TMI Blog1973 (6) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... grandsons, Hiralal and Balvantrai, and his daughter, Bai Mani, on the dates shown against their respective names: -------------------------------------------------------------------------------------------------------------------------------------------------- Name of donee Date of gift Amount gifted Rs. Chhotalal 28-9-56 35,000 Manganlal 27-9-56 35,000 Nanalal 19-9-56 5,000 Sakarlal 10,000 Vasantlal 10,000 Hiralal 10,000 Balvantrai 10,000 Bai Mani 5,000 ------------------- 1,20,000 ------------------- --------------------------------------------------------------------------------------------------------------------------------------------------- The gifts were made by means of cheques handed over to the donees. The donees encashed the cheques and deposited the amounts in the firm of Messrs. Chunilal Nathubhai. The amounts so deposited were credited in the individual accounts of the respective donees opened in the books of account of the firm of Messrs. Chunilal Nathubhai. Each of them was a partner in his capacity as manager and karta of his Hindu undivided family. There was a partial partition in the case of each Hindu undivided fam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 968 in the principal value of the estate of Chunilal Nathubhai under section 10. This decision of the Tribunal is challenged in Reference No. 2 of 1970, at the instance of the accountable person. Reference No. 4 of 1970.--This reference arises out of assessment to estate duty made on the accountable person in respect of the estate of one Chhotamal Khushaldas who died on 26th July, 1962. During his lifetime Chhotamal Khushaldas was a partner in a firm called Messrs. Chhotamal Khushaldas which carried on business at Rajkot. Chhotamal Khushaldas made gifts of Rs. 2,00,000, each in favour of his two minor sons, Shankardas and Narandas, on 21st March, 1953. These gifts were made by debiting the aggregate sum of Rs. 4,00,000 in the account of Chhotamal Khushaldas and crediting a sum of Rs. 2,00,000, each in the respective accounts of Shankardas and Narandas in the books of account of the firm of Messrs. Chhotamal Khushaldas. Subsequently on 22nd December, 1956, Chhotamal Khushaldas made another gift of a sum of Rs. 2,00,000 in favour of his minor grandson, Kishorchand, and this gift was made by Chhotamal Khushaldas by withdrawing a sum of Rs. 2,00,000 from the firm of Messrs. Chhotama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this court, one in Shantaben S. Kapadia v. Controller of Estate Duty and the other in Controller of Estate Duty v. Chandravadan Amratlal Bhatt which appeared to support the view taken by the taxing authorities. The Tribunal was bound by the ratio of these two decisions and the Tribunal accordingly held that the amount of Rs. 5,99,500 was chargeable to estate duty under section 10. The accountable person raised an alternative contention before the Tribunal, namely, that even if section 10 was applicable on the facts of the case, the entire amount of Rs. 5,99,500 was not liable to be included in the principal value of the estate but the charge of estate duty should be confined only to the extent of the interest of Chhotamal Khushaldas in the firm of Messrs. Chhotamal Khushaldas. This contention was also rejected by the Tribunal and it was held that since Chhotamal Khushaldas had possession and enjoyment of the entire amount of Rs. 5,99,500, as a partner in the firm of Messrs. Chhotamal Khushaldas, it could not be said that possession and enjoyment of any part of the amount of Rs. 5,99,500 was retained by the donees to the entire exclusion of Chhotamal Khushaldas and the whole of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or under any collateral disposition." The Supreme Court pointed out in George Da Costa v. Controller of Estate Duty and that was reiterated by the Supreme Court in Controller of Estate Duty v. C. R. Ramachandra Gounder, that the crux of section 10 lies in two parts : (i) 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 (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. Both these conditions are cumulative. If either of these conditions is not fulfilled, the property, would be liable to estate duty. The first part of the section does not present any difficulty of construction. It is the second part which requires consideration. It has two limbs : the deceased must be entirely excluded, (i) from possession or enjoyment of the property ; and (ii) from any benefit, by contract or otherwise. We are not concerned here with the second limb because the revenue took its stand only on the non-fulfilment of the condition in the first limb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to what is the subject-matter of the gift, for, the exclusion of the donor required by the section is from the subject-matter of the gift. It is true, as pointed out by Viscount Simonds in Clifford John Chick's case, that it is often "a matter of fine distinction what is the subject-matter of a gift" and this question may give rise to a difference of opinion amongst judges, but the inquiry has to be made, because it is only if the donor is not, as a fact, excluded from possession