TMI Blog1974 (11) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... is an accountable person in the case, filed statement relating to the estate of the deceased before the Assistant Controller of Estate Duty. The Assistant Controller determined the principal value of the estate to be Rs. 2,50,374. In computing the principal value the Assistant Controller took into account a sum of Rs. 1,50,000 on account of the value of property known as Mayavaram Lodge . 3. The Assistant Controller found that till March 11, 1955 the deceased, who was a self-made man, owned two buildings, including Mayavaram Lodge, besides some agricultural land. The deceased was carrying on the business of boarding and lodging in Mayavaram Lodge. He had also a small chit business. On March 11, 1955 the deceased executed a document described as a partition deed, whereby he gave Mayavaram Lodge'' to his five sons in equal shares and retained for himself the other house and agricultural land. On June 25, 1955 the deceased entered into an agreement with his sons by which they leased to the deceased Mayavaram Lodge wherein as before he continued to carry on his boarding and lodging business. In the profit and loss account a sum of Rs. 15,000 was mentioned for payment of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and not of partition, the value of Mayavaram Lodge ought not to have been included inasmuch as the deceased had transferred his right, title and interest in the above property more than two years prior to his death. The Board found that the deed, though executed on March 11, 1955 more than two years prior to the death of the deceased, was registered only on June 29, 1955. According to the Board, the gift of Mayavaram Lodge became effective only on June 29, 1955, viz., the date of registration. As that date fell within the statutory period of two years before the death of the deceased, the Assistant Controller was held to be justified in view of Section 9 of the Act in including the value of Mayavaram Lodge in the principal value of the estate of the deceased. In the alternative, the Board found that the deceased continued to be in undisputed possession of Mayavaram Lodge. It was held that the donor had not been excluded from the enjoyment and possession of the property and therefore, estate duty was payable in respect of that property under Section 10 of the Act. The Board rejected the contention that the document of March 11, 1955 constituted partition deed. The appeal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. This is because, on the view we have expressed, the Revenue cannot charge estate duty on the entire value of the property, while at the same time the accountable person cannot escape duty to the extent of the non-exclusion we have indicated. 8. In appeal before us Mr. Ahuja on behalf of the appellant has assailed the judgment and reasoning of the High Court and has contended that as subsequent to the deed of March 11, 1955, which as observed by the High Court would have to be assumed to be a deed of gift, the donor took the gifted property on lease, the donees cannot be said to have retained possession of that property to the entire exclusion of the donor or of any benefit to him by contract or otherwise . As against that Mr. Swaminathan on behalf of the respondent has canvassed for the correctness of the view taken by the High Court. 9. Before dealing with the contention of the parties, we may refer to the relevant provisions of the Act. According to Section 2(16), property passing on the death includes property passing either immediately on the death or after any interval, either certainly or contingently, and either originally or by way of substitutive limitatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under any gift made to the spouse, son, daughter, brother or sister, shall not be deemed to pass on the donor's death by reason only of the residence therein of the donor except where a right of residence therein is reserved or secured directly or indirectly to the donor under the relevant disposition or under any collateral disposition. 10. It may be mentioned that the period two years in Sub-section (1) of Section 9 and the first proviso to Section 10 was substituted for one year by the Finance Act, 1966 (Act 13 of 1966). The second proviso to Section 10 was inserted by the Finance Act, 1965 (Act 10 of 1965). 11. The amendment brought about by the Finance Act, 1965 by inserting second proviso to Section 10, as observed by this Court in the case of George Da Costa v. Controller of Estate Duty Mysore [1967]63ITR497(SC) , was not retrospective. The said section would consequently have to be construed for the purpose of this case which relates to the estate of the deceased who died on April 6, 1957, as it stood before the amendment. 