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PETITIONER: GEORGE DA COSTA

       Vs.

RESPONDENT: CONTROLLER OF ESTATE DUTY IN MYSORE,BANGALORE

DATE OF JUDGMENT: 28/10/1966

BENCH: RAMASWAMI, V. BENCH: RAMASWAMI, V. SHAH, J.C. BHARGAVA, VISHISHTHA

CITATION:  1967 AIR  849            1967 SCR  (1)1004  CITATOR INFO :  R          1973 SC1170  (4)  F          1973 SC1214  (10,11)  RF         1975 SC 435  (11,12,23)  F          1977 SC 463  (11,15,17)  E          1980 SC 142  (9)  RF         1986 SC 631  (5,7)  R          1988 SC1426  (10)

ACT: Estate  Duty  Act,  1953  (Act  34  of  1953),  s.  10-Donor continuing to reside in house after making gift of it to his sons--Residence-based only on filial affection-Donor whether ’entirely  excluded  from possession and  enjoyment’  within meaning of section-’By contract or otherwise’, meaning of.

HEADNOTE: The appellant’s father purchased a house in the joint  names of himself and his wife.  In 1954 the parents made a gift of the said property to their two sons including the appellant. The  document recited that the donees had accepted the  gift and  they had been put in possession.  Thereafter, the  sons paid the municipal tax but the parents continued to  reside. in  the  house and the father continued to  look  after  its affairs  as  head of the family.  The father died  in  1959, more  than four years after the gift and the question  arose in Estate Duty proceedings whether the said house was to  be included  in the estate of the deceased for the  purpose  of the  duty or not.  The Assistant Controller of  Estate  Duty and  the  Central  Board  of  Revenue  decided  against  the appellant (who was the accountable per,son) and thereafter a ’reference  was  made to the High Court.   That  Court  also having  given an adverse verdict the appellant came to  this Court.  It was contended on his behalf that the deceased had no enforceable right against his sons and therefore s, 10 of the Estate Duty Act was not attracted to the case. HELD  : The crux of s. 10 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  any

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benefit  to  him  by  contract  or  otherwise.   Both  these conditions are cumulative.  Unless each of them is satisfied the  property would be liable to estate duty under s. 10  of the Act. [1007 G] Attorney-General  v. Earl Grey, [1898] 2 Q.B.D. 534,  relied on. (ii)The  second part of s. 10 has two limbs : the  deceased must  be  entirely excluded (i) from the property  and  (ii) from  any  benefit  by  contract  or  otherwise.   The  word ’otherwise’  must be construed ejusdem generis and  must  be interpreted  to mean some kind of legal obligation  or  some transaction enforceable at law or equity which though not in the  form of a contract may confer a benefit on  the  owner. [1008 B] But the words by contract or otherwise in the second limb of the section will not control the words ’to the exclusion  of the donor’ in the first limb.  In other words to attract the section it is not necessary that the possession of the donor of  the gift must be referable to some contractual or  other arrangement  enforceable in 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 he was ’entirely  excluded from possession and enjoyment’ within the 1005 meaning of the first limb of the section, and therefore  the property  will he deemed to have passed on the death of  the donor and will be subject to the levy of estate duty.  [1008 E-G] Chick  v. Commissioner of Stamp Duties of New  South  Wales, 1958 A.C. 435 and Commissioner of Stamp Duties of New  South Wales v. Owens, 88 C.L.R. 67, relied on. Attorney-General  v. Seccombe, [1911] 2 K.B.  688,  referred to. (iii)The  appellant  could not take  advantage  of  the amendment  made  by the Finance Act, 1965 in s.  10  of  the Estate  Duty  Act, 1963.  The said amendment  was  effective only from April 1, 1965 and was not retrospective.[1010 F] (iv)It  was  the Board’s finding that though  the  property stood  in the joint names of the deceased and his  wife  she was  only a name-lender and the entire property belonged  to the  deceased.  In view of this finding it was not  possible to accept the argument of the appellant that only half share of  the property should be taken for the purpose  of  estate duty assistant. [1011 B]

