1983 (9) TMI 9 - HC - Income Tax

Issues Involved:

1. Applicability of Section 10 of the Estate Duty Act, 1953, to the gifts made by the deceased.
2. Retention of beneficial interest by the donor.
3. Interpretation of the term "guardian" in the context of possession and enjoyment of the gifted properties.

Detailed Analysis:

1. Applicability of Section 10 of the Estate Duty Act, 1953:

The primary issue was whether Section 10 of the Estate Duty Act, 1953, applied to the gifts made by the deceased on December 3, 1959. Section 10 states that property taken under any gift 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 any benefit to him by contract or otherwise.

The court examined whether the donees (minor children) had assumed bona fide possession and enjoyment of the gifted properties immediately after the execution of the gift deeds. The accountable person argued that the deceased retained possession and enjoyment of the properties as a guardian, which should be considered as possession and enjoyment by the donees. However, the court found that the donor retained possession and enjoyment of the properties till the donees attained majority, which implied that the donees did not take immediate possession and enjoyment to the exclusion of the donor.

2. Retention of Beneficial Interest by the Donor:

The Appellate Controller of Estate Duty and the Tribunal both held that the donor retained beneficial interest in the properties until the donees attained majority. This retention of beneficial interest covered the entire property donated, thereby attracting Section 5 of the Act, which was not contested by the accountable person and thus became final.

The court further analyzed the terms of the gift deeds and concluded that the donor's retention of possession and enjoyment of the properties till the donees attained majority meant that the donees did not assume immediate possession and enjoyment to the exclusion of the donor. This retention of beneficial interest by the donor was sufficient to attract Section 10 of the Act.

3. Interpretation of the Term "Guardian":

The accountable person contended that the deceased's possession and enjoyment of the properties were in his capacity as a guardian, and therefore, the donees should be considered to have been in possession and enjoyment immediately after the execution of the gift deeds. The court scrutinized the terms of the gift deeds and found that the expression "guardian" was used indiscriminately and did not indicate that the donor was acting in his capacity as a guardian.

The court noted that the properties were the donor's self-acquired properties, and there was no provision for the accumulation of income or accounting for the income to the minors upon attaining majority. This indicated that the donor retained possession and enjoyment of the properties in his individual capacity, not as a guardian. Consequently, the donees did not assume bona fide possession and enjoyment immediately after the execution of the gift deeds, thereby attracting Section 10 of the Act.

Conclusion:

The court held that the view taken by the Tribunal was correct, and Section 10 of the Estate Duty Act, 1953, was applicable to the gifts made by the deceased. The question was answered in the affirmative and against the accountable person, who was ordered to pay the costs of the Revenue amounting to Rs. 500.

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