1975 (3) TMI 10 - HC - Income Tax

Summary

Issues Involved
1. Applicability of Section 10 of the Estate Duty Act.
2. Assumption and retention of possession and enjoyment of gifted property by the donee.
3. Exclusion of the donor from possession and enjoyment of the gifted property.
4. Benefit to the donor by contract or otherwise.

Detailed Analysis

1. Applicability of Section 10 of the Estate Duty Act
The primary issue was whether the value of the four houses and the shares in Balamadies Plantations Limited could be included in the principal value of the estate of the deceased under Section 10 of the Estate Duty Act. Section 10 stipulates that property taken under any gift shall be deemed to pass on the donor's death if the donee did not assume and retain bona fide possession and enjoyment of it to the exclusion of the donor or any benefit to him by contract or otherwise.

2. Assumption and Retention of Possession and Enjoyment of Gifted Property by the Donee
The court examined whether Mrs. Kamala Pandalai, the donee, had assumed possession and enjoyment of the properties immediately upon the gift. The properties were gifted in 1940-41, and Mrs. Pandalai had been collecting rents and leasing the properties. The Tribunal found that the donee was in possession and enjoyment of the properties, as evidenced by her actions of leasing and collecting rents. Similarly, the shares stood in her name, and she received dividends. Thus, the first part of Section 10 was satisfied.

3. Exclusion of the Donor from Possession and Enjoyment of the Gifted Property
The court then considered whether the donee retained possession and enjoyment of the property to the entire exclusion of the donor. The rents and dividends were credited to the deceased's bank account until March 12, 1958, and thereafter into a joint account. The court referenced several cases, including M. Ranganatha Sastri v. Controller of Estate Duty and V. N. Krishnaswamy v. Controller of Estate Duty, which dealt with similar issues of whether the donor was excluded from possession and enjoyment. The court held that the donee's voluntary decision to deposit the income in the deceased's bank account did not mean she did not retain possession and enjoyment of the properties. The court found no evidence that the deceased enjoyed the income from the gifted properties, thus satisfying the first limb of the second part of Section 10.

4. Benefit to the Donor by Contract or Otherwise
The court examined whether the donor derived any benefit by contract or otherwise from the gifted properties. The Tribunal found that the deceased had withdrawn only Rs. 5,400, which was much below the amount he had deposited (Rs. 21,200). The court held that there was no evidence of any contract or legal obligation that conferred a benefit on the donor. The court referenced the Controller of Estate Duty v. R. Kanakasabai case, which emphasized that there must be some kind of charge on the properties to bring the second limb of the second part of Section 10 into operation. No such charge existed in this case.

Conclusion
The court concluded that the donee had assumed and retained possession and enjoyment of the gifted properties to the exclusion of the donor. There was no benefit to the donor by contract or otherwise. Therefore, the value of the four houses and the shares in Balamadies Plantations Limited could not be included in the principal value of the estate of the deceased under Section 10 of the Estate Duty Act. The question was answered in the affirmative and against the Controller, with costs awarded to the respondent.