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TMI Blog1973 (3) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... mplete and he accordingly added the amount in computing the value of the deceased's interest in the firm. In appeal the Central Board of Direct Taxes took the view that even if there was a complete gift, the amount should be deemed to pass on the death of the deceased under section 10 of the Act. The deceased was also a partner in another firm, M/s. Muchhal & Co., in which she had one-fourth share. This firm owed a sum of Rs. 2,03,731 to three relatives of the deceased. It was, however, found that these relatives had received a gift of Rs. 50,000 each (i.e. a total amount of Rs. 1,50,000) from the deceased. The Assistant Controller held that the liability of the firm should be abated to the extent of Rs. 1,50,000, and that, consequently, the deceased's one-fourth share of the liability should be abated to the extent of Rs. 37,500. This amount was, therefore, added by the Assistant Controller in computing the value of the share of the deceased in the firm. In appeal the Board held that section 46(1) of the Act was not applicable for the reason that the gifts to the three relatives were made not by the firm but by the deceased whereas the loans from these relatives had been taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There was no physical delivery of the cash and there could be no such delivery as the cash balance on November 2, 1956, was only Rs. 15,671. It was only after the death of Smt. Ayodhyabai that entries in respect of interest and cash withdrawals were made in the account of the trust in the account books of the firm and possession and enjoyment of the sum of Rs. 36,501 by the trust in the lifetime of the deceased was not established. As regards the other item, the facts stated by the Board are that entries were made on October 30, 1951, in the account of the deceased in the books of the firm, M/s. Laxmichand Muchhal, debiting her account by a sum of Rs. six lakhs and crediting a sum of Rs. 50,000 to the account of each of the following twelve relations of the deceased : 1. Jamnabai, wife of Balkishan 2. Kamlabai, wife of Harikishan daughters-in-law 3. Kamlabai, wife of Ram Kumar of the deceased 4. Ramnivas s/o Balkishan 5. Rajendrakumar s/o Balkishan 6. Krishankumar s/o Harikishan grandsons of the deceased 7. Lakshmikumar s/o Harikishan 8. Ashokkumar s/o Ramkumar 9. Mahindrakumar s/o Ramkumar 10. Krishnabai 11. Sarlabai grand-daughters 12. Nirmalabai of the deceased Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 5,62,500 and Rs. 4,800 were brought to tax. In appeal, the Zonal Appellate Controller upheld the order of the Assistant Controller except to the extent of Rs. 50,000, which was found to have been withdrawn on November 12, 1954, and deposited with a concern in which the deceased was not a partner. The accountable person then went up in appeal to the Appellate Tribunal. The Tribunal, differing with the opinion of the Assistant Controller and the Zonal Appellate Controller, was of the view that the amounts were gifted shorn of the rights, of the partnership to use the same in partnership business and, therefore, the donees assumed bona fide possession of the property gifted and continued to hold the same to the exclusion of the donor and section 10 of the Act was not attracted. On an application made by the Controller of Estate Duty, the Tribunal has referred in Miscellaneous Civil Case No. 468 of 1971 for opinion of the High Court the following questions of law: "(1) Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the provisions of section 10 are not attracted by the facts of the case and in excluding the amounts of Rs. 5,12,500 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 36,501 to the Muchhal Trust by the deceased has been established. The question, therefore, must be answered in the affirmative. Question No. (2) in Misc. Civil Case No. 181 of 1965 and Questions Nos. (1) and (2) in Misc. Civil Case No. 468 of 1971 relate to the applicability of section 10 of the Act to the gifts of Rs. 50,000 made by the deceased to each of her twelve relations. Although these references arise out of orders passed by different authorities (due to change of law in the matter of appellate authorities between assessment and reassessment) the material facts stated by the two authorities are the same. To briefly recapitulate the facts, the deceased had a deposit account in the firm, M/s. Laxmichand Muchhal, of which she was a partner. As a result of gifts made by the deceased, debit entries of rupees six lakhs were made in this account and credit entries of Rs. 50,000 were made in the accounts of each of the twelve donees in the books of the firm. No cash was paid to the donees. It seems, interest was credited to the accounts of the donees but there were no withdrawals. In respect of most of the donees the accounts were later transferred to another firm, M/s. