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PETITIONER: CONTROLLER OF ESTATE DUTY, MADRAS

       Vs.

RESPONDENT: C.   R. RAMACHANDRA GOUNDER

DATE OF JUDGMENT27/02/1973

BENCH: REDDY, P. JAGANMOHAN BENCH: REDDY, P. JAGANMOHAN HEGDE, K.S. KHANNA, HANS RAJ

CITATION:  1973 AIR 1170            1973 SCR  (3) 554  1973 SCC  (4) 102  CITATOR INFO :  F          1973 SC2598  (2)  E          1975 SC 435  (10,17,18)  F          1977 SC 463  (20,23)  APL        1980 SC 142  (10,13)  RF         1986 SC 631  (5)  F          1988 SC1426  (11)

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

HEADNOTE: The  father of the respondent Was a partner in a  firm.   He owned  property which the firm was occupying as a tenant  at will.  In 1953 he executed a deed of settlement under which he  transferred that property to two of his sons  absolutely and  irrevocably.  After the transfer the firm continued  as tenant  paying rent to the two donees by crediting  each  of their  accounts  in the account books of the firm  in  equal shares.  The father also wrote, to the firm to transfer from his  account five sums of Rs. 20,000 each with  effect  from April,  1953,  to the credit of his five sons in  the  firms books.   The  sons did not withdraw any  amount  from  their accounts  in  the  firm  and the  amounts  continued  to  be invested in the firm for which interest at 7 1/22% per annum was paid to them.  The father continued to, be a partner  of the  firm even after the transfer fill 1957. when  the  firm was dissolved.  On his death thereafter the property  leased out  to the firm which was transferred to two of his  son,-, as  well  as Rupees one lakh gifted to the five  sons,  were sought  to be included in the estate of the deceased on  the ground  that  the  donees bad not been.  in  possession  and enjoyment of  the subject matter of the gifts to the  entire exclusion  of the donor within the meaning of s. 10  of  the Estate  Duty Act, 1953.  The High Court, on reference,  held against the Revenue. Dismissing the appeal to this Court. HELD  :  Neither the property gifted to the donees  nor  the amount  of  Rs.  1 lakh, gifted to the five  sons  could  be included in the estate of the deceased. [81A-B] Section 10 consists of two conditions, namely, (1) the donee must bona fide have assumed possession ’and enjoyment of the

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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; and unless both are  satisfied the property would be liable to Estate  duty. The  second part of the section has two limbs,  namely,  the deceased must be entirely excluded,, (a) from the  property, and (b) from any benefit by contract or otherwise.  The word "otherwise" must be construed ejusdem generis and it must 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. [557 F-H. 558A-C] In the present case, the first two conditions are  satisfied because  of the unequivocal transfer of the  properties  and the  last limb of the condition relating to any  benefit  to the  donor  by contract or otherwise is  inapplicable.   The donor,  on  the date when he gifted the property  which  was leased out to the firm, had two rights, namely, ownership in the  property and right to terminate the tenancy and  obtain posses-                             555 (Jaganmohan Reddy, J.) sign  thereof.   He has transferred the  ownership  and  has given such possession as the circumstances and the nature of the  property  admit.  It could not be said that  since  the donor was a partner in the firm which had taken the property on lease, he derived benefit therefrom and was therefore not entirely excluded from the possession and enjoyment  thereof 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. [558C-A] George  Da  Costa v. Controller of Estate Duty,  Mysore,  63 I.T.R 497, followed. Munro  and  Others v. Commissioner of Stamp  Duties,  [1934] A.C. 61, Clifford John Chick and Another v. Commissioner  of Stamp Duties, 37 I.T.R. (E.D.) 89 and Commissioner of  Stamp Duties  of  New  South Wales v.  Perpetual  Trustee  Company Limited, [1943] A.C. 425, referred to. Controller of Estate Duty, Mysore v. S. Aswthanarayana Setty and Another, 72 I.T.R. 29, approved.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1391 of 1970. Appeal  by  certificate from the judgment  and  order  dated November  25, 1968 of the Madras High Court in Tax Case  No. 103 of 1965. B.   B.  Ahuja,  S.  P. Nayar and R. N.  Sachthey,  for  the Appellant. T. A. Ramachandran, for the respondent. The Judgment of the Court was delivered by JAGANMOHAN  REDDY, J.-This appeal is by certificate  against the  judgment  of  the  Tamil Nadu  High  Court,  which  has answered  the  following two questions referred  to  it,  in favour of the assessee and against the Revenue :               (1)   Whether   on  the  facts  and   in   the               circumstances  of  the case the  Tribunal  was               right  in  law  in  holding  that  the   house               property in Avanashi Road, Coimbatore, is  not               liable  to estate duty as property  deemed  to               pass  on  the  death  of  the  deceased  under

