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PETITIONER: CONTROLLER OF ESTATE DUTY, MADRAS

       Vs.

RESPONDENT: PARVATHI AMMAL

DATE OF JUDGMENT11/11/1974

BENCH: KHANNA, HANS RAJ BENCH: KHANNA, HANS RAJ GUPTA, A.C.

CITATION:  1975 AIR  435            1975 SCR  (2) 685  1975 SCC  (4) 176  CITATOR INFO :  F          1977 SC 463  (11,18)  RF         1986 SC 631  (5)

ACT: Estate Duty Act (34 of 1953) s. 10-Scope of.

HEADNOTE: A gift of immovable property under s. 10 of the Estate  Duty Act,  1953,  will  be  dutiable  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,  that  is,  (1) the donee  must  have  bona  fide 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 possession and enjoyment of the  property to  the entire exclusion of the donor or of any  benefit  to him  by  contract  or otherwise.   The  two  conditions  are uncumulative   and  unless  each  of  these  conditions   is satisfied the property would be liable to estate duty.   The second  part of the section has two limbs, namely, that  the deceased  must be entirely excluded (a) from  the  property, and (b) from any benefit by contract or otherwise.  The word ’otherwise’  should be construed ejusdem generis and  should be interpreted to mean some kind of legal obligation or some transaction  enforceable at law or in equity  which,  though not  in  the form of contract may confer a  benefit  on  the donor.  The words ’by contract or otherwise’ however, do not control  the words ’to the entire exclusion of  the  donor’. In  order  to attract the section, consequently, it  is  not necessary  that  the possession of the donor of  the  gifted property  must  be referable to some  contractual  or  other arrangement  enforceable at 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, where the subject matter of gift is a 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 to the donor and will be subject to levy of estate duty. [691C-692A]

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In  the present case, the deceased owned two  buildings  and some agricultural land.  He was carrying on the business  of boarding  and  lodging in one of the buildings.   In  March, 1955, he executed a document, described as a partition deed, whereby he gave possession of that building to his sons  and retained for himself the other house and agricultural  land. In June, 1955 he entered into an agreement with his sons  by which  they ]eased to their father their house, wherein,  as before,  he continued to carry on his business  of  boarding and  lodging.  The rent fixed however was not paid  in  cash but  only entries in books were made.  The deceased died  on April 6, 1957.  The Assistant Controller under the Act  held that  the  house in which the business was  carried  on  was liable  to  be taken into account for assessing  the  estate duty  and  included it in the estate of  the  deceased.   On appeal  to  the Board of Direct Taxes it was held  that  the document  of March 1955 was not a partition deed;  that  the house  was  gifted  by the deceased to his  sons;  that  the deceased  continued  to be in undisputed possession  of  the building,  that the donor (deceased) had not  been  excluded from the enjoyment and possession of the property; and  that therefore,  estate  duty  was payable  in  respect  of  that property under s. 10.  On reference to the High Court on the question  whether on the facts and in the  circumstances  of the case the entire value of the building or any portion  of its value was liable to be included in the estate of the de- ceased  as property deemed to have passed on his death,  the High Court proceeded on the assumption that the document was a  gift deed, that possession and enjoyment of the  building were not retained by the sons of the deceased, and held that therefore  it followed that only the value of the  right  to possession and enjoyment in the bands of the deceased, as  a lessee, that would pass on his_death and would attract duty. 686 In appeal to this Court, HELD  :  The entire value of the property was liable  to  be included in the estate of the deceased as property deemed to have passed on his death. [701F] (1)  Section  10 would have to be construed for the  purpose of this case as it stood before its amendment by the Finance Act, 1965, that is, without the second proviso. [691B-C] (2)  If a gift comprises the full ownership of the  property not shorn of any right including tenancy right in favour  of third  parties, immediate bona fide physical possession  and enjoyment of the gifted property must ordinarily be  assumed by the donee and retained thereafter to the exclusion of the donor. in order to prevent the incidence of estate duty.  In case,  however, the subject matter of the gift  is  property shorn of certain rights in the property, the residue of  the rights in the property would be the subject-matter of  gift, and,  in  such  an event it may not sometimes  in  the  very nature  of  things,  be possible for  the  donee  to  assume Physical possession and enjoyment of the property.  In  such cases,  the possession and enjoyment of the gifted  property which  may be assumed by the donee would only be such as  is possible under the circumstances. [697D-F]. In  the  present case, the property which  was  the  subject matter  of  the gift was the entire building  with  all  the rights.    The  gift  was  not  subject  to  any  claim   or reservation.    The  donees  had  assumed   possession   and enjoyment  of the entirety of the gifted property, but  such possession and enjoyment of the building was not, subsequent to the gift, retained by the donees ’to the entire exclusion of  the  donor or of any benefit to him by the  contract  or otherwise’. [696H697B]