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... word "otherwise" in the second part of the section must be construed ejusdem generis and 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". It was also held that the words "by contract or otherwise" in the second part of the section only qualified the word "benefit" and they did not control the words "to the entire exclusion of the donor". Therefore, if the donor remained in possession and enjoyment of the subject-matter of the gift even without any legal right, the gift will not be excluded from the operation of the section. In determining the question of application of the section to a particular case, it has first to be ascertained as to what is the subject-matter of the gift, for the requirement for non-liability that the possession and enjoyment should be assumed immediately by the donee and retained to the exclusion of the donor has to be satisfied in relation to what is truly given. Possession and enjoyment which the donee must assume must necessarily vary according to the nature of the property. Copyright cannot be possessed and enjoy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to be taxed upon refinements or otherwise than by clear words." What then is the nature of the property that was transferred to the donees by the deceased under the gifts in question ? The gifts were made from the deposit account of the deceased which she had in the firm, Messrs. Laxmichand Muchhal by transfer entries. It is, therefore, necessary to examine first the nature of property which a depositor has in the deposit. In common language it is usual to speak that a depositor owns money in deposit and this may be substantially true in the economic sense, but in strict legal sense such a statement is wholly untrue. When a person deposits money in a bank, firm or with any other person, the property in the money passes to the depositee and what the depositor owns thereafter is a debt which is also known as obligation, chose-in-action or actionable claim. The right in rem which the depositor has in his money is replaced by a right in personam against the depositee. The reason is that in the case of money possession and property go together; with every change in possession property in money passes from one person to another. Money, therefore, cannot ordinarily be followed and even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction for damages for tort, and, affirming the proceeding of the broker, claim that his money is invested in a specific thing, which is his. But Lord Ellenborough C.J. laid down, as a limit to this proposition, that if the money had become incapable of being traced, as, for instance, when it had been paid into the broker's general account with his banker, the principal had no remedy excepting to prove as a creditor for money had and received. The explanation was, of course, that a relation of debtor and creditor had arisen between the banker and his client, the broker, which precluded the notion of following the money. That seems to be, so far as the doctrine of the common law is concerned, the limit to which the exception to the rule about currency was carried; whether the case be that of a thief or of a fraudulent broker, or of money paid under mistake of fact, you can, even at law, follow, but only so long as the relation of debtor and creditor had not superseded the right in rem." The debt, obligation or actionable claim, which the depositor holds after the deposit is itself a proprietary right. It is incorporeal property which is owned, possessed and enjoyed by the depositor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exclusion of both the deceased and the firm in which she was a partner. The transfer of accounts of the donees from one firm to another had also no effect on the possession and enjoyment of the donees of the property gifted as it only had the effect of substituting a new firm as debtor in place of the old firm. The deceased also received no benefit by contract or otherwise in the subject-matter of gifts, nor did she receive any benefit that may be said to be referable to the gifts. The right which, the partnership firm had of the use of the money which was deposited with it by the deceased flowed from the contract of deposit and not from the gifts or any transaction collateral to the gifts. Therefore, it is not possible to say that the possession and enjoyment of the property gifted was not retained by the donees to the entire exclusion of any benefit to the deceased or the firm in which she was a partner by contract or otherwise. In this view of the matter, all the gifts in question qualify for exemption from the operation of section 10 of the Act. The conclusion reached by me is supported by the decisions of the Madras and Allahabad High Courts. In Controller of Estate Duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h great respect, this line of reasoning blurs the distinction between actionable claim and money in specie and assumes that actionable claim can be possessed and enjoyed only by converting the claim into money. In my opinion, actionable claim arising out of a deposit may also be possessed and enjoyed by continuing the deposit and by allowing interest to accumulate and, indeed, that is the most common mode of enjoyment when cash is not immediately needed. For these reasons and other reasons already indicated, I respectfully dissent from the view taken by the Gujarat and Delhi High Courts. Learned counsel for the department argued that we must look to the substance of the matter and in substance the gift was of money and not of actionable claim. It is true that in applying section 10 of the Act one has to see not the mere form of words but what is in substance given under the gift. But, substance, in this context, means the real nature and character of the subject-matter of the gift under the law and not what a common man may think about it. The doctrine of substance of the matter in the application of fiscal legislation in the way the learned counsel wants us to adopt has long been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 10 of the Act are not attracted by the facts of the case and in excluding Rs. 5,12,500 and Rs. 4,800 from the principal value of the estate. (2) The subject-matter of the gifts was actionable claim and not money and the possession and enjoyment of the subject-matter of gifts was assumed and retained by the donees to the exclusion of the deceased or of any benefit to her by contract or otherwise. The partnership firm had no rights in the actionable claim and, therefore, the question of the gift being shorn of the rights of the partnership does not arise. There shall be no order as to costs in both the cases. RAINA J.