1973 (5) TMI 24 - HC - Income Tax

Estate Duty Act, 1953 - father gifts money to sons, they invest the money and enter into partnership with the father - Whether, on the facts and in the circumstances of the case, the provisions of section 10 of the Estate Duty Act, 1953, were applicable to this case ? - we are of the opinion that the donees in the present case did not enjoy the possession of the donated amount of Rs. 1 lakh to the entire exclusion of the donor as long as it formed the part of the capital of the firm of which the donor was a partner. - Question answered in the affirmative

Issues Involved:
1. Applicability of Section 10 of the Estate Duty Act, 1953.
2. Whether the donees retained possession and enjoyment of the gifted property to the entire exclusion of the donor.

Detailed Analysis:

1. Applicability of Section 10 of the Estate Duty Act, 1953:
The primary issue was whether Section 10 of the Estate Duty Act, 1953, applied to the case where Shri Motilal Sanghi made a gift of Rs. 1 lakh to his four sons, which was subsequently invested in a partnership firm where the donor was also a partner. The court examined whether the gifted property was retained to the entire exclusion of the donor.

2. Retention of Possession and Enjoyment by Donees:
The court scrutinized whether the donees (the sons) retained bona fide possession and enjoyment of the gifted amount to the exclusion of the donor (Shri Motilal Sanghi). According to Section 10, property taken under any gift shall be deemed to pass on the donor's death if bona fide possession and enjoyment of it was not immediately assumed by the donee and retained to the entire exclusion of the donor or any benefit to him by contract or otherwise.

The court referred to the Supreme Court's interpretation in George Da Costa v. Controller of Estate Duty, which emphasized that the donee must assume and retain possession and enjoyment of the property to the entire exclusion of the donor. The court noted that the second part of Section 10 has two limbs: the donor must be entirely excluded from (1) the property and (2) any benefit by contract or otherwise.

Analysis of Precedents:
- Chick's Case: The court discussed the principles laid down by the Privy Council in Clifford John Chick v. Commissioner of Stamp Duties, where it was held that if the gifted property is used in a partnership business in which the donor is a partner, the donor is not entirely excluded from the property.
- Munro's Case: The court distinguished this case by noting that if the gift consists of only some rights from a bundle of rights in a tangible property, and the donor has nothing to do with those rights post-gift, then the property is retained to the entire exclusion of the donor.

Partnership Act Considerations:
The court examined the provisions of the Indian Partnership Act, particularly Section 14, which states that property brought into the partnership stock becomes the property of the firm. The court highlighted that once property is brought into a partnership, it ceases to be the exclusive property of the contributor and becomes a trading asset of the partnership.

Supreme Court's Observations:
The court referred to the Supreme Court's decision in Addanki Narayanappa v. Bhaskara Krishnappa, which clarified that during the subsistence of a partnership, no partner can claim exclusive ownership over any part of the partnership property. This means that the donor, as a partner, had dominion over the property, which was utilized for the benefit of both the donor and the donees.

Conclusion:
The court concluded that the donees did not retain possession and enjoyment of the gifted amount to the entire exclusion of the donor, as the amount was invested in a partnership firm where the donor was a partner. Thus, Section 10 of the Estate Duty Act was applicable.

Judgment:
The court answered the question in the affirmative, holding that the provisions of Section 10 of the Estate Duty Act, 1953, were applicable to the case. No order as to costs was made.

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