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TMI Blog1979 (9) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... ire this court to give any answer to this question. Accordingly, we refrain from expressing any opinion with respect to question No. 1 For an understanding of how question No. 2 came to be referred to us, it is necessary to set out the material facts. The deceased, Abdulla Soomar Shivji, gave a gift of two sums of Rs. 75,000 each to his grandson, Hassan Jafferali Shivji, and grand-daughter, Aminabai Jafferali Shivji, both minors, on May 11, 1955, and July 23, 1956, respectively. These gifts were accepted on behalf of the minors by their father. The deceased was a partner in the firm of M/s. Soomar Shivji and Company. The first sum of Rs. 75,000, gifted as aforesaid, was deposited by the guardian of the minors in the said firm on July 10, 1955. The second sum of Rs. 75,000 was similarly deposited in the said firm on August 12, 1955. The deceased retired from the said firm on November 12, 1958. He died on March 25, 1960. Until his death the said two sums remained deposited with the said firm. As he had died within two years of his retirement from the said firm, the Assistant CED included these two sums in the estate of the deceased as property which was deemed to pass on the death ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 589 (KB). On this aspect of the case, we think the argument of the appellant is justified. In the context of the section, the word 'otherwise' should, in our opinion, be construed ejusdem generis and it 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. " There is no dispute in this case that bona fide possession and enjoyment of the amounts gifted were immediately assumed by the donee and that the first condition of s. 10 of the E.D. Act was satisfied. There is equally no dispute that no benefit was reserved to the donor by contract or otherwise and that the second limb of the second condition was also satisfied. The controversy has ranged round whether the first limb of the second condition has been satisfied, that is, whether the possession and enjoyment of the amounts gifted were after assumption of possession and enjoyment of the donees retained by the donees to the entire exclusion of the donor. The first authority relied upon by Mr. Munim was a decision of the judicial Committee of the Privy Council in H. R. Munro v. Commissioner of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bout seventeen months after the date of gift the father, the son to whom the gift was made and another son of the donor entered into an agreement to carry on in partnership the business of graziers and stock dealers. The agreement, inter alia, provided that the father should be the manager of the business and that his decision should be final and conclusive in connection with all matters relating to its conduct. The agreement further provided that the capital of the business should consist of the livestock and plant then owned by the respective partners and that the business should be conducted on the respective holdings of the partners and such holdings should be used for the purposes of the partnership only and that all lands held by any of the partners at the date of the agreement should remain the sole property of such partner and should not on any consideration be taken into account as or deemed to be an asset of the partnership, and any such partner should have the sole and free right to deal with it as he might think fit. Each of the three partners owned their own property. The property owned by the son, to whom the father had made a gift of land as aforesaid, was the very l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the question is relevant only to the second limb of the clause. It was immaterial that the donee could make no better use of the property.'Where the question is whether the donor has been entirely excluded from the subject matter of the gift, that is the single fact to be determined. If he has not been so excluded the eye need look no further to see whether this non-exclusion has been advantageous or otherwise to the donee." (Seepage 276 of Dymond's Death Duties, 14th edition). Mr. Munim, for the applicant, submitted before us that whatever might be the position on these two authorities of the Privy Council, the Supreme Court had in the case of CED v. C. R. Ramachandra Gounder [1973] 88 ITR 448 (SC), taken a view which supported the applicant's case. Two different types of property were gifted in Gounder's case. The first type of property was the gift of a house which the deceased owned and which was let to the firm in which the deceased was a partner as a tenant-at-will. After the deed of gift the firm paid the rent not to the deceased but to the donees by crediting the amount in the donees' accounts in equal shares. The second type of property consisted of gifts of money effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because the firm from thenceforward had attorned to the donees as their tenant by crediting the rent of Rs. 300 to the respective accounts in equal moiety. The donor could, therefore, only transfer possession of the property which the nature of that property was capable of, which in this case is subject to the tenancy. He could do nothing else to transfer the possession in any other manner unless he was required to effectuate the gift for the purpose of s. 10 of the Act (that is the E.D. Act, 1953) by getting the firm to vacate the premises and handing over possession of the same to the donees leaving the donees thereafter to lease it out to the firm. Even then the objection of the learned advocate that since the donor was a partner in the firm which had taken the property on lease, he derived benefit therefrom and was, therefore, not entirely excluded from the possession and enjoyment thereof, will nevertheless remain unsatisfied. To get over such an objection, the donees will have to lease out the property after getting possession from the firm to some other person totally unconnected with the donor. Such an unreasonable requirement the law does not postulate. The possession whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to a donee and subsequently brought in and invested in the firm and gifts made by making transfer entries in the books of account of the firm. The Full Bench held that there was no material distinction between the two types of cases and that the judgments of the Supreme Court in Gounder's case [1973] 88 ITR 448 and Ramarathnam's case [1973] 91 ITR 1 covered both these cases and the question referred to it must be answered in favour of the accountable person. Mr. Joshi, learned counsel for the respondent, however, submitted before us that the ratio of Gounder's case did not cover the questions which we have to decide. He further submitted that the judgment of the Allahabad High Court was wrongly decided on an incorrect understanding of what the Supreme Court had held in Gounder's case. In Mr. Joshi's submission the ratio of Gounder's case [1973] 88 ITR 448 (SC) was correctly appreciated, explained and applied by the Gujarat High Court in the case of Sakarlal Chunilal v. CED [1975] 98 ITR 610. The decision was a common judgment delivered in two references which were heard together by that High Court. Briefly stated, the facts of the first reference with which the Gujarat High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Gujarat High Court