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TMI Blog1971 (4) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... red to as " the assessee ". On March 17, 1962, a return showing the net estate of the deceased which consisted of movable assets and immovable properties was filed by the accountable person. It was claimed that the deceased gave gifts to his four minor grand-daughters (daughters of Shri Prahlad Rai) on September 26, 1954, of a sum of Rs. 6,250 each. He did so by making transfer entries in the books of account of the firm, Messrs. Sant Lal Kanhaya Lal, in which the deceased was a partner, holding a share of 28 nP. out of 100 nP. On March 12, 1957, the deceased executed four memoranda on stamp papers confirming the gifts which were accepted by the mother of the said grand-daughters. All the four memoranda form part of the statement of the case and are identical in terms. One of the said documents is reproduced hereunder : " Memorandum made on this 12th day of March, 1957. The undersigned Kashmiri Lal partner of M/s. Sant Lal Kanhaya Lal, Naya Bazar, Delhi, in consideration of love and affection for his grand-daughter, Kumari Sarla, daughter of Prahlad Rai, gave a sum of Rs. 6,250 to her out of his personal funds in the books of M/s. Sant Lal Kanhaya Lal, Delhi, on October 26, 1954, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t contemplated under section 10 in regard to the sums which had assumed the role of loans from the donees. In that view of the matter, the amount in question which consisted of Rs. 25,000 as principal and Rs. 10,824 as interest, was excluded from the computation of the sum on which estate duty was payable. The Controller of Estate Duty moved the Tribunal and had the question of law reproduced above, referred to this court. The question, as is apparent, involves the construction of section 10 of the Estate Duty Act, 1953, which will hereafter be referred to as the Act. The section, as it stood at the material time, runs as follows : " 10. 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 retained to the entire exclusion of the donor or of any benefit to him by contract or otherwise : Provided that the property shall not be deemed to pass by reason only that it was not, as from the date of the gift, exclusively retained as aforesaid, if, by means of the surrender o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transferor or them donor. The validity of the gifts under the ordinary law is however not sufficient to exclude the operation of section 10. Over and above the validity of the gifts, it is necessary to know if the gifts fall under both the parts of the substantive portion of section 10. It is the nature of the gifted property which constitutes the test by which it is to be determined on the facts of each case whether the bona fide possession and enjoyment of the gifted property was assumed by the donee and thenceforward retained by him to the entire exclusion of the donor. This was the ratio of the decision in John Lang v. Thomas Prout Webb which, with particular reference to the observations of Isaacs J., was referred to with approval by the Judicial Committee of the Privy Council in Clifford John Chick v. Commissioner of Stamp Duties, which, in turn, was referred to with approval by the Supreme Court in George Da Costa v. Controller of Estate Duty. The case before the Supreme Court relates to immovable property. It was there said that the crux of section 10 of the Art lies in two parts : (i) the donee must have bona fide assumed possession and enjoyment of the property whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business should be conducted on the respective holdings of the partners and the said holdings should be used for the purposes of the partnership only ; that all lands held by any of the partners at the date of the agreement should remain the sole property of such partner and could not on any consideration be taken into account as or deemed to be an asset of the partnership and any such partner should have the sole and free right to deal with it as he might think fit. Each of the three partners owned a property, that of the donee son being that which had been given to him by his father in 1934 and each partner brought into the partnership, livestock and plant, and their three properties were thenceforth used for the depasturing of the partnership stock. This state of affairs continued up to the death of the father in 1952. It was held that the value of the property given to the son in 1934 was to be included in computing the value of the father's estate for the purposes of death duty. It would be seen that while it was not disputed that the son had assumed bona fide possession and enjoyment of the property immediately upon the gift, to the entire exclusion of the father, but 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion and enjoyment of the gifts to the donees to the entire exclusion of the donor. There is nothing to show, however, whether the balance thereafter was not such that the donees could not assume the bona fide possession and enjoyment of the gifts to the entire exclusion of the donor and thenceforward retain them to the entire exclusion of the donor. Further, the language of the memoranda of gifts is absolute. It is nowhere stated that the gifts were subject to pre-existing rights of the partnership firm to the continued use of the money which was the subject-matter of the gifts. It was, therefore, expected of the donees to have assumed possession and enjoyment of the gifted property to