of the Act. The Assistant Controller, therefore, refused to allow deduction of the estate duty liability from the value of the estate. The Appellate Controller of Estate Duty rejected the appeal filed by the accountable person and so did the Tribunal.
Section 44, of the Act permits deduction of the funeral expenses and, with certain exceptions, of the debts and encumbrances while determining the chargeable value of the estate. Debts incurred by the deceased or encumbrances created by a disposition by the deceased are to be allowed as deduction from the value of the estate, if the debts or the encumbrances were incurred or created bona fide. It would, therefore, mean that the debt must necessarily have been incurred by the debtor. The liability to pay the estate duty accrues under the statute after the death of the owner of the estate. This liability is created by the statute and, therefore, it cannot be regarded as an encumbrance nor can it be said to have been created by the deceased. Section 74 of the Act, however, lays down that the estate duty payable in respect of the movable or immovable property on the death of the deceased shall be a first charge on the immovable property so passing in whomsoever it may vest on his death. Such a charge shall, however, operate after the debts and encumbrances allowable under Part VI of the Act are discharged.

(3.)SHRI R. P. Sawhney, senior advocate and counsel for the Department, has argued that Section 74 of the Act merely creates a charge on the property forming part of the estate of the deceased, but that alone will not create a legal presumption to the effect that the estate duty liability would form part of the debt within the meaning of Section 44 of the Act. Liability to estate duty arises on the death of the owner of the property and, therefore, the charge, if any, comes into force after the death only. No such charge exists at the time of the death.