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TMI Blog1971 (4) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... or grand-daughters (daughters of Shri Prahlad Rai) on September 26, 1954, of a sum of Rs. 6,250 each. He did so by making transfer entries in the books of account of the firm, Messrs. Sant Lal Kanhaya Lal, in which the deceased was a partner, holding a share of 28 nP. out of 100 nP. On March 12, 1957, the deceased executed four memoranda on stamp papers confirming the gifts which were accepted by the mother of the said grand-daughters. All the four memoranda form part of the statement of the case and are identical in terms. One of the said documents is reproduced hereunder : " Memorandum made on this 12th day of March, 1957. The undersigned Kashmiri Lal partner of M/s. Sant Lal Kanhaya Lal, Naya Bazar, Delhi, in consideration of love and affection for his grand-daughter, Kumari Sarla, daughter of Prahlad Rai, gave a sum of Rs. 6,250 to her out of his personal funds in the books of M/s. Sant Lal Kanhaya Lal, Delhi, on October 26, 1954, for which the necessary transfer entries have been effected in the books of the said M/s. Sant Lal Kanhaya Lal, Delhi, for the sole use and benefit of the said Kumari Sarla absolutely and at the same time delivered possession thereof to her by the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... putation of the sum on which estate duty was payable. The Controller of Estate Duty moved the Tribunal and had the question of law reproduced above, referred to this court. The question, as is apparent, involves the construction of section 10 of the Estate Duty Act, 1953, which will hereafter be referred to as the Act. The section, as it stood at the material time, runs as follows : " 10. Gifts whenever made where donor not entirely excluded.-Property taken under any gift, whenever made, shall be deemed to pass on the donor's death to the extent that bona fide possession and enjoyment of it was not immediately assumed by the donee and thenceforward retained to the entire exclusion of the donor or of any benefit to him by contract or otherwise : Provided that the property shall not be deemed to pass by reason only that it was not, as from the date of the gift, exclusively retained as aforesaid, if, by means of the surrender of the reserved benefit or otherwise, it is subsequently enjoyed to the entire exclusion of the donor or of any benefit to him for at least two years before the death. " According to this section, the gifted property shall be deemed to pass on the donor's de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portion of section 10. It is the nature of the gifted property which constitutes the test by which it is to be determined on the facts of each case whether the bona fide possession and enjoyment of the gifted property was assumed by the donee and thenceforward retained by him to the entire exclusion of the donor. This was the ratio of the decision in John Lang v. Thomas Prout Webb which, with particular reference to the observations of Isaacs J., was referred to with approval by the Judicial Committee of the Privy Council in Clifford John Chick v. Commissioner of Stamp Duties, which, in turn, was referred to with approval by the Supreme Court in George Da Costa v. Controller of Estate Duty. The case before the Supreme Court relates to immovable property. It was there said that the crux of section 10 of the Art lies in two parts : (i) the donee must have bona fide assumed possession and enjoyment of the property which is the subject-matter of the gift of the donor immediately upon the gift, and (ii) the donee must have retained such possession and enjoyment of the property to the entire exclusion of the donor or of any benefit to him by contract or otherwise. Part (ii) of the secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner and could not on any consideration be taken into account as or deemed to be an asset of the partnership and any such partner should have the sole and free right to deal with it as he might think fit. Each of the three partners owned a property, that of the donee son being that which had been given to him by his father in 1934 and each partner brought into the partnership, livestock and plant, and their three properties were thenceforth used for the depasturing of the partnership stock. This state of affairs continued up to the death of the father in 1952. It was held that the value of the property given to the son in 1934 was to be included in computing the value of the father's estate for the purposes of death duty. It would be seen that while it was not disputed that the son had assumed bona fide possession and enjoyment of the property immediately upon the gift, to the entire exclusion of the father, but 17 months thereafter he did not retain it to the father's exclusion, for under the partnership agreement the father was given the right to be the manager of the business and his decision was to be final and conclusive in connection with all matters relating to its conduct. