1968 (10) TMI 25 - HC - Income Tax

Estate Duty Act, 1953 - Whether, the sum of Rs. 1,75,000 representing the value of five immovable properties gifted by the deceased to his five sons by five gift deeds, dated the 25th September 1, 1951, has been correctly included in the principal value of the estate of the deceased under the provisions of sections 10 and 12 of the Estate Duty Act, 1953 - Held, yes

Summary

Issues Involved:

1. Inclusion of the value of gifted properties in the principal value of the deceased's estate under sections 10 and 12 of the Estate Duty Act, 1953.
2. Validity of conditions attached to the gift deeds under Mahomedan law.
3. Application of sections 10 and 12 of the Estate Duty Act, 1953, to the conditions in the gift deeds.
4. Interpretation of "benefit" under section 10 of the Estate Duty Act, 1953.

Issue-Wise Detailed Analysis:

1. Inclusion of the value of gifted properties in the principal value of the deceased's estate under sections 10 and 12 of the Estate Duty Act, 1953:

The court examined whether the sum of Rs. 1,75,000, representing the value of five immovable properties gifted by the deceased to his five sons, was correctly included in the principal value of the estate under sections 10 and 12 of the Estate Duty Act, 1953. The Assistant Controller included this amount, invoking section 12, and the Central Board upheld this decision, also noting alternate liability under section 10 due to benefits derived by the deceased from the conditions in the gift deeds.

2. Validity of conditions attached to the gift deeds under Mahomedan law:

The court considered the validity of the conditions in the gift deeds under Mahomedan law. According to Mulla's Principles of Mahomedan Law, a gift with a condition that derogates from the completeness of the grant is void, but the gift itself remains valid. However, stipulations for recurring income or benefits, such as maintenance, are valid. The court found that the conditions for maintenance, education, and marriage expenses of the daughters and wife were valid under Mahomedan law.

3. Application of sections 10 and 12 of the Estate Duty Act, 1953, to the conditions in the gift deeds:

Section 12:

The court analyzed whether the properties could be deemed to pass under section 12, which applies to settlements where an interest is reserved for the settlor. The Explanation to section 12 states that a settlor reserving an interest for the maintenance of himself and any of his relatives is deemed to reserve an interest for himself. The court concluded that the conditions in the gift deeds did not reserve an interest for the deceased determinable by his death, as the maintenance obligations continued irrespective of his death. Therefore, section 12 did not apply.

Section 10:

Section 10 deems property to pass on the donor's death if bona fide possession and enjoyment were not immediately assumed by the donee to the exclusion of the donor or any benefit to him. The court noted that the donees had assumed possession and enjoyment of the properties, but the deceased derived benefits by being relieved of his obligation to maintain his wife and unmarried daughters. This benefit fell under the second limb of section 10, which considers any benefit to the donor by contract or otherwise.

4. Interpretation of "benefit" under section 10 of the Estate Duty Act, 1953:

The court referred to the Supreme Court's interpretation in George Da Costa v. Controller of Estate Duty, which emphasized that both conditions in section 10 are cumulative. The donee must retain possession and enjoyment to the exclusion of any benefit to the donor. The court found that the deceased derived a benefit by being relieved of his maintenance obligations, thus failing to exclude himself entirely from the benefit of the properties. The court rejected the argument that the benefit must be confined to specific property portions, noting that all properties were subject to the maintenance conditions.

Conclusion:

The court affirmed that the value of the immovable properties gifted by the deceased to his five sons was correctly included in the principal value of the estate under section 10 of the Estate Duty Act, 1953. The accountable person was ordered to pay the costs of the reference to the Controller of Estate Duty.