1971 (9) TMI 43 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the sum of Rs. 44,000 gifted by the deceased to his minor sons on April 15, 1954, was correctly included in the estate of the deceased as property deemed to pass on his death under section 10 of the Estate Duty Act, 1953? - held that - In the case before us, the property gifted was brought in as the capital of the firm in which the donor was also a partner. The moment the money was brought into the firm as capital, the deceased, as a partner, had similar possession and control over that money as any partner has over any other asset of the firm. In view of the aforesaid discussion, we answer the question in the affirmative and in favour of the revenue. The accountable person shall pay a sum of Rs. 200 as costs of this reference to the Controller of Estate Duty. Counsel s fee is assessed at the same figure.

Issues Involved:

1. Whether the sum of Rs. 44,000 gifted by the deceased to his minor sons was correctly included in the estate of the deceased as property deemed to pass on his death under section 10 of the Estate Duty Act, 1953.

Issue-wise Detailed Analysis:

1. Inclusion of Rs. 44,000 in the Deceased's Estate under Section 10 of the Estate Duty Act, 1953:

The primary issue was whether the sum of Rs. 44,000, gifted by the deceased to his minor sons, should be included in the estate of the deceased as property deemed to pass on his death under section 10 of the Estate Duty Act, 1953. The accountable person, Sri Abdul Alim, contended that the deceased had gifted the amount to his minor sons in cash on April 15, 1954, and thus it should not be included in the estate. However, the Assistant Controller, Estate Duty, included this amount in the estate, asserting that the deceased held the money as a trustee and thus, under section 22 of the Act, it was deemed to pass on his death.

Upon appeal, the Central Board of Direct Taxes disagreed with the application of section 22 but upheld the inclusion under section 10, reasoning that the deceased had not entirely excluded himself from the money gifted. The money had been reinvested in the firm where the deceased was a partner, and the donees (minor sons) were admitted to its benefits. This reinvestment meant that the deceased retained an interest and control over the money, which violated the requirement of section 10 that the property must be retained to the entire exclusion of the donor.

Legal Interpretation and Precedents:

Section 10 of the Estate Duty Act, 1953, stipulates that property taken under a gift shall be deemed to pass on the donor's death if its bona fide possession and enjoyment is not immediately assumed by the donee and retained to the entire exclusion of the donor. The court examined whether the donees retained the sum of Rs. 44,000 to the entire exclusion of the donor.

According to section 14 of the Indian Partnership Act, property brought into the stock of a firm becomes the property of the firm, and the individual who contributed it cannot claim exclusive rights over it. In this case, the gifted amount was brought in as a capital asset of the firm, thus the donor (deceased) as a partner acquired an interest in it. This meant the donees did not retain exclusive control over the money, invoking section 10 of the Estate Duty Act.

Relevant Case Law:

The court referenced the Privy Council's decision in Clifford John Chick v. Commissioner of Stamp Duties of New South Wales, where it was held that if the donor retains any benefit from the gifted property, it is deemed to pass on their death. In Chick's case, the property gifted was used in a partnership where the donor was a partner, similar to the present case. The court also considered H. R. Munro v. Commissioner of Stamp Duties, where the nature of the gifted property was different, and the donee retained exclusive possession to the exclusion of the donor.

Conclusion:

The court concluded that the sum of Rs. 44,000 was correctly included in the estate of the deceased under section 10 of the Estate Duty Act, 1953. The accountable person's contention that the deceased did not retain any control over the gifted amount was rejected. The court held that since the money was reinvested in the firm as capital, the deceased, as a partner, retained possession and control over it. Consequently, the provisions of section 10 were applicable, and the amount was deemed to pass on the death of the donor, thus liable to be included in the principal value of the estate left by the deceased.

Costs and Fees:

The accountable person was ordered to pay Rs. 200 as costs of the reference to the Controller of Estate Duty, with counsel's fee assessed at the same figure.

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