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1098 of 1965 Appeal  by special leave from the judgment and  order  dated November  17, 1964 of the Mysore High Court in Tax  Referred Case No. 1 of 1964. K.   Srinivasan and R. Gopalakrishnan, for the appellant. B.Sen,  T.  A. Ramachandran and R. N. Sachthey,  for  the respondent. The Judgment of the Court was delivered by Ramaswami, J. This appeal is brought, by special leave, from the  judgment  of the Mysore High Court dated  November  17, 1964 in Tax Referred Case No. 1 of 1964. The  property  in question is house No. 34,  Mahatma  Gandhi Road,  Bangalore.  It had been purchased by the  appellant’s father   Dr.  C.  F.  Da  Costa  (hereinafter   called   the ’deceased’)  in the joint names of himself and his  wife  on February  14, 1940.  They made a gift of the house to  their

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two sons on October 20, 1954.  The document recites that the donees  had  accepted  the gift and they  had  been  put  in possession.   But the parents continued to be in  possession of the house though the municipal tax was paid thereafter in the  names of the sons.  The deceased died on September  30, 1959  more than 4 years after the gift.  The appellant,  the accountable person, then filed a return showing the value of the estate left by his father at Rs. 93,750/- excluding  the value  of the house No. 34, Mahatma Gandhi Road,  Bangalore. The Assistant Controller of Estate Duty however included the sum  of Rs. 1,50,000/- as the value thereof  and  determined the  aggregate  value of the estate at  Rs.  2,57,249/-  and assessed  the estate duty payable at Rs 15,751.54 P  by  his order dated November 1006 30,  1959.  The appellant thereupon preferred an  appeal  to the Central Board of Revenue (hereinafter referred to as the ’Board’)  which dismissed the appeal and affirmed  the  view taken  by the Assistant Controller of Estate Duty.   At  the instance  of the appellant the Board referred the  following question of law for the determination of the High Court.               "Whether on the facts and in the circumstances               of  the case, the property at No. 34,  Mahatma               Gandhi Road, Bangalore, was correctly included               in  the  estate of the  deceased  as  property               passing  or deemed to pass on his death  under               section 10 of the Act?" The  High  Court answered the question in  the  affirmative, holding  that  the appellant was liable to pay  estate  duty with regard to the house. Under s. 5 of the Estate Duty Act, 1953 (Act No. 34 of 1953) (hereinafter  called the ’Act’), estate duty is  payable  on the  principal  value of the estate of  every  person  dying after the commencement of the Act.  Section 2(16) of the Act defines the expression "property passing on death" and is to the following effect :               "2. In this Act, unless the context  otherwise               requires,-               (16)"property passing on the death" includes               property  passing  either immediately  on  the               death or after any interval, either  certainly               or  contingently, and either originally or  by               way  of substitutive limitation, and  ’on  the               death’  includes  ’at a  period  ascertainable               only by reference to the death"; Section 10 of the Act included in the expression "passing on death"   even   gifts  made  by  a   deceased   in   certain circumstances.  The section reads as follows :               "Gifts whenever made where donor not  entirely               excluded.   Property  taken  under  any  gift,               whenever made, shall be deemed to pass on  the               donor’s  death  to the extent that  bone  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,  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                1007

