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TMI Blog1976 (9) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... . N. Ramanatha Iyer & Co. and the other dealing in piece-goods under the name and style of R. V. Veeramani Iyer. With a view to convert the business of the aforesaid two concerns into partnership business with his four major sons, the deceased transferred a sum of Rs. 45,000 from his personal account to the credit of each of his four adult sons on September 12, 1955. On September 17, 1955, a partnership deed was executed by the deceased and his four adult sons constituting a partnership firm under the name and style of P. R. N. Ramanatha Iyer & Co. The sums of Rs. 45,000 transferred by the deceased to each of his four sons were treated as their share capital in the partnership business. A day later, on September 18, 1955, two minor sons of the deceased were also admitted to the benefits of the said partnership. Agreement dated September 18, 1955, was executed in this connection and in that agreement the deceased acted as guardian of his minor sons. The deceased also transferred on September 18, 1955, a sum of Rs. 45,000 from his personal account in the firm to each of his two minor sons who were admitted to the benefits of partnership. One of the minor sons attained majority on Dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it did not represent a transfer of cash and the transfer really represented a transfer of a share in the business. The Tribunal elaborately went into the clauses in the partnership deed and came to the conclusion that what the deceased gifted to his sons was only a share in the business and not a gift of cash. The Tribunal, therefore, held that the sum of Rs. 2,70,000 could not be included in the estate of the deceased, and ordered the deletion of that sum. On an application made by the Controller of Estate Duty, the question reproduced above was referred to the High Court. The High Court held that the subject-matter of the transfers in favour of each of the sons of the deceased were the assets to the extent of Rs. 45,000 "subject to the rights of those assets being available for the continued use of the business". The contention advanced on behalf of the revenue that there had been complete transfer of the assets to the extent of Rs. 45,000 to each of the sons and that thereafter the sons allowed the subject-matter of the gift to be made use of by the donor, was rejected. It was further observed as under: "The Tribunal has taken the view that the subject-matter of the gift wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely assumed by the donee and thenceforward retained to the entire exclusion of the donor or of any benefit to him by contract or other wise: 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." The intention of the legislature in enacting section 10 of the Act was to exclude from liability to estate duty certain categories of gifts. Property, which is the subject-matter of gift, would, however, be deemed to be a part of the estate of the deceased donor under section 10 unless the donee assumes immediate exclusive and bona fide possession and enjoyment of the subject-matter of the gift, and there is no beneficial interest reserved to the donor by contract or otherwise. The section must be grammatically construed as follows: "Property taken under any gift, whenever made of which property bona fide possession and enjoyment shall not have been assumed by the donee immediately upon the gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... known to the law. Apparent gifts may be genuine or colourable, and experience has shown that frequently the process of ascertaining their genuineness is attended with delay, expense and uncertainty--all of which are extremely embarrassing from a public revenue standpoint. With a view to avoiding this inconvenience, the legislature has fixed two standards, both of them consistent with actual genuineness, but prima facie indicating a colourable attempt to escape probate duty. One is the standard of time. A gift, however, real and bona fide, if made within twelve months before the donor's death is for the purpose of duty regarded as not made. The other is conduct which at first sight and in the absence of explanation is inconsistent with the gift. The prima facie view is made by the legislature conclusive. If the parties to the transaction choose to act so as to be in apparent conflict with its purport, they are to be held to their conduct. The validity of the transaction itself is left untouched, because it concerns themselves alone. But they are not to embarrass the public treasury by equivocal acts." It may be mentioned that there has been amendment of section 10 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and another son entered into an agreement to carry on in partnership the business of graziers and stock dealers. The agreement provided, inter alia, 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; that the capital of the business should consist of the livestock and plant then owned by the respective partners; 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; that all lands held by any of the partners on 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 be might think fit. Each of the three partners owned a property, that of the donee-son being that which had been given to him by his father in 1934. Each partner brought into the partnership, livestock and plant, and their three properties were thenceforth used for the depasturing of the partnership stock. This ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvati Ammal, on March 11, 1955, the deceased executed a deed whereby he gave the property in which he was carrying on the business of boarding and lodging absolutely to his five sons in equal shares. Thereafter, on June 25, 1955, he took the property on lease from the sons and carried on the business as before. Later on, the deceased gave the boarding house on sub-lease to a third party. The deceased died on April 6, 1957, and the question was whether the entire value of the property was liable to be included in the principal value of the estate of the deceased as property deemed to pass on his death under section 10 of the Estate Duty Act, 1953. It was held by this court that the entire value of the property and not merely the value of the right to possession and enjoyment in the hands of the deceased as a lessee was liable to be included in the principal value of the estate of the deceased as property deemed to pass on his death under section 10. The subject-matter of the gift was found to be the full ownership in the property without any diminution. The other type of cases are those where the gift is subject to certain rights or the subject-matter of the gift is property shorn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 102 of the Stamp Duties Act, 1920-1931 (N. S. W.) The Judicial Committee held that the property comprised in the transfers was the land separated from the rights therein belonging to the partnership, and was excluded from being dutiable because the donees had assumed and retained possession thereof, and any benefit remaining in the donor was referable to the partnership agreement of 1909, not to the gifts. The relevant provisions of section 102 referred to above, it may be stated, were similar to those of section 10 of the Act. Lord Tomlin, speaking for the Judicial Committee, observed: "It is unnecessary to determine the precise nature of the right of the partnership at the time of the transfers. It was either a tenancy during the term of the partnership or a licence coupled with an interest. In either view what was comprised in the gift was, in the case of each of the gifts to the children and the trustees, the property shorn of the right which belonged to the partnership, and upon this footing it is in their Lordships' opinion plain that the donee in each case assumed bona fide possession and enjoyment of the gift immediately upon the gift and thenceforward retained it to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause 4 of the deed of partnership which was executed by the deceased and his four adult sons on September 17, 1955, was as under: "4. The capital of the partnership for the present shall be Rs. 2,25,000 contributed equally by the five partners at Rs. 45,000 each but the partners shall have the option to increase the capital as and when required, each partner contributing the additional capital required in the same proportion as the original contribution and all such contributions including the original investment shall carry no interest for any duration. 'The present capitals represented by the assets, outstandings, liabilities and goodwill of the businesses, P. R. N. Ramanatha Iyer & Co. and R. V. Veeramani Iyer, which have been taken over as going concerns and made part and parcel of the partnership business hereby constituted '." The agreement which was entered into on the following day by the deceased and his four adult sons relating to the admission of the two minor sons of the deceased to the benefits of partnership expressly recited that Rs. 45,000 had been transferred by the deceased from his personal account to the credit of each of the minor sons. It was also stated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only one-seventh share, no question can possibly arise for the inclusion of the said six-sevenths share or of the amount of Rs. 2,70,000 in the estate of the deceased. The transfer of Rs. 2,70,000 by the decased in favour of his sons was not in cash but was by means of book entries. The transfer of that amount was a part of the scheme, as stated above, to transfer six-sevenths share in the business in favour of the sons. There was no absolute transfer of Rs. 2,70,000 in favour of the 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 of 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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