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             section 10 of the Estate Duty Act, 1953 ?               (2)   Whether   on  the  facts  and   in   the circu mstances  of the case, the Tribunal  was               right in law in holding that the sum of Rs.  1               lakh  gifted  by the deceased to his  sons  in               1953 is not liable to estate duty as  property               deemed  to pass on the death of  the  deceased               under section 10 of the Estate Duty Act,  1953               ? 556 These questions arose on the facts set out in the  statement of the case which are : one Ramaiah Gounder was a partner in the  firm  called N. Desai Gounder &  Co.,  Coimbatore.   He owned  property which. the firm was occupying as  tenant-at- will.   In  August 1953. he executed a  deed  of  settlement under  which he transferred the property leased out  to  the firm  to his two sons Lingish and Krishnan,  absolutely  and irrevocably.  After this transfer, the firm continued to  be in  occupation  of the premises paying rent thereof  at  Rs. 300/-  p.m.  to the two donees by crediting  each  of  their accounts  in the account books of the firm in equal  shares. lit may be mentioned that Ramaiah the father continued to be a partner of the firm even after the transfer till April 13, 1957,  when the firm was dissolved.  He had also an  account with the firm Desai Gounder & Co., and on March 30, 1953, he requested the firm by a letter to transfer from his  account five  sums  of Rs. 20,000/- each with effect from  April  1, 1953 to the credit of his five sons in the firm’s books.  He also wrote to the live sons informing them of the  transfer. Though  the  sons  did not withdraw any  amount  from  their accounts  in the firm, the amounts continued to be  invested in the firm for which interest at 7 1/2% per annum was  paid to them. On  the death of Ramaiah Gounder on May 5, 1957, the  Assis- tant  Controller of Estate Duty, included in the  estate  of the deceased, the property leased out to the firm which  was transferred  to his two sons.  According to him,  possession and enjoyment of the subject-matter of the gift had not been assumed  by  the  donees nor had  they  retained  possession thereof  to the ’entire exclusion of the donor, inasmuch  as the partnership in which the donor was a partner with  other parties, continued to be in possession and enjoyment of  the gifted  property  as tenants at will of  the  donees.   With respect to the gift of Rs.  1 lakh to the five sons of  the, deceased, the Assistant Controller held that the donees  had not been. in possession and enjoyment. of the subject-matter of the gift to the entire exclusion of the donor within  the meaning  of  S. 10 of the Estate Duty Act.   He,  therefore, included  this sum of Rs. 1 lakh in the principal  value  of the estate of the deceased. The accountable persons appealed to the Appellate Controller who confirmed the said inclusion.  The Tribunal on a further appeal,   however,  disagreed  with  the  findings  of   the Assistant Controller and the Appellate Controller.  It  held that the firm, of which the deceased was a partner  occupied the property but that such interest was not as owner of  the property, and therefore, the gift had been made without  the donor  retaining  any  interest, as much  it  could  not  be included  in the estate of the deceased under S. 10  of  the Estate Duty Act.  It further held that the sum of Rs. 1 lakh gifted to the sons was given by the sons to the firm 557 which had benefit of the money and that the father could not be said to have enjoyed the benefit of the money as  partner of the firm.  In this view, the Tribunal excluded the sum of

