1. A proposition which has not been questioned and a position which has not been disputed for more than 80 years in England since the estate duty was imposed for the first time in 1894 and for more than 20 years in India since the Estate Duty Act was enforced in 1953, viz., whether estate duty payable on an estate passing on the death of a person can be claimed as deduction in making valuation of the estate of the deceased, has been questioned in two allied references raising an identical question. Both these references, viz., References No. 7 of 1974 and Reference No. 9 of 1974, will, therefore, for the sake of convenience, be disposed of by this common judgment.
2. Of course, the fact that estate duty is, so far, being paid on the premise that the amount payable as estate duty cannot be claimed as deduction in making valuation of the estate of the deceased, is no ground for making a sceptical approach. That no such point was raised so far is not by itself a circumstance which reflects on the merits of the argument in support of the proposition which must be examined with an objective eye and approached with an unbiased mind. No doubt, the problem must be examined closely, carefully and thoroughly inasmuch as if the proposition were to be upheld, it would result in unsettling an unquestioned position in the sphere of taxation after a lapse of such a long time.
3. The point involved is a pure question of law and it is unnecessary to state any facts in order to resolve the question referred by the Income-tax Appellate Tribunal, Ahmedabad. In Reference No. 7 of 1974, the deceased died on November 21, 1966. In Reference No. 9 of 1974, the deceased died on April 7, 1963, and the accountable person filed the estate duty account on October 10, 1963. In both these matters, the Controller of Estate Duty, the Appellate Controller of Estate Duty who is the appellate officer, and the Income-tax Appellate Tribunal have concurrently taken the view that the accountable person is not entitled to claim deduction of the amount payable as estate duty from the value of the estate passing on the death of the deceased. At the instance of the accountable person, the following question has been referred to this High Court for its opinion under section 64 of the Estate Duty Act, 1953 (hereinafter referred to as "the Act").
4. Reference No. 7 of 1974 :
"Whether the Tribunal was justified in law in holding that the estate duty payable on the estate of the deceased is not deductible from the value of the estate ?"
5. Reference No. 9 of 1974 :
"Whether the accountable person is entitled to claim deduction of the estate duty from the value of the estate passing on the death of the deceased ?"
6. The argument pressed by the learned counsel for the assessee in support of his claim is that the amount of estate duty payable by the accountable person is deductible in making valuation of the estate passing on the death of the deceased. In substance, he argues, liability to pay the estate duty is an incumbrance on such estate and, therefore, falls within the main para. of section 44 of the Act which runs as under :
"44. 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 -
(a) for debts incurred by the deceased, or incumbrances created by a disposition made by the deceased, unless, subject to the provisions of section 27, such debts or incumbrances were incurred or created bona fide for full consideration in money or money's worth wholly for the deceased's own use and benefit and take effect out of his interest, or
(b) for any debt in respect whereof there is right to reimbursement from any other estate or person, unless such reimbursement cannot be obtained, or
(c) more than once for the same debt or incumbrance charged upon different portions of the estate, or
(d) for debts, incurred by or on behalf of the deceased by way of dower, to the extent to which such debts are in excess of rupees five thousand,
and any debt or incumbrance for which an allowance is made shall be deducted from the value of the property liable thereto.
Explanation. - For the purposes of this section, 'funeral expenses' include all expenses which may have to be incurred in connection with the sraddha or barsi ceremonies of the deceased for a period of one year from his death."
7. The learned counsel argues that the property passing on the death of a person is exigible to estate duty by virtue of the charging section contained in the Act. Reliance is placed on section 5(1) of the Act which forms part of Part II of the Act relating to imposition of estate duty. Section 5(1) is the charging section for the levy of estate duty and it is in these terms :
"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 property, settled or not settled, including agricultural land situate in the territories which immediately before the 1st November, 1956, were comprised in the States specified in the First Schedule to this Act, which passes on the death of such person, a duty called 'estate duty' at the rates fixed in accordance with section 35."
8. Counsel contends that in view of section 5, the estate passing on he death of a person is exigible to tax at the very moment of the death of the person concerned and, therefore, it constitutes an incumbrance on the estate so passing. He calls our attention to the definition of the expression "property passing on the death" contained in section 2(16) of the Act which runs as under :
"'Property passing on the death' includes property passing either immediately on the death or after any interval, either certainly or contingently, and either originally or by way of substitutive limitation, and 'on the death' includes 'at a period ascertainable only by reference to the death'."
