TMI Blog1973 (3) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... t for public charitable purposes and as it was made beyond six months prior to the date of death, it could not be included in the estate of the deceased under section 9 of the Act. The Assistant Controller held that the gift was not complete and he accordingly added the amount in computing the value of the deceased's interest in the firm. In appeal the Central Board of Direct Taxes took the view that even if there was a complete gift, the amount should be deemed to pass on the death of the deceased under section 10 of the Act. The deceased was also a partner in another firm, M/s. Muchhal Co., in which she had one-fourth share. This firm owed a sum of Rs. 2,03,731 to three relatives of the deceased. It was, however, found that these relatives had received a gift of Rs. 50,000 each (i.e. a total amount of Rs. 1,50,000) from the deceased. The Assistant Controller held that the liability of the firm should be abated to the extent of Rs. 1,50,000, and that, consequently, the deceased's one-fourth share of the liability should be abated to the extent of Rs. 37,500. This amount was, therefore, added by the Assistant Controller in computing the value of the share of the deceased in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks of the firm on November 2, 1956, there was no contemporaneous evidence of the gift made in favour of the Muchhal Trust. The entries were not signed by the deceased and there was no letter from her authorising the firm to make the entries. There was no physical delivery of the cash and there could be no such delivery as the cash balance on November 2, 1956, was only Rs. 15,671. It was only after the death of Smt. Ayodhyabai that entries in respect of interest and cash withdrawals were made in the account of the trust in the account books of the firm and possession and enjoyment of the sum of Rs. 36,501 by the trust in the lifetime of the deceased was not established. As regards the other item, the facts stated by the Board are that entries were made on October 30, 1951, in the account of the deceased in the books of the firm, M/s. Laxmichand Muchhal, debiting her account by a sum of Rs. six lakhs and crediting a sum of Rs. 50,000 to the account of each of the following twelve relations of the deceased : 1. Jamnabai, wife of Balkishan 2. Kamlabai, wife of Harikishan daughters-in-law 3. Kamlabai, wife of Ram Kumar of the deceased 4. Ramnivas s/o Balkishan 5. Rajendrakum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tant Controller realised that if section 10 applied the whole of the amounts gifted should have been included. He, therefore, initiated proceedings under section 59 of the Act and made a revised assessment. In this revised assessment additional amounts of Rs. 5,62,500 and Rs. 4,800 were brought to tax. In appeal, the Zonal Appellate Controller upheld the order of the Assistant Controller except to the extent of Rs. 50,000, which was found to have been withdrawn on November 12, 1954, and deposited with a concern in which the deceased was not a partner. The accountable person then went up in appeal to the Appellate Tribunal. The Tribunal, differing with the opinion of the Assistant Controller and the Zonal Appellate Controller, was of the view that the amounts were gifted shorn of the rights, of the partnership to use the same in partnership business and, therefore, the donees assumed bona fide possession of the property gifted and continued to hold the same to the exclusion of the donor and section 10 of the Act was not attracted. On an application made by the Controller of Estate Duty, the Tribunal has referred in Miscellaneous Civil Case No. 468 of 1971 for opinion of the High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It will be convenient first to dispose of question No. (1) in Miscellaneous Civil Case No. 181 of 1965. The learned counsel for the accountable person has conceded that on the facts stated by the Board in that reference it is not possible to hold that the gift of Rs. 36,501 to the Muchhal Trust by the deceased has been established. The question, therefore, must be answered in the affirmative. Question No. (2) in Misc. Civil Case No. 181 of 1965 and Questions Nos. (1) and (2) in Misc. Civil Case No. 468 of 1971 relate to the applicability of section 10 of the Act to the gifts of Rs. 50,000 made by the deceased to each of her twelve relations. Although these references arise out of orders passed by different authorities (due to change of law in the matter of appellate authorities between assessment and reassessment) the material facts stated by the two authorities are the same. To briefly recapitulate the facts, the deceased had a deposit account in the firm, M/s. Laxmichand Muchhal, of which she was a partner. As a result of gifts made by the deceased, debit entries of rupees six lakhs were made in this account and credit entries of Rs. 50,000 were made in the accounts of each of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 was further held in that case that the word "otherwise" in the second part of the section must be construed ejusdem generis and must be interpreted to mean "some kind of legal obligation or some transaction enforceable at law or in equity which, though not in the form of a contract, may confer a benefit on the donor". It was also held that the words "by contract or otherwise" in the second part of the section only qualified