9911796707
TMI Blog1975 (4) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... June 6, 1965, made a gift of 21 acres of casuarina tope and 5 acres of wet land to his wife. The deceased likewise gifted 6 acres of wet land to his daughter and another six acres of wet land to his foster-daughter. The agricultural income from these properties was being credited to the account of the deceased for several years. He was using the amounts credited for his own business and other uses and as stated by the Assistant Controller of Estate Duty the donees were not paid interest. The Assistant Controller, therefore, held that the properties gifted were covered by section 10 of the Estate Duty Act in view of the possession and enjoyment not having been assumed by the donees to the entire exclusion of the deceased and included them in the estate of the deceased passing. On appeal the Appellate Controller agreed with the Assistant Controller on this aspect. He, however, found that the gift of 5 acres of wet land to the wife and 6 acres of wet land to the daughter were made originally by the deceased as karta of the Hindu undivided family consisting of himself and his nephew and hence the interest of the nephew in these two gifts should be kept out of consideration for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 : Provided that the property shall not be deemed to pass by reason only that it was not, as from the date of the gift, exclusively retained as aforesaid, if, by means of the surrender of the reserved benefit or otherwise, it is subsequently enjoyed to the entire exclusion of the donor or of any benefit to him for at least two years before the dealth : Provided further that a house or part thereof taken under any gift made to the spouse, son, daughter, brother or sister, shall not be deemed to pass on the donor's death by reason only of the residence therein of donor except where a right of residence therein is reserved or secured directly or indirectly to the donor under the relevant disposition or under any collateral disposition." From a plain reading of this section it is clear that the intention of the legislature was to include certain categories of gifts and to exclude certain other categories of gifts in respect of liability to estate duty. To understand the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5, but applied prospectively. At this stage it is necessary to refer to a judgment of the Supreme Court in George Da Costa v. Controller of Estate Duty , wherein the Supreme Court held as follows : " The crux of section 10 of the Estate Duty Act, 1953, lies in two parts : (i) the donee must bona fide have assumed possession and enjoyment of the property, which is the subject-matter of the gift, to the exclusion of the donor, immediately upon the gift, and (ii) 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. Both these conditions are cumulative. Unless each of these conditions is satisfied, the property would be liable to estate duty under section 10 of the Act.... The second part of section 10 has two limbs : the deceased must be entirely excluded, (i) from the property, and (ii) from any benefit by contract or otherwise. The words " by contract or otherwise " in the second limb of the section will not control the words " to the entire exclusion of the donor " in the first limb. The first limb may be infringed if the donor occupies or enjoys the property or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was liable to be taken into account for assessing estate duty. When the matter went up to the High Court it was held that the lodge was gifted and cannot be subjected to estate duty. The revenue filed an appeal to the Supreme Court. Their Lordships of the Supreme Court, after referring to Chick's case observed thus : " The following six points emerge from Chick's case : (1) The deceased was not in fact excluded from the property, but as a partner enjoyed rights over it. (2) There was an initial outright gift of the property--not of the property shorn of certain rights. (3) It was immaterial that the partnership agreement was later than the gift, since the section required that possession and enjoyment should thenceforth be retained to the exclusion of the donor. (4) It was also immaterial that the partnership was ' an independent commercial transaction ', and that the donor gave full consideration for his rights. If a donor gives a donee a freehold and the donee gives the donor a lease, even at a full rent, the donor is not excluded from the property. (5) The question whether the partnership agreement was ' related ' or ' referable ' to the gift did not arise ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form of a contract may confer a benefit on the donor. It is also not necessary that possession of the gifted properties by the donor must be referable to some contractual or other arrangement enforceable in law or in equity. Even if the donor continued to reside by mere filial affection, in a house gifted bv him to his sons, it is said that he was not entirely excluded from possession and enjoyment within the meaning of the first limb of the section. If the donor has not been so excluded, the eye need look no further to see whether this non-exclusion has been advantages or otherwise to the donee. The next question is what then are the circumstances in the case before us and how far the above-said principles are attracted. As already stated, the donor was in possession of the gifted properties and was managing them. The income derived was being credited to the accounts of the donees. As we find in the orders of the Assistant Controller and the Appellate Controller, no interest was paid to the donees. From 1952 to 1960, the income was appropriated by the deceased himself and it was only later on March 27, 1960, a sum of Rs. 2,000 was credited to his wife's account. The deceased co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se property let to the firm. He executed a deed of settlement under which he transferred the house property to his two sons and the firm paid the rent to the donees by crediting the amount in the accounts of the donees in equal shares and the deceased continued to be partner of the firm. After his death the question arose whether the value of the house could be included in the estate passing. Their Lordships of the Supreme Court held that there was an unequivocal transfer of the property by a settlement deed and the possession which the donor could give was the legal possession which the circumstances and the nature of the property would admit and this the donor had given. Hence, the property should not be deemed to pass under section 10. According to the learned counsel, in the instant case also by executing the registered sale deed the donor had given away the possession. This contention has no force. The gift of property shorn of certain rights belonging to the partnership stands on a different footing. In H. R. Munro v. Commissioner of Stamp Duties the donor transferred by six registered transfers by way of gift, all his right and interest in portions of his land to each of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1951, separate deeds in favour of his sons, grandsons, daughter and wife settling his properties. In the deed in favour of the wife the settlor expressed the hope that she would maintain him during his lifetime. In respect of other deeds be did not reserve any interest. Considering the applicability of section 10 to the facts, their Lordships of the Supreme Court held that no interest in the properties was reserved to the deceased during his lifetime and in the deed in favour of the wife he merely expressed a hope or expectation and no enforceable right was created and so properties cannot be included in the estate passing. So this case is also of no assistance to the accountable person. Sri M. J. Swamy also relies on Behari Lal Matanhelia v. Controller of Estate Duty, and Commissioner of Income-tax and Controller of Estate Duty v. N. R. Ramarathnam. In both these cases the gifts relate to certain rights in a partnership firm and the facts are distinguishable. The learned counsel next contended that the deceased was only managing the properties gifted to his wife, daughter and foster daughter and it would be rather harsh to apply the provisions of section 10 to a case like this. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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