TMI Blog1976 (4) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... state Duty Act, 1953, hereinafter referred to as " the Act ", by the Assistant Controller of Estate Duty whose order was sustained by the Appellate Controller of Estate Duty by following the decision of the Privy Council in the case of Clifford John Chick v. Commissioner of Stamp Duties [1959] 37 ITR (ED) 89; 3 EDC 915 (PC). A further appeal was filed by the accountable person before the Appellate Tribunal. It was contended before the Tribunal on his behalf that Rs. 75,000 did not pass on the death of the donor under section 10 of the Act, for according to him, the donor had no right to possess or enjoy this amount and that Chick's, case [1959] 37 ITR (ED) 89 (PC) had no application to the facts and circumstances of the case. It was also contended on his behalf that the said capital contributed by the donee could not in law be the property of the firm and, therefore, the deceased could neither derive any benefit out of it nor could he exercise any control over it as a partner of the firm. The Tribunal, after discussing the law of partnership, quoting Lindley on Partnership, 11th edition at page 406, citing section 10 of the Act and distinguishing Chick's case [1959] 37 ITR (ED) 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave passed on the death of the donor in terms of section 10 of the Act. According to Mr. N. C. Mukherjee, the learned counsel for the respondent, the statements quoted above from the order of the Tribunal are the facts found by the Tribunal and, therefore, this reference is incompetent, for the revenue has not questioned those findings on the ground of perversity. He cited the following observation from Chick's case [1959] 37 ITR (ED) 89 (PC) at page 100 of the report : " 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. 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. " Though the question as to whether the donor was excluded by the donee from the subject-matter of the gift is primarily a question of fact, the Tribunal is to ascertain the primary facts and then to apply the legal principles involved in the expression " thenceforward retained to the entire exclusion of the donor or of any benefit to him by contract or otherwise ", used in the second part of section 10 of the Act. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal of a partnership is not, therefore, the same as its property. " But we reject his contention by following the law laid down by the Supreme Court on the Partnership Act, 1932, in the case of Addanki Narayanappa v. Bhaskara Krishnappa AIR 1966 SC 1300, 1303, 1304, in the following terms : " From a perusal of these provisions of the Partnership Act it would be abundantly clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership it becomes the property of the firm ... No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to anyone.... The whole concept of partnership is to embark upon a joint venture and for that purpose to bring in as capital money or even property including immovable property. Once that is done whatev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntroller of Estate Duty [1964] 52 ITR (ED) 1 (Cal) and by the Supreme Court in the case of Controller of Estate Duty v. Smt. Parvati Ammal [1974] 97 ITR 621 (SC) cited by Mr. Sengupta. Section 10 of the Act came up for consideration before the Supreme Court in the case of George Da Costa v. Controller of Estate Duty [1967] 63 ITR 497 (SC). At page 501 of the report their Lordships observed : " The crux of the section lies 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. As a matter of construction we are of opinion that both these conditions are cumulative. Unless each of these conditions is satisfied, the property would be liable to estate duty under section 10 of the Act." It has been found by the Tribunal that the donee had contributed Rs. 75,000 as her capital in the firm out of the gifted amount after it was received by her. Hence, there is no merit in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... swathanarayana Setty [1969] 72 ITR 29 (Mys)] does not apply to the present case, because the subject-matter of this gift was not the share of the deceased in the firm but the money which belonged to him absolutely. The facts in Ramachandra Gounder's case [1973] 88 ITR 448 (SC) were briefly as follows : The deceased granted a tenancy-at-will of his house property to a firm in which he was a partner ; thereafter, he transferred the said property to his two sons ; he also directed the firm to transfer Rs. 1,00,000 from his account to his five sons by making credit entries in their names in the firm's book and it was done by the firm ; and the donor died after the firm was dissolved. With regard to the house property, it was held by the Supreme Court at page 452 of the report, that the benefit that the donor had as a partner of the firm was not a benefit referable to the said gift and was wholly unconnected with it. Thereafter, at page 454, by following Setty's case [1969] 72 ITR 29 (Mys), it was held by the Supreme Court that " neither the property gifted to the donees, nor the amount of Rs. 1,00,000 gifted to the five sons, could be included in the estate of the deceased." The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) was directly covered by the ratio in Munro's case [1934] AC 61 (PC) and, therefore, reliance on this decision was also misplaced by Mr. Mukherjee. The facts in Chick's case [1959] 37 ITR (ED) 89 (PC) were briefly as follows : A father made a gift of his pastoral property to one of his sons ; thereafter, they and another son of the donor entered into a partnership agreement to carry on the business of graziers and stock dealers ; and the partnership agreement provided that the father was to manage the business which was to be carried on in their respective holdings including the property gifted but the lands were to remain their own properties and they were entitled to deal freely with their own lands. In Chick's case [1959] 37 ITR (ED) 89 (PC) the Privy Council was concerned with the second part of section 102 of the New South Wales Stamp Duties Act, 1920-36, which