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TMI Blog1991 (1) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... hare of Rs. 3,08,687 in the principal value of the estate under section 34 (1) (c) was not proper and, therefore, should be excluded ? " Briefly stated, the facts giving rise to this reference are as follows : One Munuswamy Chettiar had two sons, viz., Doraiswamy Chettiar (the deceased, who died on September 8, 1968) and Krishnaswamy Chettiar. Doraiswamy Chettiar was adopted by one Senganna Chettiar and he, along with his natural brother, Krishnaswamy Chettiar, went to Gudiyatham, where they carried on business jointly till 1936 and also acquired certain properties from out of that business. Subsequently, Doraiswamy Chettiar and one Kannayya Chettiar, the son of Krishnaswamy Chettiar, the natural brother of Doraiswamy Chettiar, carried on business in partnership. Later, on February 29, 1948, there was a partition between Doraiswamy Chettiar on the one hand and Kannayya Chettiar and his younger brother, Govindaswamy Chettiar on the other, of the properties which had been acquired from the income derived from the business carried on. Under the partition deed, the properties set out in "A" Schedule thereunder fell to the share of Doraiswamy Chettiar. On May 3, 1941, Doraiswamy Chett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he donees had not assumed possession and enjoyment of the properties settled immediately and to the exclusion of the deceased and, therefore, section 10 of the Act stood attracted. Accordingly, applying section 10 of the Act, he included in the dutiable estate a sum of Rs. 1,35,220 made up of Rs. 35,640 being the value of the lands gifted to Chinnaswamy Chettiar, Rs. 43,320 representing the value of the lands settled on Rukmani Ammal, Rs. 40,000 towards the value of the house property in Acharappan Street, George Town, Madras, settled on Rukmani Ammal and Rs. 15,260 being the value of the houses in Thazhayatham village gifted to Jayalakshmi. The Assistant Controller of Estate Duty also abated the debts to the tune of Rs. 10,023 and Rs. 4,191 due to Jayalakshmi and Rukmani Ammal, respectively, and applying section 46(2) of the Act, disallowed the payments made to the aforesaid persons to the extent of Rs. 9,936 and Rs. 276, respectively. The dutiable value of the estate was fixed at Rs. 6,11,374 and the lineal descendants' share was also subjected to duty and the properties passing under section 10 of the Act were taken as part of the joint family estate. A sum of Rs. 5,000 was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties and, that therefore, section 10 of the Act would not be applicable, the Tribunal found that the properties had been acquired with the income derived from business carried on by the deceased along with his natural brother and later his son and those properties belonged to the deceased as his separate properties and the adoption of Kulasekaran only in June, 1956, showed that the deceased had not converted the properties into joint family properties, but only later the deceased had impressed the properties with joint family character. In that view, the Tribunal held that though, in manner of speaking, the Hindu undivided family of which the deceased was the karta was in possession of the gifted properties as lessee and was also in enjoyment of the rental income from the other gifted properties, the deceased, as the karta, was in possession of such properties and the income therefrom and section 10 of the Act contemplated only physical possession and not the character or the capacity in which the deceased donor was in such possession. It was also further pointed out by the Tribunal that that was the true position and the fact that the Hindu undivided family, of which the deceased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of this court in Smt. Parvathi Ammal v. CED [1969] 74 ITR 200. Before embarking upon a consideration of the submissions so made, it would be necessary to refer to the crux of section 10 of the Act, which consists of two parts : (1) that the donee must bona fide have assumed possession and enjoyment of the property, which is the subject-matter of the gift ; and (2) that 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. The conditions are cumulative and unless each of these conditions is satisfied, the property would be liable to duty as per section 10 of the Act. On the available materials, there is nothing to indicate that the donees assumed possession and enjoyment of the properties forming the subject-matter of the gifts. Equally, there is total absence of materials to show that the donees had retained possession and enjoyment of the gifted properties to the entire exclusion of the donor or of any benefit to him, by contract or otherwise. Indeed, the Tribunal, on an appreciation of the entries in the books of account of the deceased relating to the donee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that, under section 10 of the Act, the value of the entirety of the property would pass as the gift was of the property and of all the rights therein. It was also pointed out that if the gift comprises the full ownership of the property not shorn of any right, in order to prevent the incidence of estate duty, immediate bona fide physical possession and enjoyment of the gifted property must ordinarily be assumed by the donee and retained thereafter to the entire exclusion of the donor. The principle of this decision of the Supreme Court laid down in connection with the rights of lessee from the donee in relation to the applicability of section 10 of the Act would, in our view, apply in this case also. We may now refer to CED v. Kamlavati [1979] 120 ITR 456 (SC), to which our attention was drawn by learned counsel for the accountable person. In that case, cash gifts were made by the deceased in favour of his sons, wife and daughters-in-law. One of the donees in one case was taken in as a partner in the firm of which the donor was a partner, after the gifted amounts were debited in the accounts of the firm, and in the other case, the donees were neither partners before or even aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettiar [1980] 125 ITR 605 (Mad) and CED v. Susheela Mariappan [1987] 164 ITR 313 (Mad). It may be pointed out that the language employed in section 10 of the Act refers to donor and donee under a gift and the deemed passing of the gifted properties on the death of the donor, subject to the fulfilment of the other requirements. What is contemplated under section 10 of the Act is a gift by the donor to a donee without any reference whatever to the capacity of the donor making the gift. In other words, so long as a gift is made by a donor and if possession of the gifted properties is not taken by the donee immediately and retained to the exclusion of the donor or of any benefit to him, by contract or otherwise, then, under section 10 of the Act, the properties gifted by the donor shall be deemed to pass on the donor's death. It would mean that the properties gifted by that donor who made the gift would be deemed to pass on his death, unless it is taken out of section 10 of the Act by the fulfilment of the other requirements. In this case, the gifts were made by the deceased Doraiswamy Chettiar and he was the donor for purposes of section 10 of the Act and he had not been excluded from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. In the absence of the placing of materials before the Tribunal, the Tribunal cannot be stated to have committed any error in declining to give relief by applying the proviso to section 16 read with sections 46(1) and 46(2) of the Act. We, therefore, answer the second question referred to us in the affirmative and against the accountable person. We may now take up the only question referred at the instance of the Controller of Estate Duty. That pertains to the inclusion of the value of the share of the lineal descendants. In V. Devaki Ammal v. Asst. CED [1973] 91 ITR 24 (Mad), section 34(1)(c) of the Act was challenged as being discriminatory and violative of article 14 of the Constitution of India and that was upheld on the ground that section 34(1)(c) goes far beyond the charging section, making a discrimination between the coparceners who died leaving lineal descendants and others, in the imposition of tax burden and providing for a higher incidence of tax on the property passing on the death of the former. In view of this, the question referred to us at the instance of the Controller of Estate Duty is answered in the affirmative and against the Controller. There will be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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