Estate Duty Act-Assessments of cases covered by Sec.10 in light of two S.C. judgements. - Income Tax - 1596/CBDT

INSTRUCTION NO. 1596/CBDT Dated: January 19, 1985 Attention is invited to Board's Instruction contained in the letter No.296/5/73-ED dated 31-8-74 where the position of law regarding the scope and applicability of section 10 of the Estate Duty Act, 1953 was explained as under:- (I)Where the deceased was a partner in a firm and the monies standing to the credit of his account were gifted by him by transfer entries in the firm's books or property already let out by him to the firm was gifted subject to the tenancy, the gift was not property with complete rights and the benefit derived by him as a partner was not referable to the gift and the value of the gifts cannot be included in his estate, vide: (i) CED Vs. C.R. Ramachandra Gounder [(88 ITR 448)(S.C.)] (ii)CED Vs. N.R. Rama Rathnam [(91 ITR)(S.C.)] (iii)MUNRO VS. Commissioner of Stamp Duties [2 E.D.O.462(P.C)] (iv)C.E.D. Vs. Ashwathanarayana Setty [(72 ITR 29)] (II) Where a property was gifted and subsequently the donee has let out the property to the deceased or the firm in which he was a partner. OR Where money was gifted and the donee deposited it with the deceased or the firm in which the deceased was a partner; the value of the gift is includible in the estate under section 10 of the E.D. Act even though the donee got full consideration by way of interest or rent and could make no better use of the money or property vide: (i) Cliffered John Chick Vs. Commissioner of Stamp duties (37 ITR E.D.89) (ii) George De Cpsta Vs. CED(63 ITR 497) (iii)C.E.D. Vs. R.R. BAKSHI RAM GUPTA (76 ITR 682) (iv) Rash Mohan Chatterjee Vs. CED (52 ITE ED.1) 2. In Kamalavati's case the deceased made a gift of Rs.One lakh to his son and Rs.50,000 to his wife through transfer entries in the books of the firm in which he was a partner. Almost simultaneously the son of the deceased joined the firm as a partner. The Supreme Court rejected the case of the Department that the transaction was hit by section 10 of the Estate duty Act. In Jaigopal Mehra's case the deceased made gifts of Rs.20,000 each in favour of his son and his son and his four daughters-in-law. The total amount of these gifts amounting to Rs.one lakh was thereafter invested by the donnees in the firm in which the deceased was a partner. It was held by the Supreme court that section 10 did not apply to the facts of this case. 3. The ratio of the Supreme court's above decisions is that section 10 would only apply in those cases where the benefit received by the donor is referable to the gift. 4. The attention of all officers working in your charge should be drawn to the two judgements of the supreme court mentioned in para 2 above and they may be advised to keep these judgements in view while making assessments in respect of cases covered by section 10 of the Estate Duty Act.