1973 (6) TMI 26 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation and application of Section 10 of the Estate Duty Act, 1953.
2. Determination of whether the amounts gifted by the deceased are includible in the principal value of the estate.
3. Extent to which the property gifted is deemed to pass on the donor's death.
4. Whether the amounts gifted by the deceased were withdrawn by the donees more than two years prior to the death of the deceased.

Detailed Analysis:

1. Interpretation and Application of Section 10 of the Estate Duty Act, 1953:
The central issue in both references is the construction and application of Section 10 of the Estate Duty Act, 1953. Section 10 states that property taken under any gift shall be deemed to pass on the donor's death to the extent that bona fide possession and enjoyment of it was not immediately assumed by the donee and thenceforward retained to the entire exclusion of the donor or of any benefit to him by contract or otherwise.

The Supreme Court has interpreted Section 10 in several decisions, emphasizing two cumulative conditions: (i) the donee must bona fide assume possession and enjoyment of the property immediately upon the gift, and (ii) the donee must retain such possession and enjoyment to the entire exclusion of the donor. If either condition is not met, the property is liable to estate duty.

2. Determination of Whether the Amounts Gifted by the Deceased Are Includible in the Principal Value of the Estate:
- Reference No. 2 of 1970: The deceased, Chunilal Nathubhai, made gifts totaling Rs. 1,20,000 to his sons, grandsons, and daughter. These amounts were deposited in the firm where Chunilal was a partner. The Assistant Controller, Appellate Controller, and Tribunal all held that Section 10 was applicable, and the amounts were includible in the principal value of Chunilal's estate.

- Reference No. 4 of 1970: The deceased, Chhotamal Khushaldas, made gifts totaling Rs. 6,00,000 to his sons and grandson. The amounts were deposited in the firm where Chhotamal was a partner. The Assistant Controller, Appellate Controller, and Tribunal held that Section 10 was applicable, and the amounts were includible in the principal value of Chhotamal's estate.

3. Extent to Which the Property Gifted Is Deemed to Pass on the Donor's Death:
The court analyzed the subject-matter of the gift to determine if the donor was entirely excluded from possession and enjoyment of the property gifted. The court referred to several judicial precedents, including decisions by the Judicial Committee of the Privy Council and the Supreme Court, to elucidate the principle that the exclusion of the donor must be from the subject-matter of the gift.

- Reference No. 2 of 1970: The court held that the aggregate amount of Rs. 1,20,000 gifted by Chunilal Nathubhai was includible in the principal value of his estate under Section 10, as the donees did not retain bona fide possession and enjoyment of the amounts to the entire exclusion of Chunilal.

- Reference No. 4 of 1970: The court held that the amounts of Rs. 2,00,000 each gifted by Chhotamal Khushaldas to his sons, Shankardas and Narandas, were not includible in the principal value of his estate, as the donees retained bona fide possession and enjoyment of these amounts to the entire exclusion of Chhotamal. However, the amount of Rs. 1,99,500 gifted to his grandson, Kishorchand, was includible in the principal value of his estate under Section 10.

4. Whether the Amounts Gifted by the Deceased Were Withdrawn by the Donees More Than Two Years Prior to the Death of the Deceased:
- Reference No. 2 of 1970: The accountable person contended that the donees must be deemed to have withdrawn the amounts deposited with the firm more than two years prior to Chunilal's death. The Tribunal rejected this contention, except for a small amount of Rs. 1,032, which was deemed to have been withdrawn by Nanalal before 23rd October 1957. The court upheld the Tribunal's view that withdrawals are first attributable to income and only after income is exhausted can they be referable to capital.

Conclusion:
- Reference No. 2 of 1970: The court answered the question in the affirmative, holding that the aggregate amount of Rs. 1,20,000 was includible in the principal value of Chunilal Nathubhai's estate under Section 10.

- Reference No. 4 of 1970: The court held that only Rs. 1,99,500 out of the Rs. 2,00,000 gifted to Kishorchand was includible in the principal value of Chhotamal Khushaldas's estate, while the amounts of Rs. 2,00,000 each gifted to Shankardas and Narandas were not includible. The second question regarding the extent of inclusion was answered in the affirmative.

The accountable person in Reference No. 2 of 1970 was ordered to pay the costs, while there was no order as to costs in Reference No. 4 of 1970.