H.N Seth, J.:— 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 s. 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 s. 35 of the Act. Section 6 of the Act lays down that the property which the deceased was at the time of his 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 s. 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 Jagdish 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.

3. 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……

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.”

4. 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.

5. 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 s. 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 s. 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).

6. Accordingly, although there may be no time-lag between the death of the deceased and his estate passing to his heirs and legal representatives, yet there is a clear sequence. The property of the deceased does not pass to his heirs and legal representatives so long as the deceased is alive, it passes only after he dies. In this view of the matter only the obligations which came to be attached to the property while the deceased was alive could be taken into consideration while determining the principal value of the property which passes as a result of his death. The obligation like the charge created by s. 74 of the Act can possibly not be considered to be an obligation which came to be attached to the property of the deceased while he was alive. Such an obligation came to be attached to the property only as a result of the death of the deceased and got attached not to the property as it passed on the death of the deceased but to the property as it came to be vested in the hands of the heirs and legal representatives of the deceased.

7. So far as the case of Mrs. Blanche Nathalia Pinto v. State of Mysore, [1964] 53 ITR (ED) 64 (Mys) is concerned, we find that in that case the question that arose for consideration was with regard to the amount of court-fees payable under s. 53 of the Mysore Court-Fees and Suits Valuation Act, 1958, on an application made by an executor for obtaining the probate of a will left by the deceased. Section 53 of the Mysore Court-Fees and Suits Valuation Act ran thus:

“53. Levy of fees.— (i) The fee chargeable for the grant of probate or letters of administration shall comprise—

A fee at the rate or rates prescribed in article 6 of Schedule I, computed—

(a) where the application is made within one year of the date of death of the deceased, on the market value of the estate on such date; or

(b) where the application is made after the expiry of one year from such date, on the market value of the estate on the date of the application….”

8. Although the word “estate” occurring in s. 53 had not been described with any particularity in that section, what that estate was, had to be ascertained from s. 52 which laid down that there shall be a valuation of the estate in duplicate in the form set forth in Pt. I of Sch. III. It, therefore, followed that the market value relevant for cl. (b) of s. 53(1) was the market value of the estate which had to be made on the form set forth in Pt. I of Sch. III. Relevant portion of Pt. I of Sch. Ill, which consisted of four paras, ran thus:

“SCHEDULE III

Part I

I, (A. B.) ……………. solemnly affirm/make oath and say that I am the executor (or one of the executors or one of the next-of-kin) of deceased and that I have truly set forth in Annexure ‘A’ to this Form of Valuation all the estate of which the abovenamed deceased died possessed or to which he was entitled at the time of death, and which has come, or is likely to come, to my hands…”

9. In these circumstances, the learned judges came to the conclusion that under s. 53 of the Mysore Court-Fees and Suits Valuation Act, 1953, the amount of court-fee payable by the executor who applied for a probate was that payable on the market value of the estate which had come or was likely to come into his hands provided the estate either belonged to the deceased or was in his possession when he died. It was in this context that the learned judges noticed the provisions of s. 74 of the E.D Act providing for estate duty being the first charge on the immovable property so passing on the death of a deceased and observed that the property that vests in the executor for distribution or administration is the 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 s. 23 of the Act. In the case before us we are concerned with the property which passes on the death of the deceased and not with the determination or valuation of the property which comes into the hands or vests with the heirs and legal representatives of the deceased persons.

10. It is true that at one place the learned judges made the following observations (p. 70):

“That, in my opinion, is the clear meaning of the reference to property ‘which passes on the death of’ the deceased, contained in the charging section which is section 5 of the Act. The scheme of the Estate Duty Act and of its provisions makes it clear that immediately on the death of a person, estate duty becomes exigible in respect of his property which passes on his death. The liability comes into being even before it passes and what brings into existence that liability is the death of the person to whom the property belongs. In that situation, to whomsoever the property may pass, the property which so passes is the property on which the liability for the payment of estate duty had already become fastened, and it is that property with the burden whose market value has to be determined under the provisions of section 53 of the Court-Fees and Suits Valuation Act.”