the entire exclusion of the donor as soon as this was permitted by the state of the cash balance of the partnership firm. Thereafter, the donees were expected to retain the gifts to the entire exclusion of the donor. Actually the donees never assumed bona fide possession and enjoyment of the gifted property. Further, the gifted property remained in the use of the partnership in which the donor was also a partner. The donor as a partner was not, therefore, entirely excluded from the possession and e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the fact that the gifts themselves were subject to the pre-existing rights of the partnership to the use of the money so gifted, and that these rights of the partnership continued till the death of the donor. The distinction between an absolute gift as in the present case and a gift of the property shorn of the existing rights of the partnership in it may be forcefully illustrated by contrasting the decisions referred to above with the decision in H. R. Munro v. Commissioner of Stamp Duties. In that case Munro, the owner of 35,000 acres of land, entered into a partnership with his six children in 1909. In 1913 he executed registered transfer deeds of all his right, title and interest in the portions of his land to each of his four sons and to trustees for each of his two daughters and their children. The evidence showed that the transfers were taken subject to the partnership agreement. The gifted property was held not to pass on the death of the donor because the donees had assumed and retained possession thereof, and any benefit remaining in the donor was referable to the partnership agreement of 1909 and not to the gifts. The decision in Munro's case makes an exception to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 and each of his three minor sons was credited with a sum of Rs. 10,000 in the books of the partnership and the accounts were continued in their respective names. On January 1, 1958, the account of the deceased with the firm was debited with another sum of Rs. 24,000 and a sum of Rs. 12,000 was paid in cash to two of his sons who had attained majority by that time. Though the sum of Rs. 12,000 was originally deposited by the two sons with the State Bank of India, it was subsequently brought into their account with the firm before the death of the deceased. The Assistant Controller held that the two gifts of Rs. 30,000 and Rs. 24,000 were invalid and, in any event, bona fide possession and enjoyment of the amounts had not been immediately assumed by the donees, since these amounts were retained in the firm in which the deceased was a partner and were, therefore, brought to charge for levy of estate duty. The Appellate Controller confirmed his view. The Tribunal however deleted the inclusion holding the gifts to be valid gifts to which the provisions of section 10 would not apply. On a reference to the High Court, it was held that since the subject-matter of the gift was made ava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r may take the form of the gifted property being used in the form of a loan with a partnership in which the donor is a partner or it may take the form of a loan given to the donor himself or it may take the form of a loan to a trust of which the donor is wholly or in part a beneficiary. In all such cases the sole question for consideration is---was the donor excluded ? If he was not excluded, it was not relevant to ask why he was not excluded and this applies equally with regard to the transaction being commercial and for full consideration. As was said by Viscount Simonds, " their Lordships see no reason why a gloss should be put upon the plain words of the sub-section by excluding from its operation such transactions." According to a Division Bench of the Madras High Court, speaking through Veeraswami C.J., the decisions in Controller of Estate Duty v. C. R. Ramchandra Gounder and Controller of Estate Duty v. N. R. Ramarathanam would fall into the second group though on the facts of those cases it is not quite clear that the donees could not take bona fide possession and enjoyment of the gifted property to the entire exclusion of the donor and thenceforward retain the same. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he managing partner and, therefore, the total value of the gifts was not liable to estate duty being excluded from section 10 of the Act. With respect, it is not clear to us how this decison is supported by the decision in Munro's case particularly in the absence of a finding in favour of the pre-existing right of the partnership to the use of the money. On a review of the above decisions we find that the subject-matter of the gift in the present case was actionable claims which the donees should have realised by getting paid by the donor and/or by the partnership firm. In the absence of anything on the record to show that the partnership firm had a pre-existing right to the use of the money gifted by the donor to the donees and that such right continued till the death of the donor or that the donees were disabled by some other reason from realising the payment of the debts from the donor and/or partnership, we are unable to hold that the nature of the property gifted was such that the donees should be deemed to have assumed possession and enjoyment thereof to the entire exclusion of the donor and thenceforward retained it. On the contrary, we find that the donees did not do so. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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