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             donor  or of any benefit to him for  at  least               two years before the death". In  the  present case, the Board has found that  though  the deceased  had gifted the house in question to  his  children four years before the date of his death, he still  continued to  stay  in  the house till his death as the  head  of  the family and also was looking after the affairs of the  house. It was contended on behalf of the appellant that upon  these facts the High Court erred in holding that s. 10 of the  Act was attracted to the case and there was no exclusion of  the donor  from  the bona fide possession and enjoyment  of  the gifted  property.  It was said that the  appellant’s  father did  not  have any right of possession or enjoyment  of  the gifted  property  either  in law or in  equity  and  as  the deceased had no enforceable right the High Court should have held  that estate duty was not leviable under s. 10  of  the Act and there was "entire exclusion of the donor" within the meaning  of  that  section.  In support  of  his  submission Counsel  for  the  appellant relied  upon  the  decision  of Hamilton, J. in Attorney General v. Seccombe.(1) The question involved in this appeal depends upon the proper interpretation  of S. 10 of the Act.  The intention  of  the legislature in enacting s. 10 of the Act was to exclude from liability  to  estate duty certain categories of  gifts.   A gift  of  immovable property under s. 10 will,  however,  be dutiable unless the donee assumes immediately 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.  As a matter of  construction we are of opinion that both these conditions are cumulative. Unless  each of these conditions is satisfied, the  property would be liable to estate duty under S. 10 of the Act.  This view is borne out by the decision of the Court of Appeal  in Attorney General v. Earl Grey(2) with regard to an analogous provision under s. 38(2) of the Customs and Inland Revenue (1) [1911] 2 K.B. 688. (2) [1898] 2 Q.B.D. 534, 541. 1008 Act,  1881, as amended by s. 1 1 of the Customs  and  Inland Revenue Act, 1889. The second part of the section has two limbs :. the deceased must  be  entirely excluded (i) from the property  and  (ii) from  any benefit by contract or otherwise.  It  was  argued for  the  appellant  that the expression,  "by  contract  or otherwise" should be construed ejusdem generis and reference was made to the decision of Hamilton, J. in Attorney General v. Secombe.(1) On this aspect of the case we think that  the argument  of the appellant is justified.  In the context  of the section the word "otherwise" should, in our opinion,  be construed ejusdem generis and it must be interpreted to mean

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some  kind  of  legal obligation  or  some  transaction  en- forceable at law or in equity which, though not in the  form of  a contract, may confer a benefit on the donor.   But  it was contended by Mr. Sen for the respondent that the case of the  Revenue  does  not rest upon the  second  limb  of  the section  but  upon the first limb which  requires  that  the donor  must have been entirely excluded from possession  and enjoyment  of the property.  It was pointed out  that  there was no such exclusion in the present case and the finding of the  Board  is that the deceased continued to  stay  in  the house  till  his  death as the head of the  family  and  was looking after the affairs of the household.  It was  conten- ded  therefore  that the first limb of the  section  is  not satisfied in this case and the property must be held to pass on  the  death of the deceased under that section.   In  our opinion,  the contention of the respondent must be  accepted as  correct.  As a matter of construction we hold  that  the words  "by contract or otherwise" in the second limb of  the section will not control the words "to the entire  exclusion of  the donor" in the first limb.  In other words, in  order to  attract  the  section  it  is  not  necessary  that  the possession  of  the donor of the gift must be  referable  to some contractual or other arrangement enforcement in 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 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 have passed on  the death  of  the donor and will be subject to levy  of  estate duty. On  behalf of the appellant strong reliance was placed  upon the  decision of the Court of Appeal in Attorney General  v. Seccombe(1)  which  has already been referred to.   In  that case,  the  deceased made an absolute gift of  a  house  and furniture  to  a  relative,  without  any  stipulation,  but continued to live there as the donee’s guest until his death more than five years later.  Upon the death of the donor the Crown  claimed  estate duty upon the value of  the  property upon (1)  [1911] 2 K.B. 688.  1009 the  ground that bona fide possession and enjoyment  of  the property  were  not assumed by the donor  and  thenceforward retained  ’to the entire exclusion of the donor, or  of  any benefit  to him by contract or otherwise’.  It was  observed by  Hamilton,  J.  that there  was  no  legally  enforceable arrangement  permitting the deceased to reside in the  house and  the deceased was simply the guest of the donee and  was fully  content  to rely upon the affection which  the  donee bore  towards him.  It was therefore held in that case  that estate duty was not payable.  It was stated by Hamilton,  J. in  the  course of his judgment that the  exclusion  of  the deceased  from  the property itself (the first limb  of  the condition)  would, like his exclusion "from any  benefit  by contract or otherwise" (the second limb), be achieved unless he  had  "some  enforceable  right".   The  view  taken   by Hamilton,  J.  on  this particular point  is,  however,  not -consistent  with the opinion of the Judicial  Committee  in Chick v. Commissioner of Stamp Duties of New South  Wales(1) which  is a decision on a similarly worded clause of  a  New South  Wales Statute.  In that case, the deceased  gave  his son  a  farming property, "Mia Mia," in 1934;  in  1935  the deceased,   the  son  and  another  soil  entered   into   a partnership agreement as graziers and stock dealers, on  the

