JUDGMENT
1. One A.M. Sahul Hameed died on May 25, 1965. At the time of his death, he war running a business in film financing and filed distribution and a rice mill as well. Sri T. M. Nagarajan was working a an accountant under the deceased and had also overdrawn, on his salary account, substantial amounts at the time of the demise of A.M. Sahul Hameed. The accountable persons filed an account of the estate and the Assistant Controller of Estate Duty, Thanjavur, computed the principal value of the estate of the deceased at Rs. 17,57,738. In doing so, the Assistant Controller of Estate Duty took into account Rs. 4,97,988 representing the book debts and other advances as admitted by the accountable persons after discussion with them and their representative and this included a sum of Rs. 21,340, representing the salary overdrawn by Sri T. M. Nagarajan. Aggrieved by the order of the Assistant Controller of Estate Duty, Thanjavur, the accountable persons preferred an appeal to the Appellate Controller of Estate Duty, Madras-6, and therein, the inclusion, in the principal value of the estate, of certain debts due to the estate, was disputed on the ground that owing to disputes and misunderstandings which had arisen between the different heirs of A.M. Sahul Hameed and the claims and counter-claims made by them, the books of account were not closed and, therefore, there was no proper account taking and that only in May, 1971, the accounts were finalised and some of the debts had been written off and claims in that regard had also been lodged with the income-tax authorities for an allowance. On this basis, amongst other items, the sum of Rs. 21,340 due from Sri T. M. Nagarajan, accountant of deceased, A.M. Sahul Hameed, was sought to be excluded from the principal value of the estate as having been written off as a bad debt in May, 1971. The Appellate Controller of Estate Duty, however, did not countenance this claim of the accountable persons, as Sri T. M. Nagarajan left the services of the heirs of decayed, A.M. Sahul Hameed, only in August, 1966, and the amount o Rs. 21,340 represented overdrawls on his salary account which cannot be considered and treated to be a bad debt. In the result, the claim to exclude this amount from the principal value of the estate was negatived, though with reference to some other claims, relied was given to the accountable persons. Not satisfied with the order of the Appellate Controller of Estate Duty, the accountable persons, as well as the Assistant Controller of Estate Duty, Thanjavur, preferred appeals in E.D.A. Nos. 65 and 57/Mad/1972-73 before the Income-tax Appellate Tribunal, Madras. One of the items of dispute dealt with by the Tribunal related to the includibility in the principal value of the estates of the amount of Rs. 21,340 representing the salary overdrawn by the accountant, Sri T. M. Nagarajan. Dealing with the claim for exclusion made by the accountable persons, the Tribunal took the view that as Sri T. M. Nagarajan left the services of the legal representatives of the deceased, A.M.Hameed, in 1966 and his whereabouts were not known and no legal action for recovery of the amounts was taken considering the cost of litigation and the bleak chances of recovery, it would not be reasonable to include the debt of Rs 21,340 due from Sri T. M. Nagarajan in the principal value of the estate. In this view, the debt of Rs. 21,340 due to the estate of the deceased was directed by the Tribunal to be deleted from the principal value of the estate.
2. Aggrieved by this, the Controller of Estate Duty, Madras; obtained a reference to this court under s. 64(3) of the E. D. Act, 1953 (hereinafter referred to as “the Act”) on the following question :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in excluding the sum of Rs. 21,340 being the amount due from Shri T. M. Nagarajan, from the estate of the deceased for estate duty purpose ?”
