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Issues Involved:
1. Validity of the gift on October 24, 1965. 2. Applicability of Section 10 of the Estate Duty Act to the gifted amount. 3. Interpretation of relevant case law by the Tribunal and the courts. Analysis: 1. Validity of the gift on October 24, 1965: The Tribunal assumed there was a valid gift on October 24, 1965, when Shri Govindram Shivaldas debited his capital account with Rs. 15,000 and credited his son's account with the same amount. The Tribunal noted that the departmental representative did not contest the validity of the gift, recognizing that if the gift was not valid on October 24, 1965, it would be valid on November 9, 1966, when the amount was credited in the firm's books. This assumption was critical because it determined the applicability of Section 10 of the Estate Duty Act. 2. Applicability of Section 10 of the Estate Duty Act to the gifted amount: Section 10 of the Estate Duty Act, 1953, stipulates that property taken under any gift shall be deemed to pass on the donor's death if bona fide possession and enjoyment of it was not immediately assumed by the donee and retained to the entire exclusion of the donor. The Tribunal held that Section 10 did not apply, reasoning that the gift was part of the business capital and the donee retained possession and enjoyment of the property. The Tribunal relied on the Supreme Court's observations in CED v. C.R. Ramachandra Gounder, which emphasized that the possession the donor can give is the legal possession the circumstances and nature of the property admit. 3. Interpretation of relevant case law by the Tribunal and the courts: The Tribunal and the courts referenced several Supreme Court decisions, including CED v. C.R. Ramachandra Gounder, CIT & CED v. N.R. Ramarathnam, and CED v. R.V. Viswanathan, to support their conclusions. These cases established that if the donee retains possession and enjoyment of the gifted property to the exclusion of the donor, Section 10 does not apply. However, the Madras High Court distinguished these cases based on factual differences and held that the Tribunal erred in its application of the law. The High Court noted that in the present case, the father continued to utilize the gifted amount in his business, which meant the donee did not retain possession to the entire exclusion of the donor. The High Court further analyzed its own decisions, including Radhabai Ramchand v. CED and CED v. S.M.M. Subramanian Chettiar, which dealt with similar issues. These cases emphasized that if the gifted amount is invested in a firm where the donor is a partner, Section 10 is applicable because the donor is not entirely excluded from the possession and enjoyment of the gifted property. In conclusion, the High Court held that the Tribunal committed an error in its judgment by failing to recognize that the donor's continued use of the gifted amount in his business meant that the donee did not retain possession to the exclusion of the donor. Therefore, the sum of Rs. 15,000 was includible in the principal value of the estate of the deceased under Section 10 of the Estate Duty Act. The question referred to the court was answered in the negative and in favor of the revenue, with the revenue entitled to its costs.
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