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TMI Blog1988 (5) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... eal allowed in favour of the accountable person (appellant). X X X X Extracts X X X X X X X X Extracts X X X X ..... was gifted by way of gifts of Rs. 25,000 to each of the four sons of the deceased, they immediately assumed bona fide possession and enjoyment thereof, but it is contended by Mr. Ramaswami, learned Additional Solicitor-General, that as the said amounts of Rs. 25,000 were immediately thereafter invested in a firm of which the donees and the donor were partners, it could not be said that those amounts aggregating to Rs.1 lakh were retained by the donees to the entire exclusion of the donor. When the amounts were invested in the partnership in which the donor, namely, the deceased was a partner, he got a certain interest and benefit in that amount which was liable to be used for the purposes of partnership. The deceased had a certain dominion over that property as a partner in the said firm and hence it could not be said that the amount gifted was retained by the donees to the entire exclusion of the donor and, in these circumstances, the provisions of section 10 of the Estate Duty Act were attracted. It was, on the other hand, contended by Mr. Sharma, learned counsel for the accountable person, who is the appellant before us, that when the amounts were invested by the donees in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land shorn of 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 entered into earlier than the gifts and not to the gifts. In that case, a father, who was the owner of large plot of land on which he carried on the business of a grazier, entered into a partnership with his six children to carry on the said business. The partnership business was to be managed solely by the father and each partner was to receive a specified share of the profits. Subsequently, the father transferred by way of gift all his right, title and interest in separate portions of his land to each of his four sons and the trustees of each of his two daughters and their children. This transfer war subject to the partnership agreement and was on the understanding that any of the partners could withdraw and work the portion of the land gifted to him separately. The partnership was an oral one and about six years after these deeds of gifts were executed, a written partnership agreement was drawn up during the lifetime of the father under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d bona fide possession and enjoyment of the property immediately upon the gift to the entire exclusion of the father, he had not, thenceforth retained the property to the father's entire exclusion, as under the partnership agreement, the partners and each of them were in possession and enjoyment of the property as long as the partnership subsisted, whatever force and effect might be given to that part of the partnership agreement which gave a partner the sole and free right to deal with his own property. For some years, the principles laid down in Munro's case [1934] AC 61 (PC) and in the case of Clifford John Chick v. Commissioner of Stamp Duties [1959] 37 ITR (ED) 89, referred to above, were followed by the courts of this country in construing section 10 of the Estate Duty Act. However, the decision in Chick's case [1959] 37 ITR (ED) 89, came up for consideration before this court in CED v. Ramachandra Gounder [1973] 88 ITR 448. Two different types of property were gifted in Gounder's case. The first type of property gifted was a house which the deceased owned and which was let to the firm in which the deceased was a partner as tenant. He gifted this house to his two sons absolu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that case was subject to tenancy. What is pertinent to note in the case is that this court took the view that " the benefit the donor had as a member of the partnership was not a benefit referable in any way to the gift but is unconnected therewith". This decision shows that the principle laid down in Chick's case [1959] 37 ITR (ED) 89 (PC), was departed from by the court in cases in which the property gifted was brought into a partnership in which the donor had an interest merely as a partner. The decision in Gounder's case [1973] 88 ITR 448 (SC) was followed by this court in CED v. N. R. Ramarathnam [1973] 91 ITR 1 and several other decisions. An analysis of the decision of the Supreme Court in Gounder's case, [1973] 89 ITR 448 (SC) in our opinion, shows that the Supreme Court in that decision referred to Munro's case [1934] AC 61 (PC) and also referred to Chick's case [1959] 37 ITR (ED) 89 (PC). It, however, made a certain departure from the principle laid down in Chick's case [1958] AC 435. This would appear clear from the decision of this court in CED v. Kamlavati and CED v. jai Gopal Mehra cases [1979] 120 ITR 456. Both these decisions involved the question of applicabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ick's case [1959] 37 ITR (ED) 89; 3 EDC 915, when the principle of Munro's case [1934] AC 61 ; 2 EDC 462 was applied, it was on the basis that what was gifted by the donor was the whole of the property minus the rights of the partnership which were shared and enjoyed by the donor also the donor enjoying the same bundle of rights in the partnership which he was enjoying before the gift did not bring the case within the ambit of section 10. But the implicit departure from Chick's case was when it was said that the benefit the donor had as a member of the partnership was not a benefit referable in any way to the gift but is unconnected therewith. This departure can be attributed to the very subtle distinction in the facts of the two cases and it is necessary to highlight them. In Chick's case, the donor as a partner came to share the possession and enjoyment of the property by the partnership firm long after the gift, while in Gounder's case [1973] 88 ITR 448 (SC), the benefit which the donor was enjoying as a partner in the property gifted was existing at the time of the gift itself and continued to exist even thereafter..." It is important to note that the principle in Munro's case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or part of its property, it does not belong to a co-partner in the sense of his being a co-owner. (page 464 of 120 ITR) Even in the recent decision of this court in CED v. Godavari Bai [1986] 158 ITR 683 where the decision in Chick's case [1959] 37 ITR (ED) 89; 3 EDC 915 (PC) has been cited and discussed at some length, the decisions in Kamlavati's and jai Gopal Mehra's cases [1979] 120 ITR 456 (SC) have been referred to without any indication that the ratio of the same was not accepted as good law. In fact, that decision has been referred to as one in which the principle in Chick's case [1959] 37 ITR (ED) 89; 3 EDC 915 (PC) was applied. In the case before us, the deceased gifted Rs. 25,000 to each of his four sons and almost immediately thereafter the firm of Sanghi Brothers was constituted as aforesaid in which the said four sons invested Rs. 25,000 each received from the father. As already pointed out, the father as well as the sons had shares in the said partnership. Applying the decision in the case of Kamlavati's and jai Gopal Mehra's cases [1979] 120 ITR 456 (SC), discussed at some length by us earlier, it must be held that the interest which the deceased father retained o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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