--I have carefully perused the judgment proposed by my learned brother Singh J. With great respect I must say that I am unable to agree with him in respect of some of his conclusions. The facts of the case have been fully set out in the proposed judgment. It is, therefore, not necessary for me to re-state them. The questions referred to us by the Tribunal under section 64 of the Estate Duty Act, 1953 (hereinafter referred to as "the Act") are as follows : In M.C.C. No. 181 of 1965: "(i) Whether, on the facts and in the circumstances of the case, the sum of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t disputed that the money standing in deposit account of the deceased was utilised by the firm in its business and it continued to be so utilised, even after the gifts. After these accounts were transferred to the other firm the moneys standing to the credit of the donees were utilised in this firm for its business. The donees were not partners in M/s. Laxmichand Muchhal but three of the donees (3 daughters-in-law) were partners in the firm, M/s. Muchhal and Co. along with the deceased. It is on these facts that the applicability of section 10 of the Act has to be determined. Section 10 of the Act is reproduced below for facility of reference: "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: . . . . . ." (The provisos are not reproduced as they are not attracted in this case.) As pointed out by my learned brother, Singh J., in paragraph 10 of the judgment, the object of section 10 is to prevent evasion of duty by colourable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court in George Da Costa v. Controller of Estae Duty the crux of section 10 of the Act lies in two parts : "(i) T1he donee must bonafide have assumed possession and enjoyment of the property, which is the subject-matter of the gift, to the exclusion of the donor, immediately upon the gift; and (ii) The donee must have retained such possession and enjoyment of the property to the entire exclusion of the donor or of any benefit to him by contract or otherwise." Their Lordships held that both the aforesaid 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. The main point for consideration in this case, therefore, is whether both the aforesaid conditions are fulfilled in this case. Though the principles enunciated by their Lordships of the Privy Council in H. R. Munro v. Commissioner of Stamp Duties and Clifford John Chick v. Commissioner of Stamp Duties in regard to estate duty payable under section 102(2-A) of the Stamp Duties Act which is in pari materia with section 10 of the Act, have been adopted by the Supreme Court as well as by other courts in India in regard to the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween a gift of money and a gift of actionable claim does not seem to have been taken into consideration in this connection. In Controller of Estate Duty v. Prahlad Rai a Full Bench of the Delhi High Court had to consider a case of this nature. The deceased, a partner in the firm who had a capital to the extent of Rs. 1,29,006 standing to his credit in the firm's accounts, gave a sum of Rs. 6,250 each to his four, grand-daughters by making appropriate transfer entries in the books of accounts of the firm in 1954. It was held in this case that although the subject-matter of the gifts was actionable claim but since there was nothing on record to show that the firm had a pre-existing right to the use of the money gifted by the deceased to the donees and that such right continued till the death of the deceased or that the donees were disabled by some other reason from realising the payment of the amounts, the nature of the property gifted was not 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, and, therefore, the corpus of the gifts was liable to estate duty under section 10 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m is what is known in English law as "chose-in- action" as distinguished from a "chose-in-possession." I may here refer to the following observation in Salmond on Jurisprudence, eleventh edition, page 489 : "In its origin a chose-in-possession was any thing or right which was accompanied by possession; while a chose-in-action was any thing or right of which the claimant had no possession but which he must obtain, if need be, by way of an action at law." Thus, an enjoyment of a chose-in-action must necessarily mean the enjoyment of the subject-matter of the chose-in-action by obtaining possession thereof by action at law or otherwise. A completely passive attitude on the part of the donee cannot be construed as possession and enjoyment. In my view, if the donee simply remains quiet after a gift of this nature and takes no steps to acquire