the word "benefit" and they did not control the words "to the entire exclusion of the donor". Therefore, if the donor remained in possession and enjoyment of the subject-matter of the gift even without any legal right, the gift will not be excluded from the operation of the section. In determining the question of application of the section to a particular case, it has first to be ascertained as to what is the subject-matter of the gift, for the requirement for non-liability that the possession and enjoyment should be assumed immediately b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Stamp Duties where in dealing with a similarly worded section of a New South Wales Statute, the Privy Council said : "It is not always sufficiently appreciated that it is for the taxing authority to bring each case within the taxing Act, and that the subject ought not to be taxed upon refinements or otherwise than by clear words." What then is the nature of the property that was transferred to the donees by the deceased under the gifts in question ? The gifts were made from the deposit account of the deceased which she had in the firm, Messrs. Laxmichand Muchhal by transfer entries. It is, therefore, necessary to examine first the nature of property which a depositor has in the deposit. In common language it is usual to speak that a depositor owns money in deposit and this may be substantially true in the economic sense, but in strict legal sense such a statement is wholly untrue. When a person deposits money in a bank, firm or with any other person, the property in the money passes to the depositee and what the depositor owns thereafter is a debt which is also known as obligation, chose-in-action or actionable claim. The right in rem which the depositor has in his money is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y transfer of possession is transfer of property. So long as the money which the principal has handed to his agent to be applied specifically, and not on a debtor and creditor account, can be traced into what has been procured with it, the principal can waive his right of action for damages for tort, and, affirming the proceeding of the broker, claim that his money is invested in a specific thing, which is his. But Lord Ellenborough C.J. laid down, as a limit to this proposition, that if the money had become incapable of being traced, as, for instance, when it had been paid into the broker's general account with his banker, the principal had no remedy excepting to prove as a creditor for money had and received. The explanation was, of course, that a relation of debtor and creditor had arisen between the banker and his client, the broker, which precluded the notion of following the money. That seems to be, so far as the doctrine of the common law is concerned, the limit to which the exception to the rule about currency was carried; whether the case be that of a thief or of a fraudulent broker, or of money paid under mistake of fact, you can, even at law, follow, but only so long a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es was thenceforward retained to the entire exclusion of the deceased. As regards the firm, i.e., the depositee, it was never in possession of the actionable claim either before or after the gifts and thus the possession and enjoyment of the donees of the property gifted was to the exclusion of both the deceased and the firm in which she was a partner. The transfer of accounts of the donees from one firm to another had also no effect on the possession and enjoyment of the donees of the property gifted as it only had the effect of substituting a new firm as debtor in place of the old firm. The deceased also received no benefit by contract or otherwise in the subject-matter of gifts, nor did she receive any benefit that may be said to be referable to the gifts. The right which, the partnership firm had of the use of the money which was deposited with it by the deceased flowed from the contract of deposit and not from the gifts or any transaction collateral to the gifts. Therefore, it is not possible to say that the possession and enjoyment of the property gifted was not retained by the donees to the entire exclusion of any benefit to the deceased or the firm in which she was a partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of a firm of which the deceased was a partner. In the opinion of the learned judges although the gift was of an actionable claim the donees should have taken steps to realise the money to assume possession and enjoyment of the property gifted to the exclusion of the donor. With great respect, this line of reasoning blurs the distinction between actionable claim and money in specie and assumes that actionable claim can be possessed and enjoyed only by converting the claim into money. In my opinion, actionable claim arising out of a deposit may also be possessed and enjoyed by continuing the deposit and by allowing interest to accumulate and, indeed, that is the most common mode of enjoyment when cash is not immediately needed. For these reasons and other reasons already indicated, I respectfully dissent from the view taken by the Gujarat and Delhi High Courts. Learned counsel for the department argued that we must look to the substance of the matter and in substance the gift was of money and not of actionable claim. It is true that in applying section 10 of the Act one has to see not the mere form of words but what is in substance