1968 (9) TMI 37 - HC - Income Tax

Estate Duty Act, 1953 - Whether, on the facts and in the circumstances of the case, the sum of Rs. 60,000, standing to the credit of the account of the deceased s brother, in the firm of M/s. Shantilal C. Kapadia, was correctly included in the principal value of the estate of the deceased - Held, yes

Summary

Issues Involved:
1. Validity of the Gift
2. Applicability of Section 10 of the Estate Duty Act
3. Exclusion of the Donor from Possession and Enjoyment of the Gifted Property

Detailed Analysis:

1. Validity of the Gift:
The court did not find it necessary to decide whether there was a valid gift, as the case could be resolved under Section 10 of the Estate Duty Act. The court assumed for argument's sake that there was a valid gift of Rs. 60,000 from the deceased to his brother, Subhash Chandra.

2. Applicability of Section 10 of the Estate Duty Act:
Section 10 of the Act states that property taken under any gift shall be deemed to pass on the donor's death if bona fide possession and enjoyment of it was not immediately assumed by the donee and retained to the exclusion of the donor. The court referenced the Supreme Court's interpretation in George Da Costa v. Controller of Estate Duty, emphasizing that both conditions-immediate and bona fide assumption of possession and enjoyment by the donee, and retention of such possession and enjoyment to the exclusion of the donor-must be satisfied cumulatively.

3. Exclusion of the Donor from Possession and Enjoyment of the Gifted Property:
The court examined whether the donor was excluded from possession and enjoyment of the Rs. 60,000, which was credited to Subhash Chandra's account in the partnership firm. The court referred to the Supreme Court's explanation in Narayanappa v. Bhaskara Krishnappa regarding the nature of partnership property, indicating that each partner has an interest in the partnership property. Thus, the Rs. 60,000 credited to Subhash Chandra was an asset of the partnership firm, in which the deceased had an interest as a partner.

The court also cited Clifford John Chick v. Commissioner of Stamp Duties, where the Privy Council held that the donor was not excluded from the gifted property because it was used for partnership purposes, and the donor retained an interest in it as a partner. Similarly, in the present case, the Rs. 60,000 remained with the partnership firm, and the deceased, as a partner, was not excluded from its possession and enjoyment.

The court dismissed the argument that the Rs. 60,000 was merely a loan to the partnership firm, referencing Commissioner of Income-tax v. Jayantilal Amratlal to clarify that the nature of a loan does not equate to the exclusion of the donor from the gifted property.

Conclusion:
The court concluded that the Rs. 60,000 was correctly included in the principal value of the deceased's estate, as the conditions of Section 10 of the Estate Duty Act were not met. The accountable person was ordered to pay the costs of the reference to the Controller.