TMI Blog1976 (9) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to one-seventh share in the business. No benefit of any kind was enjoyed by way of possession or otherwise by the deceased under the gift of the subject-matter of the gift. Whatever benefit was enjoyed by the deceased subsequent to the date of the gift was on account of the fact that he held one-seventh share in the business, which share he retained throughout and never parted with. No extra benefit was also conferred under the deed of partnership upon the deceased although some extra benefit was conferred upon two of the major sons in the form of remuneration because of their active and full participation in the business. Keeping in view the position of law discussed earlier, it is plain that the facts of the case would not fall within the ambit of section 10 of the Act. Agree with the High Court that the question referred to by the Tribunal should be answered in favour of the accountable persons and against the revenue - - - - - Dated:- 21-9-1976 - Judge(s) : N. L. UNTWALIA., JASWANT SINGH., H. R. KHANNA JUDGMENT The judgment of the court was delivered by KHANNA J.--This appeal on certificate is by the Controller of Estate Duty against the judgment of the Ke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uded the value of a one-seventh share in the partnership business in the estate of the deceased which along with the movables was declared at Rs. 1,05,236. The assessment was completed on January 18, 1962. The Assistant Controller of Estate Duty by applying the provisions of section 10 of the Act included the following items in the estate of the deceased: (1) The capital of Rs. 2,70,000; (2) Subsequent accretion in the form of profits till the date of death of the deceased; and (3) 6/7ths share of goodwill, the quantum of goodwill being computed at Rs. 1 lakh. The principal value of the estate was determined at Rs. 8,43,214. The accountable persons preferred an appeal before the Appellate Controller of Estate Duty. It was contended on their behalf that the value of the shares of the sons in the business should not be included in the estate of the deceased under section 10 and that the valuation of such shares as determined by the Assistant Controller was excessive. The Appellate Controller held that so far as the gift of the shares in the business was concerned, it could not be included in the estate of the deceased under section 10 of the Act. Regarding the gift of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n behalf of the appellant, has argued that there was absolute gift of Rs. 45,000 by the deceased in favour of each of his sons and as that amount was subsequent to the gift utilised for the purpose of business of which the deceased was at first a proprietor and then a partner, the deceased should be held to have enjoyed the benefit of the gifted amount subsequent to the date of gift. The case, it is accordingly submitted, is covered by section 10 of the Act, and the High Court was in error in answering the question referred to it against the revenue. As against that, Mr. Ramamurthy, on behalf of the respondents, has controverted the above contention and has canvassed for the correctness of the view taken by the Tribunal and the High Court. It has also been submitted by Mr. Ramamurthy that the findings of fact arrived at by the Tribunal on consideration of material facts regarding the subject-matter of the gift must be accepted as correct in these advisory proceedings. It may be appropriate at this stage to refer to the provisions of the Act having a bearing on the question with which we are concerned. According to section 9 of the Act, as it stood at the relevant time, property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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. 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. The second part of the section has two limbs: the deceased must be entirely excluded, (i) from the property, and (ii) from any benefit by contract or otherwise. The word "otherwise" should be construed ejusdem generis and should 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. The words "by contract or otherwise" in the second limb of the section do not control the words "to the entire exclusion of the donor" in the first limb. In order to attract this section, it is consequently not necessary that the possession of the donor of the gifted property must be referable to some contractual or other arrangement enforceable in law or in equity. Even if the donor is content to rely upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant disposition or under any collateral disposition. We are, however, concerned with section 10 as it stood before the amendment. The question as to whether gifted property should be held to be a part of the estate of the deceased donor passing on his death for the purpose of section 10 of the Act is not always free from difficulty. It would depend upon the fact as to what precisely was the subject-matter of the gift and whether the gift was of an absolute nature or whether it was subject to certain rights. There is a fine but real distinction between the two types of cases. All the same, it is quite often a vexed question to determine on what side of the line the facts of the case fall. The line, though clearly demarcated, is thin and the cases near the borderline often pose problem, the solution of which calls for a touch of judicial refinement and forensic subtlety. Broadly speaking, if the gift of property be made without reservation or qualification or condition, or to put it in the words of Dixon C.J., in the case of Commissioner of Stamp Ditty v Owen, where the gift carries the fullest right known to the law of exclusive possession and enjoyment, any subsequent enj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... henceforth retained it to the father's entire exclusion, for under the partnership agreement the partners and each of them were in possession and enjoyment of the property so long as the partnership subsisted. The Judicial Committee held that 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, and, 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. In the opinion of the Judicial Committee, it was irrelevant that the father gave full consideration for his rights as a member of the partnership to possession and enjoyment of the property that he had given to his son. In the case of George da Costa, the deceased had purchased a house in the joint names of himself and his wife in 1940. They made a gift of the house to their sons in October, 1954. The document recited that the donees had accepted the gift and that they had been put in possession. The deceased died on September 30, 1959. The Controller included the value of that house in the principal value of the estate that passed on the deceased's de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g with and possesses and enjoys some benefit in the property not on account of the interest parted with but because of the interest still retained by him, the interest parted with shall not be deemed to be part of the estate of the deceased donor passing on his death for the purpose of section 10 of the Act. The principle is that by retaining something which he has never given, a donor does not bring himself within the mischief of that section, nor would the provisions of the section be attracted because of some benefit accruing to the donor on account of what was retained by him. Two cases, one decided by the Judicial Committee and another by this court would furnish illustrations of matters falling in this category. The case decided by the Judicial Committee is H. R. Munro v. Commissioner of Stamp Duties and that decided by this court is Controller of Estate Duty v. C. R. Ramachandra Gounder. In the first of these two cases. In 1909 Munro, the owner of 35,000 acres of land in New South Wales on which he carried on the business of a grazier, verbally agreed with his six children that, thereafter, the business should be carried on by him and them as partners under a partnersh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the amount in their accounts in equal shares. The deceased further directed the firm to transfer from his account a sum of Rs. 20,000 to the credit of each of his five sons in the firm's books with effect from April 1, 1953, and he also informed them of this transfer. An amount of Rs. 20,000 was credited in each of the sons' accounts with 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. was paid to them. The deceased continued to be a partner of the firm till April 13, 1957, when the firm was dissolved and thereafter he died on May 5, 1957. The question was whether the value of the house property and the sum of Rs. 1 lakh could be included in the principal value of the estate of the deceased as property deemed to pass under section 10 of the Estate Duty Act, 1953. It was held by this court that neither the house property nor the sum of Rs. 1 lakh could be deemed to pass under section 10. The first two conditions of the section were satisfied because there was an unequivocal transfer of the property by a settlement deed and of the sum of Rs. 1 lakh by crediting the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the partnership deed on September 17, 1955, and of the other agreement on September 18, 1955, in our opinion, were all parts of one integrated transaction, the object of which was to bring about transfer of six-sevenths share of the deceased in his business in favour of his sons so that he and his sons might have each one-sevenths share in the business. The Tribunal has expressly recorded a finding that what the deceased gifted to his sons was only a share in the business. The Tribunal also expressed its full agreement with the following observations made by the Assistant Controller: "From the facts of the case it is clear that the gift in favour of the sons represented amounts transferred by book entries to the account of each of the sons who were admitted to the partnership and that it does not actually represent cash sums of Rs. 45,000 as such. By virtue of these transfer entries the sons of the deceased got a share in the business. Thus, the gift cannot be construed, as a gift of cash but it only represented a gift of a share in the business. By virtue of this gift, the sons had necessarily to become partners. The subject-matter of the gift is the investment in the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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