and enjoyment of the property gifted, that the section would be attracted. It must, therefore, follow logically and inevitably that if the gift is of a property shorn of certain of the rights which appertain to complete ownership, the donor cannot, merely because he remains in possession and enjoyment of those rights, be said within the meaning of the section not to be excluded from possession and enjoyment of that which he has given. Or, to put it differently, it is not enough for the revenue to say that the donor is in possession and enjoyment of certain rights in the property. If those rights are not included in the gift but the property is gifted subject to those rights, the possession and enjoyment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not and whenever the deceased died". The claim of the revenue based on section 102(2)(d) was rejected by the Judicial Committee and Lord Tomlin, delivering the judgment of the Judicial Committee, stated the ground of rejection in the following words : "It is unnecessary to determine the precise nature of the right of the partnership at the time of the transfers. It was either a tenancy during the term of the partnership or a licence coupled with an interest. In either view what was comprised in the gift was, in the case of each of the gifts to the children and the trustees, the property shorn of the right which belonged to the partnership, and upon this footing it is in their Lordships' opinion plain that the donee in each case assumed bona fide possession and enjoyment of the gift immediately upon the gift and thenceforward retained it to the exclusion of the donor. Further, the benefit which the donor had as a member of the partnership in the right to which the gift was subject was not in their Lordships' opinion a benefit referable in any way to the gift. It was referable to the agreement of 1909 and nothing else, and was not, therefore, such a benefit as is contemplated b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enry. On the death of Sir Henry, the Crown made a claim to duty in respect of the entire sum of pound 15,000 as property passing on his death under section 11(1) of the Customs and Revenue Act, 1889. It was held by Palles C.B., and his decision was affirmed by the Court of Appeal, that duty was not payable in respect of pound 15,000 but only in respect of the value of Sir Henry's interest in the balance of income and his contingent interest in the principal sum. It is important to see how Lord Russell of Killowen summarized the judgment of the Chief Baron : 'Gift' he said, "in the context meant beneficial gift. A person who declares trusts of property only gives the beneficial interests covered by the trusts. Everything else he retains and does not give ; and there is an entire exclusion of the donor from the property taken under the disposition of the gift. Sir Henry Cochrane obtained no benefit either by way of reservation out of the gift, or collaterally in reference to the gift." Then, after closely analysing the decision in Grey v. Attorney-General, Lord Russell of Killowen proceeded to show that it was not inconsistent with In re Cochrane and said of it : "There is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Judicial Committee was the same section 102(2)(d) of the New South Wales Stamp Duties Act, 1920-56. The facts of that case are a little material and may be briefly stated as follows. In 1934, a father transferred by way of gift to one of his sons a pastoral property, the gift being made without reservation or qualification or condition, Some seventeen months after the gift, in 1935, the father, the donee-son and another son entered into an agreement to carry on in partnership the business of graziers and stock dealers. The agreement provided, inter alia, that the father should be the manager of the business and that his decision should be final and conclusive in connection with all matters relating to its conduct ; that the capital of the business should consist of the livestock and plant then owned by the respective partners ; that the business should be conducted on the respective holdings of the partners and such holdings should be used for the purposes of the partnership only ; that all lands held by any of the partners at the date of the agreement should remain the sole property of such partner and should not on any consideration be taken into account as or deemed to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property and the property was liable to the charge of estate duty under section 102(2)(d) of the New-South Wales statute. The decision in Munro v. Commissioner of Stamp Duties I was relied upon on behalf of the appellant to repel the claim of the revenue but the learned Viscount distinguished that by saying : "....... it is not disputed that the property was given outright by the deceased to his son. As was said by Dixon C.J. in Commissioner of Stamp Duties v. Owens, 'If ever there was a gift of an estate in fee simple, carrying the fullest right known to the law of exclusive possession and enjoyment, surely this was such a gift.' It follows that the decision of this Board in Munro v. Commissioner of Stamp Duties, on which the appel lants relied, has