given under the gift. But, substance, in this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of Rs. 37,500 representing one fifth of the value of gifts made by the deceased to three of her relatives could not be included in the principal value of the estate of the deceased. Misc. Civil Case No. 468 of 1971 (1) The Tribunal was justified in holding that the provisions of section 10 of the Act are not attracted by the facts of the case and in excluding Rs. 5,12,500 and Rs. 4,800 from the principal value of the estate. (2) The subject-matter of the gifts was actionable claim and not money and the possession and enjoyment of the subject-matter of gifts was assumed and retained by the donees to the exclusion of the deceased or of any benefit to her by contract or otherwise. The partnership firm had no rights in the actionable claim and, therefore, the question of the gift being shorn of the rights of the partnership does not arise. There shall be no order as to costs in both the cases. RAINA J.--I have carefully perused the judgment proposed by my learned brother Singh J. With great respect I must say that I am unable to agree with him in respect of some of his conclusions. The facts of the case have been fully set out in the proposed judgment. It is, therefore, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... withdrawals. In respect of some of the donees the accounts were later transferred to another firm, M/s. Muchhal Co. in which also the deceased was a partner. But no cash was paid or withdrawn and the transfer was made by book entries. The validity of these gifts has not been disputed. It is also not disputed that the money standing in deposit account of the deceased was utilised by the firm in its business and it continued to be so utilised, even after the gifts. After these accounts were transferred to the other firm the moneys standing to the credit of the donees were utilised in this firm for its business. The donees were not partners in M/s. Laxmichand Muchhal but three of the donees (3 daughters-in-law) were partners in the firm, M/s. Muchhal and Co. along with the deceased. It is on these facts that the applicability of section 10 of the Act has to be determined. Section 10 of the Act is reproduced below for facility of reference: "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India by residents of India must inevitably lead to large-scale evasion of the Act resulting in its object being defeated. A construction which leads to such a result must be avoided. The expression 'resident in India' is clearly used in the sense resident of India." As pointed out by their Lordships of the Supreme Court in George Da Costa v. Controller of Estae Duty the crux of section 10 of the Act lies in two parts : "(i) T1he donee must bonafide 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 (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." Their Lordships held that both the aforesaid conditions are cumulative and unless each of these conditions is satisfied, the property would be liable to estate duty under section 10 of the Act. The main point for consideration in this case, therefore, is whether both the aforesaid conditions are fulfilled in this case. Though the principles enunciated by their Lordships of the Privy Council in H. R. Munro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ason of section 10 of the Act. It is no doubt true that the fact that the subject-matter of a gift in such a case is an actionable claim and not money was not taken notice of. This decision was followed by the same High Court in Controller of Estate Duty v. Chandravadan Amratlal Bhatt. In this case too distinction between a gift of money and a gift of actionable claim does not seem to have been taken into consideration in this connection. In Controller of Estate Duty v. Prahlad Rai a Full Bench of the Delhi High Court had to consider a case of this nature. The deceased, a partner in the firm who had a capital to the extent of Rs. 1,29,006 standing to his credit in the firm's accounts, gave a sum of Rs. 6,250 each to his four, grand-daughters by making appropriate transfer entries in the books of accounts of the firm in 1954. It was held in this case that although the subject-matter of the gifts was actionable claim but since there was nothing on record to show that the firm had a pre-existing right to the use of the money gifted by the deceased to the donees and that such right continued till the death of the deceased or that the donees were disabled by some other reason from rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14-A, at page 290, the following comments regarding the word" enjoyment" are pertinent : "The words 'enjoyment' and 'enjoy', as used in statutes relating to estate and gift taxes, are not terms of art, but connote substantial present economic benefit rather than technical vesting of title or estate." An actionable claim is what is known in English law as "chose-in- action" as distinguished from a "chose-in-possession." I may here refer to the following observation in Salmond on Jurisprudence, eleventh edition, page 489 : "In its origin a chose-in-possession was any thing or right which was accompanied by possession; while a chose-in-action was any thing or right of which the claimant had no possession but which he must obtain, if need be, by way of an action at law." Thus, an enjoyment of a chose-in-action must necessarily mean the enjoyment of the