possession of the subject-matter of the chose-in-action, he cannot be said to have assumed immediate possession and enjoyment thereof. Even if it is assumed that by allowing the money to remain with the firm the enjoyment consists in earning interest thereon, such enjoyment cannot be said to be an enjoyment to the exclusion of the donor because t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derive full benefit from the money which was the subject matter of the actionable claim as partner of the firm. In these circumstances, I am of the view that the corpus of the gift must be deemed to have passed or the death of the donor under section 10 of the Act and was as such liable to estate duty. I may here point out that a contrary view would create an anomaly. It cannot be doubted that if the donor had withdrawn the amounts in question from his account with the firm and had gifted the said amounts to the donees who in turn had deposited the same with the firm, section 10 of the Act would be clearly applicable in view of the principles laid down in Clifford John Chick v. Commissioner of Stamp Duties. I need not dilate on this aspect of the matter because this was not disputed even by the learned counsel for the accountable person. The position in substance is not different from the one obtaining in the case of a gift by transfer entries, where the donee does not choose to withdraw the amount immediately after the gift even though there is no impediment. I do not think that it would be proper to treat the case of gift by transfer entries differently so as to provide ample sco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtner in another firm of Messrs. Muchhal and Co., in which she had 1/4th share. This firm owed a sum of Rs. 2,03,731 to three relatives of the deceased. The deceased had gifted Rs. 50,000 each to the three relatives and in addition Rs. 50,000 each to nine other relatives. The relationship is mentioned by my learned brother, Singh J., in paragraph 5 of his order. It was held by the Assistant Controller of Estate Duty that the amounts of Rs. 5,12,500 and Rs. 4,800 were liable to estate duty as section 46(1) of the Estate Duty Act, 1953, was applicable to these gifts to twelve relatives. In appeal, the Central Board of Revenue held that section 46(1) of the Act was not applicable for the reason that the gifts to the three relations were made not by the firm but by the deceased; whereas the loans from these relatives had been taken by the firm and not by the deceased. However, the Board expressed the view that the gifts to the relatives fell under section 10 of the Estate Duty Act, 1953, and, therefore, they were liable to be included in the assets of the deceased for the purposes of imposition of estate duty. In this connection the law as stated by my learned brothers in their separa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ediately after the gift and up to the time of death of Smt. Ayodhyabai. If exclusion of the donors be established, section 10(1) of the Estate Duty Act, 1953, can evidently not be attracted, as was the view expressed by the Tribunal. In this connection, I might observe that it is necessary for the donee to establish the fact that he was in exclusive possession of the gifted amount to the exclusion of the donor and he continued to be in such possession till the demise of the donor. So far as two of the donees are concerned, that fact would be established by the very fact that they had withdrawn the amounts of gifts and had invested them in another firm in which the donor had no interest whatsoever. This fact would establish exclusive possession of the donee and exclusion of the donor from possession or from any benefit whatsoever. The further question is whether the same finding can be recorded in respect of the other donees, who did not withdraw any amount of gift or who did not even withdraw interest during the lifetime of the donor. In this connection I might observe that mere inaction on the part of the donee will not amount to the donor continuing in possession. But an infere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxation unauthorisedly and in contravention of the provisions of article 265 of the Constitution of India. Thus, if the contention of the authorities under the Estate Duty Act were to be accepted, it might imply that the income-tax authorities would claim to tax the donees to income-tax on the assumption that the gifts were genuine and valid and the authorities under the Estate Duty Act, 1953, would be permitted to levy estate duty by including the said amount of gifts in the assets of the deceased which would also include the accumulated interest on such gifts. This evidently cannot be the position under the law and article 265 of the Constitution of India would certainly prohibit such an interpretation, as it would be a tax not by the authority of law. For this reason I agree with my learned brother, Singh J., in the answers to be given to the other three questions referred to us for opinion. To conclude, agreeing with my learned brother, Singh J., I would answer the question No. 2 in Misc. Civil Case No. 181 of 1965, by stating that the sum of Rs. 37,500, representing one-fifth of the value of gifts made by the deceased to three of her relatives, could not be included in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credited in the account of a trust known as "Muchhal Trust" on November 2, 1952. The accountable person claimed