1976 (4) TMI 34 - HC - Income Tax

Summary

Issues Involved:
1. Whether a sum of Rs. 75,000 would be deemed to pass within the meaning of section 10 of the Estate Duty Act, 1953.

Detailed Analysis:

1. Facts and Background:
The deceased, a partner in Messrs. B. A. Brothers, Calcutta, gifted Rs. 1 lakh to his daughter on November 7, 1953. The daughter invested Rs. 75,000 of this amount as her capital in the firm on the same day and became a partner. The donor had a 0-4-0 share, and the donee had a 0-3-0 share in the firm. The donor died on October 18, 1960, while still a partner.

2. Inclusion of Rs. 75,000 in Estate Valuation:
The Assistant Controller of Estate Duty included Rs. 75,000 in the valuation of the deceased's estate under section 10 of the Estate Duty Act, 1953. This decision was upheld by the Appellate Controller of Estate Duty, referencing the Privy Council decision in Clifford John Chick v. Commissioner of Stamp Duties [1959] 37 ITR (ED) 89.

3. Tribunal's Decision:
The accountable person appealed to the Appellate Tribunal, arguing that the donor had no right to possess or enjoy the Rs. 75,000 and that Chick's case did not apply. The Tribunal, after discussing the law of partnership, concluded that the donor had neither possession nor benefit from the Rs. 75,000, which was the donee's capital in the firm. Therefore, the Rs. 75,000 should not be included in the dutiable assets of the deceased.

4. Revenue's Argument:
The revenue contended that the donee did not retain the Rs. 75,000 to the exclusion of the donor, as the capital became the firm's property, and the donor, as a partner, had possession and benefit from it.

5. Respondent's Argument:
The respondent argued that the Tribunal's findings were factual and not perverse. The donor was excluded from the gifted amount, and the case was not similar to Munro's case [1934] AC 61 (PC), where the gift was linked to a pre-existing partnership.

6. Legal Principles and Case Law:
The court examined several cases, including Chick's case, Munro's case, and decisions of the Supreme Court in Controller of Estate Duty v. C. R. Ramachandra Gounder [1973] 88 ITR 448 (SC) and Controller of Estate Duty v. Smt. Parvati Ammal [1974] 97 ITR 621 (SC). The principles established were that for section 10 to apply, the donor must be entirely excluded from the property and any benefit from it.

7. Application of Section 10:
The court found that the donee did not retain the Rs. 75,000 to the exclusion of the donor. The amount became the firm's property, and the donor, as a partner, had possession and benefit from it. Therefore, the Rs. 75,000 was liable to be included in the estate's principal value.

8. Conclusion:
The court concluded that Rs. 75,000 was liable to be included in the principal value of the estate of the deceased as property deemed to have passed under section 10 of the Estate Duty Act. The answer was in the affirmative and in favor of the revenue, with each party bearing their own costs.

Separate Judgment by Dipak Kumar Sen J.:
Dipak Kumar Sen J. agreed with the conclusions and emphasized the interpretation of section 10 of the Estate Duty Act, as analyzed by the Supreme Court in George Da Costa v. Controller of Estate Duty [1967] 63 ITR 497 (SC). He reiterated that both conditions of section 10 are cumulative and must be satisfied. He also noted that the case facts aligned more with Chick's case than Munro's case, leading to the conclusion in favor of the revenue.