1. This is an estate duty appeal filed by the revenue. It is aggrieved with the order of the Appellate Controller holding that investment allowance reserve and/or development rebate reserve appearing in the balance sheets of the firms, in which the deceased was a partner, were the liabilities of the firms and could not be taken into account in determining the value of the interest of the deceased as also his lineal descendants in the firms. The Appellate Controller also agreed on this issue with his predecessor who passed an order dated 5-5-1981 in the case of Shri Mohan Lal (deceased) through A.P. Smt. Kailash Wati.
2. We have heard the rival submissions at length, perused para 7 of the order of the Appellate Controller and the order of his predecessor in the case of Shri Mohan Lal (deceased). In our view, the stand of the revenue is quite correct and both the Appellate Controller fell into error. The Appellate Controller in para 7 has made a number of mistakes about the applicability of provisions of the Estate Duty Act, 1953 ('the Act') 4 and the Wealth-tax Act, 1957 ('the 1957 Act'). Though he mentions Section 5 of the Act, he was referring, in fact, to Section 6 of the Act and had completely lost sight of the relevant Section 5. We are concerned in this appeal with Section 5 and the property passing on the death and not with the property deemed to pass on death, as is laid down by Section 6. Again we are concerned with investment allowance or development rebate reserves created by the firms, in which the deceased was a partner, as required by law in order to claim deduction for investment allowance or development rebate, as the case may be. It is worthwhile repeating that we are not concerned with the deduction called as investment allowance or development rebate but with the reserves required to be created to get the benefit of those deductions.
What is relevant is the nature of those reserves. Looking to the concerned provisions of Sections 34 and 32A in the Income-tax Act, 1961 ('the 1961 Act') it is clear that the reserves under either section have to be made out of the profits and these have to be in cash.
Sections 34(3) as well as 32A(4) refer to the debiting of an amount equal to 75 per cent of the development rebate or of the investment allowance claimed. Such reserves created by the firms are clearly not a liability of the firms but are in the nature of property belonging to the partners, which has to be taken into account for determining the value of share of a partner. Certain restrictions mentioned in Sections 34 and 32A(4) will not change the character of these reserves being the property of the firms in which the partner may have interest. Share in such property of the firm like the capital of the deceased partner will pass on the death of the partner and in this connection, it will be relevant to refer to the definitions given in Sections 2(15) and 2(16) of the Act. There is no question of invoking the provisions of Section 6 and to apply the test of competency to dispose of. It is because of the nature of the reserves created that under 'the 1957 Act', these are considered as property of the partners liable to wealth-tax. Reference to the Wealth-tax Rules, 1957 ('the 1957 Rules'), etc., by the Appellate Controller is unwarranted and incorrect. Rule 2A onwards of the 1957 Rules need not be looked into, as the relevant provision for valuing the share of a partner in a firm is Rule 2 of the 1957 Rules.
But as pointed out earlier, the position for liability to estate duty can be determined under the Act itself and there is no need to go to the provisions of the 1957 Act or its Rules. The Assistant Controller was, therefore, justified in treating the share of the deceased in investment allowance reserve or development rebate reserve as property passing on the death of the deceased.
3. The same proposition will be valid about working out the value of the interest of lineal descendants for aggregation purposes under Section 34. An argument was put forth by the assessee's counsel that the lineal descendants' shares should not be included for rate purposes in view of the Madras High Court decisions in V. Devaki Ammal v. ACED  91 ITR 24 and CED v. R. K. Chettiar  125 ITR 605 and a brief report appearing about the dismissal of Special Leave Petition of the revenue in  143 ITR (St.) 67 against the Madras High Court decision in R. K. Chettiar's case (supra). It may be clarified that this argument of the assessee can have only a bearing to the limited extent of increase in the value of share of lineal descendants due to inclusion of share in the development rebate and investment allowance reserves and not on the aggregating of the entire share of the lineal descendants, as the accountable person has not come in appeal against the aggregation of the shares of lineal descendants in toto. On going through the brief report, we find that it does not give any idea about the issue on which the Special Leave Petition was filed by the revenue.
It is difficult to accept that the revenue would raise the question of inclusion of the share of lineal descendants arising since the Madras High Court decision in V. Devaki Amma's case (supra) only when the decision in R. K. Chettiar's case (supra) came. There is another difficulty that the Madras High Court's view holding the provisions of aggregation of shares of lineal descendants to be ultra vires the constitution has been dissented from by other High Courts and the Punjab and Haryana High Court is also one of them. In the case of Hari Ram v. ACED  101 ITR 539 (Punj. & Har.), which is a binding authority on us to follow, the High Court has found the provisions of the Act in respect of aggregating of shares of lineal descendants with the share of the deceased to be constitutional and expressly dissented from the Madras High Court's view in V. Devaki Ammal's case (supra).
4. In view of the above discussion, we reverse the order of the Appellate Controller on the issue in hand and restore the order of the Assistant Controller and allow the appeal of the revenue.