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Controller  of  Estate  Duty Madras, v.  C.  R.  Ramachandra Gounder [1973] 88 I.T.R. 448, distinguished. John  Lang  &  Ors. v. Thomas Prout  Webb,  13  C.L.R.  503, Clifford  John Chick & Anr. v. Commissioner of Stamp  Duties [1958] A.C. 435; B. R. Munro & Ors. v. Commissioner of Stamp Duties [1934] A.C. 61; Commissioner for Stamp Duties of  New South Wales v. Perpetual Trustees Company Ltd. [1943] A.  C. 425;  St. Aubyn & Ors. v. Attorney-General [1952]  A.C.  15; and Controller of Estate Duty v.   R.  Kanakasabai  &   Ors. [1973] 89 ITR 251 referred to, (3)  Section    10  does contain the words  ’to  the  extent’ which are not found in the corresponding section of the  New South Wales Act.  The words ’to the extent’ connote that  if the donee does not assume immediate bona fide possession and enjoyment  of a part or fraction of the gifted property  and thenceforward retain it to the entire exclusion of the donor or of any benefit to him by contract or otherwise, it  shall be that part or fraction of the gifted property which  shall be deemed to pass on the death of the donor. [699F-G] In  the  present case, it was the ownership  of  the  entire property which constituted the bundle of rights and the view urged  on behalf of the respondent and accepted by the  High Court  that the estate duty was payable only in  respect  of the  value of the right to possession and enjoyment  in  the hands  of  the  deceased as a lessee of  the  building  runs counter   to   the   plain   language   of   the    section. [700D-E] George  Da Costa v. Controller of Estate Duty Mysore  [1967] 63 ITR 497 followed. Rash  Mohan Chatterjee & Ors. v. Controller of  Estate  Duty West Bengal [1964] 52 ITR 1 (Estate Duty Part), referred to. (4)  The  basis on which the High Court and Board of  Direct Taxes proceeded makes it unnecessary to remand the case  for finding  whether the deed of March 1955, constituted a  deed of partition. [701D-E]

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1395  of 1970. Appeal from the Judgment and Order dated the 4th March  1969 of  the Madras High Court- in Tax Case No. 215 of  1965  and Referred No. 109 of 1965. 687 B.   B. Ahuia and S. P. Nayyar, for the appellant. S.   Swaminathan and S. Gopalakrishnan, for the respondent. The Judgment of the Court was delivered by KHANNA, J.-This appeal by the Control of Estate Duty on cer- tificate  is against the judgment of the Madras  High  Court whereby that court answered the following question  referred to it under section 64(1) of the Estate Duty Act, 1953  (Act 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