9. Counsel contends that the liability to pay estate duty would be an incumbrance on the estate passing on the death of deceased on two grounds. First, that it is a statutory liability and, second, that it is so provided by section 74(1) which, in so far as is material, reads 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." Now, it appears that counsel draws inspiration for his argument from Mrs. Blanche Nathalia Pinto v. State of Mysore  53 ITR 64 (ED) (Mys) on which his argument is substantially erected. In the case of Blanche  53 ITR (ED) 64 (Mys) the point did not arise under the Act. The problem arose in the context of the Mysore Court Fees and Suits Valuation Act, 1958, when the executor applied for grant of probate and the will of the testator and the question as regards the court fees payable on the said application arose. It was in this context that the Mysore High Court came to examine the question as to whether in making the valuation of the estate passing on the death of the deceased, the estate duty payable by the accountable person can be deducted for the purpose of determining the liability from the perspective court fees payable on the application for probate. The question, therefore, incidentally arose before the Mysore High Court and the argument urged in support of the view that the amount of estate duty was deductible from the value of the estate was summarised in the following passage (page 70) :
"The argument maintained by Mr. Karanth was that if from these provisions it is clear that the estate duty paid by the petitioner was a charge on the properties which vested in her capacity as an executor under the will of her husband, and that estate duty became payable on the passing of the property by death, the property which vested in the executor was the property burdened with the liability to pay the estate duty and its market value which is relevant for the purpose of section 53 of the Court Fees and Suits Valuation Act must necessarily be the value of the estate at the time of death reduced by the sum payable by way of estate duty." The said argument was countered on behalf of the revenue in the following manner (page 70) :
"The competing argument pressed on us by Mr. Government Pleader was that on the death of the deceased, there was the passing of the property and the vesting of it in the executor and that the market value of the property which so vested was the market value at the time of death and not its value which abated by reason of the charge created by section 74 of the Estate Duty Act in respect of the liability for the payment of estate duty." The opinion formed by the court was expressed in the following words (page 72) :
"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." Proceeding further, the learned judges observed as under (page 72) :
"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." Now, it appears that Blanche's case  53 ITR (ED) 64 (Mys) came up for consideration before the Madras High Court in In re Mrs. Constance Lubeck  78 ITR 199 (Mad). The learned single judge before whom the question came up in the context of the Madras Court Fees and Suits Valuation Act, 1955, disagreed with the Mysore High Court. Subsequently, in 1974, the point in issue directly came up for consideration before a Division Bench of the Karnataka High Court under the Act. The Division Bench in the said case, Smt. V. Pramila v. Controller of Estate Duty  99 ITR 221 (Kar), negatived the contention urged on behalf of the assessee mainly by placing reliance on section 74(1) of the Act.
The view taken by the Karnataka High Court is reflected in the following passage (page 226) :
"The accountable person claims deduction of the estate duty payable on the property passing on the death of the deceased under section 44 of the Act. That is the only section which provides for deductions.
The principal value of property passing on death has to be ascertained in the manner provided by the Act. If estate duty payable on the estate of a deceased does not fall under section 44 of the Act, the accountable person is not entitled to claim deduction for the same. The estate duty payable on the estate of a deceased does not come under section 44 of the Act is clear from sub-section (1) of section 74 of the Act. The said sub-section has been set out in the earlier part of this judgment. It provides that after the debts and incumbrances allowable under Part VI of the Act, the estate duty shall be a first charge on the immovable property passing on the death of the deceased. The intention of Parliament that estate duty is neither a debt nor an incumbrance allowable under Part VI of the Act is clear from sub-section (1) of section 74 of the Act. The debts and incumbrances allowable under Part VI of the Act take priority over the estate duty payable. If estate duty is either a debt or incumbrance allowable under section 44 which occurs under Part VI of the Act, section 74(1) could not have stated that the debts and incumbrances allowable under Part VI shall rank above estate duty for which charge is created. Therefore, it is clear that estate duty payable on the estate of a deceased person is neither a debt nor an incumbrance liable to the deducted under section 44 of the Act."
10. The learned counsel for the assessee contends that the case of Smt. V. Pramila  99 ITR 221 has not been correctly decided by the Karnataka High Court and that the view canvassed on behalf of the assessee deserves to be accepted, inter alia, on the basis of the reasoning in Blanche's case  53 ITR (ED) 64 (Mys).
