1971 (3) TMI 26 - HC - Income Tax

Estate Duty Act, 1953 - Property Passing On Death - gifts of a part of the running business or the amounts lying to the credit of the donor in the firm - held that what was gifted was subject to the rights of the firm and the donees took such possession of the gifted property as it was capable of - merely because those properties continued to be used for the purposes of the business of the firm, did not detract from the retention of those properties by the donees to the complete exclusion of the donor

Summary

Issues Involved:
1. Inclusion of the value of the 1/6th share of immovable properties relinquished by Shri Jaishi Ram in the principal value of his estate under Section 9 of the Estate Duty Act, 1953.
2. Whether the sum of Rs. 1 lakh gifted by Shri Jaishi Ram would be deemed to pass under Section 10 of the Estate Duty Act, 1953.

Detailed Analysis:

Issue 1: Inclusion of 1/6th Share Value in Estate
The first issue concerns whether the value of the 1/6th share of immovable properties relinquished by Shri Jaishi Ram should be included in the principal value of his estate under Section 9 of the Estate Duty Act, 1953. The relevant statutory provisions include Section 2(15) and Section 27 of the Estate Duty Act, which define "property" and "disposition" respectively. Explanation 2 to Section 2(15) states that the extinguishment of a right at the expense of the deceased is deemed a disposition made by the deceased in favor of the person benefiting from the extinguishment.

The court held that the relinquishment of Shri Jaishi Ram's share in the immovable property amounted to a disposition of property. This disposition was made without consideration and within two years of his death, thereby qualifying as a gift under Section 27. Consequently, the value of the 1/6th share, Rs. 20,667, was includible in the estate for estate duty purposes.

Issue 2: Sum of Rs. 1 Lakh Gifted Under Section 10
The second issue pertains to whether the sum of Rs. 1 lakh gifted by Shri Jaishi Ram would be deemed to pass under Section 10 of the Estate Duty Act. Section 10 requires that bona fide possession and enjoyment of the gifted property must be immediately assumed by the donee and retained to the entire exclusion of the donor.

The court examined the facts that the gifted amounts were deposited by the donees in firms where Shri Jaishi Ram was a partner. The court distinguished between the property brought into a partnership, which becomes the property of the firm, and money deposited in a firm, which remains the property of the depositor. The court concluded that the donees retained the gifted amounts to the entire exclusion of Shri Jaishi Ram, even when invested in firms where he was a partner. Therefore, the sum of Rs. 1 lakh was not includible in Shri Jaishi Ram's estate under Section 10.

Conclusion:
The court answered the first question in the affirmative, holding that the value of the 1/6th share relinquished by Shri Jaishi Ram was includible in the estate. The second question was answered in the negative, ruling that the sum of Rs. 1 lakh gifted was not includible in the estate under Section 10. The court overruled the previous decision in Controller of Estate Duty v. Ronaq Ram Bakshi Ram Gupta and made no order as to costs.