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statement relating to the estate of the deceased before  the Assistant  Controller  of Estate Duty.  The  Assistant  Con- troller  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 agricultural  land. The  deceased was carrying on the business of  boarding  and lodging  in  Mayavaram  Lodge.  He had  also  a  small  chit business.   On  March  11,  1955  the  deceased  executed  a document  described  as a partition deed,  whereby  he  gave "Mayavaram  Lodge’,  to his five sons in  equal  shares  and retained for himself the other house and agricultural  land. On June 25, 1955 the deceased entered into an agreement with his  sons  by which they leased to  the  deceased  Mayavaram Lodge  wherein  as  before  he continued  to  carry  on  his boarding  and  lodging  business.  In the  profit  and  loss account  a  sum of Rs. 15,000 was mentioned for  payment  of rent  of Mayavaram Lodge.  Later on, the deceased  gave  the boarding house on sub-lease to a third party. The  respondent  claimed  that  Mayavaram  Lodge  should  be excluded from the estate duty assessment of the deceased  on the  ground that the said property was transferred on  March 11, 1955 more than two years before his death.  It was urged that  the  fact that the sons let out the  building  to  the deceased should not be taken to be a special benefit derived by  the  deceased.   The respondent also  pointed  out  that Mayavaram  Lodge was taken on lease long after the  original transfer and the lease and the transfer could not be treated as  associated transactions.  Plea was also taken  that  the document of March 11, 1955 constituted deed of partition  of joint family properties. 3-L319Sup.CI/75 688 The  Assistant  Controller rejected these  contentions.   He found that the property referred to in the deed dated  March 11, 1955 was the self acquired property of the deceased  and that there was no evidence to show that the deceased treated it  as joint family property.  He accordingly held that  the deed,  though  described  as a  partition  deed,  should  be treated as a settlement.  Although the settlement was  found to have been made by the deceased more than two years before his death, the fact that the deceased took back the property from  his sons shortly thereafter to continue  his  business therein showed, in the opinion of the Assistant  Controller, that the deceased got a direct benefit in the property.  The Assistant  Controller in this context referred to  the  fact that  there  was  not  much interval  of  time  between  the settlement and lease and that the payment of rent was not in cash but by book entries.  The Assistant Controller  accord- ingly held that Mayavaram Lodge was liable to be taken  into 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  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  of

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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  the  death  of  the deceased, the Assistant Controller was held to be  justified in  view of section 9 of the Act in including the  value  of Mayavaram Lodge in the principal value of the estate of  the deceased.   In  the alternative, the oBard  found  that  the deceased  continued to be in undisputed possession of  Maya- varam  Lodge.   It  was held that the  donor  had  not  been excluded  from the enjoyment and possession of the  property and.  therefore, estate duty was payable in respect of  that property  under section 10 of the Act.  The  Board  rejected the  contention  that  the  document  ,of  March  11,   1955 constituted  partition deed.  The appeal of  the  respondent was accordingly dismissed.  On being moved by the respondent the Board referred the question reproduced above to the High Court. The High Court held that the subject matter of allotment  to the  sons by the deed of March 11, 1955 was the entirety  of Mayavaram  Lodge with all the rights that could possibly  go into it and that the allotment was not subject to any  claim to or right in that property.                             689 It was also held that on the execution of the deed the  sons had assumed possession and enjoyment of the entirety of  the house.  The High Court then referred to its earlier decision in Y. S. Mani v. Controller of Estate Duty(1) wherein it had held  that  to  the extent to which  the  donor  retains  an interest  in the entirety of the property given away by  him as  gift, there will be pro tanto liability to estate  duty. It was further observed by the High Court as under               "  Mayavaram Lodge was certainly a  bundle  of               rights  of  which  possession  and   enjoyment               formed a part which as we have observed,  were               not subsequently to their assumption  retained               by the sons of the deceased.  To that  extent,               there  was non-exclusion of the deceased.   So               far  as  the  ownership  of  the  property  is               concerned,  there can be no question that  the               donees  exclusively retained it.   It  follows               that  it  is only the value of  the  right  to               possession  and enjoyment in the hands of  the               deceased  as a lessee that would pass  on  his               death and would attract duty.  For the Revenue               it is urged that the entire premises being  in               the  occupation and enjoyment of the  deceased               until his death, its entire value would  pass.               We  are unable to accede to this view  because               it  does  not take note of the  value  of  the               other  rights  of  the  donees  including  the               ownership of the property, which they %retain-               ed to the 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.

