TMI Blog1971 (7) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... - Judge(s) : R. S. PATHAK., H. N. SETH. JUDGMENT The judgment of the court was delivered by H. N. SETH J.-At the instance of the accounting party, Behari Lal Matanhelia, the Central Board of Direct Taxes has referred the following question for the opinion of this court, under section 64(1) of the Estate Duty Act: "Whether, on the facts and in the circumstances of the case, the balance of Rs. 48,513 remaining at the date of death of the deceased out of the amount credited to the wife's account by debiting the account of the deceased in the books of Messrs. Sheo Prasad Kanhaiyalall, Bahraich, in which the deceased was a partner, was correctly included in the estate of the deceased as property passing or deemed to pass on his death?" One Sri Kanhaiyalall Matanhelia died on 21st July, 1957. Beharilal Matanhelia, as the accountable person, filed a statement before the Assistant Controller, Estate Duty, Varanasi, declaring the total value of the properties passing or deemed to pass on the death of Kanhaiyalall as Rs. 1,72,670. After considering the material produced before him, the Assistant Controller determined the principal value of the estate passing or deemed to pass on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited with the firm where the deceased was a partner and no interest was being paid to the donee. In the circumstances, it could not be said that the deceased had entirely excluded himself from the gifted property or that the donee had taken possession of the property to the entire exclusion of the deceased or of any benefit to him. It, accordingly, held that the amount of Rs. 48,513 was correctly added to the total value of the property passing on the death of the deceased. At the instance of the accountable person the Board has now referred the aforementioned question for the opinion of this court. On behalf of the department the validity of the gift was challenged only on the ground that it could not be made by effecting transfer entries in the account books of the firm and that there was no evidence to show that the same had been accepted by the donee. We will proceed to consider the arguments raised in respect of the aforementioned infirmities and take it that no other legal infirmity attaches to the gift. The view taken by the Central Board of Direct Taxes that no valid gift can be effected by making transfer entries in the books of account is clearly not sustainable. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a gift of a house in favour of his son. It was found that even after making the gift the donor continued to reside in the house as the head of the family and to look after its affairs till his death. It was held by the Supreme Court that the value of the house had been correctly included in the estate of the deceased as a property deemed to pass on his death under section 10 of the Estate Duty Act. The Supreme Court analysed the provisions of section 10 of the Act and observed that the crux of the section lay in two parts: (1) the donee must bona fide have assumed possession and enjoyment of the property which is the subject-matter of the gift to the exclusion of the donor immediately upon the gift, and (2) 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. It held that both these conditions are cumulative and unless each of the two conditions is satisfied, the property would be liable to be included in the estate of the deceased for purposes of payment of estate duty under section 10 of the Act. So far as the second condition was concerned it was observed that it had t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince the gift the profits accruing from the shares gifted to the two sons of the donor were being paid to the donees. All the partners of the firm including the deceased were in the management of the firm as partners. In these circumstances, the possession which the donees could have taken in pursuance of the gift mentioned earlier was only legal possession. It was not possible for any one of the partners to take physical possession of any assets of the firm. The property gifted was in the management of the donee. On these facts it could not be said that after the gifts the donee did not retain the property gifted, to the entire exclusion of the donor or that the donor had any benefit either by contract or otherwise in the property gifted. In the result it, was held that the property gifted could not be deemed to pass on the death of the deceased under section 10 of the Act. A question, similar to one involved in the case before us, arose before the Madras High Court in the case of Controller of Estate Duty v. N. R. Ramarathanam. In this case the deceased was a partner in a firm carrying on money-lending business. He transferred by means of book adjustment in the accounts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect-matter of the gift itself. This decision emphasises that what has to be considered in each case is to see what precisely is the extent of the subject-matter of the property gifted and then to see whether the donee has bona fide assumed possession and enjoyment of that property in such manner as is possible to the exclusion of the donor and whether the donee has 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. The only criticism levelled by the learned counsel for the revenue against this decision was that in this case the learned judges placed reliance on the ratio of the case of Munro v. Commissioner of Stamp Duties and not on the ratio of the case of Clifford John Chick v. Commissioner of Stamp Duties which decision was specifically approved by the Supreme Court in the case of George Da Costa. As pointed out by the learned judges of the Madras High Court, there is no inconsistency between the law as laid down in Munro's case and that in the case of Clifford John Chick. These cases deal with different aspects of the problem. We are in respectful agreement with the observations made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been contributed by him for being utilised by the firm. The effect of the credit entry in his name in the books of the firm was merely this that he had a claim to receive the amount standing to his credit from the firm. When he gifted a sum of Rs. 51,000 to his wife, Smt. Bridhika Devi by getting his account debited with that amount and getting the account of Smt. Bridhika Devi credited with that sum, the result of the transaction was that by mutual agreement between three of them the claim of the deceased against the firm to the extent of Rs. 51,000 was satisfied and instead the firm became liable to pay that amount to Smt. Bridhika Devi. Thus the real effect of the gift made by the deceased to Smt. Bridhika Devi was that instead of the deceased being entitled to receive the amount from the firm it was Smt. Bridhika Devi who became entitled to receive it from the firm. The sum of Rs. 51,000 was not gifted by the deceased to Smt. Bridhika Devi, in specie. The real nature of the property gifted was the right to recover the sum of Rs. 51,000 from the firm. After the deceased made this gift he did not remain in control or in possession of the right to recover this amount from the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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