Holding

Estate duty payable on property passing on death is not a debt or encumbrance deductible under Section 44, and maintenance of the wife during the husband’s life is likewise not deductible.

Summary

The appellant, SMT. P. Leelavathamma, appealed against the Controller of Estate Duty challenging the computation of the net principal value of the deceased’s estate. She argued that the estate duty payable on the property passing on death constituted a first‑charge encumbrance and therefore should be deductible under Section 44 of the Estate Duty Act, 1953, and that amounts paid for the maintenance of the deceased’s wife during his lifetime were likewise deductible. The Supreme Court held that estate duty becomes a liability only upon the death of the deceased and is a burden on the estate, not a debt or encumbrance incurred before death, and thus is not deductible. It also held that maintenance paid to the wife is not a debt or encumbrance on the estate and cannot be deducted. Consequently, the appeal was dismissed, affirming the High Court’s decision that no deductions were permissible.

Issues considered

Whether estate duty payable on property passing on death is a debt or encumbrance deductible under Section 44 of the Estate Duty Act, 1953.
Whether amounts paid for the maintenance of the deceased’s wife during his lifetime are deductible as a debt or encumbrance under the Act.

Legislation cited

Estate Duty Act, 1953s. 44, s. 5, s. 53, s. 74
Hindu Adoptions and Maintenance Act, 1956s. 18(1)
Hindu Succession Act, 1956s. 8

Subjects

Estate DutyDeductionEncumbranceMaintenance of WifeFirst ChargeProperty ValuationTax LawInterpretation of 'passes on the death'

Judgment

A SMT. P. LEELAVATHAMMA
v.
CONTROLLER OF ESTATE DUTY, ANDHRA
PRADESH, HYDERABAD

FEBRUARY 15, 1991
B
[DR. T. KOCHU THOMMEN, N.M. KASLIWAL AND
K. RAMASWAMY, JJ .]

Estate Duty Act, 1953-Sections 5, 74-Estate Duty-Levv of- >-
Scheme-Duty being burden on estate on death, not debt or encum-
C brdnce 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.

The High Court in a reference under the Estate Duty Act, 1953 ---
D 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.
E The appellant contended in the appeal by cei-titicate 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 main-
tenance of the wife during her husband's life was also deductible.

The Respondent contended that estate duty being payable only
F· 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,
G 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]
H

448
LEELAVATHAMMAv. CONTROLLER 449

2. The liability to pay estate duty is fastened on the persons A
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 mi the persons accountable, a.'ld their liability to penalty in
the event of default or concealment, the duty payable is charged on the B
property itself and any private transfer or delivery is void against any
claim in respect of such duty. Es8entially 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, c
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]
D
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 rmding 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. [454EmF]
E
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. [4530-E]

Inland Revenue Commissioner v. Crossman, [1937] AC 26; W:-
F
. nans & Another v. Attorney General, (1910] AC 27, referred to [1975] 99
-~- · ITR 221 (Karnataka); [1978] 111 ITR 365 (Gujarat); (1981] 127 ITR
642 (Allahabad); (1981] 132 ITR 871 (Madras); (1982] 137 ITR 801
(Gaubati); [1990] 186 ITR 29 (Bombay); Controller of Estate Duty v.
Estate of Late Omprakash Bajaj, (1977] llOITR 263 (A.P.) approved.
G
CIVIL APPELLATE JURISDICTION: Civil Appeal No. S22
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. H
450 SUPREME COURT REPORTS [1991) 1 S.C.R.

T.A. Ramachandran and Ms. Janki Ramachandran for the
A
Appellant.

S.C. Manchanda, Ms. A. Subhashini (NP) and K.P. Bhatnagar
for the Respondent. ·

B The Judgment of the Court was delivered by

THOMMEN, J. This appeal by certificate arises from the judg- _).._
ment 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
c 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.

·D 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. Accord-
ing to counsel, all properties passing on the death of the d~~.eased are
encumbered to the extent of the duty payable by reason of the charge ~
E 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 attribut-
able to the maintenance of the wife during the life of her husband must
also be treated as a debt deductible under section 44.