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             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 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  be  said  to  have retained   possession  of  that  property  "to  the   entire exclusion of the donor or of any benefit to him by  contract or  otherwise".  As against that, Mr. Swaminathan on  behalf of  the respondent has canvassed for the correctness of  the view taken by the High Court. (1)  [1966] 601.T.R.810. 690 Before  dealings with the contention of the parties, we  may referring  to section 2(16), to the relevant  provisions  of the  Act.  According to section 2(16) "property  passing  on the  death" includes property passing either immediately  on the  death or after any interval, either certainly  or  con- tingently,  and either originally or by way of  substitutive limitation.  Section 5 contains the charging provision,  and provides  that "in the case of every person dying after  the commencement  of this Act, there shall, save as  hereinafter expressly  provided, be levied and paid upon  the  principal value ascertained as hereinafter provided, of all  property, settled  or not settled, including  agricultural  land...... which  passes  on the death of such person,  a  duty  called "estate duty" at the rates fixed in accordance with  section 35".   According to section 6, property which  the  deceased was at the time of his death competent to dispose of   shall be deemed to pass on his death.  Sub-section (1) of  section 7 of the Act provides that subject to the provisions of that Section,  property in which the deceased or any other person had an interest     ceasing  on  the death of  the  deceased shall be deemed to pass on the     deceased’s  death to  the extent to which a benefit accrues or arises by the ceaser of such  interest,  including  in  particular,  a   coparcenary interest  in  the joint family property of  a  Hindu  family governed by the Mitakshara, Marumakkattayam or  Aliyasantana law.   According  to  section  9,  property  taken  under  a disposition made by the deceased purporting to operate as an immediate  gift  inter  vivos whether by  way  of  transfer, delivery,  declaration of trust, settlement upon persons  in succession,  or  otherwise, which shall not have  been  bona fide made two years or more before the death of the deceased shall be deemed to pass on the death : Provided that in  the case of gifts made for public charitable purposes the period shall be six months.  Section 10 of the Act reads as under :               "10.   Gifts  whenever made  where  donor  not               entirely  excluded.-Property taken  under  any               gift,  whenever made, shall be deemed to  pass

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             on  the donor’s death 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  riot,  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."  691 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 (Act 13 of 1966).  The second proviso to section 10 was  inserted by the Finance Act, 1965 (Act 10 of 1965). The  amendment  brought about by the Finance  Act,  1965  by inserting second proviso to section 10, as observed by  this Court in the case of George Da Costa v. Controller of Estate Duty  Mysore(1),  was not retrospective.  The  said  section would  consequently have to be construed for the purpose  of this case which relates to, the estate, of the deceased  who died on April 6, 1957, as it stood before the amendment. The  intention of the legislature in enacting section 10  of the Act was to exclude from liability to estate duty certain categories  of  gifts. ,A gift of immovable  property  under section  10  will,  however, be dutiable  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  gift, and  of  which property bona fide possession  and  enjoyment shall  not have been thenceforward retained by the donee  to the  entire exclusion of the donor from such possession  and enjoyment,  or  of  any  benefit  to  him,  by  contract  or otherwise".  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 possession  and  enjoyment  of the property  to  the  entire exclusion of the donor or of any benefit to him, by contract or otherwise.  Both these conditions are cumulative.  Unless each of these conditions is satisfied, the property would be liable  to  estate  duty under section 10 of  the  Act  (see George Da Costa v. Controller of Estate Duty Mysore, supra). The  second  part of the section, as observed in  the  above mentioned  case,  has  two  limbs :  the  deceased  must  be

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entirely excluded, (i) from the, property and (ii) from  any benefit  by  contract or otherwise.   The  word  "otherwise" should   be  construed  ejusdem  generis  and   should   be, interpreted  to mean some kind of legal obligation  or  some transaction enforceable at law or in equity which though not in  the  form  of a contract, may confer a  benefit  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  at  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 be was "entirely excluded (1)   [1967] 63 I.T.R. 497. 692 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 Issacs J. in the case of John Lang &  Ors. v.  Thomas  Prout  Webb(1)  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 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  tent with the gift.   The  prima               facie view is made by the twelve months before               the  donors 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  court in that case was concerned with the  construction of  section 11 of the Administration and Probate  Act,  1903 which reads as under               "Every conveyance or assignment gift  delivery               or transfer of any estate real or personal and               whether made before or after the  commencement               of  this  Act,  Purporting to  operate  as  an               immediate  gift inter vivos whether by way  of               transfer  delivery  declaration  of  trust  or               otherwise shall-               (a)   if made within twelve months immediately