3. Thus, the principal question that arises for our consideration is whether the Tribunal was right in the view it took with reference to the debt of Rs. 21,340 due to the estate of late A.M. Sahul Hameed. There is no controversy about the facts here. Sri T. M. Nagarajan worked as an accountant under the deceased, A.M. Sahul Hameed, till his death in May, 1965, and even thereafter, till about August, 1966. Even during the life time of Sri A.M. sahul Hameed, Sri T. M. Nagarajan had overdrawn on his salary account. On May 25, 1965, when Sahul Hameed died, the amount so overdrawn by Sri T. M. Nagarajan, though on account of his salary, was a debt due to the estate of A.M. Sahul Hameed. Under s. 2(15) of the Act, “property” has been defined to include any interests in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being reprinting the proceeds of sale and also included any property converted from one species into another by any method. This definition of “property” is indeed very wide and would take within it sweep a variety of interests and rights a falling within the scope of the expression “property”. There is no dispute before us that these debt from Sri T. M. Nagarajan on May 25, 1965, when A.M. Sahul Hameed died, constituted “property” of the deceased. Under s. 2(16) of the Act, “property” passing on death” include a 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”. With reference to the debt of Rs. 21,340 due from Sr. T. M. Nagarajan to A.M. Sahul Hameed, there is no doubt that on May 25, 1965, when A.M. Sahul Hameed died, the property passed to his heirs immediately on his death. Under s. 5 of the Act, which is really the charging section, the estate duty shall be levied and paid upon the principal value of the estate ascertained as provided for in the Act, which passes on the death of a person. Part. V of the Act makes elaborate provisions in ss. 36 to 43 for the; ascertainment of the principal value of the estate. Having regard to the nature of the property in this case, viz., a debt, there is no question of ascertaining the market price of the property at the time of the death of the deceased, as it was a definite, ascertained and recoverable sum of money due to the deceases, A. M. Sahul Hameed. Part VI of the Act contains that province for deductions. Section 44 provides for the allowance of certain amount like funeral expenses (not exceeding Rs. 1,000) and for debts and encumbrances, with certain exceptions, etc., in determining the chargeable value of the estate. A debt due to and recoverable by the deceased, when he was alive and which on his death passed on to his heirs as part of his property within the meaning of the Act, cannot be excluded at all for purposes of computing the principal value of the estate under the provisions of the Act. Though such a debt is property for purposes of the Act and also passes under the provisions of the Act on the death of the deceased to his heirs, it does not cease to form part of the prenatal value of the estate merely because subsequent to the death of the deceased, the debt is claimed to be a bad debt by the accountable persons. Indeed, we may observe that our attention was not drawn to any provision in the Act which recognises or permits the exclusion of a debt, which was legally recoverable at the time of the death of the deceased, from the principal value of the estate, on the ground that such a debt, subsequent to the death of the deceased, had been claimed to be a bad debt. We may point out that the concept of exclusion of bad debts from the principal value of the estate, appear to be totally alien to the scheme of the Act as well as to the provisions thereunder. The Tribunal, in this case, had been influenced by the circumstances that Sri T. M. Nagarajan had left service in 1966 and his whereabouts were unknown. It may be that Sri T. M. Nagarajan no longer made his services available to the accountable persons, but that as well as the inability of the accountable persons to trace his whereabouts are not germane for excluding the debt from the principal value of the estate, in the absence of a statutory provision in that regard. Similarly, the failure to take any legal action for the recovery of the amount in view of the cost of litigation and the doubtful chances of recovery, would not also render the debt due form Sri T. M. Nagarajan any the less “property”, which passed on the death of the deceased, A.M. Sahul Hameed, to his hires. The debt might have originated in over-payment of salary to the accountant., It may also be that the chances of recovery are remote. Even so, these are all circumstances which cannot enable the accountable persons to claim an exclusion of this debt from the principal value of the estate in accordance with the provisions of the Act. Besides, it is seen from the order of the Assistant Controller of the Appellate CED that only in May, 1971, the debt due from Sri T. M. Nagarajan, the accountant of the deceased, Sahul Hameed, had been written off. This shows that on May 25, 1965, at the time of the death of Sri A.M. Sahul Hameed, there was no difficulty whatever in the recovery of the amount due from Sri T. M. Nagarajan. In other words, the debt was an enforceable one and also capable of being recovered from the debtor, Sri T. M. Nagarajan, by Sri. A.M. Sahul Hameed, when he died on May 25, 1965. The circumstances that six years subsequently, the accountable persons chose to write off those debts, would not enable them to claim an exclusion or seek an allowance of the entire debt as a bad debt, which as pointed out earlier, does not fit in with the policy, scheme or provisions of the Act. The circumstances relied on by the Tribunal cannot, in our view, override the provisions of the Act and cannot be pressed into service to exclude the debt due in a sum of R. 21,340 from the principal value of the estate. The Tribunal was, therefore, in error when it concluded that it would not be reasonable to include the debt of Rs. 21,340 in the principal value of the estate when the provisions of the Act do not warrant such a conclusion. Considering the question in the light of the provisions of the Act, we are unable to share the view of the Tribunal that the amount of Rs. 21,340 should be excluded from the principal value of the estate of the deceased for purposes of estate duty. We, therefore, answer the question in the negative and in favour of the Controller of Estate Duty. There will, however, be no order as to costs.
