TMI Blog1974 (9) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... m to the entire exclusion of the deceased and, therefore, section 10 of the Estate Duty Act is applicable. Rs. (1) Gift to Mukesh Ramchand 20,000 (2) Gift to Prakash Ramchand 15,000 (3) Gift to Manohar Ramchand 25,000 (4) Gift to Vashdev Ramchand 25,000 ------------- 85,000 ------------- The accountable person preferred an appeal before the Appellate Controller contending that the amounts gifted had been withdrawn by the donees as soon as the gifts were made and they had only been subsequently invested in the firm as their funds, that, therefore, the donees should be taken to have been in possession and enjoyment of the amounts to the entire exclusion of the deceased, and that the case was covered by the decision of the Assam High Court in Controller of Estate Duty v. Birendrakumar Sen. The Appellate Controller, however, rejected the said contentions and held that as the partnership in which the deceased was a partner was in possession and enjoyment of the amounts which were gifted by the deceased, it has to be held that the deceased was not entirely excluded from possession and enjoyment of the amounts. In that view he affirmed the order of the Assistant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh, Manohar and Vashdev, on April 1, 1959. It has been found by the Tribunal that the amounts gifted on April 1, 1955, were invested by the donees in a proprietary concern, Seth Ramdas Sangatdas. Later, they were withdrawn and invested in the firm of M/s. Seth Bhikchand Ramchand in which the deceased was a partner. The sum of Rs. 10,000 gifted on April 1, 1958, to two of his sons and the sum of Rs. 15,000 on April 1, 1959, are said to have been transferred straightaway to their credit in the firm of Seth Bhikchand Ramchand. On these facts the question for consideration is whether section 10 of the Estate Duty Act stood attracted. As already stated, out of the total amount of Rs. 85,000 gifted a sum of Rs. 60,000 was gifted in cash by the deceased and they were invested in the first instance with a third party, but later on brought into the firm in which the deceased was a partner. As regards the balance of Rs. 25,000 it is not in dispute that the amounts gifted continued with the firm in which the deceased was a partner though to the credit of the donees.The learned counsel for the accountable person, therefore, sought to treat the two amounts as distinct and separate and sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iabilities of the firm are their debts and their liabilities. In point of law, a partiler may be the debtor or the creditor of his co-partners, but he cannot be either debtor or creditor of the firm of which he is himself a member, nor can he be employed by his firm, for a man cannot be his own employer." In Dulichand Laxminarayan v. Commissioner of Income-tax the Supreme Court has stated : "It is clear from the foregoing discussion that the law, English as well as Indian, has for some specific purposes, some of which are referred to above, relaxed its rigid notions and extended a limited personality to a firm Nevertheless, the general concept of partnership firmly established in both systems of law, still is that a firm is not an entity or 'person' in law but is merely an association of individuals and a firm name is only a collective name of those individuals who constitute the firm. In other words, a firm name is merely an expression, only a compendious mode of designating the persons who have agreed to carry on business in partnership." Their Lordships referred with approval to the decision of the Privy Council in Bhagwanji Morarji Goculdas v. Alembic Chentical Co. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is set out hereunder : "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." As per the above provision the property taken under a gift shall be deemed to pass on the donor's death : (1) if bona fide possession and enjoyment of it was not immediately assumed by the donee, and (2) if the donee did not retain possession to the entire exclusion of the donor or of any benefit to him by contract or otherwise. Therefore, the section will stand attracted if it is shown that the donee did not take bona fide possession and enjoyment immediately or that the donee after taking such possession did not retain the same to the entire exclusion of the donor or of any benefit to him. The applicability of section 10 cannot be avoided merely by showing that the donee has assumed possession and enjoyment of the property gifted without farther proof that the donee retained possession of the same to the entire exclusion of the donor or of any ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifts and retained possession and enjoyment of the same to the exclusion of the donor or of any benefit to him. So far as the sum of Rs. 60,000 is concerned, admittedly the donees were recipients of the cash gifts from the deceased and the amounts were invested by them with a third party. Therefore, the donees should be taken to have assumed possession and enjoyment of the gifted amounts immediately after the gifts are made. It is not the case of the revenue that any benefit has been created in favour of the donor by contract or otherwise. Therefore, the only question is whether the donees continued to retain possession and enjoyment of the gifted amounts to the entire exclusion of the donor. As already pointed out, though the amounts gifted were invested at the first instance with a third party for some time, later they came to be invested in the firm of which the deceased was a partner. Can it be said that the deceased has been excluded from possession and enjoyment of the monies ? The learned counsel for the accountable person relies on the decision in Controller of Estate Duty v. Jai Gopal Mehra in support of his submission that the amounts invested in the partnership in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lves to the entire exclusion of Shri Jaishi Ram even when they invested the amounts in the firms in which he was a partner." The Full