subject-matter of the chose-in-action by obtaining possession thereof by action at law or otherwise. A completely passive attitude on the part of the donee cannot be construed as possession and enjoyment. In my view, if the donee simply remains quiet after a gift of this nature and takes no steps to acquire possession of the subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the exclusion of the donor. There is nothing to show that there was any impediment to their realising the subject-matter of the actionable claim from the firm by demand or an action at law. In fact they did not even care to withdraw the interest that was credited to their accounts. They thus allowed the donor to continue to derive full benefit from the money which was the subject matter of the actionable claim as partner of the firm. In these circumstances, I am of the view that the corpus of the gift must be deemed to have passed or the death of the donor under section 10 of the Act and was as such liable to estate duty. I may here point out that a contrary view would create an anomaly. It cannot be doubted that if the donor had withdrawn the amounts in question from his account with the firm and had gifted the said amounts to the donees who in turn had deposited the same with the firm, section 10 of the Act would be clearly applicable in view of the principles laid down in Clifford John Chick v. Commissioner of Stamp Duties. I need not dilate on this aspect of the matter because this was not disputed even by the learned counsel for the accountable person. The position in subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferences have arisen among my learned colleagues with respect to the other three questions, it is necessary to resolve the conflict in a separate order. The deceased, Smt. Ayodhyabai Muchhal, who died on September 10, 1957, was a partner in the firm of Messrs. Laxmichand Muchhal Co., holding 1/5th share in the firm. She was also a partner in another firm of Messrs. Muchhal and Co., in which she had 1/4th share. This firm owed a sum of Rs. 2,03,731 to three relatives of the deceased. The deceased had gifted Rs. 50,000 each to the three relatives and in addition Rs. 50,000 each to nine other relatives. The relationship is mentioned by my learned brother, Singh J., in paragraph 5 of his order. It was held by the Assistant Controller of Estate Duty that the amounts of Rs. 5,12,500 and Rs. 4,800 were liable to estate duty as section 46(1) of the Estate Duty Act, 1953, was applicable to these gifts to twelve relatives. In appeal, the Central Board of Revenue held that section 46(1) of the Act was not applicable for the reason that the gifts to the three relations were made not by the firm but by the deceased; whereas the loans from these relatives had been taken by the firm and not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant factor would be the fact that these gifts were accepted not only by the income-tax department, but also by the taxing authorities under the Estate Duty Act as genuine and valid gifts. Thus, the genuineness of the gifts not being challenged by the department, the question would arise whether the donors were in exclusive possession immediately after the gift and up to the time of death of Smt. Ayodhyabai. If exclusion of the donors be established, section 10(1) of the Estate Duty Act, 1953, can evidently not be attracted, as was the view expressed by the Tribunal. In this connection, I might observe that it is necessary for the donee to establish the fact that he was in exclusive possession of the gifted amount to the exclusion of the donor and he continued to be in such possession till the demise of the donor. So far as two of the donees are concerned, that fact would be established by the very fact that they had withdrawn the amounts of gifts and had invested them in another firm in which the donor had no interest whatsoever. This fact would establish exclusive possession of the donee and exclusion of the donor from possession or from any benefit whatsoever. The further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f interest for the purpose of levying the income-tax the authorities under the Estate Duty Act cannot insist on levying the estate duty on the assumption that the donor continued to be in possession and that the donees never entered into possession to the exclusion of the donor. If that were allowed to be done, it will clearly result in double taxation unauthorisedly and in contravention of the provisions of article 265 of the Constitution of India. Thus, if the contention of the authorities under the Estate Duty Act were to be accepted, it might imply that the income-tax authorities would claim to tax the donees to income-tax on the assumption that the gifts were genuine and valid and the authorities under the Estate Duty Act, 1953, would be permitted to levy estate duty by including the said amount of gifts in the assets of the deceased which would also include the accumulated interest on such gifts. This evidently cannot be the position under the law and article 265 of the Constitution of India would certainly prohibit such an interpretation, as it would be a tax not by the authority of law. For this reason I agree with my learned brother, Singh J., in the answers to be given to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 64 of the Estate Duty Act, 1953, relating to the assessment of estate duty on the estate of one Smt. Ayodhyabai