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TMI Blog1986 (2) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... er 4, 1952, issued a cheque for Rs. 3 lakhs in favour of the firm; this amount was debited in the account of the deceased in the firm and credited in the accounts of the three minors in equal proportion. The said sum thus transferred to the three nephews continued to stand in their respective accounts in the books of the firm till its dissolution on July 4, 1960, whereafter some assets were allotted to each one of them in lieu of the amounts standing to their credit. The deceased died on February 21, 1956. After the death of the deceased, his widow, Smt. Godavari Bai, as the accountable person, filed an account of the deceased's estate declaring the value thereof at Rs. 2,60,702. This did not include the sum of Rs. 3 lakhs transferred by the deceased to the three grandnephews on October 4, 1952. The assessee contended that these transfers were not gifts but amounted to transfer of actionable claims made in conformity with section 130 of the Transfer of Property Act by effecting entries in the books of account. Alternatively, it was contended that the transfer amounted to a novation which did not require an instrument signed by the transferor. The Deputy Controller negatived both t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying to the credit of the deceased, but it did not by itself authorise the firm to transfer this amount to anyone else and that such a transfer could be authorised by a separate letter of instructions from the deceased but no such instrument was obtained and the oral instructions given could not take the place of such an instrument in writing and, therefore, the transfer of Rs. 3 lakhs made in favour of the donees was not in accordance with the requirements of section 130. The alternative contention that the transfer was in the nature of a novation was also rejected on the ground that the donees were not indebted to the firm nor was the deceased indebted to the donees and, therefore, the entries made in the account books of the firm could not be understood as a substitution of one debtor in the place of another. The Tribunal also held that this amount of Rs. 3 lakhs was includible in the estate of the deceased under section 10 of the Estate Duty Act, even if it were assumed that the transfer became complete and effective on the date of the transfer inasmuch as on the facts it could not be said that the donees retained possession and enjoyment of the gifted amounts to the entire exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n I 0 was not attracted, the sum of Rs. 3 lakhs was not includible in the value of the estate of the deceased that passed on his death. It, therefore, answered the question in the negative and in favour of the assessee. The Revenue has come up in appeal. Counsel for the Revenue did not assail the High Court's conclusion in regard to there being a valid gift of the actionable claim in favour of the minors resulting from the issuance of the cheque accompanied by oral instructions and followed by the making of the requisite debit and credit entries in the firm's books but vehemently criticised the view that section 10 was inapplicable to this transaction of gift. He urged that possession and enjoyment of the subject-matter of the gift was neither assumed by the donees nor retained by them to the entire exclusion of the donor inasmuch as the donor as a partner of the firm had control over the said sum of Rs. 3 lakhs which continued to lie with the firm for being used as the firm's property and this possession continued to obtain till the death of the deceased and in fact till the dissolution and as such section 10 was clearly attracted. Strong reliance was placed by counsel for the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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." The conditions specified in section 10 will have to be understood by keeping in view the aforesaid object with which the section has been enacted. In George Da Costs v. Controller of Estate Duty [1967] 63 ITR 497 (SC), this court has analysed the conditions, on the fulfilment of which the section gets attracted, thus (p. 501) : " The crux of the section lies in two parts : (1) 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 (2) the donee must have retained such posses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th of the deceased-donor. In other words, if the deceased-donor limits the interest he is parting with and possesses or enjoys some benefit in the property not on account of the interest parted with but because of the interest still retained by him, the interest parted with will not be deemed to be a part of the estate of the deceased-donor passing on his death for the purpose of section 10 of the Act. It is these aspects which mark the distinction between the two leading cases, namely, Chick's case [1959] 37 ITR (ED) 89 (PC) and Munro's case (1934] AC 61. As we shall indicate presently, Chick's case falls within the first category while Munro's case falls within the other category. In Chick's case [1959] 37 ITR (ED) 89 (PC), the question arose under section 102 of the New South Wales Stamp Duties Act, 1920-56, which was similar to section 10 of our Act and the facts were these 1 In 1934, father transferred by way of gift to one of his sons' a pastoral property, the gift having been made without reservation or qualification or condition. In 1935, some 17 months after the gift, the father, donee son and another son entered into an agreement to carry on in partnership the business o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty that he had given to his son. Inter alia, two or three points emerge clearly from the decision that need to be emphasised: (a) there was initially an outright gift of the property-not of the property shorn of any rights, (b) the deceased-donor was not, in fact, excluded from the property, but as a partner enjoyed rights over it, and (c) that it was immaterial that the donor gave full consideration for enjoying his rights over the property as a partner. It was these aspects that brought the gifted property within the mischief of the taxing statute. The other decisions of this court on which counsel for the Revenue has relied are clearly cases falling within this category and hence the ratio of Chick's case [1959] 37 ITR (ED) 89 (PC) was correctly applied in each of them. On the other hand in Munro's case [1934] AC 61 (PC), the facts were these: 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 in 1909 that thereafter the business should be carried on by him and them as partners under a partnership at will and the business was to be managed solely by M, and each partner was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C), R. V. Viswanathan's case [1976] 105 ITR 653 (SC) and Kamlavati's case [1979] 120 ITR 456 (SC). Having regard to the undisputed facts and facts found by the High Court, it seems to us clear that the instant case falls within the principle enunciated in Munro's case [1934] AC 61 (PC). Admittedly, the deceased-donor was partner in the banking firm of M/s. Dayaram Surajmal, wherein the minor donees were never admitted to the benefits of the partnership firm. An extract of account filed by the assessee before the High Court brought out the procedure followed for effecting the transaction in question : the deceased had his account comprising his capital contribution and advances made by him to the firm; he drew a cheque for Rs. 3 lakhs against his account with the firm which was made out in the name of the firm as a result whereof the firm could pay itself ; but the account of the deceased was debited with the sum of Rs. 3 lakhs and on the same day simultaneously three accounts of the minor donees with the said firm were credited with the sum of Rs. lakh each. The Tribunal as well as the High Court found as a fact that when the cheque was issued, oral instructions must be presumed t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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