Chandra Prabha Charitable Trust vs Addnl. Agricultural Income Tax Officer-I

C.N. Ramachandran Nair, J.—This revision petition is filed u/s 78 of the Kerala Agricultural Income Tax Act, 1991 by a charitable trust, challenging the order of the Tribunal confirming disallowance of deduction claimed towards estate duty paid on the death of Smt. J. Sarala Devi, after whose death the estate devolved on the petitioner trust. Even though the petitioner is described as a charitable trust, in the judgment in O.T.C. No. 5/2005, this Court held that the petitioner is not entitled to exemption from agricultural income tax as a charitable trust. The estate originally belonged to one Mr. Jinachandran who transferred the property to his wife Smt. Sarala Devi on condition that on the death of the transferee, the property will devolve on the petitioner trust. It is not on record as to when Smt. Sarala Devi died and the year of liability for payment of estate duty. Consequently, it is seen from the impugned order that the petitioner trust claimed deduction of not only estate duty, but agricultural income tax liability of Smt. Sarala Devi cleared by the petitioner.

We have heard learned Counsel for the petitioner and learned Govt. Pleader for the respondent.

Even though several questions are raised in the petition, only the following question considered by us, is pressed for our decision.

Learned Counsel for the petitioner heavily relied on the decision of this Court in George Oommen Vs. State of Kerala, and contended that estate duty is similar to wealth tax, held to be allowable by this Court in the computation of income u/s 5(j) of the Agricultural Income Tax Act, 1950.

Learned Govt. Pleader, on the other hand, contended that estate duty is not comparable to wealth tax and even though the provisions of Section 5(j) of the Agricultural Income Tax Act are similar to Section 37(1) of the Income Tax Act, the decision of this Court cannot be applied to estate duty claimed. On going through the judgment of this Court referred to above, we find that this Court allowed the claim based on a decision of the Supreme Court in The Indian Aluminium Co. Ltd. Vs. The Commissioner of Income Tax , West Bengal, Calcutta, wherein the Supreme Court held that wealth tax is an allowable deduction in the computation of income under the Central Income Tax Act. The case decided by this Court is in the case of an assessee under the Agricultural Income Tax Act who had preserved this agricultural land by discharging liabilities including wealth tax payable on agricultural lands. The specific finding is that the wealth tax paid and claimed by the assessee in that case pertains to wealth tax on agricultural land. However, in this case the facts are different in as much as the estate duty is a liability on the properties of the deceased and does not pertain to agricultural lands alone. u/s 74 of the Estate Duty Act, 1953 the estate duty is a first charge on the movable and immovable properties of the deceased. In other words, it is not a personal liability of the successor to the estate and it is to be recovered, if not paid, by attachment and sale of the movable and immovable properties of the deceased on whose death the liability fell due, in the form of estate duty. The net result is that the legatee or the successor gets the estate subject to charge of estate duty. In other words, the property devolved on the successor/legatee shall be net of estate duty. It goes beyond doubt that the estate duty goes to reduce the value of the property devolved on the successor or the legatee. In this view of the matter, we fell that it has nothing to do with the agricultural operations which the legatee or the successor of the deceased is not even bound to continue. In other words, irrespective of agricultural operations, the liability is to be discharged by the successor or the legatee who succeeds to the estate of the deceased. We are therefore of the view that the Tribunal rightly rejected the deduction claimed by the petitioner u/s 5(j) of the Agricultural Income Tax Act, 1950 which provides for deduction of any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of deriving the agricultural income.

We therefore dismiss the Other Tax case by answering the question in favour of the State and against the assessee.