1973 (3) TMI 22 - HC - Income Tax

Estate Duty Act, 1953 - deposits in a firm which were gifted were retained in the firm in which the deceased was a partner - whether the donor is excluded completely from enjoyment of gifted property - amounts gifted were not to be included in the estate of the deceased section 10 not attracted

Summary

Issues Involved:
1. Inclusion of Rs. 36,501 credited to Muchhal Trust in the principal value of the estate.
2. Inclusion of Rs. 37,500 representing gifts to three relatives in the principal value of the estate.
3. Applicability of Section 10 of the Estate Duty Act to gifts totaling Rs. 5,12,500 and Rs. 4,800.

Issue-Wise Detailed Analysis:

1. Inclusion of Rs. 36,501 Credited to Muchhal Trust:
The deceased was a partner in M/s. Laxmichand Muchhal and had a sum of Rs. 36,501 debited from her account and credited to Muchhal Trust on November 2, 1952. The accountable person claimed this as a gift for public charitable purposes, made beyond six months before the death, thus not includable under Section 9 of the Estate Duty Act. The Assistant Controller ruled the gift incomplete and included the amount in the deceased's estate. The Central Board of Direct Taxes upheld this under Section 10, noting the absence of contemporaneous evidence, signed entries, or physical delivery of cash. The High Court affirmed this, stating, "the gift of Rs. 36,501 to the Muchhal Trust by the deceased has not been established."

2. Inclusion of Rs. 37,500 Representing Gifts to Three Relatives:
The deceased had gifted Rs. 50,000 each to three relatives, totaling Rs. 1,50,000. The Assistant Controller reduced the firm's liability by this amount, adding Rs. 37,500 to the deceased's estate. The Board ruled Section 46(1) inapplicable since the loans were taken by the firm, not the deceased, but upheld the inclusion under Section 10, reasoning the deceased was not excluded from the enjoyment of the gifted property. The High Court, however, disagreed, stating, "the sum of Rs. 37,500 representing one-fifth of the value of gifts made by the deceased to three of her relatives could not be included in the principal value of the estate of the deceased."

3. Applicability of Section 10 of the Estate Duty Act to Gifts Totaling Rs. 5,12,500 and Rs. 4,800:
The deceased made gifts totaling Rs. 6,00,000 to twelve relatives and Rs. 6,000 to one Gangabai through book entries in M/s. Laxmichand Muchhal. The amounts remained invested in the firm or transferred to M/s. Muchhal & Co., where the deceased was also a partner. The Assistant Controller included Rs. 37,500 and Rs. 1,200 in the initial assessment under Section 46(1), upheld by the Board under Section 10. Upon reassessment, additional amounts of Rs. 5,12,500 and Rs. 4,800 were included. The Tribunal ruled the gifts as actionable claims, not money, with the donees assuming bona fide possession excluding the donor. The High Court supported this, stating, "the subject-matter of the gifts was actionable claim and not money," and the donees retained possession to the exclusion of the deceased. The majority judgment concluded, "the Tribunal was justified in holding that the provisions of section 10 of the Act are not attracted by the facts of the case and in excluding Rs. 5,12,500 and Rs. 4,800 from the principal value of the estate."

Separate Judgments:
- Singh J.: Concluded that the gifts were actionable claims, and the donees retained possession excluding the donor, thus Section 10 was not applicable.
- Raina J.: Dissented, arguing that the donees did not assume immediate possession and enjoyment to the exclusion of the donor, thus Section 10 should apply.
- Tare C.J.: Agreed with Singh J., emphasizing the acceptance of gifts by income-tax authorities and the avoidance of double taxation.

Final Decision:
The majority judgment ruled that the sum of Rs. 36,501 was rightly included in the estate, but Rs. 37,500 and the additional amounts of Rs. 5,12,500 and Rs. 4,800 were not includable, affirming the Tribunal's decision on the latter. No order as to costs was made.