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Rs. 3 lakh from the estate of the deceased.  The High  Court agreed with these findings. It  is contended before us by the learned Advocate  for  the Revenue  that both the Tribunal and the High Court  were  in err-or  in holding that the property as well as the  sum  of Rs.   1 lakh were enjoyed by the donees to the exclusion  of the  donor  or  that the deceased did  not  derive  ’benefit therefrom  within  the meaning of s. 10 of the  Estate  Duty Act, because, firstly, the donor was ;a partner in the  firm which  had  occupied the property  as  tenants-at-will  even after  the  gift, and secondly, the amount of  Rs.  1  lakh, though  entered in each of the accounts of the donor’s  five sons in the books ’of the firm, was not utilised or  enjoyed by  them in any manner.  Section 10 of the Estate Duty  Act, as,  in force on the date of the death of the deceased,  was as follows               "10.  Property taken under any gift,  whenever               made,  shall be deemed to pass 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               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  donor  or  of  any               benefit  to him for at least two years  before               the death :............ The crux of the above section as pointed out by this  Court, in   George.   Da  Costa  v.  Controller  of  Estate   Duly, Mysore,(1)  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 s. 10  of the Act.  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.   The words  "by contract or otherwise" in the second limb of  the section will not control the words "to (1)  63 I.T.R. 497, at p. 501. 558 the  entire exclusion of the donor" in the first limb.   The first limb may be infringed if the donor occupies or  enjoys the  property or its income, even though he has no right  to do so which he could legally enforce against the donee.   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 enforceable  in  law or in equity.  In the  context  of  the section,  the word "otherwise" should be  construed  ejusdem generis  and  it must 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. There  is no doubt on the facts of this case, the first  two

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conditions  are  satisfied because there is  an  unequivocal transfer  of the property and also of the money, in the  one case by a settlement deed. and in the other by crediting the amount of Rs. 20,000/- in each of the sons’ account with the firm  which thenceforward became liable to the sons for  the payment  of the said amount and. the interest at 7 1/2%  per annum  thereon.   In these circumstances,  the  Revenue  has failed  to  establish  that  the  donees  had  not  retained possession  and enjoyment of the property or the amount  and that  the  deceased  was  not  entirely  excluded  from  the possession  and  enjoyment thereof.  The last  limb  of  the condition  relating to any benefit to the donor by  contract or otherwise is inapplicable in this case.  The donor on the date  when  he  gifted the property to his  sons  which  was leased out to the firm, had two rights, namely, of ownership in  the property and the right to terminate the tenancy  and obtain the possession thereof.  There is no dispute that the ownership  has  been transferred subject to the  tenancy  at will  granted to the firm, to the donor’s two  sons  because the  firm from thenceforward had attorned to the donees  as, their  tenant  by  crediting the rent of Rs.  300/-  to  the respective  accounts  in  equal  moity.   The  donor  could, therefore,  only transfer possession of the  property  which the  nature of that property was capable of, which  in  this case is subject to the tenancy.  He could do nothing else to trans fer  the possession in any other manner unless he  was required to effectuate the gift for the purpose of S. 10  of the  Act  by  getting the firm to vacate  the  premises  and handing-over  possession of the same to the  donees  leaving the  donees  thereafter to lease it out to the  firm.   Even then  the objection of the learned Advocate that  since  the donor was a partner in the firm which had taken the property on  lease, he derived benefit therefrom and was,  therefore, not  entirely  excluded from the  possession  and  enjoyment thereof, will nevertheless remain unsatisfied.  To get  over such  an  objection, the donees will have to lease  out  the property  after  getting possession from the  firm  to  some other  person ;totally unconnected with the donor.  Such  an unreasonable requirement the law does not 559 postulate.   The possession which the donor can give is  the legal possession which the circumstances and, the nature  of the  property would admit.  This he has given.  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.   The  Privy  Council  in  Munro  and  others  v. Commissioner of Stamp Duties(1) was dealing with a case of a similar  nature.  The donor in that case by  six  registered transfers in the form prescribed, transferred by way of gift all his right, title and interest in portions of the land to each  of his four sons and to trustees for each of his  two, daughters  and  their children.  The four sons and  the  two daughters  were,  prior  to  this  transfer,  on  a   verbal agreement  with  the  donor,  treated  as  partners  of  the business  carried on by him as grazier of the land owned  by him.   The  evidence showed that the  transfers  were  taken subject   to   the   partnership  agreement   and   on   the understanding  that any partner could withdraw and work  his land separately.  On an analogous provision of the law,  the Privy  Council  thought  it  unnecessary  to  determine  the precise  nature of the right of the partnership at the  time of the transfers because it was either a tenancy during  the term  of  the  partnership  or a  licence  coupled  with  an interests  Lord Tomlin, giving his opinion, observed  at  p. 67, that "the benefit which the donor had as a member of the