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             preceding the death of the person so dying; or               (b)   if  made  at any time  relating  to  any               property   of   which   property   bona   fide               possession  and enjoyment shall not have  been               assumed by the donee immediately upon the gift               and  thenceforward  retained  to  the   entire               exclusion  of the donor or of any  benefit  to               him by contract or otherwise (1) 3 C.L.R. 593. 693               be deemed to have, been, made the property  to               which  the  same relates chargeable  with  the               payment   of  the  duty  payable   under   the               Administration and Probate Acts as though part               of the estate of the donor." In that case a testarix was the owner in fee of land in  her actual  possession  and  enjoyment, which she  worked  as  a single  property.  More than twelve months before her  death she gave to her three sons blocks of this land each of which was surrounded by other land of the testarix.  The gift  was made by conveyances of so much of the land as was under  the general law, and by transfers of so much of it as was  under the  Transfer of Land Acts.  On the same day upon which  the conveyance  and  transfers were executed, each of  the  sons executed a lease for five years of the land given to him  to the  testarix at fair and reasonable rent.  After the  gifts the  lands  given  continued to be in  the  actual  physical occupation of the testarix and to be, worked by her with her other  land  in  the  same way as  before  the  gifts.   The testarix 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 testarix.  Issacs 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 Clifford John Chick & Anr. v.  commissioner  of Stamp Duties(1)  wherein  the  judicial Committee  dealt  with a case under section 102 of  the  New South Wales Stamp Duties Act, 192056. The aforesaid  section Provided  that  "for  the purposes  of  the  assessment  and payment  of death duty but subject as  hereinafter  provided the  estate of a deceased person shall be deemed to  include and  consist of the following classes of Property : . . .  . (2)  (d)  Any  property comprised in any gift  made  by  the deceased at any time, whether before or after the passing of this  Act of which bona fide, possession and  enjoyment  has not been assumed by the donee immediately upon the gift  and thenceforth retained to the entire exclusion of the deceased or  of any benefit to him of whatsoever kind or in  any  way whatsoever  whether enforceable at law or in equity  or  not and  whenever  the deceased died.,, In that  case  a  father transferred  in  1934  by way of gift to  one  of  his  sons pastoral property.  The gift was made without reservation or qualification  or condition.  In 1935. some 17 months  after the gift, the father, the donee son and another son  entered

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into an agreement to carry on in partner-,hit) the  business of  graziers  and stock dealers.   The  agreement  Provided, inter alia, that the father (1)  [1958] A. C. 435. 694 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 live stocks 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 be  conducted  on  the respective holdings of the partners and 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 he might think fit.  Each  of the  three partners owned a property, that of the donee  son being  that which had father in 1934.  Each partner  brought into and plant, and their three properties were  depasturing of  the partnership stock.  This to the death of the  father in  1952.  It was property given to the son in 1934 was.  to 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  im- mediately  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  had  that  where  the question  is  whether the donor has been  entirely  excluded from the subject-matter of the gift, that is the single fact to  be determined, and, if he has not been so  "eluded,  the eye  need look no further to see whether  his  non-exclusion 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,   respondent’s construction, if a father gave a house to his son, and later the  son turned it into a hospital, and the  father,  having been taken ill, went into it as a paying patient,  liability to duty would arise although it may be the only hospital  in the area.  The case, however, in view of the language of the statute  was decided in favour of the Commissioner of  Stamp Duties, who was the respondent in the, case.  The  following six points emerge from Chick’s case:               (1)   The  deceased was not in  fact  excluded               from  the property, but as a  partner  enjoyed               rights over it.               (2)   There  was an initial outright  gift  of               the  property-not  of the  property  shorn  of               certain rights.               (3)   It  was immaterial that the  partnership               agreement  was later than the gift, since  the               Section required that possession and enjoyment               should   "thenceforth"  be  retained  to   the               exclusion of the donor.                695               (4)   It   was   also  immaterial   that   the               partnership  was  "an  independent  commercial

