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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 ..... law. The total amount of these gifts was Rs. 1 lakh. These amounts were thereafter invested by the donees in the firm in which Shri Jaishi Ram was a partner. On these facts, a question has arisen whether the sum of Rs. 1 lakh, which had been gifted by Shri Jaishi Ram in favour of his son, Jagdish Chand Mehra, and his four daughters-in-law, can be deemed to have passed on his death as his estate in terms of section 10 of the Estate Duty Act, 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 subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deceased continued to stay in the house till his death as the head of the family and was looking after the affairs of the household. It was contended, therefore, that the first limb of the section is not satisfied in this case and the property must be held to pass an the death of the deceased under that section. In our opinion, the contention of the respondent must be accepted as correct. As a matter of construction, we hold 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. 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court referred to above, impliedly rejecting the view of the Andhra Pradesh High Court. It has now been vehemently stressed by the learned counsel for the respondent that the view of the Andhra Pradesh High Court has found favour with the Assam and Nagaland High Court and Madras High Court, and, in view of the conflict of judicial decisions, it is a fit case in which the matter should be re-examined by a larger Bench so as to decide whether Ronaq 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... properties. The members of the joint Hindu Family desired to partition the immovable properties possessed by it and appointed Shri Sahib Dayal as an arbitrator to effect the partition. Shri Sahib Dayal gave his award on September 12, 1960, in which he stated that Shri Jaishi Ram Mehra and his wife, Shrimati Man Kaur, who were parties to the arbitration and were entitled to 1/6th share each in the said properties, had relinquished their rights in those 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... normal expenditure of the deceased, subject to a maximum of rupees ten thousand in value." "27. (1) Any disposition made by the deceased in favour of a relative of his shall be treated for the purposes of this Act as a gift unless- (a) the disposition was made on the part of the deceased for full consideration in money or money's worth paid to him for his own use or benefit; or (b) the deceased was concerned in a fiduciary capacity imposed on him otherwise than 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 cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any payment in respect of such an annuity or other interest as is mentioned in sub-section (2), or effected with a view to enabling him to receive or to facilitating the receipt by him of any such payment, this section shall have effect in relation to each of those associated operations as it has effect in relation to the creation or disposition in favour of the deceased of such an annuity or other interest. (7) In this section- (i) 'relative' means, in relation to the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36,377) to gift-tax on the ground that A must be deemed to have made a gift of property worth this amount to the other members of the family. It was held that the transaction did not amount to a gift as it did not involve a transfer of property by A to his sons and grandsons and levy of gift-tax on the sum of Rs. 2,36,377 was illegal. That decision being under the Gift-tax Act, 1958, is not relevant for the purposes of the present case which is under the Estate Duty Act. The decision 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 unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Rs. 2,06,694. The department levied estate duty on the difference of Rs. 1,08,591 under sections 9 and 27 of the Act treating the transaction as gift to that extent. On a reference, it was held by the learned judges that partition does not amount to transfer; nor can it be said to be a transaction inasmuch as there is no donor and donee relationship between the two persons. It was further held that uneven partition does not become gift for the purposes of section 9 of the Act nor can 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e half share of the father less the sum of Rs. 5,000 in view of the proviso to section 27, in his estate for purposes of estate duty." In view of what has been stated above, we are of the opinion that the sum of Rs. 20,667, the value of the 1/6th share of Shri Jaishi Ram in the immovable properties of the joint Hindu, family, which he relinquished in favour of his sons less than two years before his death, was includible in his estate for the purposes of the estate duty. The second question 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 dono ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... includible in the estate of the deceased for the purpose of the Estate Duty Act ?" 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 rendered by the same Bench. The learned judges of the Gujarat High Court had relied on the decision of the Privy Council in Clifford John Chick v. Commissioner of Stamp Duties and the decision of the Supreme Court in 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 betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilised only for the purposes of the business of the firm. Similarly, any property and rights and interest in property acquired with money belonging to the firm are deemed to have been acquired for the firm and become the property of the firm. This aspect of the partnership property has been explained by their Lordships of the Supreme Court in Addanki Narayanappa v. Bhaskara Krishnappa. Their Lordships referred to sections 14, 15, 29, 30, 32, 36, 37 and 48 of the Indian Partnership Act and observed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Stamp Duties Act, 1920-56 (N.S.W), applied to the facts of that case. That clause is the same as section 10 of the Act. We may emphasise that the case of a partner is different from the case of a person depositing the money in a firm as he does not lose his ownership or seisin on the money deposited and his case cannot be treated at par with the capital contributed by a partner to the firm for the purposes of carrying on its business. The money that is given to a firm by way of loan or deposit 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Code of Civil Procedure, a firm can sue and be sued in the firm name and it is not necessary that the partners should be made parties to such a suit. In view of this state of the law, we are of the opinion that the donees in this case retained the gifted amounts with themselves to the entire exclusion of Shri Jaishi Ram even when they invested the amounts in the firms in which he was a partner. This view of ours is in direct conflict with the view taken by the Division Bench of this court in Controller 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e accountable persons are not relevant. These cases are: Controler of Estate Duty v. Birendra Kumar Sen, a Division Bench judgment of the Assam and Nagaland High Court, Controller of Estate Duty v. Estate of Janab S. Ibrahim Rowther, Controller of Estate Duty v. C. R. Ramachandra Gounder, Controller of Estate Duty v. N. R. Ramarathanam, and Mohammed Bhai v. Controller of Estate Duty. These were not the cases of donees depositing the amounts in the firms in which the donor was a partner after having received the gift from him. They were concerned with the gifts of a part of the running business or the amounts lying to the credit of the donor in the firm and it was held that what was gifted was subject to the rights of the firm and the donees took such possession of the gifted property as it was capable of and merely because those properties continued to be used for the purposes of the business of the firm, did not detract from the retention of those properties by the donees to the complete exclusion of the donor. For the reasons given above, our answer to the first question is in the affirmative, that is, in favour of the revenue and against the accountable persons while the ans ..... X X X X Extracts X X X X X X X X Extracts X X X X
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