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PETITIONER: SMT.  P. LEELAVATHAMMA

       Vs.

RESPONDENT: CONTROLLER OF ESTATE DUTY, ANDHRA PRADESH,HYDERABAD

DATE OF JUDGMENT15/02/1991

BENCH: THOMMEN, T.K. (J) BENCH: THOMMEN, T.K. (J) KASLIWAL, N.M. (J) RAMASWAMY, K.

CITATION:  1991 SCR  (1) 448        1991 SCC  (2) 299  JT 1991 (1)   494        1991 SCALE  (1)236

ACT:      Estate  Duty Act, 1953-Sections 5, 74-Estate  Duty-Levy of Scheme-Duty being burden on estate on death, not debt  or encumbrance  and  not deductible-Maintenance of wife  during deceased’s life not debt or encumbrance and not deductible.      Words and Phrases-"Passes on the death"-Meaning.

HEADNOTE:      The  High  Court in a reference under the  Estate  Duty Act, 1953 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

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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 v. Crossman, [1937] AC  26; Winans & Another v. Attorney General, [1910] AC 27, referred to  [1975] 99 ITR  221  (Karnataka);  [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  v.  Estate  of  Late Omprakash Bajaj, [1977] 110 ITR 263 (A.P.) approved.

JUDGMENT:      CIVIL APPELLATE JURISDICTION: Civil 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  Estate Duty  Act, 1953 ("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,

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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.           5(1). 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 Part VI of the Act.      The  properties  are valued, for the  purpose  of  levy under the Act, in accordance with the provisions of Part  V. 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.      Part  VI 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

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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  Part VI. 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 Part VI-                                                        453           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

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        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  v.Crossman,[1937] AC 26, ’Estate  duty  falls upon  the  property  passing  upon  a  death..."   Per  Lord Loreburn, L.C., Winans & Another v. Attorney General, [1910] AC  27,30.   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,[1975] 99 ITR  221 (Karnataka),  [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 v. Estate of Late Omprakash Bajaj, [1977] 110 ITR  263 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 Hindu Adoptions and Maintenance  Act,  1956).

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The wife is of course a sharer of the assets left behind by her  husband  (see Section 8 of the  Hindu  Succession  Act, 1956).  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.                                                       455