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             transactions  and  that the  donor  gave  full               consideration  for  his rights.   If  a  donor               gives  a donee a freehold and the donee  gives               the  donor a lease, even at a full  rent,  the               donor is not excluded from the property.               (5)   The  question  whether  the  partnership               agreement was " related" or "referable" to the               gift did not arise : the question is  relevant               only to the second limb of the clause.               (6)   It  was immaterial that the donee  could               make  no better use of the  property.   "Where               the  question  is whether the donor  has  been               entirely  excluded from the subject matter  of               the  gift  that  is  the  single  fact  to  be               determined.   If be has not been so  excluded,               the  eye need look no further to  see  whether               this  nonexclusion  has been  advantageous  or               otherwise to the donee."               (see  p.  276 of Dymond’s Death  Duties,  14th               Ed.) So  far  as  point  No.  (4)  is  concerned,  the  law   was subsequently  amended by section 35(2) of the  Finance  Act, 1959.   Under that clause, the donor’s actual occupation  of the land, enjoyment of an incorporeal right over the land or possession of the chattels is to be disregarded if for  full consideration, e.g., if he paid a full rent to the donee  or occupied it under a lease for which he gave full value. There  is  one other principle and that relates to  gift  of property   shorn   of  certain  rights  belonging   to   the partnership in which the donor is a partner.  In such a case the  benefit  remaining  in the donor is  referable  to  the partnership  agreement and not to the gift.  This  principle 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 &  ors.  v.  Commissioner  of  Stamp Duties,(1)  while  that  of this Court is  in  the  case  of Controller  of  Estate  Duty Madras  v.  C.  R.  RamaChandra Gounder. (2) 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 (t) [1934] A. C. 61. (2) [1973] 88 I.T.R. 448. 696 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 during the lifetime of M  no partner should withdraw from the partnership.  On the  death of  M in 1929 the land transferred in, 1913 was included  in assessing his estate to death duties under the Stamp  Duties Act  on  the  ground that they  were  gifts  dutiable  under section  102 of the New South Wales Stamp Duties Act,  1920. It was held that property comprised in the transfers was the land  separated  from the rights therein  belonging  to  the

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partnership  and was excluded by the terms of  section  102, sub-section  2(a), 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 and not to the gifts.  In  the  case  of Ramachandra Gounder the deceased who was a partner in a firm owned  a house property let to the firm  as  tenant-at-will. In  August,  1953, he executed a deed  of  settlement  under which he transferred the property let to the firm to his two sons  absolutely and irrevocably and, thereafter,  the  firm paid the rent to the donees by crediting the amount in their accounts in equal shares.  The deceased further directed the firm to transfer from his account a sum of Rs. 20,000 to the credit  of  each of his five sons in the firm’s  books  with effect from April 1, 1953 and he also informed them of  this transfer.   An amount of Rs. 20,000 was credited in each  of the sons’ accounts with the firm.  The sons did not withdraw any  amount from their accounts in the firm and the  amounts remained invested with the firm for which interest at  7-1/2 per  cent was paid to them.  The deceased continued to be  a partner  of the firm till April 13, 1957, when the firm  was dissolved  and  thereafter  he died on  May  5,  1957.   The question was whether the value of the house property and the sum of Rs. one lakh could be included in the principal value of  the  estate of the deceased as property deemed  to  pass under  section 10 of the Estate Duty Act, 1953.  This  Court held that neither the house property nor the sum of Rs.  one lakh  could be deemed to pass under section 10.   The  first two conditions of the section were ’Satisfied because  there was an unequivocal transfer of the property by a  settlement deed and of the sum of Rs. one lakh by crediting the  amount in   each  of  the  sons’  accounts  with  the  firm   which Thenceforward became liable to the sons for payment of  that amount  and the interest thereon.  The possession which  the donor   could  give  was  the  legal  possession  with   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 any 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  (supra)  and  of  the Judicial  Committee in the case of John Chick  (supra).   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 697 all  the  rights and that the gift was not  subject  to  any claim  on 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  or  otherwise". Mayavaram Lodge as such shall be deemed to pass on the death of  the deceased under section 10 of the Act.  The  case  of Ramachandra  Gounder (supra) upon which great  reliance  has been  placed  by  Mr.  Swaminathan can  hardly  be  of  much assistance  to him because in that case the gifted  property was  subject  to  the tenancy-at-will granted  to  the  firm Ramachandra Gounder’s case was thus covered by the principle laid  down in Munro’s case.  The question of  invoking  that