Muchhal who died on September 10, 1957. The deceased was a partner in the firm of M/s. Laxmichand Muchhal holding one-fifth share in the firm. In the books of the firm a sum of Rs. 36,501 was debited in the account of the deceased and credited in the account of a trust known as "Muchhal Trust" on November 2, 1952. The accountable person claimed that this amount represented a gift for public charitable purposes and as it was made beyond six months prior to the date of death, it could not be included in the estate of the deceased under section 9 of the Act. The Assistant Controller held that the gift was not complete and he accordingly added the amount in computing the value of the deceased's interest in the firm. In appeal the Central Board of Direct Taxes took the view that even if there was a complete gift, the amount should be deemed to pass on the death of the deceased under section 10 of the Act. The deceased was also a partner in another firm, M/s. Muchhal Co., in which she had one-fourth share. This firm owed a sum of Rs. 2,03,731 to three relatives of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the donor immediately upon the gifts; and whether thenceforward the donees retained the possession and enjoyment of the property to the exclusion of the donor; and on the manner and nature of the retention and utilisation of these two amounts by the firm in which the deceased was a partner." The further statement of the case as required by the High Court was submitted by the Board on July 25, 1968. As regards the item of Rs. 36,501, the facts stated are that apart from the entries in the books of the firm on November 2, 1956, there was no contemporaneous evidence of the gift made in favour of the Muchhal Trust. The entries were not signed by the deceased and there was no letter from her authorising the firm to make the entries. There was no physical delivery of the cash and there could be no such delivery as the cash balance on November 2, 1956, was only Rs. 15,671. It was only after the death of Smt. Ayodhyabai that entries in respect of interest and cash withdrawals were made in the account of the trust in the account books of the firm and possession and enjoyment of the sum of Rs. 36,501 by the trust in the lifetime of the deceased was not established. As regards the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as already stated, held that the gifted property was not retained by the donees to the entire exclusion of the donor and, therefore, was liable to duty under section 10 of the Act. As the Controller of Estate Duty had only included a sum of Rs. 37,500, to the principal value of the estate under section 46(1), the inclusion was upheld under section 10. On receipt of the order of the Board upholding the addition of Rs. 37,500, under section 10 of the Act and not under section 46(1), the Assistant Controller realised that if section 10 applied the whole of the amounts gifted should have been included. He, therefore, initiated proceedings under section 59 of the Act and made a revised assessment. In this revised assessment additional amounts of Rs. 5,62,500 and Rs. 4,800 were brought to tax. In appeal, the Zonal Appellate Controller upheld the order of the Assistant Controller except to the extent of Rs. 50,000, which was found to have been withdrawn on November 12, 1954, and deposited with a concern in which the deceased was not a partner. The accountable person then went up in appeal to the Appellate Tribunal. The Tribunal, differing with the opinion of the Assistant Controller a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Rs. 4,800 (out of Rs. 6,000, gifted to Gangabai) should be included under section 10 of the Act as property passing on the death of Smt. Ayodhyabai. The Tribunal's conclusion, as already stated, was that "the deceased had passed over to the donees all the rights shorn of the right which belonged to the partnership and the donees assumed bona fide possession of the same and continued to hold such property thereafter to the entire exclusion of the donor and also of benefits to the donor. " It will be convenient first to dispose of question No. (1) in Miscellaneous Civil Case No. 181 of 1965. The learned counsel for the accountable person has conceded that on the facts stated by the Board in that reference it is not possible to hold that the gift of Rs. 36,501 to the Muchhal Trust by the deceased has been established. The question, therefore, must be answered in the affirmative. Question No. (2) in Misc. Civil Case No. 181 of 1965 and Questions Nos. (1) and (2) in Misc. Civil Case No. 468 of 1971 relate to the applicability of section 10 of the Act to the gifts of Rs. 50,000 made by the deceased to each of her twelve relations. Although these references arise out of orders pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "The validity of the transaction is left untouched, for it concerns the parties alone. But they are not to embarrass the public treasury by equivocal acts": Issacs J. in Lang v. Webb. As construed by the Supreme Court in George Da Costa v. Controller of Estate Duty, before a gift can be taken out of the provisions of this section two conditions must be satisfied: "(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 was further held in that case that the word "otherwise" in the second part of the section must be construed ejusdem generis and must be interpreted to mean "some kind of legal obligation or some transaction