1986 (2) TMI 56 - SC - Indian Laws

Whether, on the facts and in the circumstances of the case, the amount of ₹ 3 lakhs transferred by the deceased to his three grandnephews in equal shares was includible in the estate of the deceased that passed on his death ? Held that - The facts of the instant case are almost similar to the facts that obtained in CED v. Jai Gopal Mehra 1979 (9) TMI 69 - SUPREME Court a companion matter that was decided and disposed of by this court by a common judgment in Kamlavati s case 1979 (9) TMI 69 - SUPREME Court where it was held that the transaction of gift was one to which section 10 was inapplicable. Appeal dismissed.

Issues Involved:
1. Inclusion of Rs. 3 lakhs in the estate of the deceased under the Estate Duty Act, 1953.
2. Validity of the transfer as a gift under section 130 of the Transfer of Property Act.
3. Applicability of section 10 of the Estate Duty Act, 1953.

Detailed Analysis:

1. Inclusion of Rs. 3 lakhs in the Estate of the Deceased:

The primary issue was whether the amount of Rs. 3 lakhs transferred by the deceased to his three grandnephews was includible in the estate of the deceased that passed on his death. The Deputy Controller, Appellate Controller, and Tribunal initially held that the sum was includible in the estate. The High Court, however, disagreed, concluding that the transfer was a valid and complete gift, and thus, the amount was not includible in the estate.

2. Validity of the Transfer as a Gift under Section 130 of the Transfer of Property Act:

The assessee contended that the transfers were not gifts but amounted to the transfer of actionable claims made in conformity with section 130 of the Transfer of Property Act by effecting entries in the books of account. The Tribunal and lower authorities rejected this, stating that the transfer was not valid under section 130 because it was not effected by an instrument in writing signed by the transferor. However, the High Court found that the transfer was valid under section 137, which governs the transfer of actionable claims represented by a negotiable instrument like a cheque, and thus, the transfer was valid, complete, and effectual.

3. Applicability of Section 10 of the Estate Duty Act, 1953:

The crux of the case hinged on whether section 10 of the Estate Duty Act was applicable. Section 10 states that 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. The Tribunal held that the amount was includible under section 10 because the donor retained control over the sum as a partner in the firm. The High Court, however, held that the donor was completely excluded from the subject matter of the gift, relying on the precedent set by Munro v. Commissioner of Stamp Duties. The Supreme Court agreed with the High Court, stating that the substance of the transaction showed the gift was of an actionable claim shorn of certain rights in favor of the partnership, and thus, the donor's retained benefit was referable to the partnership rights, not the gifted property.

Conclusion:

The Supreme Court upheld the High Court's decision that the sum of Rs. 3 lakhs was not includible in the estate of the deceased under section 10 of the Estate Duty Act, 1953. The transfer was deemed a valid and complete gift under section 137 of the Transfer of Property Act, and the donor was entirely excluded from the gifted property. The appeal was dismissed with no order as to costs.

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