F 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 pecame payable
only upon its passing and was, therefore, not a liability to which the
G estate was subjected during the life of the deceased. It became so
encumbered only subsequent to and consequent on the death. He
further 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
H the wife. A wife's claim for maintenance either during the life of her
LEELAVATHAMMA v. CONTROLLER [THOMMEN, J.] 451

husband, or subs·equent to the death of her husband, is not a charge on
A
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 5 of the Act, insofar as it is material, reads:

"Levy of estate duty. IB

5(1). In the case of every person dying after the com-
mencement of this Act, there shall, save as hereinafter
expressly provided, be levied and paid upon the principal
value ascertained as hereinafter provided of all property,
settled or not settled, including agricultural land ....... .
which passes on the death of such person, a duty called c
"estate duty" at the rates fixed in accordance with section
/ 35.

(2) ••••••••••• 0 •••••••••••••••• ,,

D
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. Ali properties passing on a death, other than those which are
exempted from duty (See sections 21 to 33), are, for the purpose of
levy under the Act, aggregated into one dtate, which is the "pro-
perty" on which duty is levied at the rates applicable in respect of its E
principal value (sections 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 the price F
-~ 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 sections 44 to SOB dealing with de-
ductions in determining the chargeable value of the estate. Section 44
says that, in determining the value of an estate, allowance has to Ue G
made for funeral expenses not exceeding rupees one thousand and for
...,J, debts and incumbrances. The section, however, provides that no allo-
I wance shall be made in respect of matters enumerated under clauses
(a) to (d) of that section.

The "debts and encumbrances" mentioned in section 44 are, as a H
452 SUPREME COURT REPORTS [1991) 1 S.C.R.

general rule, debts and encumbrances incurred before the death of the
A deceased. Certain exceptions are, however, specifically provided in
section 44 and the other provisions of Part VI. Reasonable funeral
expenses,. cost of realising or administering foreign property, allo-
wance for duty paid in a non-reciprocating country, relief from estate
duty where court fees have been paid in any State for obtaining pro-
B bate, letters of administration or a succession certificate, and, relief
from estate duty where tax has been paid on capital gains are, in the
specified circumstances, 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
c the death. Significantly, 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
D legal representatives, trustees, guardians, committees or other persons
in whom any interest in the property or the management thereof is at
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 assets of the deceased which they have actually
received or which, but for their own neglect or default, they might
E have receivep. Any default or concealment on their part in the dis-
charge of their duties will make them liable for the penalty provided
under section 60.

Section 74 says that estate duty payable in respect of property,
passing on the death of the deceased, is a first charge on the property
F 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.
G
74(1). Subject to the provisions of section 19, the estate
duty payable in respect of property, movable or immov-
able, 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
H after the debts and incumbrances allowable under Part VI
LEELAVATHAMMA v. CONTROLLER [TIIOMMEN, J.] 453

of this Act; and any private transfer or delivery of such
property shall be void against any claim in respect of such A
estate duty.

(2) A rateable part of the estate duty on an estate, in pro-
portion to the value of any beneficial interest in possession
in movable property which passes to any person (other than B
the legal representative of the deceased) on the death of
the deceased shall be a first charge on such interest:

Provided that the property sh.all not be so chargeable
as against a bona fide purchaser thereof for valuable con-
sideration without notice.
c
(3) ............................... "

The scheme of the Act, as the abeve 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 D
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 (sections 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 E
it has passed at all". Per Lord Blanesburgh, Inland Revenue Commis-

- sioners 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 F
, _ death, and, therefore, subsequent to the death. The imposition of the
charge under the Act does not arise until the death has actually occur-
red 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 G
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 basi- H
454 SUPREME COURT REPORTS [1991] 1 S.C.R.

A 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 chargeable value
B 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.

This view is consistent with the conclusion reached on the point
c by various High Courts,[1975] 99 ITR 221 (Kamataka), [1978] lll 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 that High
D Court on this point in the judgment under appeal. The High Court, i.n
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 ,)..-
E 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). 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,
F rightly disallowed by the High Court. In the circumstances, for the
reasons we have stated, the appeal is dismissed. However, we do not ~
make any order as to costs. ·

V.P.R. Appeal dismissed.