no application to the present case. It must often be a matter of fine distinction what is the subject-matter of a gift. If, as in Munro's case, the gift is of a property shorn of certain of the rights which appertain to complete ownership, the donor cannot, merely because he remains in possession and enjoyment of those rights, be said within the meaning of the section not to be excluded from possession and enjoy ment of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 1,00,000 to the account of the father and crediting a sum of Rs. 20,000 in the account of each of the five sons in the books of account of the firm. The sons did not withdraw any amount from their accounts in the firm and the amounts remained invested with the firm for which interest at 7 1/2 per cent. per annum was paid to them by the firm. The deceased continued to be a partner in the firm up to 13th April, 1957, when the firm was dissolved and thereafter he died on 5th May, 1957. The question arose in the course of assessment to estate duty whether the value of the house property and the sum of Rs. 1,00,000 gifted by the deceased were includible in the principal value of the estate. The revenue, claimed that since the deceased as a partner in the firm was in possession and enjoyment of these two properties, the possession and enjoyment of these two properties could not be said to have been assumed and retained by the donees to the entire exclusion of the deceased and, therefore, they fell within the mischief of section 10 and were liable to be charged to estate duty under that section. The Supreme Court, however, rejected this claim of the revenue on the ground that, in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty was capable of, which in this case is subject to the tenancy. He could do nothing else to transfer the possession in any other manner unless he was required to effectuate the gift for the purpose of section 10 of the Act by getting the firm to vacate the premises and handing over possession of the same to the donees leaving the donees thereafter to lease it out to the firm. Even then the objection of the learned advocate that since the donor was a partner in the firm which had taken the property on lease, he derived benefit therefrom and was, therefore, not entirely excluded from the possession and enjoyment thereof, will nevertheless remain unsatisfied. To get over such an objection, the donees will have to lease out the property after getting possession from the firm to some other person totally unconnected with the donor. Such an unreasonable requirement the law does not postulate. The possession which the donor can give is the legal possession which the circumstances and the nature of the property would admit. This he has given." It is no doubt true that as a partner in the firm the deceased was in possession and enjoyment of the house property by virtue of the tenancy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... five sons was thus not a gift of Rs. 20,000 but a gift of Rs. 20,000 subject to the right of the firm to make use of it for the purposes of the partnership. This right to use the sum of Rs. 20,000 for the purposes of the partnership was in possession and enjoyment of the partners and each of them including the deceased and did not form the subject-matter of the gift. If, therefore, the deceased continued in possession and enjoyment of this right as a partner in the firm, it could not be said that he was not entirely excluded from possession and enjoyment of the subject-matter of the gift, which was in the case of each of the five sons Rs. 20,000 subject to such right. This was the reason why the Supreme Court held that the revenue had failed to establish that the five sons had not retained possession and enjoyment of the amount gifted to them to the entire exclusion of the deceased. This is clearly borne out by the last two paragraphs of the judgment where the decision of the Mysore High Court in Controller of Estate Duty v. Aswathanarayana Setty has been approved by the Supreme Court. The facts of the case before the Mysore High Court were similar to the facts in the case before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mal Khushaldas are not exigible to estate duty, since it cannot be said that bona fide possession and enjoyment of the properties respectively gifted to them was not assumed and retained by them to the entire exclusion of the donor. The amounts of Rs. 2,00,000 each gifted by the deceased to Shankardas and Narandas must, therefore, be excluded in computing the principal value of the estate of Chhotamal Khushaldas. But, so far as the other amounts gifted by Chunilal Nathubhai and Chhotamal Khushaldas are concerned, the position is wholly different. There the revenue is on firm ground. It is obvious that in these cases the amounts were gifted outright by the deceased in favour of the donees and the donees actually received the amounts gifted from the deceased and thereafter deposited the amounts with the firm in which the deceased was a partner. The subject-matter of the gift in each case was a sum of money. which was given without reservation or qualification. The deceased in his capacity as a partner in the firm was not in