11. The submission urged on behalf of the assessee may be summarised as under :
Inasmuch as the estate passing on the death of a person instantaneously attracts statutory liability for payment of the estate duty, what actually passes on the death of the deceased is not the estate as held by him just prior to his passing away, but such estate burdened with the liability to pay the estate duty. This being an incumbrance within the meaning of the main para. of section 44, it is deductible in determining the value of the estate passing on the death. Simultaneously with the death of a person such is the submission, two other events take place, viz., (i) passing of the estate of the deceased, and (ii) exigibility of the estate to tax which operates as a charge on the estate by virtue of section 74(1) of the Act.
12. In our opinion, the argument urged on behalf of the assessee is built on foundation of quicksand. In the first place, section 74(1), on a plain reading, negatives the contention of the learned counsel for the assessee. It is in terms, inter alia, provided thereby that the estate duty payable in respect of the property passing on the death of the deceased shall be a first charge on the immovable property so passing on his death regardless in whom the property may vest only after the debts and incumbrances allowable under part VI (which includes section 44) of the Act. Two aspects require to be emphasised : (i) that the charge arises only in respect of the immovable property (and not of movable property), and (ii) the charge will operate only after the debts and incumbrances allowable under section 44 and other provisions contained in part VI. The importance of the first circumstance, namely, that the charge in respect of the estate duty will operate only in respect of the immovable property cannot be over-emphasised. If the argument of the learned counsel for the assessee were right, the entire estate including the movable property passing on the death would at the very moment of death and the identical moment of passing be burdened by incumbrance arising in the context of the exigibility to pay the estate duty. Under section 74(1), however, the charge will operate in respect of only the immovable property and not the movable property. This would introduce a fatal contradiction in the argument for if the estate of the deceased were to contain only movable property, section 74(1) will not be attracted and estate duty payable thereon cannot be deducted from the value of the estate passing on the death of the deceased. The second point of significance is that section 74(1) itself draws a distinction between the liability to pay the estate duty on the one hand and debts and incumbrances to be excluded from the estate on the other. It postulates that the liability to pay the estate duty is not otherwise deductible from the valuation of the estate passing on the death of the deceased. If that was not so, there was no point in providing that the charge will operate only after the debts and incumbrances allowable under section 44 and other provisions of Part VI of the Act are accounted for. Section 74(1) gives a clue to the legislative mind and indicates that the legislature has proceeded on the assumption that the estate duty payable on the estate passing on the death of the deceased would not fall within the permissible deductions within the meaning of section 44 of the Act. As observed earlier, this is the view which has prevailed with the Karnataka High Court in Smt. V. Pramila's case  99 ITR 221. Faced with this difficulty, counsel for the assessee argued that section 44 must be interpreted independently of the provisions contained in section 74 of the Act and that, as provided therein, in determining the value of the estate for the purpose of estate duty, allowance shall be made for bebts and incumbrances. It is contended that the expression "incumbrance" would be attracted in respect of the statutory liability for payment of the estate duty and that, on that account, the amount payable as estate duty deserves to be excluded from the value of the estate. Now, in the first place, section 44, inter alia, provides for exclusion of debts and incumbrances in determining the value of the estate passing on the death of the deceased. The question necessarily arises what exactly is meant by "debts" and "incumbrances". The learned counsel for the assessee is unable to show that the expression "debts" is referable to debts other than debts of the deceased. What must be deducted from the estate passing on the death are the debts of the deceased for the very good reason that it is the surplus of the assets over the liabilities which passes on the death of the deceased regardless of in whose hands in passes. That being the position, expression "debts" cannot but refer to debts of the deceased whose estate has passed upon his death. If the expression "debts" is referable to the estate of the deceased, the expression "incumbrances" must also of logical necessity refer to incumbrances created by the deceased during his lifetime. The expression "incumbrance" has been defined by Mozley and Whitely in Law Dictionary, sixth edition, at page 173, as meaning - "a charge or mortgage upon real or personal estate". The Act itself defines the expression "incumbrance" as "including mortgages and terminable charges", as per section 2(10). In Wharton's Law Lexicon, "incumbrance" has been defined as meaning "a claim, lien or liability, attached to property". Now, the liability simpliciter to pay the duty not giving rise to any charge even if created by a statute cannot be said to be an incumbrance. Nor can it be said to have been created by the deceased. A reading of clauses (a) and (b) of section 44 reveals that the legislature had in mind the incumbrance created by the deceased. If this was not so, clause (a) would not have referred to an incumbrance created by disposition by the deceased whilst making a provision for exclusion of certain types of incumbrances from the purview of the first paragraph of section 44. It is, however, argued that the expression "incumbrance" must be read and construed