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TMI Blog1978 (11) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Kailash as his capital contribution to the business of the firm. The credit balance in the account of Kailash in the firm's books as on September 15, 1969, when Shri Govindram Shivaldas died, was Rs. 37,268. In the assessment to the estate duty, after the death of Shri Govindram Shivaldas, the Assistant Controller held that out of the said sum of Rs. 37,268 the amount of Rs. 15,000 originally gifted by the deceased to Kailash was includible in the principal value of the estate of the deceased. According to the Assistant Controller, the mere passing of entries in his books of account did not have the effect of divesting the deceased of the domain over the amount in question. Against the order of the Assistant Controller, the accountable person preferred an appeal to the Appellate Controller, who confirmed the conclusion of the Controller. Against the order of the Appellate Controller, the accountable person took the matter on further appeal to the Tribunal and before the Tribunal, on behalf of the accountable person, reliance was placed on the decisions of the Supreme Court in CED v. C. R. Ramachandra Gounder and [1973] 88 ITR 448 and CIT CED v. N. R. Ramarathnam [1973] 91 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 973] 88 ITR 448 as well as in the case of Ramarathnam [1973] 91 ITR 1 (SC) would equally apply." Thus, it will be seen that the Tribunal proceeded on the basis that there was a valid gift on October 24, 1965, and that, in spite of that, the gift will not be hit by s. 10 of the E.D. Act. It is with reference to this order of the Tribunal alone that the CED, Madras, applied for and obtained under s. 64(1) of the E.D. Act the reference of the following question for the opinion of this court : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sum of Rs. 15,000 included in terms of section 10 of the Estate Duty Act, is not includible in the principal value of the estate of the deceased ?" This reference came before the Hon'ble the Chief Justice and Ramanujam J. The learned judges referred the case to a Full Bench. While doing so, the learned judges observed : "It would have been easier for us to render an independent opinion ourselves but for the apparent disagreement in the treatment of the subject by the Supreme Court and by our own High Court. In Controller of Estate Duty v. Ramachandra Gounder [1973] 88 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is two sons, Lingiah and Krishnan, absolutely and irrevocably. After this transfer, the firm continued to be in occupation of the premises paying rent thereof at Rs. 300 p.m. to the two donees by crediting each of their accounts in the account books of the firm in equal shares. In addition, the deceased, Ramaiah, had also an account with the firm, Desai Gounder Co., and on March 30, 1953, he requested the firm by a letter to transfer from his account five sums of Rs. 20,000 each with effect from 1st April, 1953, to the credit of his five sons in the firm's books. He also wrote to the five sons informing them of the transfer. Though the sons did not withdraw any amount from their accounts in the firm, the amounts continued to be invested in the firm for which interest at 7 1/2% per annum was paid to them. Ramaiah died on 5th May, 1957. In the assessment to estate duty of his estate, the question that came to be considered was whether the value of house and the sum of Rs. one lakh credited in the names of the five sons would be includible in the assessment to estate duty of the estate of the deceased by application of s. 10 of the Act. We are concerned in the present case only with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e second decision of the Supreme Court is CIT CED v. N. R. Ramarathnam [1973] 91 ITR 1. That judgment is comparatively a short one. In that case, the deceased, his three sons and a daughter were partners in a firm which carried on money-lending business. On 31st March, 1953, and 1st April, 1956, the deceased transferred to his sons and daughter amounts totalling Rs. 1,29,924 by adjustment entries in the books of the firm against the balance to his credit in the firm. The amounts continued to remain with the firm and were utilised in the business and the deceased continued to be a partner of the firm till his death on 17th October, 1960. The question was whether the sum of Rs. 1,29,924 could be included in the property passing on his death under s. 10 of the E.D. Act. The Supreme Court concurring with the High Court held that s. 10 did not apply to that case. At page 3 of the report, the Supreme Court extracted the following passage from the statement of the case submitted by the Tribunal : "They contended that after the amounts were transferred by the deceased to his daughter and sons, the amounts were in the absolute control and powers of the donees who were partners in the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erns. With a view to converting the business of the two concerns into a partnership with his four major sons, the deceased transferred a sum of Rs. 45,000 from his personal account to the credit of each of the four sons on September 12, 1955. A partnership deed was executed on September 17, 1955, by the deceased and his four sons, the sum of Rs. 45,000 transferred to each of them being treated as their share capital. On September 18, 1955, two minor sons were also admitted to the benefits of the partnership and the deceased similarly transferred a sum of Rs. 45,000 from his personal account in the firm to each of his minor sons. Upon the death of the deceased on November 18, 1960, the question arose whether the sum of Rs. 2,70,000 being the aggregate of the amounts transferred by the deceased from his personal account to the credit of his six sons could be included in the estate passing on his death under s. 10 of the E.D. Act, 1953. The Supreme Court affirming the decision of the High Court took the view that the transfer of Rs. 45,000 by book entries in favour of each of the four major sons on September 12, 1955, and in favour of each of the minor sons on