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TMI Blog1967 (12) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... rd in the matter, the Assistant Controller determined the principal value of the estate at Rs. 9,16,321, and the estate duty payable thereon at Rs. 1,33,560. The controversy before the Assistant Controller related only to the following matters. (i) The deceased, Parameswaran Pillai, had purchased a land more than two years prior to his death in the name of his wife. He had also constructed a house in the said land, wherein he was living with his wife and children till he died. It was contended that the above land and building belonged absolutely to the wife of the deceased as a gift, which was made more than two years prior to his death, and that the value of this property should not, therefore, be treated as part of the property passing on the death of the deceased. (ii) Sri Parameswaran Pillai was carrying on a business in cashewnut and tobacco. On December 29, 1954, which is within two years of his death, he executed a deed of settlement in respect of certain immovable properties, and the assets and liabilities of the above business together with its goodwill in favour of his sons. According to the applicant, the business was then running at a loss; and the value of its as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng into consideration also the profits of business conducted exclusively by the appellants in computing the value of the goodwill of the business which was gifted long ago before the death of Sri Parameswaran Pillai ? 4. Whether, on the facts and circumstances of the case, the method of computation adopted by the Central Board of Direct Taxes for computing the value of the goodwill is justified in law ? 5. Whether, in any view of the matter, the Central Board of Direct Taxes should not have taken the profits from the two main items of business together in computing the profits for ascertaining the gooodwill ?" The Central Board of Direct Taxes, New Delhi, considered the application ; and it held by its order dated December 16, 1965, that only the following three questions of law arose out of its order for decision by the High Court: " 1. Whether, on the facts and in the circumstances of the case, the house property at Q.M.C. No. 200 in Thamarakulam Ward, Quilon, standing in the name of the wife of deceased was correctly included in the estate of the deceased as property deemed to pass on his death under section 10 of the Act ? 2. Whether, on the facts and in the circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, the Central Board, by its letter dated October 23, 1967, referred these four questions also to this court, along with a statement of the case. This reference is I.T.R. No. 89 of 1967. We shall now proceed to give our decision on the questions referred in these two references. Question No. 1 in I.T.R. No. 19 of 1966: It is not disputed that the property consisting of the land and the house therein, which is the subjectmatter of this question, became the property of the wife of Sri Parameswaran Pillai more than two years before his death, pursuant to the gift made by him. It is also admitted that the deceased was living with his wife and children in the said property, till his death. The question whether, under these circumstances, the said property can be deemed to be property passing on the death of Sri Parameswaran Pillai, depends on the application of section 10 of the Act. This section reads as follows : " Gifts whenever made where donor not entirely excluded.--Property taken under any gift, whenever made, shall be deemed to pass on the donor's death to the extent that bona fide possession and enjoyment of it was not immediately assumed by the donee and thenceforward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 in I.T.R. No. 19 has to be answered in the affirmative; and that it should be so was fairly conceded by the learned counsel for the applicant. We may, in this context, note that section 10 of the Act has been amended by section 69 of the Finance, Act, 1965, by adding the following proviso to section 10: "Provided further that a house or part thereof taken under any gift made to the spouse, son, daughter, brother or sister, shall not be deemed to pass on the donor's death by reason only of the residence therein of the donor except where a right of residence therein is reserved or secured directly or indirectly to the donor under the relevant disposition or under any collateral disposition;" As a result of this amendment, the property of a spouse, son, daughter, brother or sister obtained by a gift shall not be deemed to be property passing on the death of the donor on account of the mere fact that the donor resided therein along with the donee. Question No. 2 in I.T.R. No. 19 of 1966:- The applicant's learned counsel submitted that his client had never contended that the properties covered by the deed of settlement, and which should be deemed to pass on the death of the dece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing as on the date of the settlement viz., the 29th December 1954. " The order of the Central Board shows that it did not grasp the above contention and it held that the value of the property should be the value as on the date of death. The point raised in the aforesaid two questions is the same; and both these questions seek an answer to the contention which the applicant raised before the Central Board, as stated in the passage quoted above from its order. Question No. 3 in I.T.R. No. 19 assumes that the business made profits after the settlement of December 29, 1954, in favour of the donees. Question No. 1 in I.T.R. No. 89 assumes more things, namely, the donees carried on the business after the settlement exclusively with their own monies and augmented the value of the assets, the augmentation was due to the exercise of the skill and effort of the donees, and the donees thereby made profits. This is all the difference between the two questions. In the statement of the case submitted in I.T.R. No. 19, the Central Board stated, among other things: " Although it was urged in the grounds of appeal before the Board that only after the donees had invested their own moneys and e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontention was advanced, were correct, but the contention was not legally sustainable. The reference in I.T.R. No. 89 of 1967, was made as per order of this court in O. P. No. 2087 of 1967, after hearing the counsel for the revenue. Question No. 1 in this reference would not have been directed to be referred in the form as it now stands, if this court was not satisfied that it arises out of the order of the Central Board. The said question can arise only on the facts assumed therein. It is not, therefore, now open to the Central Board to say in the statement of the case that the applicant did not place any materials before it to establish the said facts. From the statement of the case, and the papers annexed thereto, it is evident that there was no dispute that the value of the assets covered by the settlement was only a negative figure, and that it was only after the donees had invested their own moneys, expended their skill and effort in running the business, it flourished, and its balance-sheet showed a positive value; but the Central Board did not consider any of these facts relevant to the determination of the value of the property passed under the deed of settlement on the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Controller to have been part of the normal expenditure of the deceased, subject to a maximum of rupees ten thousand in value. " We do not think that the above provisions render any assistance to the contention of the counsel for the revenue. If A donated to B property P, and the donee added to it property Q during the lifetime of A, what B has got at the time of the death of A is property P+Q, though, what he got under the gift is only property P. If A died within two years of the gift, the property obtained by B thereunder shall be deemed, under section 9 of the Act, to pass on the death of A, and not on the date of the gift. But we find no warranty for the contention, in the language of any of the above statutory provisions that what would be deemed to pass is not only property P, but it would be P+Q. The contention on the face of it is extraordinary. The learned counsel, however, sought support for the above contention on the follwing passage appearing at page 90 of Green's Death Duties, third edition : " In general the property which is deemed to pass is the settled property as it stands at the death, notwithstanding that the investments may have been varied, and incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat was the only property which passed from the truster, and it was the only property taken by the trustees from the truster under his disposition. They took that property, of course, as trustees for the beneficiaries under the deed of trust. The truster never owned the pound 5,000 Creamola shares and, therefore, these shares could not be taken under any disposition made by him. As soon as the trustees received the pound 5,000 it became in their hands a trust fund to be held on the trusts declared by the deed of trust and it was, of course, proper for the trustees to invest that sum in some one or more of the numerous investments authorised by the trust deed. They invested it in the Creamola shares but they did not take these shares under the disposition made by the truster ; they took the shares because, in the exercise of their discretion they decided to apply for them and because the company decided to allot them to the trustees." Referring to the decision in In re Payne: Poplett v. Attorney-General His Lordship said that, in his view, it was wrongly decided. The two other law Lords, who agreed with his decision, also doubted the correctness of the decision in In Ye Payne. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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