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partnership  in the right to which the gift was subject  was not  in their Lordships’ opinion a benefit referable in  any way  to  the  gift’.   This decision  was  referred  to  and distinguished   in  Olifford  John  Chick  and  another   v. Commissioner   of  Stamp  Duties(2),  and  though  it   was. considered  to  have no application to the case  at  point,_ Viscount  Simond ’ observed at p. 97 : "It must often  be  a matter  of  fine distinction what is the  subject-matter  of gift.   It  as in Munro’s case, the gift is  of  a  property shorn  of certain of the rights which appertain to  complete ownership,  the donor cannot, merely because the remains  in possession and enjoyment of those rights, be said within the meaning  of the section not to be excluded  from  possession and   enjoyment  of  that  which  he  has  given."  In   the Commissioner of Stamp Duties of New South Wales v. Perpetual Trustee   Company  Limited(3)  the  Privy  Council   further elaborated the concept of the nature of possession  required to  be  given to the donee as not to attract  the  analogous provisions of the Commonwealth Act.  Lord Russel of Killowen observed at p. 440               "The linking of possession with enjoyment as a               composite  object which has to be  assumed  by               the  donee  indicate that the  possession  and               enjoyment    contemplated    is     beneficial               possession and enjoyment by the object of  the               donor’s bounty................ because the son               was  (through  the  medium  of  the  trustees)               immediately put (1) [1934] A.C. 61.          (2) 37 I.T.R. [E.D.] 89- (3) 560               in  such bona fide beneficial  possession  and               enjoyment  of  the property comprised  in  the               gift  as  the  nature  of  the  gift  and  the               circumstances  permitted.  Did he  assume  it,               and   thenceforth  retain  it  to   the-entire               exclusion  of  the donor ? The  answer,  their               Lordships  think, must be in the  affirmative,               and  for two reasons : (1) the settlor had  no               enjoyment  and possession and enjoyment as  he               had from the fact that the legal ownership of               the  shares vested in him and his  co-trustees               as  joint  tenants, was had by him  solely  on               behalf of the donee.  In his capacity as donor               he  was entirely excluded from possession  and               enjoyment  of  what he had given to  his  son.               Did the donee retain possession and  enjoyment               to the entire exclusion of any benefit to  the               settlor  of  whatever  kind  or  in  any   way               whatsoever ? Clearly yes." The  views  expressed by the Privy Council are  in  complete accord with our views already expressed.  This was also  the view  held  in  Controller  of Estate  Duty,  Mysore  v.  S. Aswathanarayana Setty ,and another(1), where a Bench of  the Mysore High Court considered both the case of Olifford  John Chick and of Munro above referred to.  In that case, on June 30,  1954,  the  deceased transferred to his  two  sons  Rs. 57,594 being half of the share standing to his credit as  on that date: in the books of a firm in which he was a  partner and from July 1, 1954, the sons were also taken as  partners in  the firm.  On the death of the deceased on November  16, 1957,   the  Assistant  Controller  held  that  the   amount transferred  to the sons must be deemed to pass as  per  the provisions  of s. 10 of the Estate Duty Act, which  decision was  confirmed by the Appellate Controller.   The  Tribunal,

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however, held that the sum which subsequently was  rectified to  be Rs. 73,695 Was not so includible.  One of us  (Hegde, J., as he then was), speaking for +the Bench, observed at p. 32               On  the facts of the case, it cannot  be  said               that,  after  the gifts, the  donees  did  not               retain,  the  property gifted ,to  the  entire               exclusion  of the donor or that the donor  had               any benefit either by contract or otherwise in               the  property gifted.  That in order that  the               property  could deem to pass and  estate  duty               could  be leviable in such cases, the  benefit               of  the donor must be a benefit  referable  to               his  own  property.  The view, that if  it  is               once found ,that the deceased had some benefit               in the property, that in itself was sufficient               to bring the case within the ambit of  section               10  irrespective of the question whether  that               benefit was referable or not referable to  the               gift, in our opinion, is erroneous." (1)  72 I.T.R. 29.                             561 In our view, neither the property gifted to the donees,  nor the amount of Rs.  1 lakh gifted to the five sons, could  be included  in  the estate of the. deceased.  The,  appeal  is accordingly dismissed with costs. V.P.S.                                  Appeal dismissed. 562