The Act deemed that all properties, before passing on to the deceased’s heirs, were liable to be taxed. Here, the expression “property” is defined in the Act as "any interest in property, movable or immovable". After the demise of the individual, the estate duty was levied and paid upon the principal value of both the settled or unsettled property (including agricultural land) on the rates prescribed under Section 35 r/w the Second Schedule of the Act. The rate of interest varied according to the then-market value of the property.

One of the intentions behind the erstwhile Act was to attain a certain balance between the affluent section of society and the marginalised sections, through the distribution of wealth.

Understanding inheritance tax vs estate duty

Estate duty was levied on the total value of the property held by an individual calculated at the time of his/her demise. The terms "inheritance" and "estate duty" were used interchangeably. the concept of "estate duty" and "inheritance" is synonymous with Robin Hood, where you take from the rich and distribute it among the needy and poor.

The Madras high court in Controller of Estate Duty, Madras v. Estate of Late V. Guruviah Naidu observed that “A tax on inheritance is a levy on the person who inherits the property, the burden being made to fit in with the size of the inheritance of the heir or the legatee."

Estate duty, on the contrary, is a levy on property on the occasion when it passes hands after the death of a person. Article 366 (9) of the Constitution of India provides the meaning of estate duty as a duty to be assessed on or by reference to the principal value, ascertained according to rules relating to the duty, of all property passing upon death or deemed, so to pass. This is why estate duty is sometimes referred to as a species of mutation duty, a levy on the occasion of the property changing hands. Thus, it becomes clear that the estate duty was payable at the time when the property of the deceased was passed on to the successors.

Legal consequences and implications

Article 14 of the Constitution of India says, “The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India.” It has two facets where the first half "equality before the law" prohibits discrimination. The other half "equal protection of the laws" ensures that the State shall make special laws for different persons in different situations to maintain the status of equality amongst all.

Estate duty was payable only if the total value of the inherited portion of the property exceeded the exclusion limit prescribed under the Act. With time, the Act was amended in 1960 to exclude properties in Jammu and Kashmir, Odisha and West Bengal, and further in 1968, 1982, and 1984 to include amendments introduced by other laws. However, in effect to the amendments, the interest rate on estate duty was as high as 85% on the market price of the principal value of the individual’s property at the time of the deceased’s death as per Section 36 of the Estate Duty Act, 1953.

The taxation rate not only caused discomfort among the taxpayers, but also the ruling government realised that through the direct tax, there is a meagre collection of taxes and rather, the government is spending more on the process of collection of taxes.

Consequently, in 1985, estate duty law was abolished in India. Surprisingly, countries like the UK, Japan, Spain and other countries have been successful in taxing inherited properties, but India, even after thirty years of the Act's tenure, failed to implement it successfully.

Does India need a uniform mode of taxation?

Lord Acton once said, “Power corrupts and absolute power corrupts absolutely.” Combining the viewpoint of Lord Acton with Newton’s third law of motion, “Every action has an equal and opposite amount of reaction,” it can be interpreted that the concentration of a greater amount of wealth among a few people may lead to undefiable economic as well as social disparity.

Considering the spirit of socio-economic essence in the Constitution of India, time and again, the three pillars, legislature, executive and judiciary have come up with enactments and judicial pronouncements to protect the interest of the marginalised sections.

Economic disparity is on the increase, which led to the criticism of the concentration of wealth to a few people.

From the utilitarian perspective, the concept of estate duty, as well as inheritance tax, is justified as it preaches “greatest good for the greatest number.” However, it is contrary to the individualist’s perspective, which advocates for the rights of an individual to life, liberty and property.

If the law of estate duty, as well as inheritance tax, is to be reintroduced, then it will also be a call for a change in the succession and inheritance laws across all religions. It would be necessary to understand the impact of such a drastic change and how will the law relating to the person who dies with will or intestate will be affected. With an increase in the economy and the constant overhaul of the system, will we be able to come to common and effective ground?

If, at present, this law is to be reintroduced, Parliament shall make sure that no person shall be a victim of double taxation as at present, whether it is a common man or the wealthiest man, the majority of us are paying direct or indirect taxes. The failure of the implementation of the Act till 1985 was not because of the legal complications, as seen in Jain Jari Stores v. State of Madras, it was settled that even discriminatory legislation can be upheld as constitutional if the discrimination is founded upon a reasonable distinction or classification or if any state of facts can be reasonably conceived to sustain it.

If passing an estate duty law is considered again in the future, it will be important to implement it in a way that people do not try to circumvent it, but rather comply with it. Whenever any law is introduced, it comes with certain advantages as well as disadvantages and amidst that, the focus should be on having an effective and prosperous law for all.

Sanya Singh is a practising lawyer based out in New Delhi. She pursued a B.A. LL.B. (Hons.) from NUSRL, Ranchi and holds a keen interest in civil and commercial litigation.