Case ID: 6663

Judgment:
ivil Appeal No. 822 of 1978. From the Judgment and Order dated 23.3.1977 of the Andhra Pradesh High Court in Case Referred (Estate Duty Case) No. 6 of 1975. 450 T.A. Ramachandran and Ms. Janki Ramachandran for the Appellant. S.C. Manchanda	 Ms. A. Subhashini (NP) and K.P. Bhatnagar for the Respondent. The Judgment of the Court was delivered by THOMMEN	 J. This appeal by certificate arises from the judgment of the Andhra Pradesh High Court dated 23.3.1977 in Estate Duty Case No. 6 of 1975. Answering the questions referred to it against the appellant and in favour of the Revenue	 the High Court held that	 in computing the net principal value of the estate for the purpose of the ("the Act")	 the appellant was not entitled to deduct either the estate duty payable on the estate or the amount attributable to the maintenance of the wife of the deceased. The appellant 's counsel	 Mr. T.A. Ramachandran	 submits that the duty payable on the estate of the deceased is an encumbrance on the estate	 being a first charge on the property passing on the death	 and is	 therefore	 deductible in terms of Section 44 of the Act. According to counsel	 all properties passing on the death of the deceased are encumbered to the extent of the duty payable by reason of the charge created by section 74 of the Act and that duty has to be deducted from the total value of the estate which is subjected to the levy of duty in terms of section 5. Counsel further submits that the amount attributable to the maintenance of the wife during the life of her husband must also be treated as a debt deductible under section 44. Mr. S.C. Manchanda	 appearing for the Revenue	 submits that the claim of the appellant has no warrant in the law and is totally unsupported by any judicial decision. He submits that estate duty falls upon the property passing upon the death. The property at the time of the passing was not encumbered by the duty	 for duty became payable only upon its passing and was	 therefore	 not a liability to which the estate was subjected during the life of the deceased. It becomes so encumbered only subsequent to and consequent on the death. He futher submits that there is not the smallest foundation for the claim for deduction in respect of the maintenance of the wife during the life of the husband	 as contended by the appellant 's counsel	 for the estate was never charged with the amount attributable to the maintenance of the wife. A wife 's claim for maintenance either during the life her 451 husband	 or subsequent to the death of her husband	 is not a charge on the property and is not a deductible amount in terms of the Act. We shall first deal with the claim for deduction of estate duty. Section of the 5 of the Act	 insofar as it is material	 reads: "Levy of estate duty. 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 peroperty	 settled or not settled	 includng agricultral land. . which passes on the death of such person	 a duty called "estate duty" at the rats fixed in accordance wth section 35. (2). . . . ." Sub section (1) of section 5 imposes a duty upon the net principal value ascertained of 'all property" which passes on the death of a person. All properties passing on a death	 other than those which are exempted from duty (See section 21 to 33)	 are	 for the purpose of levy under the Act	 aggregated into one estate	 which is the "property" on which duty is levied at the rates applicable in respect of its principal value (Section 34 and 35)	 but subject to the deductions permitted under of the Act. The properties are valued	 for the purpose of levy under the Act	 in accordance with the provisions of Section 36 says that the principal value of any property shall be estimated to be price which	 in the opinion of the Controller	 such property would fetch if sold in the open market at the time of the death of the deceased. of the Act contains section 44 to 50B dealing with deductions in determining the chargeable value of the estate. Section 44 says that	 in determining the value of an estate	 allowance has to be made for funeral expenses not exceeding rupees one thousand and for debts and incumbrances. The section	 however	 provides that no allowance shall be made in respect of matters enumerated under clauses (a) to (d) of the section. The "debts and encumbrances" mentioned in section 44 are	 as a 452 general rule	 debts and encumbrances incurred before the death of the deceased. Certain exceptions are	 specifically provided in section 44 and the other provisions of Reasonable funeral expenses	 cost of realising or administering foreign property	 allowance for duty paid in a non reciprocating country	 relief from estate duty where court fees have been paid in any State