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TMI Blog1990 (6) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... hip firm, M/s. Manilal and Sons. The said amount represented the credit balance in the charity account in the books of the partnership firm. The Assistant Controller came to the conclusion that the credit balance was not a real liability and it should be added while evaluating the deceased's half share in the profits of the firm. On appeal, the Appellate Controller held that the partnership firm had full control over the amounts till such time they were disbursed or utilised for charitable purposes and hence the Assistant Controller was justified in including the same while evaluating the deceased's half share in the profits of the partnership firm, M/s. Manilal and Sons. Aggrieved, the accountable person filed an appeal before the Tribunal and contended that a property at Purasawalkam was sold on May 13, 1944, for Rs. 71,111 and the profit on the same property was credited to the charity account even during the lifetime of the father of the accountable person and the amount was being utilised for charitable purposes and the credit balance in the charity account cannot, therefore, be included, while evaluating the deceased's half share in the partnership firm, M/s. Manilal and Sons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... May 13, 1944, he did so for a specific purpose and thereby imposed an obligation on himself to utilise it for charitable purposes. When once the amount was credited to a charity account, the legal ownership of the fund vested in the trust. While considering this aspect, the Supreme Court in the case of CIT v. Tollygunge Club Ltd. [1977] 107 ITR 776 (SC), held that (headnote) : "It is settled law that a trust may be created by any language sufficient to show the intention and no technical words are necessary and it may even be created by the use of words which are primarily words of condition. The only requisites which must be satisfied are that there should be 'purposes independent of the donee to which the subject-matter of the gift is required to be applied and an obligation on the donee to satisfy those purposes'." Under these circumstances, considering the facts appearing on this aspect in the light of the judgment of the Supreme Court cited supra, the Tribunal held that the sale proceeds credited in the books of account of the firm, under the head "Charitable purposes", should not be included while evaluating the estate of the deceased. Inasmuch as the Tribunal came to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CED [1969] 73 ITR 564 (Mad), contended that the policy behind the provisions is to counteract or render nugatory any attempt at avoidance or evasion of estate duty in this manner. Learned standing counsel further submitted that the deceased had borrowed monies from his son to whom he had gifted Rs. 50,000 on October 5, 1967, and hence the provisions of section 46(1)(b) are attracted in respect of the liability outstanding at the time of the death. Learned standing counsel pointed out that the deceased had repaid the borrowed amount to the extent of Rs. 77,431 during the period July 22, 1970 to July 21, 1972, i.e., within two years of death and, therefore, the repayment will be covered by section 46(2) and will have to be assessed as passing on his death. Finally, learned standing counsel submitted that in view of the ratio adumbrated in the decision of the Full Bench of this court in the case of CED v. Sileshkumar R. Mehta [1990] 181 ITR 10, the words "at any time" occurring in section 46(1)(b) would mean at any time either before or after the loan was taken by the deceased and in such a case, the nexus between the gift made and the loan taken need not be established by the Departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , "at any time" and, therefore, on other points, the decision rendered by this court in CED v. Smt. S. T. B. Ameen Khaleeli [1983] 143 ITR 679 still remains undisturbed. Learned counsel further submitted that even according to the Full Bench decision in CED v. Sileshkumar R. Mehta [1990] 181 ITR 10, in order to apply the provisions of section 46(1)(b), the Department should establish the nexus between the loan taken and gift made by the deceased. In this case, according to learned counsel, no such nexus was established by the Department. It is, therefore, pleaded that the Tribunal was correct in holding that the sum of Rs. 50,000 cannot be included while ascertaining the principal value of the estate of the deceased. In so far as the sum of Rs. 2,922 is concerned, it is the closing balance as on July 22, 1972 and it represented the interest on the loan taken by the deceased. The question is whether any part of the interest paid on the loan would be covered by the provisions of section 46(1)(b) of the Act. This amount cannot be included in the estate of the deceased in view of the decision of this court in Mrs. Ratnakumari Kumbhat v. CED [1975] 101 ITR 572. This court, in the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deceased, unless subject to the provisions of section 27, such debts or encumbrances were incurred or created bona fide for full consideration in money or money's worth wholly for the deceased's own use and benefit and take effect out of his interest, and any debt or encumbrance, for which an allowance is made, shall be deducted from the value of the property liable thereto. Section 46 imposes a further limitation on the deductions Allowable under section 44 and is aimed at preventing avoidance of duty by disposing of a property and borrowing it back. Section 46 provides that the amount allowed as a deduction for a debt under section 44 should be reduced in proportion to the value of the consideration given for the debt, which was derived directly or indirectly from the deceased or which was given by a creditor who had acquired property from the deceased for the purpose of facilitating the loan. In both these cases, the deceased would be deemed to have provided the loan to himself. While considering the meaning of the words, viz., "at any time", contained in section 46(1)(b) of the Act, this court in the case of Mrs. Ratnakumari Kumbhat v. CED [1975] 101 ITR 572 at p. 583 held a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty prior to the advance of the debt or loan. This is because at the time when the property becomes part of the creditor's resources there must be some nexus between the resources and the consideration for the debt. The expression 'resources' itself indicates a particular fund or source and it is from that fund that the debt should have been advanced. This also shows that there must be a precedence of the property first and the advance of the loan to the deceased subsequently and resource does not merely refer to the source of finance without any antecedence." Thus, there were two different views expressed by this court in understanding the meaning of the words "at any time" occurring in section 46(1)(b) of the Act as can be seen from the abovesaid two decisions of this court. It is significant to note that the Full Bench of this court in CED v. Sileshkumar R. Mehta [1990] 181 ITR 10, while resolving the conflict that arose as aforesaid, held that (at p. 16) : "Section 44 of the Act, while specifying the deductions to be made, subject to restrictions set out therein, for determining the value of the estate, has provided for deduction of debts. Section 46 of the Act has laid d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nouncement in Mrs. Ratnakumari Kumbhat v. CED [1975] 101 ITR 572 (Mad) with regard to the construction to be put on section 46(1)(b) of the Act, and any observation or reasoning found in CED v. Smt. S.T.B. Ameen Khaleeli [1983] 143 ITR 679 (Mad), running contrary to the observations found in Mrs. Ratnakumari Kumbhat v. CED [1975] 101 ITR 572 (Mad), and to the views expressed by us as above, stand overruled. We answer this reference as above." Now the contention put forward by learned counsel appearing for the Department was that inasmuch as the Full Bench overruled the decision of this court rendered in CED v. Smt. S.T.B. Ameen Khaleeli [1983] 143 ITR 679, there is no obligation imposed on the Department to establish the nexus between the amount borrowed and the gift made by the deceased. Learned standing counsel further pointed out that the provisions of section 46(1)(b) would be applicable even in cases, where the loan advanced by the son preceded the gift made by the father, in view of the above cited decision of the Full Bench of this court. But, according to learned counsel for the accountable person, in any event, it is for the Department to establish the nexus between the ..... 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