1996 (9) TMI 118 - SC - Income Tax

Whether the gifts of ₹ 80,000 in all made by the deceased to his two daughters by debiting his capital account and crediting the accounts of the donees in his personal business book could not be included in the principal value of the estate of the deceased under section 10 of the Estate Duty Act? Held that- When the gift was made and accepted, it was unconditional. A week later the donees requested that a partnership be formed and the amounts gifted be retained and utilised as share capital of the donees in the partnership firm to be formed. In the light of the letters written by the donees, as noticed above, we are of the view that there is nothing to suggest that parting with the enjoyment or benefit by the donee, or permitting the donor to share them out of the bundle of rights gifted in the property is referable to the gift. We agree with the contention of learned counsel for the appellant that the facts are more or less identical with the facts in Viswanathan s case 1976 (9) TMI 43 - SUPREME Court and the ratio laid down therein which has been consistently applied by this court subsequently will apply to the facts of this case. Thus appeal allowed and answer the question referred to the High Court in the affirmative in favour of the accountable persons and against the Revenue.

Summary

Issues:
Applicability of section 10 of the Estate Duty Act to gifts made by deceased to daughters forming a partnership.

Analysis:
The case involved the question of whether gifts made by the deceased to his daughters, which were later utilized as share capital in a partnership, should be included in the principal value of the deceased's estate under section 10 of the Estate Duty Act. The deceased had made cash gifts to his daughters, who subsequently requested to retain the gifted amounts in the business and be admitted as partners. The Tribunal found that the gifts did not fall within the ambit of section 10, as the possession and enjoyment of the gifted amounts were retained to the exclusion of the donor. The High Court, however, ruled in favor of the Revenue, holding that section 10 applied in this case.

The Supreme Court analyzed previous decisions and observed a shift towards leniency in applying section 10, especially when the donor retains some benefit in the gifted property consistent with circumstances other than the gift itself. The Court emphasized that the possession and enjoyment of the property must be entirely with the donee to exclude the donor from any benefit. In this case, the Court found that the gifts were unconditional when accepted and subsequently utilized as share capital in the partnership, with no indication of the donor retaining any benefit from the gifted amounts. The Court concluded that the facts aligned with previous decisions and allowed the appeal in favor of the accountable persons, ruling that the gifts need not be included in the deceased's estate for estate duty purposes.

In summary, the Supreme Court clarified the application of section 10 of the Estate Duty Act in cases involving gifts utilized in partnerships. The Court emphasized the need for complete exclusion of the donor from any benefit in the gifted property and found that in this case, the gifts made by the deceased to his daughters, which were later used as share capital in a partnership, did not fall under section 10. The Court allowed the appeal in favor of the accountable persons, ruling that the gifted amounts need not be included in the deceased's estate for estate duty assessment.