12. The intention of the legislature in enacting Section 10 of the Act was to exclude from liability to estate duty certain categories ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession and enjoyment within the meaning of the first limb of the section and, therefore, the property will be deemed to pass on the death of the donor and will be subject to levy of estate duty. 14. The object underlying a provision like Section 10 of the Act was explained by Issacs J. in the case of John Lang and Ors. v. Thomas Prout Webb 13 C.L.R. 593 decided by the High Court of Australia in 1912 in the following words: The owner of property desiring to make a gift of it to another may do so in any manner known to the law. Apparent gifts may be genuine, or colourable, and experience has shown that frequently the process of ascertaining their genuineness is attended with delay, expense and uncertainty -all of which are extremely embarrassing from a public revenue standpoint. With a view to avoiding this inconvenience, the legislature has fixed two standards, both of them consistent with actual genuineness, but prima jack indicating a colourable attempt to escape probate duty. One is the standard of tent with the gift. The prima facie view is made by the twelve months before the donor's death is for the purpose of duty regarded as not made. The other is conduct which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the duty payable under the Administration and Probate Acts as though part of the estate of the testatrix. Issacs J. in this context observed: The lease, however, gave to the donor possession and enjoyment of the land itself, which is a simple negation of exclusion, and brings the case within the statutory liability. It was argued that as the rent was full value, the lessee's possession and occupation were not a benefit. The argument is unimportant because the lease, at whatsoever rent, prevents the entire exclusion of the donor. The above reasoning of Issacs J. was approved by the Judicial Committee in the case of Clifford John Chick and Anr. v. Commissioner of Stamp Duties [1958] A. C. 435 wherein the judicial Committee dealt with a case under Section 102 of the New South Wales Stamp Duties Act, 1920-56. The aforesaid section provided that for the purposes of the assessment and payment of death duty but subject as hereinafter provided the estate of a deceased person shall be deemed to include and consist of the following classes of property:... (2)(d) Any property comprised in any gift made by the deceased at any time, whether before or after the passing of this Act of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ittee hold that where the question is whether the donor has been entirely excluded from the subject-matter of the gift, that is the single fact to be determined, and, if he has not been so excluded, the eye need look no further to see whether his non-exclusion has been advantageous or otherwise to the donee. In the opinion of the Judicial Committee, it was irrelevant that the father gave full consideration for his rights as a member of the partnership to possession and enjoyment of the property that he had given to his son. Sir Garfield Barwick (as he then was), who was the counsel for the appellant in that case, pointed out that on the respondent's construction, if a father gave a house to his son, and later the son turned it into a hospital, and the father, having been taken ill, went into it as a paying patient, liability to duty would arise-although it may be the only hospital in the area. The case, however, in view of the language of the statute was decided in favour of the Commissioner of Stamp Duties, who was the respondent in the case. The following six points emerge from Chick's case: (1) The deceased was not in fact excluded from the property, but as a partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Wales on which he carried on the business of a grazier, verbally agreed with his six children that thereafter the business should be carried on by him and them as partners under a partnership at will. The business was to be managed solely by M and each partner was to receive a specified share of the profits. In 1913, M transferred by way of gift by means of six registered deeds all his right title and interest in the portions of his land to each of his four sons and to trustees for each of his two daughters and their children. The transfers were taken subject to the partnership agreement, and on the understanding that any partner could withdraw and work his land separately. In 1919 M and his children entered into a formal partnership agreement, which provided that during the lifetime of M no partner should withdraw from the partnership. On the death of M in 1929 the land transferred in 1913 was included in assessing his estate to death duties under the Stamp Duties Act on the ground that they were gifts dutiable under Section 102 of the New South Wales Stamp Duties Act, 1920. It was held that property comprised in the transfers was the land separated from the rights therein belon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court of Australia in the case of John Lang (supra) and of the Judicial Committee in the case of John Chick (supra). As already mentioned, the High Court has found that the property which was the subject-matter of the gift under the deed of March 11, 1955 was the entirety of Mayavaram Lodge with all the rights and that the gift was not subject to any claim on reservation. It has also been found that on the execution of the aforesaid deed the donees assumed possession and enjoyment of the entirety of the house. On June 25, 1955 the donor took the aforesaid house on lease from the donees. These facts would show that the possession and enjoyment of Mayavaram Lodge was not subsequent to the gift retained by the donees to the entire exclusion of the donor or of any benefit to him by contract or otherwise . Mayavaram