enforceable at law or in equity which, though not in the form of a contract, may confer a benefit on the donor". It was also held that the words "by contract or otherwise" in the second part of the section only qualified the word "benefit" and they did not control the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of the section not to be excluded from possession and enjoyment of that which he has given." Then, it must also be remembered that section 10, though designed to meet devices of tax evasion, has the effect of taxing even genuine gifts which do not fulfil the conditions of non-liability laid down in the section and hence there is no scope for any liberal construction of the section. The rule of construction applicable to such a provision is indicated in H.R. Munro v. Commissioner of Stamp Duties where in dealing with a similarly worded section of a New South Wales Statute, the Privy Council said : "It is not always sufficiently appreciated that it is for the taxing authority to bring each case within the taxing Act, and that the subject ought not to be taxed upon refinements or otherwise than by clear words." What then is the nature of the property that was transferred to the donees by the deceased under the gifts in question ? The gifts were made from the deposit account of the deceased which she had in the firm, Messrs. Laxmichand Muchhal by transfer entries. It is, therefore, necessary to examine first the nature of property which a depositor has in the deposit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s explained in the jugdment of Lord Ellenborough C.J. in Taylor v. Plumer, who pointed out that there was no reason why the doctrine that money could not be followed should apply to circumstances in which a broker had wrongfully invested money of his principal in purchasing securities into which it could be traced. The reason of this is plain. The broker could not in these circumstances set up as against his principal the rule which applies to what has been paid over as currency, that ordinarily transfer of possession is transfer of property. So long as the money which the principal has handed to his agent to be applied specifically, and not on a debtor and creditor account, can be traced into what has been procured with it, the principal can waive his right of action for damages for tort, and, affirming the proceeding of the broker, claim that his money is invested in a specific thing, which is his. But Lord Ellenborough C.J. laid down, as a limit to this proposition, that if the money had become incapable of being traced, as, for instance, when it had been paid into the broker's general account with his banker, the principal had no remedy excepting to prove as a creditor for mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complete change of ostensible dominion over the subject-matter of gifts as could be made having regard to the nature of the property, and the donees assumed possession and enjoyment of the property to the same extent as it was possessed and enjoyed by the donor prior to the gifts. After the aforesaid entries in the books of account of the firm, the deceased ceased to have any interest in or possession over the actionable claim transferred under the gifts and possession and enjoyment of the donees was thenceforward retained to the entire exclusion of the deceased. As regards the firm, i.e., the depositee, it was never in possession of the actionable claim either before or after the gifts and thus the possession and enjoyment of the donees of the property gifted was to the exclusion of both the deceased and the firm in which she was a partner. The transfer of accounts of the donees from one firm to another had also no effect on the possession and enjoyment of the donees of the property gifted as it only had the effect of substituting a new firm as debtor in place of the old firm. The deceased also received no benefit by contract or otherwise in the subject-matter of gifts, nor did sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usion of the donor from possession and enjoyment. This case was followed by the same High Court in Controller of Estate Duty v. Chandravadan Amratlal Bhatt. In these cases no distinction is drawn between gift of money and gift of actionable claim. The Delhi High Court in Controller of Estate Duty v. Prahlad Rai had to consider a similar question. In that case gifts were made by the deceased to his four minor grand-daughters of a sum of Rs. 6,250 each by making transfer entries in books of account of a firm of which the deceased was a partner. In the opinion of the learned judges although the gift was of an actionable claim the donees should have taken steps to realise the money to assume possession and enjoyment of the property gifted to the exclusion of the donor. With great respect, this line of reasoning blurs the distinction between actionable claim and money in specie and assumes that actionable claim can be possessed and enjoyed only by converting the claim into money. In my opinion, actionable claim arising out of a deposit may also be possessed and enjoyed by continuing the deposit and by allowing interest to accumulate and, indeed, that is the most common mode of enjoyment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nership to use the money under the contract of deposit. It is unnecessary to consider this argument also, for, in my opinion, the gift was not of money but of actionable claim