for obtaining probate	 letters of administration or a succession certificate	 and	 relief from estate duty where tax has been paid on capital gains are	 in the specified curcumstances	 allowable deductions in the determination of the value of the estate for the purpose of estate duty	 notwithstanding that such liabilities arose subsequent to the death. In no other case does the Act postulate deduction or allowance for any debt or encumbrance incurred subsequent to the passing of the property upon the death. Singinficantly	 estate duty payable on the estate of the deceased is not one of those exceptions to the general rule. Section 53 makes certain persons accountable for the whole of the estate duty on the property passing on the death. These are the legal representatives	 trustees	 guardians	 committees or other persons in whom any interest in the property or the management thereof at the any time vested. They are accountable for the whole of the estate duty on the property passing on the death of the deceased	 but their liability is limited to the assest of the deceased which they have actually received or which	 but for their own neglect or default	 they might have received. Any default or concealment on their part in the discharge of their duties will make them liable for the penalty provided under section 60. Section 74 says that duty payable in respect of property	 passing on the death of the deceased	 is a first charge on the property so passing. Any claim in respect of such duty is not liable to be defeated by any private transfer or delivery of such property. Any such private transfer or delivery is void against such a claim. Section 74 reads: "Estate duty a first charge on property liable thereto. 74(1). Subject to the provisions of section 19	 the estate duty payable in respect of property	 movable or immovable	 passing on the death of the deceased	 shall be a first charge on the immovable property so passing (including agricultural land) in whomsoever it may vest on his death after the debts and incumbrances allowable under of this Act; and any private transfer or delivery of such property shall void against any claim in respect of such estate duty. (2) A rateable part of the estate duty on an estate	 in proportion to the value of any beneficial interest in possession in movable property which passes to any person (other than the legal representative of the deceased) on the death of the deceased shall be a first charge on such interest: Provided that the property shall not be so chargeable as against a bona fide purchasr thereof for valuable consideration without notice. 3. . . . " The sechme of the Act	 as the above provisions indicate	 is to levy estate duty upon the net principal value of all property	as aggregated and ascertained under the Act	 and which passes on the death of the person who was competent to dispose of such property at the time of his death (section 6) or which is deemed to pass on his death (section 7 to 17). The expression "passes on the death" denotes change in the title or possession of the whole property taking place at the death. It is immaterial to whom the property passes. "The question. is not to whom has the property passed	 the question is whether it has passed at all". Per Lord Blanesburgh	 Inland revenue Commissioners vs Crossman	 	 'Estate duty falls upon the property passing upon a death. " Per Lord Loreburn	 L.C.	 Winans & Another vs Attorney General	 	30. the levy is upon the principal value of such property ascertained as provided under the Act. Property changes hands at the time of the death	 by reason of the death	 and	 therefore	 subsequent of the death. The imposition of the charge under the Act does not arise until the death has actually occurred and the property has	 thereupon	 passed. The liability to pay estate duty is fastened on the persons accountable. But their liability is limited to	 and will not exceed	 the assets of the deceased actually received by them	 or which	 but for their neglect or default	 they might have received. Apart from the personal liability cast on the persons accountable	 and their liability to penalty in the event of default or cocealment	 the duty payable is charged on the property itself and any private transfer or delivery is void against any claim in respect of such duty. Essentially and basi 454 cally	 therefore	 the duty is a burden on the estate and that burden is fastened on the estate upon the death of the deceased. During his life	 no liability under the Act arose or could arise. Subject to the limitations and exceptions statutorily specified	 the allowable deductions in the determination of the changeable value of the estate are the debts and encumbrances incurred before the death