that this amount represented a gift for public charitable purposes and as it was made beyond six months prior to the date of death, it could not be included in the estate of the deceased under section 9 of the Act. The Assistant Controller held that the gift was not complete and he accordingly added the amount in computing the value of the deceased's interest in the firm. In appeal the Central Board of Direct Taxes took the view that even if there was a complete gift, the amount should be deemed to pass on the death of the deceased under section 10 of the Act. The deceased was also a partner in another firm, M/s. Muchhal & Co., in which she had one-fourth share. This firm owed a sum of Rs. 2,03,731 to three relatives of the deceased. It was, however, found that these relatives had received a gift of Rs. 50,000 each (i.e. a total amount of Rs. 1,50,000) from the deceased. The Assistant Controller held that the liability of the firm should be abated to the extent of Rs. 1,50,000, and that, consequently, the deceased's one-fourth share of the liability should be abated to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was submitted by the Board on July 25, 1968. As regards the item of Rs. 36,501, the facts stated are that apart from the entries in the books of the firm on November 2, 1956, there was no contemporaneous evidence of the gift made in favour of the Muchhal Trust. The entries were not signed by the deceased and there was no letter from her authorising the firm to make the entries. There was no physical delivery of the cash and there could be no such delivery as the cash balance on November 2, 1956, was only Rs. 15,671. It was only after the death of Smt. Ayodhyabai that entries in respect of interest and cash withdrawals were made in the account of the trust in the account books of the firm and possession and enjoyment of the sum of Rs. 36,501 by the trust in the lifetime of the deceased was not established. As regards the other item, the facts stated by the Board are that entries were made on October 30, 1951, in the account of the deceased in the books of the firm, M/s. Laxmichand Muchhal, debiting her account by a sum of Rs. six lakhs and crediting a sum of Rs. 50,000 to the account of each of the following twelve relations of the deceased : 1. Jamnabai, wife of Balkishan 2. K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of the Board upholding the addition of Rs. 37,500, under section 10 of the Act and not under section 46(1), the Assistant Controller realised that if section 10 applied the whole of the amounts gifted should have been included. He, therefore, initiated proceedings under section 59 of the Act and made a revised assessment. In this revised assessment additional amounts of Rs. 5,62,500 and Rs. 4,800 were brought to tax. In appeal, the Zonal Appellate Controller upheld the order of the Assistant Controller except to the extent of Rs. 50,000, which was found to have been withdrawn on November 12, 1954, and deposited with a concern in which the deceased was not a partner. The accountable person then went up in appeal to the Appellate Tribunal. The Tribunal, differing with the opinion of the Assistant Controller and the Zonal Appellate Controller, was of the view that the amounts were gifted shorn of the rights, of the partnership to use the same in partnership business and, therefore, the donees assumed bona fide possession of the property gifted and continued to hold the same to the exclusion of the donor and section 10 of the Act was not attracted. On an application made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and continued to hold such property thereafter to the entire exclusion of the donor and also of benefits to the donor. " It will be convenient first to dispose of question No. (1) in Miscellaneous Civil Case No. 181 of 1965. The learned counsel for the accountable person has conceded that on the facts stated by the Board in that reference it is not possible to hold that the gift of Rs. 36,501 to the Muchhal Trust by the deceased has been established. The question, therefore, must be answered in the affirmative. Question No. (2) in Misc. Civil Case No. 181 of 1965 and Questions Nos. (1) and (2) in Misc. Civil Case No. 468 of 1971 relate to the applicability of section 10 of the Act to the gifts of Rs. 50,000 made by the deceased to each of her twelve relations. Although these references arise out of orders passed by different authorities (due to change of law in the matter of appellate authorities between assessment and reassessment) the material facts stated by the two authorities are the same. To briefly recapitulate the facts, the deceased had a deposit account in the firm, M/s. Laxmichand Muchhal, of which she was a partner. As a result of gifts made by the deceased, debit ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e must bona fide have assumed possession and enjoyment of the property which is the subject-matter of the gift to the exclusion of the donor immediately upon the gift, and (2) the donee must have retained such possession and enjoyment of the property to the entire exclusion of the donor or of any benefit to him by contract or otherwise." It was further held in that case that the word "otherwise" in the second part of the section must be construed ejusdem generis and 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". It was also held that the words "by contract or otherwise" in the second part of the section only qualified the word "benefit" and they did not control the words "to the entire exclusion of the donor". Therefore, if the donor remained in possession and enjoyment of the subject-matter of the gift even without any legal right, the gift will not be excluded from the operation of the section. In determining the question of application of the section to a particular case, it has first to be ascertained as to what is the subject-matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he section. The rule of construction applicable to such a provision is indicated in H.R. Munro v. Commissioner of Stamp Duties where in dealing with a similarly worded section of a New South Wales Statute, the Privy Council said : "It is not always sufficiently appreciated that it is for the taxing authority to bring each case within the taxing Act, and that the subject ought not to be taxed upon refinements or otherwise than by clear words." What then is the nature of the property that was transferred to the donees by the deceased under the gifts in question ? The gifts were made from the deposit account of the deceased which she had in the firm, Messrs. Laxmichand Muchhal by transfer entries. It is, therefore, necessary to examine first the nature of property which a depositor has in the deposit. In common language it is usual to speak that a depositor owns money in deposit and this may be substantially true in the economic sense, but in strict legal sense such a statement is wholly untrue. When a person deposits money in a bank, firm or with any other person, the property in the money passes to the depositee and what the depositor owns thereafter is a debt which is also known ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et up as against his principal the rule which applies to what has been paid over as currency, that ordinarily transfer of possession is transfer of property. So long as the money which the principal has handed to his agent to be applied specifically, and not on a debtor and creditor account, can be traced into what has been procured with it, the principal can waive his right of action for damages for tort, and, affirming the proceeding of the broker, claim that his money is invested in a specific thing, which is his. But Lord Ellenborough C.J. laid down, as a limit to this proposition, that if the money had become incapable of being traced, as, for instance, when it had been paid into the broker's general account with his banker, the principal had no remedy excepting to prove as a creditor for money had and received. The explanation was, of course, that a relation of debtor and creditor had arisen between the banker and his client, the broker, which precluded the notion of following the money. That seems to be, so far as the doctrine of the common law is concerned, the limit to which the exception to the rule about currency was carried; whether the case be that of a thief or of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ossession over the actionable claim transferred under the gifts and possession and enjoyment of the donees was thenceforward retained to the entire exclusion of the deceased. As regards the firm, i.e., the depositee, it was never in possession of the actionable claim either before or after the gifts and thus the possession and enjoyment of the donees of the property gifted was to the exclusion of both the deceased and the firm in which she was a partner. The transfer of accounts of the donees from one firm to another had also no effect on the possession and enjoyment of the donees of the property gifted as it only had the effect of substituting a new firm as debtor in place of the old firm. The deceased also received no benefit by contract or otherwise in the subject-matter of gifts, nor did she receive any benefit that may be said to be referable to the gifts. The right which, the partnership firm had of the use of the money which was deposited with it by the deceased flowed from the contract of deposit and not from the gifts or any transaction collateral to the gifts. Therefore, it is not possible to say that the possession and enjoyment of the property gifted was not retained by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his four minor grand-daughters of a sum of Rs. 6,250 each by making transfer entries in books of account of a firm of which the deceased was a partner. In the opinion of the learned judges although the gift was of an actionable claim the donees should have taken steps to realise the money to assume possession and enjoyment of the property gifted to the exclusion of the donor. With great respect, this line of reasoning blurs the distinction between actionable claim and money in specie and assumes that actionable claim can be possessed and enjoyed only by converting the claim into money. In my opinion, actionable claim arising out of a deposit may also be possessed and enjoyed by continuing the deposit and by allowing interest to accumulate and, indeed, that is the most common mode of enjoyment when cash is not immediately needed. For these reasons and other reasons already indicated, I respectfully dissent from the view taken by the Gujarat and Delhi High Courts. Learned counsel for the department argued that we must look to the substance of the matter and in substance the gift was of money and not of actionable claim. It is true that in applying section 10 of the Act one has to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Trust was rightly included in the principal value