11. Aforementioned observation of the learned judges does support the case of the accountable person that in the opinion of the learned judges the liability for payment of estate duty gets attached to the property of the deceased even before it passes within the meaning of the E.D Act and as such the value of the property which passes stands reduced by the amount which is the subject-matter of the charge on the property. We are, for the reasons already mentioned above, unable to agree with the learned judges when they observed that the liability to pay the estate duty comes into being even before the property passes on the death of the deceased. As already explained, there is no liability whatsoever for payment of estate duty so long as the deceased was alive and on his death the property in the same condition in which the deceased enjoyed it passes. It is a different matter that while the property passes on the death of the deceased it, because of the provisions contained in s. 74 of the E.D Act, becomes burdened with a charge. That charge is something which attaches to the property which happens to vest in the heirs and legal representatives but does not affect the nature of the property that actually passes.

12. We are ‘accordingly’ of opinion that while evaluating the principal value of the property which passes on the death of a deceased under the E.D Act only such obligation or burden that came to be attached to the property while the deceased was alive can be taken into account. The obligations like the charge created under s. 74 of the Act which gets attached to the property of the deceased, not so long as he was alive, but as a consequence of death, is not to be taken into account in determining its principal value. We are in this view fully supported by a decision of the Gujarat High Court in the case of Addl. CIT v. Mukur Corporation, [1978] 111 ITR 312. Learned counsel for the accountable person next contended that even if the amount of estate duty charged by s. 74 on the estate of the deceased is not to be taken into consideration while evaluating its principal value as provided in s. 36 of the Act, none the less while determining the value of the estate for purposes of estate duty the accountable person is entitled to an allowance in respect thereof as provided in s. 44 of the Act. Section 44 of the Act runs thus:

“In determining the value of an estate for the purpose of estate duty, allowance shall be made for funeral expenses (not exceeding rupees one thousand) and for debts and incumbrances; but an allowance shall not be made—

and any debt or incumbrance for which an allowance is made shall be deducted from the value of the property liable thereto.”

13. Learned counsel for the accountable person contended that the estate duty is either a debt or an encumbrance on the estate which came to be attached to the estate on the death of the deceased. It is not a debt or an encumbrance which falls in any of the els. (a) to (d) of s. 44. Accordingly, the accountable person was entitled to have the amount of estate duty deducted while determining the taxable value of the estate left by the deceased. We find no merit in this submission of the learned counsel. Section 74(1) of the Act which makes the estate duty a charge on the immovable properties left by the deceased runs thus:

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

14. Even if it be taken that the charge regarding the estate duty is an encumbrance on the estate of the deceased, it certainly is not a debt or encumbrance of the nature specified in s. 44 of the Act. If the legislature intended that the charge created by it under s. 74 would be a debt or encumbrance of the nature specified in s. 44, there was absolutely no point in its providing in s. 74(1) that the liability to pay the estate duty would be the first charge on the property of the deceased after the debts and encumbrances allowable under Pt. VI of the Act (s. 44). Such a provision clearly indicates that the legislature did not contemplate the charge of liability regarding the payment of estate duty, on the estate left by the deceased, to be an encumbrance for which an allowance has to be made under s. 44 of the Act. We are, therefore, of opinion that the accountable person cannot claim deduction of the estate duty payable on the estate left by the deceased under s. 44 of the Act. Learned counsel for the accountable person did not bring to our notice any other provision in the E.D Act under which he can claim deduction in respect of estate duty in computing either the principal value of the properties left by the deceased or the taxable value of the estate of the deceased. In this view we are fully supported by the decisions of the Karnataka, Andhra Pradesh, Gujarat High Courts and our own court, in the cases of Smt V. Pramila v. CED, [1975] 99 ITR 221 (Kar), CED v. Estate of late Omprakash Bajaj, [1977] 110 ITR 263 (AP), Smt. Shantaben Narottamdas v. CED, [1978] 111 ITR 365 (Guj), CED v. Smt. P. Leelavathamma, [1978] 112 ITR 739 (AP) and Maharani Raj Laxmi Kumari Devi v. CED, [1980] 121 ITR 1002 (All).

15. In the result, we answer the question referred to us in the affirmative and in favour of the revenue. The Controller shall be entitled to costs which are assessed at Rs. 250.