drew a distinction between these two types of cases, viz., that in the case where a gift was by making entries in the books of account of the partnership firm, the gift was of property shorn of certain rights which appertained to the complete ownership of the donor and the donor cannot, merely because he remained in possession and enjoyment of those rights which were not gifted, be said, within the meaning of s. 10 of the E.D. Act, not to be entirely excluded from the possession and enjoyment of that which he had given. According to the Gujarat High Court, the principle laid down in Munro's case [1934] AC 61 ; 2 EDC 462 (PC) applied because the gift in such a case was subject to the right of the partnership firm which it possessed to make use of the amount gifted for the purpose of the partnership business and this right of the partnership firm did not form the subject-matter of the gift. With respect to the second type of cases, namely, where the gift was a sum of money received by the donee and the amount gifted was thereafter deposited with the partnership firm in which the donor was a partner, the Gujarat High Court held that the gift was of all the right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade gifts of Rs. 20,000 each in favour of his son and four daughters-in-law. Thereafter, the donees invested the sums gifted to them in the partnership firm in which the deceased was a partner. The donees were not partners in the firm nor were they taken as partners after the gifts were made in their favour. This case came up in a reference before a Full Bench of the Punjab and Haryana High Court ([1972] 85 ITR 175), and it answered the questions referred to it in favour of the accountable person, namely, Jai Gopal Mehra. The decision in Kamlavati's case merely followed the Full Bench decision in Jai Gopal Mehra's case [1972] 85 ITR 175 (Punj). In its judgment, the Supreme Court first dealt with the appeal of Kamlavati. After referring with approval to the analysis of s. 10 of the E.D. Act, given by the Supreme Court in George Da Costa v. CED [1967] 63 ITR 497, it referred to the decisions of the Privy Council in Chick's case [1959] 37 ITR (ED) 89 (PC) and Munro's case [1934] AC 61. It then turned to the earlier decision of the Supreme Court in Gounder's case [1973] 88 ITR 448. After setting out the latter part of the passage from the judgment of the Supreme Court in that case, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that there was no absolute transfer of this aggregate sum of Rs. 2,70,000 but it was a part of the scheme to transfer six-sevenths share in the business in favour of the four major and two minor sons and the transfer was made subject to the condition that the sons would use it as capital not for any benefit of the deceased donor but for each of them becoming entitled to one-seventh share in the partnership business. Their Lordships thus explained the ratio in CED v. R. V. Viswanathan [1976] 105 ITR 653 (at p. 463 of 120 ITR): " In other words, the mere fact that the partnership may make use of the sums of money gifted in which the donor also was a partner did not mean that he was allowed to enjoy or derive any benefit in the money gifted, which could be referable to the gift itself. " Their Lordships of the Supreme Court then thought it advisable to set out the correct legal position in order to avoid conflict in the application of the ratio of the various Supreme Court cases, as had been done by some of the High Courts in the judgments delivered by them. This clarification and elucidation was given by their Lordships of the Supreme Court in the following terms, [1979] 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tner is entitled to get a share in the net assets of the property realised on the winding up of the partnership. " In these Civil Appeals the case strongly relied upon by the revenue was the decision of the Gujarat High Court in Sakarlal Chunilal's case [1975] 98 ITR 610. After setting out what had been decided in that case their Lordships of the Supreme Court proceeded to state (at p. 464): " In the enunciation of the principle of law there is no appreciable, as there could not be any, difference between what was said in Gounder's case by this court and what has been said by the learned Chief Justice in the Gujarat case ([1975] 98 ITR 610). But in the application of the principle to the facts of the two aggregate sums of money, it was possible to take a different view. In relation to the gifts of Rs. 1,20,000 it was possible to take a view that it was a part and parcel of the same transaction, namely, the receipt of the money by the donees by gift and their investing the same in the partnership firm. So was it possible in regard to the sum of Rs. 1,99,500. However, a different view was taken by the High Court." Their Lordships, after mentioning the decisions of several High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Supreme Court had stated with respect to amounts gifted to and received by the donees and subsequently invested by the donees in the firm of which the donor was a partner that it was possible to take a different view, as also the fact that it enjoined upon High Courts henceforth to apply carefully and broadly the principles laid down by them in their judgment in those two civil appeals, without doing too much of dichotomy and hair-splitting of facts, would show that they have not agreed with the view taken by the Gujarat High Court with respect to gifts of money subsequently invested in the partnership firm in which the donor was a partner, and if any further indication was necessary, the very fact that they decided Jai Gopal Mehra's appeal in favour of the accountable person, where the facts were very similar to the second type of gift in the Gujarat case, would show that that part of the judgment of the Gujarat High Court was not approved by the Supreme Court. We see no material difference between the facts before us in this reference and the facts of Jai Gopal Mehra's case [1979] 120 ITR 456 (SC) which was decided by the Supreme Court in favour of the accountable person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on has in moneys belonging to him alone. They have further pointed out that it makes no difference whether the donee is a partner in the firm before the date of the gift or was taken as a partner at the time of the gift or whether he was never taken as a partner and remained merely as a creditor of the partnership firm by allowing the firm to make use of the property gifted for the purposes of the partnership. Incidentally, we may point out that in the present reference the first sum of Rs. 75,000 gifted to the grand children was deposited with the firm within two months of the date of the gift, and the second sum of Rs. 75,000 was deposited with the firm within about nineteen days of the making of the gift. In the result, so far as question No. 1 is concerned, in view of the statement made by Mr. Munim on behalf of the applicant, we decline to answer that question. So far as question No. 2 is concerned, we answer it in the negative, that is, in favour of the accountable person and against the department. As the entire hearing of this reference has been taken up by the arguments on the second question and in view of the length of time which the hearing of this reference has t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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