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terms,  inter alia, that the deceased should be the  manager and  that  his  decision  should be  final  in  all  matters relating  to the conduct of the business; that  the  capital should  consist  of  the livestock and plant  owned  by  the partners:  that  the business should be conducted  on  their respective holdings (including "Mia Mia"); and that the land held  by  each partner should be his sole  property  and  he should  have the sole and free right to deal with it  as  he might "think fit.  The partnership continued till the  death of the deceased in 1952, and the property "Mia Mia" was held dutiable as a gift not to his entire exclusion.  There is  a decision to a similar effect in Commissioner of Stamp Duties of  New South Wales v. Owens(2) which was a case  under  the New South Wales statute.  It appears that there was a verbal partnership  between  the deceased and his son  under  which they  farmed  two  properties, owned by  the  deceased,  the profits  being shared as to two-thirds to the  deceased  and one-third  to  the  son.   Some  years  later  the  deceased transferred one of the properties to the son expressly  free of  all  conditions, so that the son could  have  farmed  it independently; in fact they farmed it and shared the profits equally for some eleven years up to the date of death.   The Australian  Court found that "there was a gift of an  estate in  fee simple, carrying the fullest right known to the  law of exclusive possession and enjoyment"; but that the farming and  profit  sharing were inconsistent with  the  deceased’s "exclusion", and that duty was therefore chargeable.  In  an earlier  case-O’  Connor  v. Commissioner  of  Stamp  Duties (South A stralia)(3) (1) [1958] A.C 435.                      (3) 47 C.L.R. 601. (2) 88 C.L. R. 67. 1010 which  was  a decision under a  South  Australian  enactment couched  in  a similar language, the deceased  was  given  a power  of  attorney by the donee and continued to  farm  the donated  lands and was not in fact required to  account  for the profits, though he could evidently have been required to do  so.  But it was again held that duty was  chargeable  on the donated lands.  It appears from all these cases that the first  limb  of the section may be infringed  if  the  donor occupies  or enjoys the property or its income, even  though be  has  no right to do so which he  could  legally  enforce against the donee.  "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 he  has not  been so excluded, the eye need look no further  to  see whether his non-exclusion has been advantageous or otherwise to the donee".(Viscount Simonds in Chick v.  Commissioner of Stamp Duties of New South Wales.(1) It was then pointed out on behalf of the appellant that  the Finance  Act  of 1965 has amended s. 10 of the  Estate  Duty Act, 1953 by introducing the following proviso               "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." It was argued that this proviso must be taken as legislative interpretation  of the section as it stood previous  to  the amendment  and since no right of residence was  reserved  or

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secured  to  the donor under the deed of gift or  under  any collateral  disposition, the imposition of estate  duty  was not  justified,.  We are unable to accept this  argument  as correct.   The amendment brought about by the  Finance  Act, 1965  was  effective  only from April 1, 1965  and  was  not retrospective.   We think that the insertion of  the  second proviso  to  the  section must be taken to  have  been  made deliberately by Parliament to be effective from the date  of the amendment.  We therefore see no reason for holding  that the  earlier provision in s. 10 should be  interpreted  with reference to the language of the amendment brought about  by the Finance Act of 1965.  We accordingly reject the argument of Mr. Srinivasan on this point. It was lastly contended for the appellant that in any  event the property in question belonged jointly to the mother  and father of the appellant and the whole property could not  be deemed to have passed upon the death of the father under  s. 5  of the Act. The question was examined by the Board  which found that the (1)  [1958] A.C. 435.  1011 property  was  purchased entirely out of the  funds  of  the deceased that for the purpose of income tax the deceased had declared the entire property as his own, and that the income therefrom  was exclusively assessed in his hands.  On  these facts  the Board held that though the property stood in  the joint  names of the deceased and his wife, she was merely  a name-lender and the entire property belonged to the deceased and  was rightly included in his estate for the  purpose  of estate  duty.   In view of this finding of fact  it  is  not possible  to accept the argument of the appellant that  only half  the  share  of the property should be  taken  for  the purpose of estate duty assessment. For the reasons expressed, we hold that the decision of  the High  Court  is correct and this appeal  must  be  dismissed with, costs. G.C. Appeal dismissed 1012