1970 (11) TMI 11 - HC - Income Tax

Estate Duty Act, 1953 - Gift(share in business) by deceased before death - includibility of profits of business from the shares gifted in donor s estate

Issues Involved:
1. Whether the sum of Rs. 31,069, representing the balance in the drawing account of the wife and children of the deceased, inclusive of profits, should be included in the value of the estate of Kader Ooran for estate duty purposes.

Issue-wise Detailed Analysis:

1. Inclusion of Rs. 31,069 in the Estate:
The primary issue was whether the sum of Rs. 31,069, which represented the balance in the drawing account of the wife and children of the deceased, inclusive of profits, should be included in the value of the estate for estate duty purposes. The Assistant Controller of Estate Duty included this amount in the estate, but the Appellate Controller of Estate Duty excluded it. The Appellate Tribunal reversed the Appellate Controller's decision, restoring the inclusion by the Assistant Controller.

2. Gift and Partnership Formation:
On 31st March 1960, Kader Ooran gifted Rs. 40,000 worth of stock-in-trade, cash, and cheques to his wife and children, forming a partnership with them the next day. The minor son was admitted to the benefits of the partnership. Upon Kader Ooran's death on 14th March 1961, the balance-sheet showed a profit of Rs. 31,069 for the year, which was attributed to the wife and children.

3. Legal Provisions and Interpretation:
Section 9(1) of the Estate Duty Act states that property taken under a disposition made by the deceased within two years of death should be deemed to pass on the death. Section 34(4) includes all income accrued upon the property down to and outstanding at the date of death. The court examined whether the profit derived from the partnership should be considered part of the estate.

4. English Authorities and Precedents:
The counsel for the accountable person cited the English case Sneddon v. Lord Advocate, which suggested that if cash is gifted and invested by the donee, the profit from such investment should not be included in the estate. The court also considered other English cases and legal texts, including Dymond's Death Duties and Halsbury's Laws of England, which discussed the treatment of income accrued from gifted property.

5. Indian Case Law:
The court referred to two Indian decisions: Controller of Estate Duty v. Birendra Kumar Sen and P. Gangadharan Pillai v. Controller of Estate Duty. These cases dealt with whether the donor was excluded from possession and enjoyment of the property gifted, concluding that income from the business gifted should not be treated as part of the estate if the donee used their own capital and effort.

6. Interpretation of "Accrued" Income:
The court interpreted the term "accrued" in section 34(4) to mean income arising as a natural growth from the property gifted. If the donee has absolute dominion over the gifted property and invests it, the resulting profit should not be included in the estate. However, if the income results naturally from the gifted property without the donee's intervention, it should be included.

7. Specifics of the Case:
In this case, the gift was not merely cash but Rs. 40,000 worth of stock-in-trade, cash, and cheques, which were immediately reinvested in the business. The profit of Rs. 31,069 was derived from the business and thus considered income accrued from the gifted property, falling within the scope of section 34(4).

8. Proportional Reduction of Profit:
The counsel for the accountable person argued that since Kader Ooran died on 14th March 1961, the profit should be proportionately reduced for the period before his death. Although this contention was valid, it was not raised earlier, and the court did not consider it sufficient to change the decision.

Conclusion:
The court concluded that the sum of Rs. 31,069 should be included in the value of the estate of Kader Ooran. The question referred to the court was answered in the affirmative, against the accountable person, and no order regarding costs was made. The Registrar was directed to send a copy of the judgment to the Tribunal.

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