PETITIONER:
SAROJINI AMMAL
Vs.
RESPONDENT:
THE CONTROLLER OF ESTATE DUTY, MADRAS
DATE OF JUDGMENT: 18/09/1996
BENCH:
VENKATASWAMI K. (J)
BHARUCHA S.P. (J)
ACT
HEADNOTE
JUDGMENT
JUDGMENT Venkataswami, J.
In this appeal by a certificate granted by the High Court of Madras under section 65 of the Estate Duty Act, 1953 (hereinafter referred to as "the Act"), the vexed question of applicability or otherwise of section, 10 of the Act arises for decision of this Court.
One Murugesa Mudaliar, the deceased, passed away on 15.10.1964. He was carrying on a business under the name and style of ‘Newton & Company’ a proprietory concern. On 20.7.1962. the deceased made two cash gifts of Rs.40,000/- each to his two daughters, namely Smt. Rajeswari and Gnanambigai by debiting his capital account and crediting their accounts in his personal business book. On 20.7.62, both the donee wrote letters to the deceased accepting the gifts and thanking their father. Again on 27.7.62 each donee by separate letters thanking once again tor the gifts requested the deceased to retain the same in the business and admit them as partners. Accordingly, a partnership was formed with effect from 1.8.1962 in which the donees and also the donor were the partners. As noticed, the deceased passed away on 15.10.1964. A question arose, inter alia, whether on the facts and in the circumstances of the case, the gifts of Rs.80,000/- in all made by the deceased to his two daughters by debiting his capital account and crediting the accounts of the donees in his personal business book could not be included in the principal value of the estate of the deceased under section 10 of the Estate Duty Act.
The Assistant Controller of Estate Duty overruling the objection of the accountable persons concluded that since the gifted amounts were not taken possession of and enjoyed by the donees to the entire exclusion of the donor, the gifted amounts were liable to be included in the principal values of the estate of the deceased under section 10 of the Act. On appeal. the Appellate Controller confirmed the assessment. The accountable persons appealed to the Income Tax Appellate Tribunal (‘Tribunal" for short) and the Tribunal found that the gifts in question did not fall within the ambit of section 10 of the Act and consequently they were not liable to estate duty. The Tribunal found as follows:
"These sequence of events clearly
go to establish:-
1) The two sums transferred by book
entries were still available for
purpose of the business carried on
by the deceased.
2) Under Section 122 of the
Transfer of Property Act, the gift
must be accepted by the donee and
an offer without acceptance of the
donee cannot complete the gift .
While accepting the gift, the
donees have stipulated for
retention of the gifted amounts in
the business of the deceased and
admit them as partners. it,
therefore, follows that the
transfer of gifts were complete
with the condition or understanding
that the gifted amounts for the
capital account of the donees and
continue to be available for
purposes of the business carried on
by the deceased.
3) On making the gifts, the
donees?assumed such possession and
enjoyment of the subject matter of
the gift as it was capable of at
that time and that was also
retained to the exclusion of to the
donor.
4) If the donor had some sort of
control over the gifted amounts, it
was not because of any reservation
made by him while making the gifts,
but the gift itself was made
subject to the condition or
understanding that the gifted
amounts would be available for the
continued use of the business
carried on by the deceased".
The Revenue aggrieved by the decision of the Tribunal moved the High Court by way of reference. Before the High Court, on behalf of the accountable persons, a decision of the Court in Controller of Estate Duty, Kerala vs.R.V. Viswanathan & Others. (1977 (1) SCC 90) was relied upon. However, the High Court distinguished that decision and ruled that on the facts of the case, Section 10 of the Act is attracted and consequently answered the question referred to it in favour of the Revenue and against the assessee.
Later at the instance of the accountable persons, the High Court granted a certificate of fitness for appeal to this Court in view of the later decision of this Court in Controller of Estate Duty, Punjab & Haryana, Jammu & Kashmir, Himachal Pradesh and Chandigarh vs. Kamlavati (1979 (4) SCC 265).
Before us also learned counsel appearing for the appellant placing reliance on the decisions of this Court in Viswanathan’s case (supra) and Kamlavati’s case (supra) contended that the facts of this case as well as the facts in Vistanathan’s case are identical and the High Court was not correct in stating that the facts were not identical and therefore, the appellant is entitled to succeed in this Appeal. The learned counsel appearing for the Revenue, however, submitted that in almost all the cases, the donor was already a partner in partnership firm and the donee/donees was/were taken as partner/partners subsequent to the gift and the principle or the ratio laid down in such cases cannot be pressed into service to the facts of this case where the donor was sole proprietor of the concern and subsequent to the gift. the donnes were taken as partners and the partnership came into existence. We do not think that the learned counsel for the Revenue is right in making this submission. In Viswanathan’s case, the donor was the sole proprietor when he gifted the total sum of Rs.2,70,000/= to his four major and two minor sons.
After going through various decisions of this Court, which have taken into account a number of English decisions, we find that the rigour with which Section 102 of the English Act corresponding to Section 10 of our Act was applied, has been mellowed down, if we may use that expression, and certain amount of leniency has definitely been shown in favour of the accountable persons. It is true that when the High Court rendered this decision, there were conflicting views of High Courts and to a certain extent. misunderstanding of the decisions of this Court was prevailing. That was the reason for this Court in Kamlavati’s case to observe as follows :-
"To avoid the conflict in the
application of the ratio of the
various Supreme Court cases as
seems to have been done by some of
the High Courts, we would like to
clarify and elucidate some of the
aspects and facets of the matter a
bit further. When a property is
gifted by a donor the possession
and enjoyment of which is allowed
to a partnership firm in which the
donor is a partner, then the mere
fact of the donor sharing the
enjoyment or the benefit in the
property is not sufficient for the
application of section 10 of the
Act until and unless such enjoyment
or benefit clearly referable to the
gift, i.e. to the parting with such
enjoyment or benefit by the donee
or permitting the donor to share
them out of the bundle of rights
gifted in the property. If the
possession, enjoyment of benefit of
the donor in the property is
consistent with the other than
those of the factum of gift, then
it cannot be said that the donee
had not retained the possession and
enjoyment of the property to the
entire exclusion of the donor in
any benefit to him by contract of
otherwise. It makes no difference
whether the donee is a partner in
the firm from before or is taken as
such at the partnership firm by
allowing it to make use of the
gifted property for the purposes of
the partnership."
After observing as above, this Court in the said case further observed as follows:-
"But we want to emphasis that the
principles of law laid down by this
Court in several decisions which we
have reviewed in this judgment with
some further clarification and
elucidation should be carefully and
broadly applied to the facts of
each case without doing too much of
dichotomy and hair SD splitting of
facts so as not to easily apply or
not to apply the provision of law
contained in Section 10 of the
Act."
We have already set out the facts as found by the Tribunal and from those, it is clear that when the gift was made and accepted, it was unconditional. A week later the donees requested that a partnership be formed and the amounts gifted be retained and utilised as share capital of the donees in the partnership firm to be formed. In the light of the letters written by the donees, as noticed above, we are of the view that there is nothing to suggest that parting with the enjoyment or benefit by the donee, or permitting the donor to share them out of the bundle of rights gifted in the property is referable to the gift. We agree with the contention of the learned counsel for the appellant that the facts are more or less identical with the facts in Viswanathan’s case (supra) and the ratio laid down therein which has been consistently applied by this Court subsequently will apply to the facts of this case.
Accordingly, we allow the Appeal and answer the question referred to the High Court in the affirmative in favour of the accountable persons and against the revenue. However. there will be no order as to cost.