Estate duty payable on the estate of a deceased person is not deductible as a debt or encumbrance under Section 44 of the Estate Duty Act, 1953.

( 1 ) THE Appellate Tribunal, Bangalore Bench, under S. 64 (1), Estate Duty act, 1953 (hereinafter called the Act), has stated a case and referred the following question for the opinion of this Court : " Whether on the. facts and in the circumstances of the case the estate duty payable by the accountable persoa is deductible in computing the net principal value of the estate of the deceased? "

( 2 ) ONE Varadaraja Setty died on 6-5-1965. The Accountable Person filed return before; the Assistant Controller of Estate Duty in which he. claimed that a sum of Rs. 2,59,757 should be deducted from the principal value of the estate. The said sum of Rs. 2,59,757 included a sum of Rs. 2,500 being the estimate of the estate duty payable by the Accountable Person. The assistant Controller disallowed the claim for deduction of the amount of estate duty. The Appellate Controller of Estate Duty as also the Appellate tribunal affirmed that part of the order of the Assistant Controller on tha ground that estate duty payable by the Accountable Person is not a debt or encumbrance corning within the scope of S. 44 of the Act. The short question that arises for decision is whether in determining the value of an estate for the purpose of estate duty allowance or deduction shall be made for estate duty under S. 44 of the Act.

( 3 ) SEC. 5 (1) of the Act is the charging section which charges to duty all property which passes on the death of a person, the duty being determined on the principal value of the property so passing ascertained in the manner provided by the Act. S. 36 (1) of the Act provides that the principal value of any property shall be estimated to be the price which, in the opinion of the Controller, it would fetch, if sold in open market at the time of his death. Ss. 44 to 50b which come under Part VI provides for deductions in determining the value of an estate for the purpose of estate duty. S. 44 which is the material section reads thus : sec. 74 (1) of the Act provides that the estate duty payable in respect of property passing on the death of the deceased shall be a first charge, on property liable thereto. The said sub-section reads :

( 4 ) THE Act is modelled after its counterpart in the United Kingdom and not infrequently do we refer to the English Law and Practice on most of the issues arising under the Act. S. 5 (1) of the Act corresponds to S. 1 of the u. K. Finance Act, 1894 (57 and 58 Vict. Ch. 30 ). S. 44 of the Act corresponds to S. 7 (1) of the U. K. Finance Act, 1894. The languages of S. 44 the Act and of Sec. 7 (1) of the U. K. Finance Act, 1894 are identical. Although estate duty has been in force in the United Kingdom since 1894 it was never contended under the said Act that estate duty is liable to be deducted in determining the principal value of the estate of a deceased person. It was conceded by Sri K. Srinivasan, learned Counsel for the accountable Person that according to the practice prevailing in the United kingdom, estate duty payable on the estate is not one of the items fox which deduction is given as a debt or encumbrance under S. 7 (1) of the Finance act, 1894. The contention of the learned Counsel was that estate duty is a capital levy similar to wealth-tax and that the difference between wealth-tax and estate duty consists in the fect that while wealth-tax is an annual tax levied on the net wealth of a person on the valuation date, estate duty is a tax levied on the net wealth of a, deceased at the time of his death; further that in the case of wealth-tax the Supreme Court in Setu parvati Bai v. Commr. of Wealth-tax (S. C.) , (1968) 69 ITR. 864. has held that wealth- tax liability of an assesseee on the valuation dati is a, debt owed within the meaning of S. 2 (m) of the Wealth-tax Act, 1957 and therefore, should be deducted from the estimated value of the assets as on the valuation date and the ratio of that decision has to be applied while determining the principal value of the estat