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TMI Blog1974 (11) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... o it under section 64(1) of the Estate Duty Act, 1953 (34 of 1953) (hereinafter referred to as " the Act partly in favour of the assessee and partly in favour of the revenue : " Whether, on the facts and in the circumstances of the case, the entire value of the property known as ' Mayavaram Lodge ' or any portion of its value is liable to be included in the principal value of the estate of the deceased as property deemed to have passed on his death ? " The matter arises out of the estate duty case of Shri R. Venkateswara Iyer who died on April 6, 1957. The respondent, Smt. Parvathi Ammal, who is the widow of the deceased and is an accountable person in the case, filed statement relating to the estate of the deceased before the Assistant Controller of Estate Duty. The Assistant Controller determined the principal value of the estate to be Rs. 2,50,374. In computing the principal value the Assistant Controller took into account a sum of Rs. 1,50,000 on account of the value of property known as ' Mayavaram Lodge '. The Assistant Controller found that till March 11, 1955, the deceased, who was a self-made man, owned two buildings, including Mayavaram Lodge, besides some agricu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account for assessing the estate duty. He accordingly included a sum of Rs. 1,50,000 on that account. The respondent preferred an appeal to the Board of Direct Taxes against the order of the Assistant ant Controller. The only ground which was pressed before the Board related to the inclusion of the value of Mayavaram Lodge. It was urged on behalf of the respondent that the property owned by the deceased became the joint family property and that the deed of March 11, 1955, was a partition deed. In the alternative, it was urged on behalf of the respondent that even if the deed of March 11, 1955, was a deed of settlement and not one of partition, the value of Mayavaram Lodge ought not to have been included inasmuch as the deceased had transferred his right, title and interest in the above property more than two years prior to his death. The Board found that the deed, though executed on March 11, 1955, more than two years prior to the death of the deceased, was registered only on June 29, 1955. According to the Board, the gift of Mayavaram Lodge became effective only on June 29, 1955, viz., the date of registration. As that date fell within the statutory period of two years before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclusion of the deceased. Since we have held that only to the extent of the non-exclusion mentioned the proportionate property referable to it would pass, it would be necessary for the revenue to apportion its value taking all the facts into account and revise the assessment. That is sufficient to dispose of the reference. In view of this, we do not think it necessary to deal with the other point as to whether the transaction of March 11, 1955, amounted to a gift. We have proceeded on the basis that it was a gift. The question is answered partly in favour of the revenue and partly in favour of the assessee. This is because, on the view we have expressed the revenue cannot charge estate duty on the entire value of the property, while at the same time the accountable person cannot escape duty to the extent of the non-exclusion we have indicated." In the appeal before us Mr. Ahuja on behalf of the appellant has assailed the judgment and reasoning of the High Court and has contended that as subsequent to the deed of March 11, 1955, which as observed by the High Court would have to be assumed to be a deed of gift, the donor took the gifted property on lease, the donees cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eath 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 : 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 death : 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 the 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." It may be mentioned that the period " two years " in sub-section (1) of section 9 and the first proviso to section 10 was substituted for " one year" by the Finance Act, 1966 (13 of 1966). The second proviso to section 10 was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it on the donor. The words " by contract or otherwise " in the second limb of the section do not control the words " to the entire exclusion of the donor " in the first limb. In order to attract this section, it is consequently not necessary that the possession of the donor of the gifted property must be referable to some contractual or other arrangement enforceable in law or in equity. Even if the donor is content to rely upon the mere filial affection of his sons with a view to enable him to continue to reside in the house, it cannot be said that he was " entirely excluded from possession and enjoyment " within the meaning of the first limb of the section and, therefore, the property will be deemed to pass on the death of the donor and will be subject to levy of estate duty. The object underlying a provision like section 10 of the Act was explained by Isaacs J. in the case of John Lang v. Thomas Prout Webb decided by the High Court of Australia in 1912 in the following words: " The owner of property desiring to make a gift of it to another may do so in any manner known to the law. Apparent gifts may be genuine or colourable, and experience has shown that frequently the proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd by transfers of so much of it as was under the Transfer of Land Acts. On the same day upon which the conveyances and transfers were executed, each of the sons executed a lease for five years of the land given to him to the testatrix at a fair and reasonable rent. After the gifts the lands given continued to be in the actual physical occupation of the testatrix and to be worked by her with her other land in the same way as before the gifts. The testatrix died before expiration of the leases. It was held that the land so given was chargeable with the payment of the duty payable under the Administration and Probate Acts as though part of the estate of the testatrix. Isaacs J. in this context observed : " The lease, however, gave to the donor possession and enjoyment of the land itself, which is a simple negation of exclusion, and brings the case within the statutory liability. It was argued that as the rent was full value. the lessee's possession and occupation were not a benefit. The argument is unimportant because the lease, at whatsoever rent, prevents the entire exclusion of the donor." The above reasoning of Issacs J. was approved by the judicial Committee in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y given to the son in 1934 was to be included in computing the value of the father's estate for the purposes of death duty. While it was not disputed that the son had assumed bona fide possession and enjoyment of the property immediately upon the gift to the entire exclusion of the father, it was found that he had not thenceforth retained it to the father's entire exclusion, for under the partnership agreement the partners and each of them were in possession and enjoyment of the property so long as the partnership subsisted. The Judicial Committee held that where the question is whether the donor has been entirely excluded from the subjectmatter of the gift, that is the single fact to be determined, and, if he has not been so excluded, the eye need look no further to see whether his nonexclusion has been advantageous or otherwise to the donee. In the opinion of the Judicial Committee, it was