1981 (1) TMI 3 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 10 of the Estate Duty Act, 1953, to the sum of Rs. 88,789 gifted to the son and grandsons.
2. Applicability of Section 10 of the Estate Duty Act, 1953, to the house properties valued at Rs. 35,000 and gifted to the son and grandson.
3. Applicability of Section 10 of the Estate Duty Act, 1953, to the 11/16ths share of the goodwill in the firm.

Detailed Analysis:

1. Sum of Rs. 88,789 Gifted to the Son and Grandsons:
The deceased, Shri Hassanali Mohammadali, gifted Rs. 88,789 to his son and grandsons by debiting his capital account and crediting the respective accounts of the donees. These amounts remained in the firm's books as capital contributed by the respective parties until his death. The Assistant Controller of Estate Duty added this amount to the estate's value, relying on Section 10 of the Estate Duty Act, arguing that the donees had not assumed possession and enjoyment to the entire exclusion of the donor. However, the Income-tax Appellate Tribunal reversed this decision, holding that the sum was not includible in the estate of the deceased as the donees had assumed and retained possession and enjoyment to the entire exclusion of the donor.

2. House Properties Valued at Rs. 35,000 Gifted to the Son and Grandson:
The deceased gifted two house properties under registered deeds in 1954. One property, valued at Rs. 20,000, was gifted to his son, Imranali, and the other, valued at Rs. 15,000, was gifted to his grandson, Abdullabhai. The partnership business continued to operate in the house gifted to Imranali without paying rent, and the deceased continued to reside in the house gifted to Abdullabhai until his death. The Appellate Controller confirmed the inclusion of these properties in the estate's value, but the Tribunal reversed this decision, holding that the properties were not includible as the donees had assumed possession and enjoyment to the entire exclusion of the donor.

3. 11/16ths Share of the Goodwill in the Firm:
The value of the firm's goodwill was assessed at Rs. 40,000. The Tribunal held that only the deceased's share in the firm's goodwill, i.e., 11/16ths, was includible in the estate duty assessment, not the entire value. This conclusion was based on the fact that the deceased was an old man, and the other partners were actively participating in the business.

Legal Principles and Precedents:
The court referred to Section 10 of the Estate Duty Act, which states that property taken under any gift shall be deemed to pass on the donor's death unless the donee has bona fide assumed possession and enjoyment of it to the entire exclusion of the donor. The court cited several precedents, including George Da Costa v. CED, CED v. Ramachandra Gounder, and CED v. Kamlavati, to interpret the applicability of Section 10. The court emphasized that the donee must retain possession and enjoyment to the entire exclusion of the donor and any benefit to him by contract or otherwise.

Conclusion:
The court concluded that none of the gifted properties attracted Section 10 of the Estate Duty Act. The business premises were used by the firm as a licensee, and the old arrangement continued after the gift. The cash gifts were transferred and dealt with as the donees' property, and the residential house was occupied by the donor with the donee's permission, which was unconnected with the gift. Therefore, the court answered all three parts of the question in the negative and against the Revenue, holding that the gifted properties were not includible in the estate of the deceased. The Revenue was ordered to bear the costs of the reference.