in which the partnership firm had no rights. As a result of the above discussion, I answer the questions referred to us as follows: Misc. Civil Case No. 181 of 1965: (1) The sum of Rs. 36,501 credited in the name of Muchhal Trust was rightly included in the principal value of the estate of the deceased. (2) The sum of Rs. 37,500 representing one fifth of the value of gifts made by the deceased to three of her relatives could not be included in the principal value of the estate of the deceased. Misc. Civil Case No. 468 of 1971 (1) The Tribunal was justified in holding that the provisions of section 10 of the Act are not attracted by the facts of the case and in excluding Rs. 5,12,500 and Rs. 4,800 from the principal value of the estate. (2) The subject-matter of the gifts was actionable claim and not money and the possession and enjoyment of the subject-matter of gifts was assumed and retained by the donees to the exclusion of the deceased or of any benefit to her by contract or otherwise. The pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 50,000, made by the deceased to each of his 12 relations. The deceased had a deposit account in the firm, M/s. Laxmichand Muchhal of which he was a partner. As a result of gift made by the deceased debit entries of Rs. 6,00,000 (six lakhs) were made in his account and credit entries of Rs. 50,000 were made in the accounts of each of the 12 donees in the books of the firm. No cash was paid to the donees. It appears that the interest was credited to the account of the donees but there were no withdrawals. In respect of some of the donees the accounts were later transferred to another firm, M/s. Muchhal Co. in which also the deceased was a partner. But no cash was paid or withdrawn and the transfer was made by book entries. The validity of these gifts has not been disputed. It is also not disputed that the money standing in deposit account of the deceased was utilised by the firm in its business and it continued to be so utilised, even after the gifts. After these accounts were transferred to the other firm the moneys standing to the credit of the donees were utilised in this firm for its business. The donees were not partners in M/s. Laxmichand Muchhal but three of the donees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 141. In this connection it would be pertinent to refer to the following observations of their Lordships of the Supreme Court in Shanti Prasad Jain v. Director of Enforcement, Foreign Exchange Regulation Act in paragraph 47 regarding construction of statutory provision in connection with evasion of the enactment containing the said provision while dealing with a case under the Foreign Exchange Regulation Act: "To hold that the prohibition under the Act does not extend to acts done outside India by residents of India must inevitably lead to large-scale evasion of the Act resulting in its object being defeated. A construction which leads to such a result must be avoided. The expression 'resident in India' is clearly used in the sense resident of India." As pointed out by their Lordships of the Supreme Court in George Da Costa v. Controller of Estae Duty the crux of section 10 of the Act lies in two parts : "(i) T1he donee must bonafide 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 (ii) The donee must have retained such possession and enjoyment of the property to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the making of the transfer, the deceased made a declaration of gift and also acknowledged on behalf of the firm that the amount was kept by the brother with the firm without interest. It was held by the Gujarat High Court that the amount of the gift having been kept with the firm in which the deceased was a partner till his death, he was in possession and enjoyment of the property gifted by the deceased and hence the amount of the gift was to be included in the estate of the deceased by reason of section 10 of the Act. It is no doubt true that the fact that the subject-matter of a gift in such a case is an actionable claim and not money was not taken notice of. This decision was followed by the same High Court in Controller of Estate Duty v. Chandravadan Amratlal Bhatt. In this case too distinction between a gift of money and a gift of actionable claim does not seem to have been taken into consideration in this connection. In Controller of Estate Duty v. Prahlad Rai a Full Bench of the Delhi High Court had to consider a case of this nature. The deceased, a partner in the firm who had a capital to the extent of Rs. 1,29,006 standing to his credit in the firm's accounts, gave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ift begun to enjoy the subject-matter of the gift and such enjoyment was to the exclusion of the donor. To "enjoy", according to Webster's New Word Dictionary, second college edition, page 464, means "to have the use or benefit of" and the word "enjoyment" is to be construed accordingly. In Corpus Juris Secundum, volume 30, page 708, the word "enjoyment" has been described as a term meaning the exercise of a right, possession, use and occupation. In Words and Phrases, permanent edition, volume 14-A, at page 290, the following comments regarding the word" enjoyment" are pertinent : "The words 'enjoyment' and 'enjoy', as used in statutes relating to estate and gift taxes, are not terms of art, but connote substantial present economic benefit rather than technical vesting of title or