September 18, 1955, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons but 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 business. No benefit of any kind was enjoyed by way of possession or otherwise by the deceased under the gift or the subject-matter of the gift. Whatever benefit was enjoyed by the deceased subsequent to the date of the gift was on account of the fact that he held one-seventh share in the business, which share he retained throughout and never parted with. No extra benefit was also conferred under the deed of partnership upon the deceased although some extra benefit was conferred upon two of the major sons in the form of remuneration because of their active and full participation in the business. Keeping in view the position of law discussed earlier, it is plain that the facts of the case would not fall within the ambit of section 10 of the Act." We have extracted fairly in extenso portions from the aforesaid three decisions of the Supreme Court only for the purpose of showing that the facts of those cases are so different from the facts of the present case that the ratio of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have assumed possession and enjoyment of the gifted amounts immediately after the gifts are made. It is not the case of the revenue that any benefit has been created in favour of the donor by contract or otherwise. Therefore, the only question is whether the donees continued to retain possession and enjoyment of the gifted amounts to the entire exclusion of the donor. As already pointed out, though the amounts gifted were invested at the first instance with a third party for some time, later they came to be invested in the firm of which the deceased was a partner. Can it be said that the deceased has been excluded from possession and enjoyment of the monies ?" After examining the decided cases, this court held that it could not be said that the deceased had been excluded from possession and enjoyment of the monies and, therefore, the said amount was includible in the dutiable estate of the deceased. We may point out that except for one difference, the facts of the above case are very near to our present case, the difference being that in that case the donee had originally invested the money with third party and thereafter brought it into the firm of which the donor had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... withdrawal of cash and paying it over to the donee, while in the case of capital account when a debit entry is made, that will constitute only an actionable claim as if it is a debt due, which was recognised by the partners as payable on demand and its recovery could be enforced against the firm without recourse to a suit for dissolution. In the course of the judgment, this court observed : "The above discussion would go to show that we have to first ascertain the subject-matter of the gift. We have to see whether it was merely an existing balance in the shape of an actionable claim in which event the provisions of the Transfer of Property Act should have been adhered to. Then the transfer would be subject to the rights of the partnership. If, however, the amounts were gifted in cash, then, there will be nothing to show that the gifts are subject to any particular condition of user in the partnership in which the deceased was a partner. The question as to whether the relevant debits were made in the account of the deceased at the time when he was a partner so that what he had could be treated as an 'actionable claim' has not been specifically gone into. If the debit was made i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of the firm in which the deceased was a partner continued to be carried on in the same premises, the firm paying rent to the donee and hence s. 10 was not applicable. On reference to this court at the instance of the department, this court held that there was a completed gift of money by making the credit and debit entries in the proprietary concern of the donor and since the amount was available in the proprietary concern, there was no restriction on the donor in the matter of disposal of the money and there was no dispute about the acceptance of the gifts by the donees and hence the gift was of the money which was absolute and not shorn of any rights over the same. This court also held that in respect of the capital account of a donor in a proprietary concern, it could not be said that he had only an actionable claim which he could have gifted; that the right of a donor in respect of his money in a proprietary concern is unrestricted and when an entry is made crediting the depositor, it cannot be assumed that any right was retained by the donor with respect to the amount gifted as the right of the proprietary concern will not come within the definition of "actionable cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the father drew the sum of Rs. 15,000 from his own business and paid over the same to his son, who in turn deposited the amount in the business of the father for the purpose of earning interest thereon. In a case, where the transaction itself is not real, there will be no gift whatever and there is no need to rely upon s.10 of the Act, because the subject-matter of the alleged gift would continue to be the property of the donor and would remain so on the date of his death. Only when the transaction is a real transaction and there is a completed gift, there is scope for the applicability of s. 10. As we have pointed out already, in this case, the Tribunal had stated that the gift was a completed gift and the donee acquired full and exclusive right to the money in question. If so, it was certainly open to the donee to invest the money wherever he liked ; but in this case he chose to invest the money with his father himself in the business which he carried on. From this point of view, it cannot be stated that from the moment the donee, namely, the son, taking complete possession of the subject-matter of the gift, he continued to have that possession to the total exclusion of the don ..... X X X X Extracts X X X X X X X X Extracts X X X X
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