Mrs. Sujata Manohar, J.@mdashThe following two questions have been referred to us u/s 64(1) of the Estate Duty Act, 1953, in respect of the
estate of one Jaikishan Naran :
(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the accountable person was entitled to a
deduction of liability of Rs. 2,64,725 arising on account of a joint agreement dated May 1, 1944, with Bharat Bank Ltd., in arriving at the dutiable
value of the estate of the deceased ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal ought to have held that the interest in the joint family property of the
lineal descendants of the deceased was not includible for the purpose of determining the rate of estate duty to be paid on the property passing on
the death of the deceased ?
2. The deceased and one Bhagwandas Mehra entered into an agreement with Bharat Bank Ltd., on May 1, 1944, as a result of which they agreed
to act as guarantee brokers for the bank in respect of transactions introduced by them. The liability of the deceased and Bhagwandas Mehra under
this agreement to the bank was joint and several. Under this agreement, Bharat Bank Ltd., in 1946 advanced to Messrs. Ashok Woollen Mills,
Amritsar, a certain amount which was guaranteed by the deceased and Bhagwandas Mehra. The liability of the deceased and Bhagwandas Mehra
under this agreement to the bank was joint and several.
3. The bank filed a suit against Messrs. Ashok Woollen Mills, Amritsar, and its partners for recovery of the amount so advanced by the bank
together with interest. On August 31, 1963, the bank obtained a decree for the sum of Rs. 2,19,062 against the principal debtor together with
interest thereon at 6 per cent. per annum. One of the partners of Ashok Woollen Mills died in the meanwhile. The bank took proceedings against
the remaining partners and the legal heirs of the deceased partner for recovery of the decretal debt. The bank, however, could not recover any
amount.
4. The bank, thereupon, issued a notice on May 30, 1965, calling upon the guarantors to make good the liability under the said guarantee
agreement of May 1, 1944. A second notice was issued by the bank on the guarantors on October 19, 1967. The total claim of the bank by this
time was Rs. 5,29,450.
5. The deceased died on December 30, 1967. On the date of his death, the claim of the bank in respect of the above transaction was Rs.
5,29,450.
6. The accountable person claimed deduction of the entire amount of Rs. 5,29,450 from the estate of the deceased. In the alternative, the
accountable person claimed deduction of at least 1/2 of the said amount, in view of the fact that the deceased as well as Bhagwandas Mehra were
jointly and severally liable to the bank in respect of the said amount. The Assistant Controller negatived this claim. The Tribunal, however, allowed
the accountable person to deduct half of this amount from the estate of the deceased.
7. The accountable person had also contended before the Tribunal that the value of the shares of the lineal descendants was not includible for the
purpose of determining the rate of estate duty payable on the property passing on the death of the deceased. The Tribunal negatived this
contention.
8. In view, however, of the Tribunal''s order permitting the accountable person to deduct half the said amount from the estate of the deceased, the
accountable person had no estate duty liability. Hence, he did not file a reference against the Tribunal''s order. However, as the Revenue assailed
the Tribunal''s order by raising the first question, it is the contention of the accountable person that it is now open to him to raise the question of
calculating the rate of estate duty also. Hence, the second question has also been referred to us.
9. In respect of the first question, Mr. Jetley drew our attention to section 44 of the Estate Duty Act, 1953. u/s 44(a) of the said Act, debts
incurred by the deceased which 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 which are to take effect out of his interest are liable to be deducted from the value of the estate of the deceased. u/s
44(b), however, an allowance shall not be made for any debt in respect of which there is a right to reimbursement from any other estate or person,
unless such reimbursement cannot be obtained.
10. In the present case, the agreement of May 1, 1944, whereby the deceased and Bhagwandas Mehra agreed to act as guarantee-brokers of the
bank, was an agreement for full consideration. The liability which has arisen as a result of the guarantee which was given by the deceased and
Bhagwandas Mehra and on the basis of which the bank advanced the said amount Ashok Woollen Mills, Amritsar, is also a guarantee for full
consideration. Therefore, this is a liability which is to be deducted from the estate of the deceased.
11. In this connection, Mr. Dastur has relied upon a decision of the Calcutta High Court in the case of Rupchand Mullick and Another Vs.
Controller of Estate Duty, , under which the Calcutta High Court has held that a debt owed by the deceased arising from a guarantee given by the
deceased is a liability which can be deducted from a guarantee given by the deceased is a liability which can be deducted from the estate of the
deceased. He also relied upon a decision of the Madras High Court in the case of Controller of Estate Duty Vs. A.V.S. Private Ltd. and Others,
S. Vijaymmal (Decd.) and Another and Sri Hari Mills (P.) Ltd., . In our view, therefore, a liability which has arisen as a result of a contract of
guarantee is a liability which can be deducted from the value of the estate of the deceased.
12. It was contended by Mr. Jetley that the deceased as a guarantor will not become liable to the bank unless it could be established that the
principal debtor is unable to pay the amount. He, therefore, submits that the liability had not ripened on the date of the death of the deceased. This
submission cannot be accepted. u/s 128 of the Contract Act, the liability of a surety is co-extensive with the liability of the principal debtor. As a
guarantor, the deceased was liable to pay the said amount to the bank. The deceased, however, was entitled to reimbursement of the amount from
the principal debtor. In the present case, however, the bank had already taken recovery proceedings against the principal debtor and was not able
to recover any amount. The deceased, therefore, could not obtain any reimbursement from the principal debtor.
13. The liability of the deceased, however, and of Bhagwandas Mehra is joint and several. Hence, in view of the provisions of section 44(b) of the
Estate Duty Act, 1953, the Tribunal has, in our view, rightly held that the accountable person can claim deduction of half the amount from the value
of the estate of the deceased.
14. Question No. (1) is, therefore, answered in the affirmative and in favour of the accountable person.
15. In respect of question No. (2), Mr. Jetley contends that in view of the decision of the Supreme Court in Commissioner of Income Tax, Kerala
Vs. V. Damodaran, it is not open to the assessee to raise this question. Mr. Dastur, however, contends that, as a result of the Tribunal''s order, the
accountable person has no estate duty liability and hence he could not have filed a reference before this court in respect of that question. We need
not examine this contention. In view of the answer which we have given to question No. (1), it is not necessary for us, in any event, to answer
question No.(2) because, on account of our answer to question No. (1), no estate duty is payable by the accountable person. We, therefore,
decline to answer question No. (2).
16. In the circumstances, there will be no order as to costs.