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principle  does  not arise in the present case  because  the property  which  is the subject matter of the gift  was  the entirety of Mayavaram Lodge with all the rights and the same were  not subject to any right in favour of  a  partnership. The principle to be kept in view in such cases is to examine the  deed  of gift and find out as to what is  the  subject- matter  of  the  gift.   If  the  gift  comprises  the  full ownership  of the property not shorn of any right  including tenancy  right in favour of third parties, in such an  event in  order to prevent the incidence of estate duty  immediate bona  fide physical possession and enjoyment of  the  gifted property  must  ordinarily  be  assumed  by  the  donee  and retained thereafter to the exclusion of the donor.  In case, however, the subject-matter of the gift is property shorn of certain  rights, in that case the residue of the  rights  in that  property would be the subject matter of the gift.   In such  an  event it may not sometimes in the very  nature  of things  be  possible  for  the  donee  to  assume   physical possession and enjoyment of the property.  In such cases the possession and enjoyment of the gifted property which may be assumed by the donee would only be such as is possible under the circumstances. We  may mention some of the other cases to  which  reference has  been  made  by Mr. Swaminathan  during  the  course  of arguments.  The case of Commissioner for Stamp Duties of New South Wales v. Perpetual Trustees Company Ltd.(1) related to an indenture of settlement made between the settlor and five trustees,  of  whom  the settlor himself was  one.   It  was declared  in that settlement that the trustees  should  hold certain  company shares of which the settlor was  the  owner and  registered- holder, and which were transferred  to  and registered in the names of the trustees, in trust, to  apply during the minority of his son the whole or any part of  the income  or corpus as the trustees should think fit  for  the maintenance, 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 (1)  [1943] A. C. 425. 698 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 held  not  to form  part  of  the settlor’s dutiable  estate.   The  above decision can hardly be of any assistance to the  respondent. Lord  Russell  of  Killowen in the above  cited  case  after referring  to  the  clauses of the settlement  came  to  the conclusion  that  there  was no gift of corpus  to  the  son except  in  the direction to the trustees  to  transfer  the shares to him ,on his attaining the age of 21 years.   Until he attained that age, the shares, it was held, were not  the

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absolute  property  of  the  son and  that  be  had  only  a contingent interest therein.  He was entitled to the  corpus of  the shares if and when he attained the age of 21  years. The Judicial Committee accordingly affirmed the decision  of the  High Court of Australia that the subject-matter of  the gift  in favour of the son under the deed of settlement  was only the equitable interest in the ,shares.  As against that the subject-matter of the gift in the present ,case was  the full ownership right in a house without any diminution. The case of St. Aubyn & Ors. v. Attorney General(1)  related to certain properties held on trusts and their dispositions. It  is not necessary to set out the long chain of  facts  of that  case; suffice it to say that there is nothing in  that case  which  runs counter to the view we are taking  in  the matter. In Controller of Estate Duty v. R. Kanakasabai & Ors.(2) the ,deceased executed in June 1951 separate deeds in favour  of his sons, grandsons, daughter and wife, settling  properties thereby severally in favour of the respective  beneficiaries absolutely and with full power of alienation.  The deeds  in favour of the sons and grandsons provided for payment of Rs. 1,000 per annum to the settlers while the deed in favour  of the daughter provided for maintenance of the settlor and his wife  during their lifetime.  In the deed’ in favour of  the wife  the  "pressed  the hope that she  would  maintain  him during  the  lifetime.  No charge was, however,  created  in respect  of  the  amounts  made  payable  by  the  sons  and grandsons or in respect of daughter’s liability to  maintain the settlor and his wife.  The deceased died on February  5, 1959  and  the question which arose  for  determination  was whether the whole or any part of the properties comprised in the deeds passed on the death of the deceased under  section 10  of  the  Act.   It was held  that  no  interest  in  the properties  settled was reserved to the deceased during  his lifetime  or  for  any  period  after  the  properties  were settled.  The deed in favour of the wife merely expressed (1) [1952] A.C. 15. (2) (1973) 891.T.R.251. 699 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  provisions  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 lie 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  statutory provisions with which the High  Court  of Australia  and the Judicial Committee were concerned in  the cases of John Lang and Chick respectively.  It is urged that the  words "to the extent" indicate that if  possession  and enjoyment of the gifted property is not assumed by the donee and  thenceforward retained to the entire exclusion  of  the donor, it would be the right of possession and enjoyment  of

