1979 (2) TMI 7 - HC - Income Tax

Summary

Issues Involved:
1. Inclusion of Rs. 47,739 under Section 9 of the Estate Duty Act.
2. Inclusion of Rs. 10,122 under Section 10 of the Estate Duty Act.

Issue 1: Inclusion of Rs. 47,739 under Section 9 of the Estate Duty Act

The first issue pertains to whether a sum of Rs. 47,739, representing the value of a 22% interest surrendered by the deceased in the firm of M/s. T. Purushotham & Co., Madras, in favor of his sons, is includible in the estate under Section 9 of the Estate Duty Act. The deceased retired from the partnership on November 8, 1969, and his two major sons and minor son were admitted to the firm the next day, each acquiring a 7 1/3% share. The Assistant Controller of Estate Duty (Asst. CED) included the deceased's 22% share in the dutiable estate, considering it a transfer under Section 9 of the Act, as the deceased died shortly after retirement.

The Appellate Tribunal, however, deleted the sum of Rs. 47,739, holding that Section 9 did not apply. The Tribunal's decision was based on the fact that the deceased was not a party to the partnership deed executed on November 9, 1969. Therefore, the document could not be considered a transaction or disposition made by the deceased. The Tribunal found no enforceable agreement between the deceased and the other partners regarding the transfer of interest to his sons.

The court examined whether the recital in the partnership deed, stating that the deceased retired in favor of his sons, constituted a disposition under Section 9. It was concluded that the recital alone, without the deceased being a party to the document, could not support the contention of a transfer. The court also considered Section 27, which treats dispositions made by the deceased in favor of relatives as gifts. However, it was found that the deceased's interest in the partnership ceased on November 8, 1969, and there was no interest to be disposed of on November 9, 1969.

The court referenced several decisions, including S. P. Valliammai Achi v. CED, A.N. K. Rajamani Ammal v. CED, and Ranganayaki Ammal v. CED, to interpret the term "disposition." It was concluded that the word "disposition" would not apply where the deceased had no involvement in the transaction. Therefore, Section 9, even read with Section 27 and Explanation 2 to Section 2(15), had no application. The court affirmed the Tribunal's decision, answering the first question in the affirmative and in favor of the accountable person.

Issue 2: Inclusion of Rs. 10,122 under Section 10 of the Estate Duty Act

The second issue concerns whether a sum of Rs. 10,122, out of the value of chit fund contributions made by the deceased, is includible under Section 10 of the Estate Duty Act. The deceased had contributed to two chit funds in the names of his relatives, Smt. Chellammal and Smt. Lakshmi, with contributions made by debiting his capital account in the firm's books. The total amount received from these chits was Rs. 18,900, credited in the names of the two ladies in the firm's books.

The Assistant Controller of Estate Duty included the sum of Rs. 18,900 under Section 10, but the Tribunal, relying on Supreme Court decisions in CED v. C. R. Ramachandra Gounder and CIT/CED v. N. R. Ramarathnam, exempted Rs. 10,122, while taxing Rs. 8,778 under Section 9.

The court examined the applicability of Section 10, which deems property to pass on the donor's death if bona fide possession and enjoyment were not immediately assumed by the donee and retained to the exclusion of the donor. The court found that the subject matter of the gift was the money remitted to the chit funds, which was identifiable when brought back into the firm. The deceased was not entirely excluded from the gifted amount as it came back into the firm where he was a partner.

The court concluded that the gift came under the provision of Section 10, as the deceased retained some interest in the contributions. The court did not address the exclusion of any interest or profit component in the deposit, as the accountable person did not file a reference on that aspect. The second question was answered in the negative and in favor of the revenue, with no order as to costs.