of the estate of the deceased. (2) The sum of Rs. 37,500 representing one fifth of the value of gifts made by the deceased to three of her relatives could not be included in the principal value of the estate of the deceased. Misc. Civil Case No. 468 of 1971 (1) The Tribunal was justified in holding that the provisions of section 10 of the Act are not attracted by the facts of the case and in excluding Rs. 5,12,500 and Rs. 4,800 from the principal value of the estate. (2) The subject-matter of the gifts was actionable claim and not money and the possession and enjoyment of the subject-matter of gifts was assumed and retained by the donees to the exclusion of the deceased or of any benefit to her by contract or otherwise. The partnership firm had no rights in the actionable claim and, therefore, the question of the gift being shorn of the rights of the partnership does not arise. There shall be no order as to costs in both the cases. RAINA J.--I have carefully perused the judgment proposed by my learned brother Singh J. With great respect I must say that I am unable to agree with him in respect of some of his conclusions. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the interest was credited to the account of the donees but there were no withdrawals. In respect of some of the donees the accounts were later transferred to another firm, M/s. Muchhal & Co. in which also the deceased was a partner. But no cash was paid or withdrawn and the transfer was made by book entries. The validity of these gifts has not been disputed. It is also not disputed that the money standing in deposit account of the deceased was utilised by the firm in its business and it continued to be so utilised, even after the gifts. After these accounts were transferred to the other firm the moneys standing to the credit of the donees were utilised in this firm for its business. The donees were not partners in M/s. Laxmichand Muchhal but three of the donees (3 daughters-in-law) were partners in the firm, M/s. Muchhal and Co. along with the deceased. It is on these facts that the applicability of section 10 of the Act has to be determined. Section 10 of the Act is reproduced below for facility of reference: "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 immed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the prohibition under the Act does not extend to acts done outside India by residents of India must inevitably lead to large-scale evasion of the Act resulting in its object being defeated. A construction which leads to such a result must be avoided. The expression 'resident in India' is clearly used in the sense resident of India." As pointed out by their Lordships of the Supreme Court in George Da Costa v. Controller of Estae Duty the crux of section 10 of the Act lies in two parts : "(i) T1he donee must bonafide have assumed possession and enjoyment of the property, which is the subject-matter of the gift, to the exclusion of the donor, immediately upon the gift; and (ii) The donee must have retained such possession and enjoyment of the property to the entire exclusion of the donor or of any benefit to him by contract or otherwise." Their Lordships held that both the aforesaid 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. The main point for consideration in this case, therefore, is whether both the aforesaid conditions are fulfilled in this case. Though the principles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the gift was to be included in the estate of the deceased by reason of section 10 of the Act. It is no doubt true that the fact that the subject-matter of a gift in such a case is an actionable claim and not money was not taken notice of. This decision was followed by the same High Court in Controller of Estate Duty v. Chandravadan Amratlal Bhatt. In this case too distinction between a gift of money and a gift of actionable claim does not seem to have been taken into consideration in this connection. In Controller of Estate Duty v. Prahlad Rai a Full Bench of the Delhi High Court had to consider a case of this nature. The deceased, a partner in the firm who had a capital to the extent of Rs. 1,29,006 standing to his credit in the firm's accounts, gave a sum of Rs. 6,250 each to his four, grand-daughters by making appropriate transfer entries in the books of accounts of the firm in 1954. It was held in this case that although the subject-matter of the gifts was actionable claim but since there was nothing on record to show that the firm had a pre-existing right to the use of the money gifted by the deceased to the donees and that such right continued till the death of the deceased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occupation. In Words and Phrases, permanent edition, volume 14-A, at page 290, the following comments regarding the word" enjoyment" are pertinent : "The words 'enjoyment' and 'enjoy', as used in statutes relating to estate and gift taxes, are not terms of art, but connote substantial present economic benefit rather than technical vesting of title or estate." An actionable claim is what is known in English law as "chose-in- action" as distinguished from a "chose-in-possession." I may here refer to the following observation in Salmond on Jurisprudence, eleventh edition, page 489 : "In its origin a chose-in-possession was any thing or right which was accompanied by possession; while a chose-in-action was any thing or right of which the claimant had no possession but which he