Lodge as such shall be deemed to pass on the death of the deceased under Section 10 of the Act. The case of Ramachandra Gounder (supra) upon which great reliance has been placed by Mr. Swaminathan can hardly be of much assistance to him because in that case the gifted property was subject to the tenancy-at-will granted to the firm Ramachandra Gounder's case was thus cov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettlement were transferred to him. On a claim by the revenue authorities that on the death in 1921 of the settlor the subject of the settlement had formed part of the settlor's dutiable estate by virtue of Section 102 of the New South Wales Stamp Duties Act, the Judicial Committee held that the interest of the son under the settlement in the shares and accumulations of income was not an absolute vested interest, but was contingent on his attaining the age of 21 years. It was further held that the property comprised in the gift was the equitable interest in the shares, and that bona fide possession and enjoyment of the property comprised in the gift was assumed by the donee, viz., the son, immediately upon the gift and thenceforth retained to the entire exclusion of the deceased or of any benefit to him. The shares were accordingly held not to form part of the settlor's dutiable estate. The above decision can hardly be of any assistance to the respondent. Lord Russell of Killowen in the above cited case after referring to the clauses of the settlement came to the conclusion that there was no gift of corpus to the son except in the direction to the trustees to transfer the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty gifted and it was not sufficient that the donor derived a benefit arising from the transaction resulting in the gift. As the provisions for annual payments, and maintenance made in the deeds were not charged on the properties settled, the donor could not be said to have retained any interest or any benefit either in the property settled or in respect of their possession. Neither the whole nor any part of the properties comprised in those deeds was consequently liable to be included in computing the value of the estate that passed on the death of the deceased. This case can equally be of no assistance to the respondent because the question which arose for determination in that case was wholly different from that which arises in the present case. 22. Mr. Swaminathan has then pointed out that Section 10 of the Act contains the words to the extent which are not there in the statutory provisions with which the High Court of Australia and the Judicial Committee were concerned in the cases of John Lang and Chick respectively. It is urged that the words to the extent indicate that if possession and enjoyment of the gifted property is not assumed by the donee and thenceforward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed himself on a rent of Rs. 150 per month for a term of five years with effect from the date of settlement. The lease expired on June 30, 1959 but the deceased continued to occupy that part of the premises for a few days thereafter, until his death on July 11, 1959. The question which arose for determination was whether and to what extent estate duty was chargeable in regard to those premises under Section 10 of the Act. It was held that the lease gave to the donor possession and enjoyment of the property itself and the case fell within the statutory charge under Section 10. As, however, Section 10 provided that such property was chargeable only to the extent that the deceased was not excluded, estate duty was payable by the accountable persons only on that portion of the premises which was in the occupation of the deceased as a lessee. 23. The High Court in the judgment under appeal mentioned that Mayavaram Lodge was a bundle of rights of which possession and enjoyment formed a part. We may in this context observe that it was the ownership of the above property which constituted the bundle of rights. The view urged on behalf of the respondent and accepted by the High Court tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed on the death of the deceased in the case of George Da Costa could only be the value of the right to possession. In our opinion, the stand taken on behalf of the respondent in this respect is clearly untenable. 24. Lastly, it has been argued on behalf of the respondent that we should remand the case to find as to whether the deed of March 11, 1955 constituted deed of partition. We are unable to accede to this submission. The High Court has proceeded upon the basis that the property in question was gifted by the deceased in favour of his sons as a result of that deed. The Board of Direct Taxes found on reference to the aforesaid deed that all the properties mentioned therein were the self-acquired properties of the deceased and there was nothing in any part of the deed to show an intention on the part of the deceased to treat them as properties belonging to the joint family. It was also found that there was no evidence of any clear intention of the deceased to waive his separate rights. Accordingly, the Board came to the conclusion that the said document was not a partition deed relating to the joint family property. In the circumstances, we find no sufficient ground for rema ..... 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