estate." An actionable claim is what is known in English law as "chose-in- action" as distinguished from a "chose-in-possession." I may here refer to the following observation in Salmond on Jurisprudence, eleventh edition, page 489 : "In its origin a chose-in-possession was any thing or right which was accompanied by possession; while a chose-in-action was any thing or right of which the claimant ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty and that the fact that the donor was not entirely excluded from the gifted property was not due to any inaction on the part of the donees but was due to the fact that the gifts themselves were subject to the pre-existing rights of the partnership to the use of the money so gifted, and that these rights of the partnership continued till the death of the donor." In the instant case there is nothing to show that the donees did anything to enjoy the subject-matter of the actionable claim to the exclusion of the donor. There is nothing to show that there was any impediment to their realising the subject-matter of the actionable claim from the firm by demand or an action at law. In fact they did not even care to withdraw the interest that was credited to their accounts. They thus allowed the donor to continue to derive full benefit from the money which was the subject matter of the actionable claim as partner of the firm. In these circumstances, I am of the view that the corpus of the gift must be deemed to have passed or the death of the donor under section 10 of the Act and was as such liable to estate duty. I may here point out that a contrary view would create an anomaly. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Tribunal under section 64 of the Estate Duty Act, 1953. As regards the first question referred to us for opinion, both the learned judges have agreed. At the outset, I may record my opinion with reference to question No. 1 involved in Misc. Civil Case No. 181 of 1965, by stating that I agree with the answer given by them to the effect that the sum Rs. 36,501 credited in the name of Muchhal Trust was rightly included in the principal value of the estate of the deceased. However, as differences have arisen among my learned colleagues with respect to the other three questions, it is necessary to resolve the conflict in a separate order. The deceased, Smt. Ayodhyabai Muchhal, who died on September 10, 1957, was a partner in the firm of Messrs. Laxmichand Muchhal Co., holding 1/5th share in the firm. She was also a partner in another firm of Messrs. Muchhal and Co., in which she had 1/4th share. This firm owed a sum of Rs. 2,03,731 to three relatives of the deceased. The deceased had gifted Rs. 50,000 each to the three relatives and in addition Rs. 50,000 each to nine other relatives. The relationship is mentioned by my learned brother, Singh J., in paragraph 5 of his orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the taxing authorities two of the donees had withdrawn an amount of Rs. 25,000 each and had invested it in another firm in which the deceased Ayodhyabai was not a partner. Therefore, the taxing authorities thought that this amount of Rs. 50,000 was liable to be excluded. The Central Board of Revenue, however, excluded an amount of Rs. 1,00,000 from the assets of the deceased. This would be one of the relevant factors for consideration whether the donor was excluded from possession. Another relevant factor would be the fact that these gifts were accepted not only by the income-tax department, but also by the taxing authorities under the Estate Duty Act as genuine and valid gifts. Thus, the genuineness of the gifts not being challenged by the department, the question would arise whether the donors were in exclusive possession immediately after the gift and up to the time of death of Smt. Ayodhyabai. If exclusion of the donors be established, section 10(1) of the Estate Duty Act, 1953, can evidently not be attracted, as was the view expressed by the Tribunal. In this connection, I might observe that it is necessary for the donee to establish the fact that he was in exclusive posse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntered into possession, to the exclusion of the donor and continued in such possession till the demise of the donor. If I may say so with due respect to my learned brother, Raina J., he, while considering the question of exclusion of the donor, has altogether ignored this aspect. I may observe that there cannot be double taxation. Say, for instance, the income-tax authorities accepted these gifts as genuine and valid and in the case of donees liable to pay income-tax, they included the amount of interest for the purpose of levying the income-tax the authorities under the Estate Duty Act cannot insist on levying the estate duty on the assumption that the donor continued to be in possession and that the donees never entered into possession to the exclusion of the donor. If that were allowed to be done, it will clearly result in double taxation unauthorisedly and in contravention of the provisions of article 265 of the Constitution of India. Thus, if the contention of the authorities under the Estate Duty Act were to be accepted, it might imply that the income-tax authorities would claim to tax the donees to income-tax on the assumption that the gifts were genuine and valid and the au ..... X X X X Extracts X X X X X X X X Extracts X X X X
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