1976 (9) TMI 43 - SC - Indian Laws

Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in holding that the sum of 2, 70, 000 is not includible in the estate of the deceased under section 10 of the Estate Duty Act ? Held that - In the light of the finding that the deceased transferred six-sevenths share in the business in favour of the sons and retained only one-seventh share no question can possibly arise for the inclusion of the said six-sevenths share or of the amount of 2, 70, 000 in the estate of the deceased. The transfer of 2, 70, 000 by the decased in favour of his sons was not in cash but was by means of book entries. The transfer of that amount was a part of the scheme as stated above to transfer six-sevenths share in the business in favour of the sons. There was no absolute transfer of 2, 70, 000 in favour of the sons but the transfer was made subject to the condition that the sons would use it as capital not for any benefit of the deceased donor but for each of them becoming entitled to one-seventh share in the business. No benefit of any kind was enjoyed by way of possession or otherwise by the deceased under the gift of the subject-matter of the gift. Whatever benefit was enjoyed by the deceased subsequent to the date of the gift was on account of the fact that he held one-seventh share in the business which share he retained throughout and never parted with. No extra benefit was also conferred under the deed of partnership upon the deceased although some extra benefit was conferred upon two of the major sons in the form of remuneration because of their active and full participation in the business. Keeping in view the position of law discussed earlier it is plain that the facts of the case would not fall within the ambit of section 10 of the Act. Agree with the High Court that the question referred to by the Tribunal should be answered in favour of the accountable persons and against the revenue

Summary

Issues Involved:
1. Inclusion of Rs. 2,70,000 in the estate of the deceased under Section 10 of the Estate Duty Act.
2. Determination of whether the transfer of Rs. 2,70,000 was a gift of cash or a share in the business.
3. Application and interpretation of Section 10 of the Estate Duty Act concerning the exclusion of the donor from the gifted property.

Issue-Wise Detailed Analysis:

1. Inclusion of Rs. 2,70,000 in the Estate of the Deceased under Section 10 of the Estate Duty Act:
The primary issue was whether the sum of Rs. 2,70,000 transferred by the deceased to his sons should be included in the estate of the deceased under Section 10 of the Estate Duty Act. The Assistant Controller of Estate Duty included the amount in the estate, but the Appellate Controller and the Tribunal disagreed, leading to the High Court's involvement. The High Court ruled in favor of the accountable persons, stating that the transfer was not an absolute gift of cash but a share in the business, thus not includible under Section 10.

2. Determination of Whether the Transfer of Rs. 2,70,000 was a Gift of Cash or a Share in the Business:
The Tribunal and the High Court analyzed the nature of the transfer, concluding that the deceased transferred a share in the business rather than cash. The Tribunal noted, "The subject-matter of the gift was property which was subject to the rights of the business to have that property being utilised for the purpose of business." The transfer was part of an integrated transaction to convert the deceased's sole proprietorship into a partnership with his sons, where the Rs. 2,70,000 represented their capital contributions.

3. Application and Interpretation of Section 10 of the Estate Duty Act:
Section 10 of the Estate Duty Act stipulates that property taken under any gift shall be deemed to pass on the donor's death unless the donee assumes immediate and exclusive possession and enjoyment of the property, to the exclusion of the donor. The Supreme Court emphasized that both conditions must be met cumulatively. The Court referred to precedents, including George da Costa v. Controller of Estate Duty and Controller of Estate Duty v. Smt. Parvati Ammal, to illustrate the application of Section 10.

The Court noted that the transfer of Rs. 2,70,000 was not an absolute gift of cash but a transfer of a share in the business, with the deceased retaining a one-seventh share. The Court observed, "No benefit of any kind was enjoyed by way of possession or otherwise by the deceased under the gift of the subject-matter of the gift." The benefit enjoyed by the deceased was due to his retained one-seventh share in the business, not the transferred amount.

Conclusion:
The Supreme Court upheld the High Court's decision, agreeing that the sum of Rs. 2,70,000 should not be included in the estate of the deceased under Section 10 of the Estate Duty Act. The appeal was dismissed with costs, affirming that the transfer was a share in the business rather than an absolute gift of cash, and the deceased did not retain any benefit from the transferred property. The judgment underscores the importance of the nature and conditions of a gift in determining its inclusion in the estate under Section 10.