possessionor enjoyment of any part of the amounts gifted to the donees. The gifts of the amounts to the donees were not subject to any Interest or right. which be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and enjoyment of the property. That is clear from the law of partnership and is amply supported by the decision of the Judicial Committee in Clifford John Chick's case. If the contention of the learned Advocate-General were right the decision in Clifford John Chick's case would have to be regarded as incorrect but that decision has been approved by the Supreme Court in George Da Costa's case as well as C. R. Ramachaxdra Gounder's case. We must, therefore, hold that so far as the aggregate amount of Rs. 1,20,000 gifted by Chunilal Nathubhai in favour of his sons, grandsons and daughter and the amount of Rs. 1,99,500 gifted by Chhotamal Khushaldas in favour of his grandson are concerned, bona fide possession and enjoyment of these amounts was not retained by the donees to the entire exclusion of the donor and they were accordingly includible in the principal value of the estate of the deceased in each case under section 10. That takes us to the next contention urged on behalf of the accountable person in both the references. That contention was that, even if section 10 was held to be applicable, on a proper interpretation of the language of section 10, property gifted by the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... session and enjoyment of a part of the house or a part of the house is subsequently given to the deceased for his residence. In such a case, it would be possible to say of that part of the house which is in possession and enjoyment of the deceased that bona fide possession and enjoyment of the house to the extent of that part was not immediately assumed by the donee or, though assumed, not subsequently retained, to the entire exclusion of the donor. But in regard to the rest of the house, this description would not apply and it would not be deemed to pass on the donor's death. It is not permissible under the section to split up the property into different intangible interests and say that bona fide possession and enjoyment of a particular interest was not immediately assumed by the donee and thenceforward retained to the entire exclusion of the donor and, therefore, that interest alone is deemed to pass on the donor's death. That is precisely what the Madras High Court did in Smt. Parvathi Ammal v. Controller of Estate Duty. There the deceased gifted a property in which he was carrying on boarding and lodging business to his sons absolutely but, subsequently, he took the property o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was in possession and enjoyment of only leasehold interest in the house concerned, possession and enjoyment of it was retained by the donee to the entire exclusion of the donor. That approach would be wholly inconsistent with the plain natural construction of the section. The proper reading of the section, in our view, is that the words "to the extent" indicate the Part of the Property gifted of which bona fide possession and enjoyment was not immediately assumed by the donee and thenceforward retained to the entire exclusion of the donor. It is that part of the property gifted which passes and not the remaining part which does not answer the description given in the section. This view which we are taking is clearly supported by the decission of the Calcutta High Court in Rash Mohan Chatterjee v. Controller of Estate Duty. There the Division Bench pointed out that the expression "to the extent" introduced in our statute is a departure from the corresponding provisions in the British and Australian Acts and its proper meaning is that it seeks to bring within the charge of estate duty only that part of the property gifted in of which there is non-exclusion of the donor from posse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each gift deed are subject to the condition for providing maintenance to the person concerned and, therefore, it is clear that in the case of each of the five trust deeds, the donee has not retained possession and enjoyment of the property to the entire exclusion of any benefit to the donor." We must, therefore, reject the contention urged on behalf of the accountable person based on the words "to the extent" in section 10. It is clear on the admitted facts before us in both cases that the whole amount of Rs. 1,20,000 gifted by Chunilal Nathubhai and the whole of the amount of Rs. 1,99,500 gifted by Chhotamal Khushaldas were in possession and enjoyment of the respective donors and it was not possible to say of any part of those amounts that possession and enjoyment of it was retained by the respective donees to the entire exclusion of the donors. Section 10 was, therefore, clearly applicable to both these amounts and they must be deemed to pass on the death of the respective donors in both cases. The accountable person in Reference No. 2 of 1970 lastly contended that the amounts gifted by Chunilal Nathubhai in favour of two of his sons were withdrawn by them from their respe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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