Bench specifically overruled an earlier decision of the same court in Controller of Estate Duty v. Ronaq Ram Bakshi Ram Gupta. The Full Bench decision of the Allahabad High Court in Controller of Estate Duty v. Thanwar Dass is also to the same effect. In that a case a person made a gift by adjustment entries in the books of account of a firm in which he was a partner and the money so gifted was not withdrawn by the donee but was allowed to remain with the firm. The Full Bench held that notwithstanding the retention of the money by the firm the donor must be deemed to have excluded himself from possession of the gifted property for the purpose of section 10 and that any benefit which the donor derived out of the monies as a partner in the firm which held the monies arose from the agreement of partnership and not from any agreement referable to the gift. The Full Bench, relying on two earlier decisions of the Supreme Court in Controller of Estate Duty v. C. R. Ramachandra Gounder and Commissioner of Income-tax v. N. R. Ramarathnam, held that once th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n such a case is whether the donor is excluded from possession and enjoyment of the property minus those rights or subject to those rights because that constitutes the subjectmatter of the gift. The learned judges also expressed the view that where any property is in possession and enjoyment of a firm, it is in the possession and enjoyment of the partners and each of them and where the deceased is a partner in the firm, he would be equally in possession and enjoyment of the property and that possession and enjoyment required by section 10 to be assumed and retained by the donee to the entire exclusion of the donor is of the property gifted. This decision also takes note of the decision of the Supreme Court in Controller of Estate Duty v. C. R. Ramachandra Gounder, which has been taken as the basis of the judgment of the Full Bench in Controller of Estate Duty v. Thanwar Dass. The facts in Controller of Estate Duty v. C. R. Ramachandra Gounder were as follow : The deceased who was a partner in a firm owned a house property let to the firm as tenant-at-will. In August, 1953, the deceased executed a deed of settlement under which he transferred the property let to the firm to hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect to the tenancy of the firm. But, as regards the sum of Rs. 1,00,000, the court found that the sum was lying earlier with the firm to the credit of the deceased, that the firm was entitled to make use of it for the purpose of the partnership business, that the deceased as a partner was not entitled to withdraw the amount standing to his credit without the consent of the other partners, and that, therefore, when he transferred the sum of Rs. 1,00,000 belonging to him to his sons it was only subject to the right of the firm to use it for the purpose of the partnership and therefore the gift of the amount should be taken fo be subject to the right of the firm to use it and that merely because the firm and the deceased enjoyed this right it cannot be said that the deceased was not excluded from possession and enjoyment of that which was gifted by him. The Supreme Court, therefore, equated the case with the case in H.R. Munro v. Commissioner of Stamp Duties. In our view the principle of Munro's case has no applicaiton to the sum of Rs. 60,000 which are cash gifts given by the deceased to his four sons which were invested at the first instance with a third, party and later on brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the father in 1921 the estate duty authorities claimed duty on the entire value of the shares on the ground that the settlement was a gift of the share and a benefit to the settlor was reserved therein. The son attained majority only in 1921. On these facts the Privy Council held : (1) that the interest of the son under the settlement was contingent on his attaining the age of 21 years ; (2) the property comprised in the gift was the equitable interest in the shares ; (3) that the bona fide possession and enjoyment of the property gifted was taken by the son through the trustee immediately upon the gift ; (4) that there was no reservation of any benefit to the settlor in the subject-matter of the gift and duty was not payable on the value of shares. In this case admittedly the donor did not constitute himself as a trustee for the donees at any time. The principle of the above case has, therefore, no application in this case. As regards the gift amounting to Rs. 25,000 it is the contention of the learned counsel for the accountable person that the gifts were made by making credit entries in favour of the donees in the partnership accounts by making debit entries against the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25,000 were in the form of book entries. It proceeded on the basis that the said sum also represented cash gifts. If the sum of Rs. 25,000 actually represents cash gifts made by the deceased by withdrawing the amounts from the firm, then the gifts will attract the principle in Chick's case, as in the case of gifts amounting to Rs. 60,000. But, if cash has not been withdrawn by the deceased and handed over to the donees but if the gift was made only by book entries in the firm's accounts, then in view of the decision of the Supreme Court in Controller of Estate Duty v. C. R. Ramachandra Gounder and the principle laid down in Munro's case the gift has to be taken as shorn of the rights of the partnership to use the monies, in which case section 10 cannot stand attracted. But the Tribunal has not given any clear finding on the nature of the gifts amounting to Rs. 25,000. The applicability of section 10 has to depend upon the factual position which has to be ultimately decided by the Tribunal under section 64(6). As regards the contention of the accountable person that the sum of Rs. 25,000 should be taken to be transfer of an actionable claim and, therefore, attracts the decision i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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