1971 (8) TMI 61 - HC - Income Tax

Estate Duty Act, 1953 Whether the Tribunal is right in upholding the inclusion of the amount gifted by the deceased to his grand-daughters, in the total value of the estate of the deceased under the provisions of section 10 of the Estate Duty Act - question referred is answered in the affirmative and in favour of the department

Summary

Issues:
Inclusion of gifted amount in deceased's estate under section 10 of the Estate Duty Act.

Analysis:
The deceased gifted Rs. 35,000 to his grand-daughters through entries in the firm's books. The gifts remained with the firm until the deceased's death. The Assistant Controller proposed to include the gifted amount in the deceased's estate, stating that the deceased was not entirely excluded from possession of the gifts. The accountable person argued that the deceased was not responsible for the investment in the firm and did not have possession of the gifted amounts. However, the Assistant Controller, the Appellate Assistant Commissioner, and the Tribunal upheld the inclusion of the amount in the deceased's estate.

The relevant provision, section 10 of the Estate Duty Act, states that property gifted shall be deemed to pass on the donor's death if the donee did not immediately assume possession and enjoyment to the entire exclusion of the donor. The court referred to a similar provision in the Stamp Duties Act and a Privy Council case where the value of a gifted property was included in the donor's estate for death duty purposes. The court emphasized that the key question is whether the donor was entirely excluded from the gift's subject-matter.

The court rejected arguments that the relationship between the donees, trustee, and the firm was that of creditor and debtor, and that the trustee had discretion over the gifted amounts. It held that since the deceased was a partner in the firm where the gifts were invested, he was not entirely excluded from the gifted amounts. Therefore, the court upheld the inclusion of the gifted amount in the deceased's estate under section 10 of the Act. The court answered the question in the affirmative, in favor of the department, and ordered the accountable person to pay the costs of the reference.

In conclusion, the court's decision was based on the principle that the donor must be entirely excluded from the subject-matter of the gift for it to not be included in the deceased's estate. The court found that the deceased's continued involvement with the gifted amounts through the firm prevented him from being entirely excluded, leading to the inclusion of the gifted amount in his estate.