H.N. Seth, J. - (1.) IN connection with the estate duty assessment concerning the estate of late Shahu Jagdish Prasad, Sri Govind Prasad, the accountable person, claimed that as the amount of estate duty payable in respect of the estate left by the deceased was a charge on the said estate, it had to be taken into account while determining the market value of the estate. He further claimed that in any case the estate duty leviable on the estate of the deceased being a charge on the estate left by the deceased was an incumberance which had to be allowed as a deduction under Section 44 of the E.D. Act (hereinafter referred to as "the Act"), while determining the taxable value of the estate for the purposes of estate duty. The claim made by the accountable person was rejected by the Asst. Controller and the order passed by him was in this regard eventually upheld by the INcome-tax Appellate Tribunal, Allahabad. However, the INcome-tax Appellate Tribunal has, at the instance of the accountable person, stated the case and has referred the following question for the opinion of this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the estate duty payable on the estate of the deceased could not be deducted while computing the value of the estate for levy of estate duty ?"
(2.) SECTION 5(1) of the Act lays down that in the case of every person dying after the commencement of the Act, there shall be levied and paid upon the principal value of the property ascertained in the manner provided in the Act, which passes on the death of such person, a duty called estate duty, at the rate fixed in accordance with SECTION 35 of the Act. SECTION 6 of the Act lays down that the property which the deceased was at the time of Ms death competent to dispose of shall be deemed to pass on his death. SECTIONs 7 to 17 of the Act describe certain other properties and the circumstances in which they would also be deemed, for purposes of the Act, to pass on the death of the deceased. SECTION 36 of the Act provides that the principal value of any property shall be deemed to be the price which in the opinion of the Controller it would fetch if sold in the open market at the time of the deceased's death. Thus, the duty payable in respect of the estate of a deceased person has to be worked out in accordance with the provisions contained in the Act after finding out the principal value of the property left by the deceased, that is, the price of the property which could, at the time of the death of the deceased, be fetched if the property was, at that time, sold in the open market. Learned counsel appearing for the accountable person, inspired by a decision of the Mysore High Court in the case of Mrs. Blanche Nathalia Pinto v. State of Mysore [1964] 53 ITR (ED) 64, contended that the properties which passed as a result of Shahu Jagdish Prasad's death became at the time of his death burdened with the liability to pay the estate duty as provided in Section 74 of the Act. Accordingly, its principal value, that is, the market value which such property if sold in the open market at the time of Shahu Jagdtsh Prasad's death could fetch, must necessarily take into account the amount of the estate duty payable in respect of such property. According to him, a purchaser in the open market purchasing the property at the time of Shahu Jagdish Prasad's death would not have paid the same price for the property which it would have fetched had it not been so charged. In such circumstances, the price which a willing purchaser purchasing the property in the open market would pay will be the price which the property could normally fetch as reduced by the amount charged on the property. In respect of the aforesaid submission the learned counsel strongly relied upon the following observations made by the learned judges in Mrs. Blanche Nathalia Pinto's case [1964] 53 ITR (ED) 64, 72 (Mys): "It is thus clear that the property which vests in the executor for distribution or administration is a property which is burdened with the liability to pay estate duty, and it is the market value of that property which should constitute the basis for the computation of the court-fee payable under Section 53 of the Act. It is difficult to understand how the determination of such market value can discard or ignore the liability on the property or how the determination of the market value can refuse to take into account that liability or the charge for its enforcement..... 5. What is required to be done for the ascertainment of such market value is to ascertain the price which a willing purchaser would pay for the property which is burdened with the liability to pay the estate duty. It being clear that no willing purchaser would pay a price which refuses to take into account the liability on the property, it should necessarily follow that the estate duty payable in respect of the property must necessarily be deducted from the market value at death."
(3.) AFTER carefully considering the aforementioned observations made by the learned judges of the Mysore High Court as also the submissions made in this regard by the learned counsel appearing for the accountable person, we are of opinion that the aforementioned observations which had been made in connection with the amount of court-fees payable on an application for probate under the Mysore State Court-Fees Act do not offer a correct clue for determining the principal value of the property passing on the death of the deceased, as required by the Act. Section 5(1) of the Act, which is the charging Section, lays down that there shall be levied and paid upon the principal value of the property which passes on the death of a person, a duty called estate duty. According to Section 6 of the Act, the property which the deceased was at the time of his death competent to dispose of is considered to be the property which passes on his death. The Act obviously contemplates levy and payment of estate duty on the principal value of the proprietary interest which the deceased had in the estate at the time of his death. Such interest has to be, as laid down in Section 36 of the Act, estimated in accordance with the price which in the opinion of the Controller it would have fetched if sold in the open market at the time of the deceased's death. It is significant to notice that what has to be evaluated is the principal value of the property which passes on the death of the deceased and not the principal value of the property which as a result of the death of the deceased comes to be vested in the hands of his heirs and legal representatives. What passes at the time of death of the deceased is his proprietary interest in the estate. If that proprietary interest at the time of his death is not subject to any charge, etc., it is the interest of the deceased free of any charge that passes. But then due to certain reasons some obligations may get attached to the property which passes as a result of the death of the deceased. In such a case what vests in the hands of the heirs or the legal representatives of the deceased would be property subjected to such charge or obligation created in respect of the property passing on the death of the deceased. It is possible to visualise a case where the proprietary interest which passes on the death of the deceased may not be identical to the proprietary interest which as a result of such passing comes to be vested in the hands of the heirs and legal representatives (accountable person).;