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the  gifted  property which shall be taken to  pass  on  the death  of  the  donor.   The  learned  counsel   accordingly concludes  that  what  is  to  be  taken  into  account   in determining  the principal value of the estate is the  value of  the  right to possess-ion and enjoyment  of  the  gifted property and not the value of the property in its  entirety. We are unable to accede to this submission.  It is, no doubt true that the words "to the extent" do not find a mention in the  statutory provisions which were construed in the  cases of  John Lang and Chick, but that fact would not  materially affect  our conclusion.  The words "to the  extent"  connote that  if the donee does not assume immediate bona fide  pos- session  and enjoyment of a part or fraction of  the  gifted property and therceforward retain it to the entire exclusion of  the  donor  or  of any benefit to  him  by  contract  or otherwise,  it shall be that part or fraction of the  gifted property  which shall be deemed to pass on the death of  the donor.   Those words thus seek to restrict the liability  to pay  estate  duty in respect of only the aforesaid  part  or fraction  of the property.  They underline the intention  of the legislature that in the event of the donee not  assuming bona fide possession and ’enjoyment of a part or fraction of the  gifted property and thenceforward retaining it  to  the entire  exclusion of the donor or of any benefit to  him  by contract or otherwise, the estate duty-shall be payable  not in  respect of the whole of the gifted property but only  in respect  of that part or fraction of the gifted property  of which  the  donee did not assume bona  fide  possession  and enjoyment  and thenceforward retain to the entire  exclusion of  the  donor  or  of any benefit to  him  by  contract  or otherwise.  An illustration of this is furnished by the case of Rash Mohan Chatterjee & Ors. v. Controller of Estate Duty West Bengal.(1) (1)  (1964) 52 I.T.R. 1 (Estate Duty part). 700 In  that ease the deceased settled on July 1,  1954  certain premises  in trust for the absolute use and benefit  of  his two  sons  in equal shares 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 stripes.   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, however,   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 a lessee. The High, Court in the judgment under appeal mentioned  that Mayavaram  Lodge was a bundle of rights of which  possession and enjoyment formed a part.  We may in this context observe that  it  was  the ownership of  the  above  property  which constituted the bundle of rights.  The view urged on ’behalf of  the respondent and accepted by the High Court  that  the estate  duty is payable only in respect of the value of  the right  to  possession  and  enjoyment in  the  hand  of  the

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,deceased  as  a  lessee of Mayavaram  Lodge  runs,  in  our opinion, counter to the plain language of section 10 of  the Act.  What the section contemplates is that it would be  the property taken under the gift which shall be deemed to  pass on  the  donor’s  death  if the  bona  fide  possession  and enjoyment  thereof 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. There  is  nothing in the section to indicate  that  if  the donee  does not immediately assume bona fide possession  and enjoyment.  of the gifted property and thenceforward  retain it  to the entire exclusion of the donor, in such  an  event the  right only to possession or enjoyment of  the  property shall  be deemed to pass on the death of the  donor.   Apart from  the case of Rash Mohan Chatterjee (supra) to which  we have already made a reference, the stand taken on behalf  of the  respondent  cannot  be  accepted in  the  face  of  the decision  of  this  Court in the case  of  George  Da  Costa (supra).  The deceased in that case had purchased a house in the joint names of himself and his wife in 1940.  They  made a  gift  of the house to their sons in  October  1954.   The document  recited that the donees had accepted the gift  and that they bad been put in possession.  The deceased died  on September  30, 1959.  The Controller included the  value  of that house in the principal value of the estate that  passed on the, deceased’s death under section 10 of the Estate Duty Act,  1953.  The Board found that, though the  deceased  bad gifted  the house for four years before his death, he  still continued to stay in the house till his death as the head of the 701 family and was also looking after the affairs of the  house. It  was  further  found  that  the  property  was  purchased entirely  out of the funds of the deceased.-and  though  the property  stood in the joint names of the deceased  and  his wife,  the  wife  was merely a name-lender  and  the  entire property  belonged  to the deceased.  It was  held  by  this Court that the value of the 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 1 1, 1955 constituted 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 sell-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  deceased  to waive  his separate rights.  Accordingly, the Board came  to the  conclusion that the said document was not  a  partition )deed  relating  to  the  joint  family  property.   In  the circumstances,  we find no sufficient ground  for  remanding the case. As a result of the above we accept the appeal, discharge the answer  given by the High Court to the question referred  to

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it  and  answer that question in favour of the  revenue  and against  the accountable person.  Our answer is that on  the facts and in the circumstances of the case the entire  value of  the property known as "Mayavaram Lodge" 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 appellant shall be entitled to the costs of the appeal. V.P.S.                            Appeal allowed. 702