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TMI Blog1979 (6) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the share of profit earned by the daughters subsequent to November 17, 1963 (date of their admission as partners in the said business), constituted ' property ' within the meaning of section 9 of the Act and deemed to pass on the death of the deceased? (4) Whether, on the facts and in the circumstances of the case, the sum of Rs. 1,01,716 (subject to modification in the light of the Tribunal's order) comprising Rs. 20,000 gifted to the married daughters by the deceased on November 15, 1963, and Rs. 81,716 profits accrued to them during the previous year, was rightly included in the estate of the deceased under sections 9 and 27 of the Estate Duty Act ? " The reference arises in respect of the estate of one Badri Prasad Gour who died on 7th November, 1964. The deceased was carrying on the business of manufacture and sale of limestone under the name and style of M/s. Ramchandra Badri Prasad. The deceased had taken a quarry lease for a period of five years from 9th November, 1959. The business was carried on as a proprietary concern till 17th November, 1963. On 15th November, 1963, the deceased transferred sums of Rs. 10,000 each to his two daughters, namely, Smt. Shantibai an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the two daughters into the partnership concern amounted to a disposition in favour of relatives within the meaning of s. 27 of the Act. The Assistant Controller, therefore, held that the entire amount shown to the credit of the daughters formed part of the estate of the deceased under s. 9 of the Act. The sum of Rs. 1,01,716 was thus included in the estate of the deceased. The Appellate Controller was of opinion that the value of gift for purposes of s. 27 should have been taken to be one and a half times the average annual profits. He accordingly upheld the inclusion of Rs. 1,01,761 in the principal value of the estate. In appeal before the Appellate Tribunal, it was contended that only Rs. 10,000 each given to the daughters should have been included in the value of the estate and that the profits credited to the daughters could not have been included. It was submitted that the profits arose out of the contract of partnership and did not form part of the estate of the deceased. These submissions were negatived by the Tribunal which held that, on the facts and in the circumstances of the case, the admission of the two daughters to share the profits of the business (the dece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Under s. 9(1) of the Act, as it stood at the relevant time, property taken under a disposition made by the deceased purporting to operate as an immmediate gift, inter vivos, whether by way of transfer, delivery, declaration of trust, settlement upon persons in succession, or otherwise which shall not have been bona fide made two years or more before the death of the deceased shall be deemed to pass on the death. Section 10 provides that 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. It would be seen that a gift even though real and bona fide if made within two years before the donor's death is for the purpose of the duty regarded as not made. If a gift is not bona fide made, the time factor is not material. Property covered by such a gift passes on the death of the donor. Further, if a gift is made bona fide beyond the period mentioned in s. 9, property covered by it will still pass on the donor's death unless the possessio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 27. If the disposition is made by the deceased beyond the period mentioned in the section, the property covered thereby shall not pass on the death unless it shall not have been made bona fide, that is to say, even if the transaction were beyond the period mentioned in the section, if it were entered into in bad faith, estate duty will attach to that property. The next question is whether the creation of partnership in favour of the daughters by the partnership deed, dated 17th November, 1963, was also hit by s. 9 read with s. 27 of the Act. The argument of the learned counsel for the accountable person is that the creation of a partnership is not a " disposition " and that the benefits arising to the daughters from the partnership agreement could not be included as property passing on the death of the deceased. We have already referred to the definition of " property " contained in s. 2(15) and the two Explanations which enlarge the meaning of the word " disposition ". The meaning of the word " disposition " under the estate duty law was considered by the Supreme Court in Kantilal's case [1976] 105 ITR 92 while holding that if the deceased took a lesser share than his entitlem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they each got by way of gift on 15th November, 1963, from the deceased. The transfer of 50% share in profits to them by the partnership deed was not supported by any consideration as they were not obliged to invest any sum towards the capital of the firm, not even Rs. 10,000 which they each got by way of gift on 15th November, 1963. We are clearly of opinion that the disposition of 50% share in profits to the daughters by the deceased in the business, which was converted from one of proprietary business into a partnership business, was nothing but a gift in the normal sense in favour of the daughters of 50% share in profits. Alternatively, as the daughters were relatives, s. 27(1) applied, and the disposition is to be deemed to be a gift for the purposes of the Estate Duty Act. Section 9 of the Act is immediately attracted as the disposition was made within the period of one year before the death. In the case of CED v. R. V. Viswanathan [1976] 105 ITR 653 (SC), the deceased transferred six-sevenths share in the business solely owned by him and retained only one-seventh share. The transfer was held to be a gift, but it did not attract estate duty as it was made beyond the period m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e benefits of the partnership only because of the introduction of the capital of Rs. 74,721 gifted to him by the assessee. On these facts it was held that the share income of the minor son was not liable to be included in the total income of the assessee under s. 16(3)(a)(iv) of the Indian I.T . Act, 1922, as it could not be held that " the share income arose from assets transferred to the minor " by the assessee within the meaning of the said provision. The case of CIT v. Prem Bhai Parekh [1970] 77 ITR 27 (SC) was also on s. 16(3)(a)(iv) of the Indian I.T. Act, 1922. The facts of this case were similar to those in Jwalaprasad Agarwala's case [1967] 66 ITR 154 (SC) and the same view of law was taken. Both these cases which are on the construction of s. 16(3)(a)(iv) of the Indian I.T. Act, 1922, have no relevance here and cannot be used for construing the provisions of ss. 2(15), 9 and 27 of the E.D. Act and for deciding the question whether an assignment of a share in the profits of a business by a partnership deed in favour of a relative, which was till then solely owned by the deceased, could amount to " disposition " attracting the aforesaid provisions. As regards the case of CG ..... X X X X Extracts X X X X X X X X Extracts X X X X
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