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TMI Blog1971 (3) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1953 (hereinafter called "the Act"). On behalf of the Controller of Estate Duty, the petitioner in this case, it has been stated that this question of law is covered by the judgment of my learned brother, D. K. Mahajan J., and S. S. Sandhawalia J., in Controller of Estate Duty v. Ronaq Ram Bakshi Ram Gupta, which is correct, but the learned counsel for the respondent respectfully submits that that case has not been correctly decided and that decision requires reconsideration. The learned judges followed the decisions of the Gujarat High Court in Smt. Shantaben S. Kapadia v. Controller of Estate Duty and Controller of Estate Duty v. Chandravadan Amratlal Bhatt, which were delivered by the same Bench. In these cases, it was held that as the subject-matter of the gift was made available to the partnership in which the deceased had an interest as a partner and placed at its disposal, the deceased was not entirely excluded from the subject-matter of the gifts, and hence the provisions of section 10 applied to the cases. The learned judges in support of their view relied on the decision of the Privy Council in Clifford John Chick v. Commissioner of Stamp Duties, and the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds '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. In other words, in order to attract the section, it is not necessary that the possession of the donor of the gift must be referable to some contractual or other arrangement enforceable in law or in equity. Even if the donor is content to rely upon the mere filial affection of his sons with a view to enable him to continue to reside in the house, it cannot be said that he was 'entirely excluded from possession and enjoyment' within the meaning of the first limb of the section, and, therefore, the property will be deemed to have passed on the death of the donor and will be subject to levy of estate duty.' It is submitted by the learned counsel for the respondent that that case related to immovable property of which physical possession was retained by the donee, but in the present case the possession of the gifted money was completely taken by the donees. Before the decision of their Lordships of the Supreme Court, a second proviso had been added to section 10 of the Estate Duty Act, 1953, reading as under: " Provided further that a ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onaq Ram Bakski Ram Gupta's case was correctly decided. On the language of section 10 of the Estate Duty Act, it is possible to take the view propounded on behalf of the respondent, particularly in view of the addition of the second proviso to section 10 in 1965, which makes it clear that if the right of residence is retained by the donor as a part of the transaction of the gift, the property shall be deemed to pass on his death as his property and will not become the property of the donee. But if by the transaction of gift he does not retain the right of residence in the gifted house but continues to reside therein by the goodwill of the donee, the gifted property would remain the property of the donee and would not pass as the property of the donor on his death. We, therefore, agree to the submission of the learned counsel for the respondent that the matter should be decided by a larger Bench and the learned counsel for the petitioner also agrees to this course. The second question that has arisen in the present case concerns the sum of Rs. 20,667, the value of the 1/6th share which Shri Jaishi Ram had relinquished in the joint Hindu family less than two years before his death. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e properties by their free will and consent in favour of their sons. The value of the 1/6th share of the deceased in the immovable properties was determined as Rs. 20,667 by the Assistant Controller of Estate Duty, which value has not been disputed. In April and May, 1958, Shri Jaishi Ram made gifts of Rs. 20,000 each in favour of his son, Jagdish Chand Mehra, and his four daughters-in-law. The total amount of these gifts was Rs. 1,00,000. The donees thereafter invested these amounts in the firms in which Shri Jaishi Ram was a partner. On these facts the following questions of law have been referred to this court for decision by the Income-tax Appellate Tribunal: "1. Whether, on the facts and in the circumstances of the case, the sum of Rs. 20,667, that is the value of 1/6th share of the immovable properties, was includible in the principal value of the estate of the deceased in terms of section 9 of the Estate Duty Act, 1953, as being a disposition within the meaning of section 27 of the said Act ? 2. Whether, on the facts and in the circumstances of the case, the sum of Rs. 1 lakh, being the amount gifted by the deceased, would be deemed to pass in terms of section 10 of the E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han by a disposition made by him and in such a capacity only; and references to a gift in this Act shall be construed accordingly: Provided that when the disposition was made on the part of the deceased for partial consideration in money or money's worth paid to him for his own use or benefit, the value of the consideration shall be allowed as a deduction from the value of the property for the purpose of estate duty. (2) Where the deceased has made a disposition of property in favour of a relative of his, the creation or disposition in favour of the deceased of an annuity or other interest limited to cease on the death of the deceased or of any other person shall not be treated for the purposes of this section as consideration for the disposition made by the deceased. (3) If a controlled company was concerned in a transaction in relation to which it is claimed that the provisions of clause (a) of, or the proviso to, sub-section (1) have effect, those provisions shall have effect in relation thereto if and only if, and to the extent only to which, the Controller is satisfied that those provisions would have had effect in the following circumstances, namely, if the assets of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he deceased, (a) the wife or husband of the deceased, (b) the father, mother, children, uncles and aunts of the deceased, and (c) any issue of any person falling within either of the preceding sub-clauses and the other party to a marriage with any such person or issue ; (ii) reference to 'children' and 'issue' include reference to illegitimate children and to adopted children ; (iii) 'annuity' includes any series of payments, whether inter-connected or not, whether of the same or of varying amounts, and whether payable at regular intervals or otherwise, and payments of dividends or interest on shares in or debentures of a company shall be treated for the purposes of this section as a series of payments constituting an annuity limited to cease on a death, if the payments are liable to cease on the death, or the amounts thereof are liable to be reduced on the death, by reason directly or indirectly of the extinguishment or any alteration of rights attaching to, or of the issue of any shares in or debentures of a company; (iv) 'associated operations' means any two or more operations of any kind