in the sense of a burden on the estate passing on the death of the deceased person which burden arises instantaneously with the death of the deceased by virtue of its exigibility to pay tax under section 5 of the Act. It is no doubt a statutory liability but the mere fact that the liability is created by the statute will not make it a liability coupled with a charge on all the properties, movable and immovable, comprised in the estate of the deceased. A charge will not fasten itself on the properties unless a charge is created by the parties or by operation of law. Even under section 74 a charge would be created only in respect of the immovable properties and not in respect of the movable properties. What is more, it would not fall within the ambit of the expression "debts" and "incumbrances" employed in section 44 of the Act particularly having regard to the fact that we are of the view that the expression "debts" is referable to the debts of the deceased and also that the expression "incumbrance" is referable to the incumbrances created by the deceased. Besides, there is yet another fundamental fallacy in the argument urged on behalf of the assessee. It is assumed by him that the death of the deceased, passing of the estate and exigibility to tax, all the three take place simultaneously at an identical notional point of time. There is no warrant for this proposition. The taxing event is the passing of the property on the death of a person. And the property which passes on the death of a person is the property in respect of which title is transmitted to the heirs and successors of the deceased on account of the death. (We are, for the present, not concerned with the inclusive definition contained in section 2(16) of the Act). When does transmission of title then take place ? So long as the deceased was alive, no transmission of title by operation of law by testamentary succession or intestate succession or intestate succession could have taken place and no property could have passed from his hands to the hands of his heirs and successors. passing of property can, therefore, take place only upon the death at the instantaneous moment (however small in the time dimension) next after the moment of death. It would happen at that infinitesimal point of time which intervenes between the last breath exhaled by the deceased and the next breath that he might have inhaled if he were not dead. The concept of time itself is a concept of human mind and, therefore, we have to visualize a minimal point of time when the deceased breathed his last and visualise the very next moment, which is the point of time when passing of the estate takes place. Passing of property must follow the death of necessity and, therefore, death and passing cannot be simultaneous. We are fortified in the view that we are taking by Smith (decd.), In re : Executor Trustee and Agency Co. of South Australia Ltd. v. Inland Revenue Commissioner  Ch 360; 3 EDC 188, 193, 194 (Ch D). Danckwerts J. has dealt with this aspect as under :
"It seems fairly clear that it is not until the life tenant is dead that there can be any passing or any liability to duty. It is not the life but the death of the life tenant which attracts the duty; and so long as the life tenant is still alive, even though he or she be in extremis, no claim for duty can possibly be made. It is only when the person in question had expired, after the last breath has left the body, that the property passes and the liability to estate duty arises.
13. Although from one point of view, one may regard those event as occurring simultaneously, it seems to me that in fact from a common sense point of view one must treat them as being in some sort of sequence, and on any view, the ownership of the life tenant cannot be the test, because as I have said, when the event occurs the life tenant has died. But the question is what happens then." There is, therefore, no escape from the conclusion that passing of the property as well as exigibility to estate duty both arise at a point of time, however so small, next to the point of time at which death of the deceased takes place. In this view of the matter, the argument advanced on behalf of the assessee cannot survive for one moment.
14. It would appear that upon death of a person, the property which passes on the death of such person would be exigible to estate duty as provided by section 5 and the property which passes on the death from the hands of the deceased to the hands of his heirs and successors whoever they may be, is the same property from the point of view of identity and quantum which changes hands by operation of law on account of the death. The property has to be identified with reference to the ownership or title thereto at the point the deceased breathed his last and the identical property would pass to his legal heirs and successors by operation of law on the moment next after his death. And no deduction can be made from the value of the estate comprising such property except as provided by the statute in Part VI of the Act which includes section 44. We have, therefore, to answer the question referred to us in the affirmative, that is to say, in favour of the revenue and against the assessee. We express our opinion in the affirmative in regard to the question referred to us in each reference. The assessee shall pay costs of each reference to the revenue.
15. For the purposes of record, it may be stated that learned counsel for the assessee cited Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax  59 ITR 767 (SC) and H.H. Setu Parvati Bayi v. Commissioner of Wealth-tax  69 ITR 864 (SC), during the course of his argument, but in the view that we are taking, the principle laid down in the aforesaid decisions will not have any bearing on the question referred to us for our opinion and, therefore, we need not enter into any discussion pertaining to the principle laid down therein. For similar reasons, we do not propose to discuss the principle enunciated either in Commissioner of Income-tax v. Sitaldas Tirathdas  41 ITR 367 (SC) or in Commissioner of Income-tax v. Sri Jagannath Jew  107 ITR 9 (SC).