of the deceased. Esate duty falling upon property passing upon the death had not become a debt or encumbrance utill the death of the deceased	 and is	 therefore	 not deductible. The view is consistent with the conclusion reached on the point by various High Courts	 	 [1978] 111 ITR 365 ( Gujarat)	 [1981] 127 ITR 642 (Allahabad)	 [1981] 132 ITR 871 (Madras)	 [1982] 137 ITR 801 (Gauhati)	 [1990] 186 ITR 29 (Bombay). This conclusion was adopted by the Andhra Pradesh High Court in Controller of Estate Duty vs Estate of Late Omprakash Bajaj	 and it was that decision which was followed by the High Court on this point in the judgment under appeal. The High Court	 in our view	 rightly disallowed the claim for deduction of the estate duty in the computation of the net principal value of the estate. As regards the claim for deduction of the amount attributable to the maintenance of the wife of the deceased during his life	 there is no evidence or any finding to show that the estate had been burdened with any such debt or encumbrance by reason of the husband 's failure to act upto his statutory obligation to maintain his wife (see Section 18(1) of the ). The wife is of course a sharer of the assets left behind by her husband (see Section 8 of the ). This claim was also	 in our view	 rightly disallowed by the High Court. In the curcumstance	 for the reasons we have stated	 the appeal is dismissed. Howerver	 we do not make any order as to costs. V.R.R. Appeal dismissed.

Summary:
The High Court in a reference under the held that in computing the net principal value of the estate for the purpose of the Act	 the appellant was not entitled to deduct either the estate duty payable on the estate or the amount attributable to the maintenance of the wife of the deceased. The question was answered accordingly in favour of the Revenue. The appellant contended in the appeal by certificate that estate duty being a first charge on the estate passing on the death was an encumbrance and	 therefore	 deductible and the amount of the maintenance of the wife during her husband 's life was also deductible. The Respondent contended that estate duty being payable only upon the estate passing on the death	 it was not a liability which was deductible. Deduction in respect of the maintenance of the wife during the life of her husband also was not permissible. Dismissing the appeal	 this Court	 HELD: 1. The levy is upon the principal value of the property ascertained as provided under the Act. Property changes hands at the time of the death	 by reason of the death	 and	 therefore	 subsequent to the death. The imposition of the charge under the Act does not arise until the death has actually occurred and the property has	 thereupon	 passed. [453E G] 449 2. The liability to pay estate duty is fastened on the persons accountable. But their liability is limited to	 and will not exceed	 the assets of the deceased actually received by them	 or which	 but for their neglect or default	 they might have received. Apart from the Personal liability cast on the persons accountable	 and their liability to penalty in the event of default or concealment	 the duty payable is charged On the property itself and any private transfer or delivery is void against any claim in respect of such duty. Essentially and basically	 therefore	 the duty is a burden on the estate and that burden is fastened on the estate upon the death of the deceased. During his life	 no liability under the Act arose or could arise. [453G 454A] 3. Subject to the limitations and exceptions statutorily specified	 the allowable deductions in the determination of the chargeable value of the estate are the debts and encumbrances incurred before the death of the deceased. Estate duty falling upon property passing upon the death had not become a debt or encumbrance until the death of the deceased	 and is	 therefore	 not deductible. [454B C] 4. As regards the claim for deduction of the amount attributable to the maintenance of the wife of the deceased during his life	 there is no evidence or any finding to show that the estate had been burdened with any such debt or encumbrance by reason of the husband 's failure to act upto his statutory obligation to maintain his wife. [454E F] 5. The expression "passes on the death" denotes change in the title or possession of the whole property taking place at the death. It is immaterial to whom the property passes. [453D E] Inland Revenue Commissioner vs Crossman	 ; Winans & Another vs Attorney General	 	 referred to ; [1978] Ill ITR 365 (Gujarat); [1981] 127 ITR 642 (Allahabad); [1981] 132 ITR 871 (Madras); [1982] 137 ITR 801 (Gauhati); [1990]186 ITR 29 (Bombay); Controller of Estate Duty vs Estate of Late Omprakash Bajaj	 approved.