is substantially in the same terms with our section 10 of the Act. At page 97 of the report, it was held by their Lordships that " the partners and each of them were in possession and enjoyment of the property so long as the partnership subsisted ". Viscount Simonds, speaking for the Board, also says this at pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... donees and the gifted property became an asset of the firm after the partnership was formed. Therefore, Munro's case [1934] AC 61 (PC) was not affected by the vice of the section, whereas Chick's case [1959] 37 ITR (ED) 89 (PC) came directly within the mischief of the second part of the section inasmuch as the donor was not " thenceforth " entirely excluded from possession and enjoyment of the property gifted. This distinction between Munro's case [1934] AC 61 (PC) and Chick's case [1959] 37 ITR (ED) 89 (PC) has also been pointed out by the Supreme Court in Parvati's case [1974] 97 ITR 621 (SC). In Parvati's case [1974] 97 ITR 621 (SC), the facts were as follows : The deceased made an outright gift to his five sons in equal shares of his house property in which he was carrying on a business of boarding and lodging ; then he took the said property on lease from the sons and carried on the business as before ; thereafter, he granted a sub-lease of the boarding house to a third party and after that he died. And it was held that the entire value of the property was liable to be included in the principal value of the estate of the deceased as the property deemed to have been passed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in support of his contentions on the second part of section 10 of the Act and the other cases for distinguishing them from the present case before us. But the above cases do not call for any discussion, for Chick's case [1959] 37 ITR (ED) 89 (PC) was followed in some of these cases and Munro's case [1934] AC 61 (PC) was followed in the other cases and, moreover, the law on the second part, of section 10 of this Act is well-settled by the decision of this court in Rash Mohan's case [1964] 52 ITR (ED) 1 (Cal), at page 15 of the report, in the following terms : " (a) In order to avoid the mischief of section 10 of the Estate Duty Act, 1953, it must be established that the donee not only assumed bona fide possession and enjoyment of the property taken under the gift but also thenceforward retained the said property to the entire exclusion of the donor or any benefit to him by contract or otherwise. (b) The single factor to be considered is whether the donor has been entirely excluded from the subject-matter of the gift. (c) If the donor has not been entirely excluded then it is not at all relevant to consider whether the non-exclusion of the donor has been advantageous to the do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 75,000 was liable to be included in the principal value of the estate of the deceased as property deemed to have been passed under section 10 of the Act and accordingly we return our answer in the affirmative and in favour of the revenue. The parties shall pay and bear their own costs of this reference. DIPAK KUMAR SEN J.--I agree with the conclusions in the judgment just now delivered by my learned brother. I wish to emphasise the following reasons on which I base my conclusions. Section 10 of the Estate Duty Act, 1953, with which we are concerned in the instant case has come up for consideration in the courts in India on numerous occasions. The material part of the section reads as follows : " The 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 ........" In the case of George Da Costa v. Controller of Estate Duty [1967] 63 ITR 497 (SC), the Supreme Court analysed and interpreted this section. The observations of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he donee to the donor directly or through a partnership, courts in India have drawn inspiration from two important decisions of the Privy Council, respectively, in the cases of H. R. Munro v. Commissioner of Stamp Duties, [1934] AC 61 (PC) and Clifford John Chick v. Commissioner of Stamp Duties, [1959] 37 ITR (ED) 89 (PC). In the earlier case, i.e., Munro's case [1934] AC 61 ; 2 EDC 462 (PC), the donor entered into a partnership at will with his children in respect of a business carried on by him as a grazier in vast areas of land owned by him in New South Wales. Subsequently, the land was transferred in specific portions by the donor to his said children subject to the partnership agreement and on the understanding that any partner could withdraw and work his land separately. Later, there was a formal partnership agreement, between the parties which, inter alia, provided that during the lifetime of the donor, none of his children would withdraw from the partnership. On the death of the donor the question arose whether the grazing land transferred by the donor to his children should be deemed to pass on his death. The statute involved in this case was the Stamp Duties Act, 1920 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s used by the partnership. On the death of the donor the question arose whether this land could be deemed to pass. It was not disputed that in the facts there was an outright gift. But the Privy Council decided the case on the sole consideration, viz., was the donor excluded from the property ? The other contentions mooted before the Privy Council, namely, that the partnership agreement was an independent commercial transaction for other consideration, or that the partnership agreement was in no way related to the gift, or that it was a mode of enjoyment by the donee of his own property were held to be irrelevant. Viscount Simonds in his judgment observed at page 100 : " 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. 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 ......... it may be pertinent in some cases to inquire whether the benefit derived by the donor is one that impairs or detracts from the donee's enjoyment of the gift...... it is not a relevant consideration where the question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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