being- (a) operations which affect the same property, or one of which affects some p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Madras High Court was given on the meaning of the word "gift" as defined in the Gift-tax Act, 1958, which definition reads as under: " 'Gift' means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth, and includes the transfer of any property deemed to be a gift under section 4." In order to constitute a gift, it is necessary that the transaction must involve the transfer of property and it was held that the partition by metes and bounds of joint family does not involve any transfer of property from one member to another. The same consideration does not apply to a disposition of property under the Act. Explanation 2 to section 2(15) of the Act expressly provides that the extinguishment at the expense of the deceased of any right is to be deemed as a disposition made by the deceased in favour of the person for whose benefit the right is extinguished. The relinquishment of his right by Shri Jaishi Ram in the immovable property of the joint Hindu family amounted to the extinguishment of his rights in that property in favour of or for the benefit of his sons and, therefore, cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it be considered as a disposition within the meaning of section 27 thereof because Hindu law permits of unequal partitions and where once partitions are effected, they cannot be re-opened on the ground of mere inequality of shares, though it may be done on the ground of fraud or mistake or subsequent recovery of family, property. In that case, there was no relinquishment of any right of the deceased. He separated from the family in pursuance of a partition deed by receiving an amount of Rs. 98,103 on account of his share in the joint family. There was no declaration by him that he was relinquishing any of his rights in favour of the other members of the family and the learned judges did not consider the definition of "disposition" given in Explanation to section 2(15) of the Act, which meaning is to be given to the word "disposition" as used in sections 9 and 27 of the Act. In any case, the facts of the two cases, one before the Andhra Pradesh High Court and the other before us are not similar. In the instant case, the members of the family could not agree to the mode of partition of the joint family property and appointed an arbitrator to effect the partition. Before the arbitrato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion referred to us for opinion concerns the interpretation of section 10 of the Act which reads as under: "10. 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 of the reserved benefit or otherwise, it is subsequently enjoyed to the entire exclusion of the donor or of any benefit to him for at least two years before the death: 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." The facts of the case before the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... George Da Costa v. Controller of Estate Duty and held: "In the instant case, as happened in Chick's case and also in Smt. Shantaben S. Kapadia v. Controller of Estate Duty the subject-matter of the gift was made available to the partnership and placed at the disposal of the partnership in which the deceased had an interest as a partner; and that being the case, in the light of the decision of the Privy Council in Chick's case and also in the light of our decision in Estate Duty Reference No. of 1965 (Smt. Shantaben S. Kapadia's case), the deceased was not entirely excluded from the subject-matter of the gifts of Rs. 30,000 and Rs. 24,000. The fact that there was an interval of time between the gift of Rs. 24,000 in January, 1958, and the dates on which the amount of Rs. 12,000 was brought in by each of the two sons, Jayantilal and Chandravadan, is again immaterial. In Chick's case the subject-matter of the gift was brought into the partnership firm nearly 17 months after the date of the gift and even then it was held that the entire property included in the gift was liable to be included in the principal value of the estate of the deceased. In our opinion, the provisions of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: "From a perusal of these provisions it would be abundantly clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership, it becomes the property of the firm and what a partner is entitled to is his share of profits, if any, accruing to the partnership from the realisation of this property, and upon dissolution of the partnership to a share in the money representing the value of the property. No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities set out in clause (a) and sub-clauses (i), (ii) and (iii) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is meant for carrying on the business of the firm and cannot be utilised by any partner for his own purposes. The utilisation of that money for the purposes of the business of the firm does not mean that the partners become possessed of the same. The deposit of money carries with it the liability of the firm to repay the same to the depositor and no partner has the right, unless authorised by the depositor, to receive the amount or its interest or usufruct on his behalf. The discharge for the amount to the firm can be given only by the depositor or his authorised agent. That amount cannot be included in the capital contribution of or a loan advanced by the partner to the firm. In fact, when accounts are taken on dissolution of the firm, such deposits have to be repaid before the partners are entitled to share the assets or property of the firm amongst themselves. It cannot, therefore, be said that when Jagdish Chand Mehra and the four daughters-in-law of Sri Jaishi Ram deposited the amounts received by them as gifts from Shri Jaishi Ram in the firms in which he was a partner, they lost their bold on those monies and gave them back to the donor, Shri Jaishi Ram. The exclusion of Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ller of Estate Duty v. Ronaq Ram Bakshi Ram, the correctness of which was doubted. We, accordingly, hold that that case was not correctly decided and overrule the same. There is no dispute that the donee had taken bona fide possession and enjoyment of the gifted amounts immediately after the gifts were made and thus the first limb of section 10 is satisfied. In view of what has been said above, the first part of the second limb of the section has also been satisfied and no argument has been addressed on the basis of the second part of the second limb of the section, that is, whether Shri Jaishi Ram was excluded from any benefit by contract or otherwise from the gifted amounts. In the first place, there was no contract between Shri Jaishi Ram and the donees that he would be entitled to enjoy in any manner the gifted properties and, consequently, in view of what has been held above, that donees retained the gifts to the entire exclusion of the donor, it follows that he was excluded from any benefit from those amounts. The amounts of the gifts cannot, therefore, be included in the estate of Shri Jaishi Ram under section 10 of the Act. On behalf of the accountable persons, reliance h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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