must obtain, if need be, by way of an action at law." Thus, an enjoyment of a chose-in-action must necessarily mean the enjoyment of the subject-matter of the chose-in-action by obtaining possession thereof by action at law or otherwise. A completely passive attitude on the part of the donee cannot be construed as possession and enjoyment. In my view, if the donee simply remains quiet after a gift of this nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to enjoy the subject-matter of the actionable claim to the exclusion of the donor. There is nothing to show that there was any impediment to their realising the subject-matter of the actionable claim from the firm by demand or an action at law. In fact they did not even care to withdraw the interest that was credited to their accounts. They thus allowed the donor to continue to derive full benefit from the money which was the subject matter of the actionable claim as partner of the firm. In these circumstances, I am of the view that the corpus of the gift must be deemed to have passed or the death of the donor under section 10 of the Act and was as such liable to estate duty. I may here point out that a contrary view would create an anomaly. It cannot be doubted that if the donor had withdrawn the amounts in question from his account with the firm and had gifted the said amounts to the donees who in turn had deposited the same with the firm, section 10 of the Act would be clearly applicable in view of the principles laid down in Clifford John Chick v. Commissioner of Stamp Duties. I need not dilate on this aspect of the matter because this was not disputed even by the learned coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the estate of the deceased. However, as differences have arisen among my learned colleagues with respect to the other three questions, it is necessary to resolve the conflict in a separate order. The deceased, Smt. Ayodhyabai Muchhal, who died on September 10, 1957, was a partner in the firm of Messrs. Laxmichand Muchhal & Co., holding 1/5th share in the firm. She was also a partner in another firm of Messrs. Muchhal and Co., in which she had 1/4th share. This firm owed a sum of Rs. 2,03,731 to three relatives of the deceased. The deceased had gifted Rs. 50,000 each to the three relatives and in addition Rs. 50,000 each to nine other relatives. The relationship is mentioned by my learned brother, Singh J., in paragraph 5 of his order. It was held by the Assistant Controller of Estate Duty that the amounts of Rs. 5,12,500 and Rs. 4,800 were liable to estate duty as section 46(1) of the Estate Duty Act, 1953, was applicable to these gifts to twelve relatives. In appeal, the Central Board of Revenue held that section 46(1) of the Act was not applicable for the reason that the gifts to the three relations were made not by the firm but by the deceased; whereas the loans from these rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as excluded from possession. Another relevant factor would be the fact that these gifts were accepted not only by the income-tax department, but also by the taxing authorities under the Estate Duty Act as genuine and valid gifts. Thus, the genuineness of the gifts not being challenged by the department, the question would arise whether the donors were in exclusive possession immediately after the gift and up to the time of death of Smt. Ayodhyabai. If exclusion of the donors be established, section 10(1) of the Estate Duty Act, 1953, can evidently not be attracted, as was the view expressed by the Tribunal. In this connection, I might observe that it is necessary for the donee to establish the fact that he was in exclusive possession of the gifted amount to the exclusion of the donor and he continued to be in such possession till the demise of the donor. So far as two of the donees are concerned, that fact would be established by the very fact that they had withdrawn the amounts of gifts and had invested them in another firm in which the donor had no interest whatsoever. This fact would establish exclusive possession of the donee and exclusion of the donor from possession or from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax, they included the amount of interest for the purpose of levying the income-tax the authorities under the Estate Duty Act cannot insist on levying the estate duty on the assumption that the donor continued to be in possession and that the donees never entered into possession to the exclusion of the donor. If that were allowed to be done, it will clearly result in double taxation unauthorisedly and in contravention of the provisions of article 265 of the Constitution of India. Thus, if the contention of the authorities under the Estate Duty Act were to be accepted, it might imply that the income-tax authorities would claim to tax the donees to income-tax on the assumption that the gifts were genuine and valid and the authorities under the Estate Duty Act, 1953, would be permitted to levy estate duty by including the said amount of gifts in the assets of the deceased which would also include the accumulated interest on such gifts. This evidently cannot be the position under the law and article 265 of the Constitution of India would certainly prohibit such an interpretation, as it would be a tax not by the authority of law. For this reason I agree with my learned brother, Si ..... X X X X Extracts X X X X X X X X Extracts X X X X
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