1979 (6) TMI 22 - HC - Income Tax

Issues Involved:
1. Definition of 'relative' under section 27(7)(i)(b) of the Estate Duty Act.
2. Whether admission of married daughters to a share of profits amounted to a 'gift' under section 27(1) of the Act.
3. Whether the share of profit earned by the daughters constituted 'property' under section 9 of the Act.
4. Inclusion of the sum of Rs. 1,01,716 in the estate of the deceased under sections 9 and 27 of the Estate Duty Act.

Detailed Analysis:

1. Definition of 'relative' under section 27(7)(i)(b) of the Estate Duty Act:
The court addressed whether 'married daughters' of the deceased are covered by the definition of 'relative' in section 27(7)(i)(b) of the Estate Duty Act. The court held that the term 'children' includes both unmarried and married daughters. This interpretation is supported by clause (ii) of section 27(7), which explicitly includes illegitimate and adopted children within the definition of 'children'. Therefore, married daughters fall within the description of 'children' and are considered 'relatives' under the Act.

2. Admission of married daughters to a share of profits as a 'gift':
The court examined whether the admission of the deceased's two married daughters to a share of profits in the business amounted to a 'gift' within the meaning of section 27(1) of the Act. The court noted that the transfer of Rs. 10,000 each to the daughters was a disposition in the nature of a gift. The partnership deed executed on 17th November 1963, which allotted 50% of the profits to the daughters, was also considered a 'disposition' as defined under section 2(15) of the Act. The court concluded that the creation of the partnership and the allocation of profits were not supported by any consideration and thus amounted to a gift. Consequently, section 27(1) applied, deeming the disposition as a gift for the purposes of the Estate Duty Act.

3. Share of profit earned by the daughters as 'property':
The court analyzed whether the share of profit earned by the daughters constituted 'property' within the meaning of section 9 of the Act. The court held that the right to share in the profits of the business was an asset. The transfer of 50% share in profits to the daughters by the partnership deed was a disposition of property, as the deceased gave up his right to enjoy the entire profits of the business. The court concluded that the benefits arising from such a gift must constitute property covered by section 9, and the profits earned by the daughters up to the date of the deceased's death were rightly included in the estate of the deceased.

4. Inclusion of the sum of Rs. 1,01,716 in the estate of the deceased:
The court considered whether the sum of Rs. 1,01,716, comprising Rs. 20,000 gifted to the married daughters and Rs. 81,716 profits accrued to them, was rightly included in the estate of the deceased under sections 9 and 27 of the Act. The court held that the transfer of Rs. 10,000 each to the daughters was a gift within the meaning of section 27(1) and was made within one year before the deceased's death, attracting section 9 of the Act. The court affirmed the Tribunal's decision to include the profits earned by the daughters up to the date of the deceased's death in the estate. The valuation of the gift, as determined by the Tribunal, was considered appropriate and lenient to the accountable person.

Conclusion:
The court answered all the questions referred to it in the affirmative and in favor of the revenue, confirming the inclusion of the sum of Rs. 1,01,716 in the estate of the deceased under sections 9 and 27 of the Estate Duty Act.

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