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TMI Blog1967 (7) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... the house properties and household goods gifted by the deceased to his wife, Smt. Atikabai? (3) If the answer to either of the above stated questions is in the affirmative, whether the Board were justified in holding that on a proper interpretation of the said section 10, the gifted properties, to which the section applies, should be included in the estate of the deceased in entirety?" It appears from the statement of the case that one Fida Ali Mohammed Ali died on the 12th May, 1958. On 1st March, 1952, before the Estate Duty Act was passed, he had by and under an unregistered deed gifted to his sons his business in stationery goods which was run as a partnership concern between himself and his son, Fazal Hussain, the latter having a right only to share in the profits and losses and not having any interest in the assets of the firm. He also gifted by a registered deed dated the 1st March, 1952, certain house properties to his sons. Ever since the above gifts, the donees were making payments to the deceased almost regularly, at the rate of about Rs. 200 per month. They maintained a personal account in the name of the deceased in the books of the firm wherein the payments thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recurring periodical payments commencing from the date of the gift amounting to about Rs. 15,000, and in addition, they gave the deceased a sum of Rs. 16,902. These payments were debited to the business accounts, because no regular accounts were maintained for the income from the property. In this view, the deceased, according to the Board, had in fact divided up all his possessions into two portions, one of which he gave to his sons and the other to his second wife, and, therefore, the deceased as donor was not excluded from all benefits referable to the gifts and that the said benefits were referable to the aggregate of the gifts taken by the donees and not only to one of such gifts. Accordingly, it held that the basiness and the immovable properties gifted to the sons were rightly included in the estate of the deceased under section 10 of the Act. In so far as the house gifted to his wife, Atikabai, is concerned, it was argued by a reference to Mulla's Mohammedan Law that the gift of a house by a Mohammedan to his wife is not invalid by reason of the fact that he lives in that house, nor would it detract from the factum of possession and enjoyment. It was further contended that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion and enjoyment of the property to the entire exclusion of the donor or of any benefit to him by contract or otherwise, that both these conditions are cumulative, and unless each of these conditions is satisfied, the property would be liable to estate duty under section 10 of the Act. It was further held that the second part of section 10 has two limbs : the deceased must be entirely excluded, (i) from the property, and (ii) from any benefit by contract or otherwise ; that the words "by contract or otherwise" in the second limb of the section will not control the words "to the entire exclusion of the donor" in the first limb ; but the first limb may be infringed if the donor occupies or enjoys the property or its income, even though he has no right to do so which he could legally enforce against the donee ; and that in the context of the section, the words "otherwise" should be construed ejusdem generis and it must be interpreted to mean some kind of legal obligation or some transaction enforceable at law or in equity, which, though not in the form of a contract, may confer a benefit on the donor. Three questions arise for determination in this reference : (1) Whether the donor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is contended by the department, justify it in drawing a conclution that the deceased was receiving benefit from the gift of that property. The question would be whether the benefit was received under a contract or otherwise. Even if it is so, and we would examine this question a little latter, there is no warrant for the further conclusion that the payments were benefits derived by him in respect of the aggregate of the properties gifted beyond the advantage derived and treat the value of the properties in excess of this advantage as properties from which the deceased derived a benefit so as to include them in the estate of the deceased. The words of the section are clear, namely, that the benefit must be confined only to the extent of the property in respect of which the benefit is derived, and the other property in respect of which no benefit is directly referable has to be excluded from the estate of the donor. The department, in our view, is not justified in including the whole of the business or the other house properties gifted to the sons, on the ground that the donor received benefit from the gift of the estate. It may be stated that section 10 has two parts : (1) th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al duties. The question is, does this amount to their exclusion from possession or enjoyment ; or does it amount to conferring any beneficial interest on the donor by contract or under any legally enforceable right. In so far as the payment of any amounts for the wedding of the donor's daughter is concerned, it is a subsequent act and is not at all referable to the gift. What they have paid has been paid due to the natural love and affection which they have for their sister, be she a step-sister. None the less, that moral duty was considered to be sufficient for the payment of the amount. In view of the observations of their Lordships of the Supreme Court, the enjoyment of part of the income by the donor who was content to rely on the filial affections of the sons, would have the effect of making the gift of the shop to the extent of the enjoyment which the donor derived by receiving regularly Rs. 200 per month (or Rs. 2,400 per year), deemed to pass to the estate of the deceased. The value of the gift of the stationery shop is said to be Rs. 2,40,571. Even an income at 6% on the value of the property would amount to Rs. 14,400 per year, but the exclusion is only in respect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration under the English Finance Act, 1894, in Attorney-General v. Seccombe. The arrangement there was that an aged donor, out of love and affection gave his property to his great-nephew and continued to reside in the house. Hamilton J. said : "It may be that from such circumstances unexplained an inference might be drawn which would entitle the Crown to estate duty. But the inference would be that the transaction was not bona fide, and that possession and enjoyment so assumed were not bona fide assumed in other words, that the arrangement was a sham. No such case, however, is made here." It may be observed that in that case the words of the section upon which the Crown relied were "shall include property taken under any gift, whenever made, of which property bona fide possession and enjoyment shall not have been assumed by the donee immediately upon the gift, and thenceforward retained to the entire exclusion of the donor or of any benefit to him by contract or otherwise" which are in pari materia with the wording of section 10 of the Estate Duty Act. It was argued on behalf of the Crown that, though the donor may not have reserved to himself any right to possession or enj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advantage which he in fact enjoyed of being allowed to reside ill his old house until his death. The transaction was free from any element of harshness or overreaching." The burden of proof which was upon the Crown to bring the subject within the charge was held not to have been discharged, viz., that there was in that case any benefit to the donor by contract or any other enforceable arrangement. Dealing with the argument that the donor after the gift continued to live in the house and, therefore, had derived benefit, Hamilton J. said at page 704 : "It was said that the benefit to him was not only his board and lodging, but also the fact that he was to continue to live in the old house where he had always lived. I do not see that that merely sentimental benefit is one which can be measured by money or reached by any tax or made the ground for attracting any duty. And earlier at page 701 he said : "I am satisfied therefore that the donor was entirely excluded from any possession and enjoyment of the property, except such as is involved in his being allowed to sit in his old chair and sleep in his old bed, and to walk round the garden." Mr. Kondaiah placed great reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xclusion has been advantageous or otherwise to the donee.' (Viscount Simonds in Chick v. Commissioner of Stamp Duties of New South Wales)." We find it difficult for us to accept the contention of the learned counsel for the department, having regard to the above passage that the Supreme Court laid down a proposition that the word "otherwise" should not be given the meaning which their Lordships had stated earlier following the observations of Hamilton J. in Attorney-General v. Seccombe. As already referred to, Ramaswami J. had in categorical terms observed that : "In the context of the section, the word 'otherwise' should ... be construed ejusdem generis and it must be interpreted to mean some kind of legal obligation or some transaction enforceable at law or in equity which, though not in the form of a contract, may confer a benefit on the donor." The whole basis of this dicta is that there must be an enforceable right. Unlike in English law, there is no equitable right enforceable by a court of equity in India. That right, if enforceable, is at law only, and this requirement was only a condition of the, second limb of section 10 and would not control the words "to the entir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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