irrelevant that the father gave full consideration for his rights as a member of the partnership to possession and enjoyment of the property that he had given to his son. Sir Garfield Barwick (as he then was), who was the counsel for the appellant in that case, pointed out that on the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciple can be illustrated by reference to two cases, one decided by the Judicial Committee in 1933 and the other by this court in 1973. The judicial Committee's decision is in the case of H. R. Munro v. Commissioner of Stamp Duties while that of this court is in the case of Controller of Estate Duty v. C. R. Ramachandra Gounder. In the case of H. R. Munro M who was the owner of 35,000 acres of land in New South Wales on which he carried on the business of a grazier, verbally agreed with his six children that thereafter the business should be carried on by him and them as partners under a partnership at will. The business was to be managed solely by M and each partner was to receive a specified share of the profits. In 1913 , M transferred by way of gift by means of six registered deeds all his right, title and interest in the portions of his land to each of his four sons and to trustees for each of his two daughters and their children. The transfers were taken subject to the partnership agreement, and on the understanding that any partner could withdraw and work his land separately. In 1919, M and his children entered into a formal partnership agreement, which provided that durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. 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. The benefit the donor had as a member of the partnership was not a benefit referable in stay way to the gift but was unconnected therewith. The present case, in our opinion, clearly falls within the purview of the dictum laid down by the High Court of Australia in the case of John Lang and of the Judicial Committee in the case of John Chick . As already mentioned the High Court has found that the property which was the subject-matter of the gift under the deed of March 11, 1955, was the entirety of Mayavaram Lodge with all the rights and that the gift was not subject to any claim or reservation. It has also been found that on the execution of the aforesaid deed the donees assumed possession and enjoyment of the entirety of the house. On June 25, 1955, the donor took the aforesaid house on lease from the donees. These facts would show that the possession and enjoyment of Mayavaram Lodge was not subsequent to the gift retained by the donees " to the entire exclusion of the donor or of any benefit to him by contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntenance, advancement or benefit of the son. The shares and the accumulations of income were transferred to the son on his attaining the age of 21 years as his absolute property. From the date of settlement the settlor never exercised any voting power in respect of the shares. The son attained the age of 21 years in 1931 when the assets comprised in the settlement were transferred to him. On a claim by the revenue authorities that on the death in 1921 of the settlor the subject of the settlement had formed part of the settlor's dutiable estate by virtue of section 102 of the New South Wales Stamp Duties Act, the Judicial Committee held that the interest of the son under the settlement in the shares and accumulations of income was not ;an absolute vested interest, but was contingent on his attaining the age of 21 years. It was further held that the property comprised in the gift was the equitable interest in the shares, and that bona fide possession and enjoyment of the property comprised in the gift was assumed by the donee, viz, the son, immediately upon the gift and thenceforth retained to the entire exclusion of the deceased or of any benefit to him. The shares were accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifetime or for any period after the properties were settled. The deed in favour of the wife merely expressed a hope or expectation and no enforceable right was created thereby. It was further held that in order to attract section 10 the benefit to the donor by contract or otherwise must be referable to the property gifted and it was not sufficient that the donor derived a benefit arising from the transaction resulting in the gift. As the provision for annual payments and maintenance made in the deeds were not charged on the properties settled, the donor could not be said to have retained any interest or any benefit either in the property settled or in respect of their possession. Neither the whole nor any part of the properties comprised in those deeds was consequently liable to be included in computing the value of the estate that passed on the death of the deceased. This case can equally be of no assistance to the respondent because the question which arose for determination in that case was wholly different from that which arises in the present case. Mr. Swaminathan has then pointed out that section 10 of the Act contains the words " to the extent " which are not there in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares during their lives and upon the death of one or both the sons for the use of the wife or wives of such son or sons with remainder to the male children of the two sons in equal shares per stirpes. The upper portion of the premises was leased to the deceased himself on a rent of Rs. 150 per month for a term of five years with effect from the date of settlement. The lease expired on June 30, 1959, but the deceased continued to occupy that part of the premises for a few days thereafter, until his death on July 11, 1959. The question which arose for determination was whether and to what extent estate duty was chargeable in regard to those premises under section 10 of the Act. It was held that the lease gave to the donor possession and enjoyment of the property itself and the case fell within the statutory charge under section 10. As, how ever, section 10 provided that such property was chargeable only to the extent that the deceased was not excluded, estate duty was payable by the accountable persons only on that portion of the premises which was in the occupation of the deceased as assessee. The High Court in the judgment under appeal mentioned that Mayavaram Lodge was a bundle o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he property was correctly included in the estate of the deceased as property deemed to pass on his death under section 10. If the view propounded on behalf of the respondent were to be accepted, in that case the property which passed on the death of the deceased in the case of George da Costa could only be the value of the right to possession. In our opinion, the stand taken on behalf of the respondent in this respect is clearly untenable. Lastly, it has been argued on behalf of the respondent that we should remand the case to find as to whether the deed of March 11, 1955, constituted a deed of partition. We are unable to accede to this submission. The High Court has proceeded upon the basis that the property in question was gifted by the deceased in favour of his sons as a result of that deed. The Board of Direct Taxes found on reference to the aforesaid deed that all the properties mentioned therein were the self-acquired properties of the deceased and there was nothing in any part of the deed to show an intention on the part of the deceased to treat them as properties belonging to the joint family. It was also found that there was no evidence of any clear intention of the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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