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the donor and thenceforward retain them to the entire exclusion of the donor. Further, the language of the memoranda of gifts is absolute. It is nowhere stated that the gifts were subject to pre-existing rights of the partnership firm to the continued use of the money which was the subject-matter of the gifts. It was, therefore, expected of the donees to have assumed possession and enjoyment of the gifted property to the entire exclusion of the donor as soon as this was permitted by the state of the cash balance of the partnership firm. Thereafter, the donees were expected to retain the gifts to the entire exclusion of the donor. Actually the donees never assumed bona fide possession and enjoyment of the gifted property. Further, the gifted property remained in the use of the partnership in which the donor was also a partner. The donor as a partner was not, therefore, entirely excluded from the possession and enjoyment of the gifted property from the inception of the gifts. This continued till the death of the donor and even within two years of the death of the donor, the donor was not excluded from the possession and enjoyment of the gifted property. On the other hand, the partn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and a gift of the property shorn of the existing rights of the partnership in it may be forcefully illustrated by contrasting the decisions referred to above with the decision in H. R. Munro v. Commissioner of Stamp Duties. In that case Munro, the owner of 35,000 acres of land, entered into a partnership with his six children in 1909. In 1913 he executed registered transfer deeds of 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 evidence showed that the transfers were taken subject to the partnership agreement. The gifted property was held not to pass on the death of the donor because the donees had assumed and retained possession thereof, and any benefit remaining in the donor was referable to the partnership agreement of 1909 and not to the gifts. The decision in Munro's case makes an exception to the general rule established by the decisions in Lang, Chick and George Da Costa. The exception is that the bona fide possession and enjoyment of the property by the donees to the entire exclusion of the donor and the retention thereof was expected only in respect of the gifte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 12,000 was paid in cash to two of his sons who had attained majority by that time. Though the sum of Rs. 12,000 was originally deposited by the two sons with the State Bank of India, it was subsequently brought into their account with the firm before the death of the deceased. The Assistant Controller held that the two gifts of Rs. 30,000 and Rs. 24,000 were invalid and, in any event, bona fide possession and enjoyment of the amounts had not been immediately assumed by the donees, since these amounts were retained in the firm in which the deceased was a partner and were, therefore, brought to charge for levy of estate duty. The Appellate Controller confirmed his view. The Tribunal however deleted the inclusion holding the gifts to be valid gifts to which the provisions of section 10 would not apply. On a reference to the High Court, it was held that since the subject-matter of the gift was made available to the partnership in which the deceased had interest as a partner and was placed at its disposal, the deceased was not entirely excluded from the subject-matter of the gifts and hence the provisions of section 10 applied to the case. The decision directly supports the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry. In all such cases the sole question for consideration is---was the donor excluded ? If he was not excluded, it was not relevant to ask why he was not excluded and this applies equally with regard to the transaction being commercial and for full consideration. As was said by Viscount Simonds, " their Lordships see no reason why a gloss should be put upon the plain words of the sub-section by excluding from its operation such transactions." According to a Division Bench of the Madras High Court, speaking through Veeraswami C.J., the decisions in Controller of Estate Duty v. C. R. Ramchandra Gounder and Controller of Estate Duty v. N. R. Ramarathanam would fall into the second group though on the facts of those cases it is not quite clear that the donees could not take bona fide possession and enjoyment of the gifted property to the entire exclusion of the donor and thenceforward retain the same. In C. R. Ramachandra Gounder's case the donor who was a partner in a firm asked the firm long before its dissolution to transfer from his loan account a sum of rupees one lakh and credit it equally to the accounts of his five sons by opening separate accounts in their individual names i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the pre-existing right of the partnership to the use of the money. On a review of the above decisions we find that the subject-matter of the gift in the present case was actionable claims which the donees should have realised by getting paid by the donor and/or by the partnership firm. In the absence of anything on the record to show that the partnership firm had a pre-existing right to the use of the money gifted by the donor to the donees and that such right continued till the death of the donor or that the donees were disabled by some other reason from realising the payment of the debts from the donor and/or partnership, we are unable to hold that the nature of the property gifted was such that the donees should be deemed to have assumed possession and enjoyment thereof to the entire exclusion of the donor and thenceforward retained it. On the contrary, we find that the donees did not do so. Under section 10 of the Act, therefore, the corpus of the gifted property, i.e., Rs. 25,000, passed on the death of the donor and became liable to payment of estate duty. The next question that arises is whether the entire sum of Rs. 35,824 should be held liable to estate duty or the gi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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