1983 (11) TMI 13 - HC - Income Tax

Summary

Issues:
Interpretation of Section 10 of the E.D. Act regarding the inclusion of gifted amount in the estate of the deceased.

Analysis:
The case involved a dispute regarding the applicability of Section 10 of the E.D. Act to a sum of Rs. 85,000 gifted by the deceased to his sons, wife, daughter, and grandsons. Initially, the Asst. CED held that the amount should be included in the estate of the deceased as the donees had not retained possession and enjoyment to the exclusion of the deceased. However, the Appellate Controller disagreed, noting that the gift was made before converting the business into a partnership and that gift tax had been levied on the amount. The Tribunal further found that the deceased had converted his sole proprietorship into a partnership, making the donees partners and gifting them the amount in question. The Tribunal held that the benefit received by the deceased was as a partner, not as a donor, and therefore, Section 10 of the E.D. Act did not apply.

Subsequently, the Revenue appealed the decision, arguing that the decision in CED v. Suryanarayanan should apply, which held that the enjoyment of the gifted amount by the donor, even as a partner, would attract Section 10. However, the assessee's counsel cited Supreme Court decisions in CED v. Viswanathan and CED v. Kamlavati, emphasizing that unless the benefit the donor receives from the gifted amount is directly linked to the gift, Section 10 cannot be invoked. The Supreme Court rulings clarified that if the use or benefit of the gifted property is not traceable to the gift, Section 10 cannot be applied.

In line with the Supreme Court decisions, the High Court ruled in favor of the assessee, holding that Section 10 of the E.D. Act was not applicable to the gifted amount of Rs. 85,000. The judgment aligned with the principle that the benefit received by the donor must be directly related to the gift for Section 10 to be invoked. The court concluded by answering the referred question in the affirmative, against the Revenue, and decided that there would be no order as to costs.