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PETITIONER: SAROJINI AMMAL

       Vs.

RESPONDENT: THE CONTROLLER OF ESTATE DUTY, MADRAS

DATE OF JUDGMENT:       18/09/1996

BENCH: VENKATASWAMI K. (J) BENCH: VENKATASWAMI K. (J) BHARUCHA S.P. (J)

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T Venkataswami, J.      In this  appeal by  a certificate  granted by  the High Court of  Madras under  section 65  of the  Estate Duty Act, 1953 (hereinafter  referred to  as  "the  Act"),  the  vexed question of applicability or otherwise of section, 10 of the Act arises for decision of this Court.      One Murugesa  Mudaliar, the  deceased, passed  away  on 15.10.1964. He was carrying on a business under the name and style of  ‘Newton  &  Company’  a  proprietory  concern.  On 20.7.1962. the  deceased made  two cash gifts of Rs.40,000/- each  to  his  two  daughters,  namely  Smt.  Rajeswari  and Gnanambigai by  debiting his  capital account  and crediting their accounts  in his  personal business  book. On 20.7.62, both the  donee wrote  letters to the deceased accepting the gifts and thanking their father. Again on 27.7.62 each donee by separate  letters  thanking  once  again  tor  the  gifts requested the  deceased to  retain the  same in the business and admit  them as  partners. Accordingly, a partnership was formed with  effect from  1.8.1962 in  which the  donees and also the  donor were  the partners. As noticed, the deceased passed away  on 15.10.1964.  A question  arose, inter  alia, whether on  the facts  and in the circumstances of the case, the gifts  of Rs.80,000/- in all made by the deceased to his two daughters  by debiting his capital account and crediting the accounts  of the  donees in  his personal  business book could not  be included  in the principal value of the estate of the deceased under section 10 of the Estate Duty Act.      The Assistant  Controller of Estate Duty overruling the objection of  the accountable  persons concluded  that since the gifted  amounts were not taken possession of and enjoyed by the  donees to  the entire  exclusion of  the donor,  the gifted amounts  were liable  to be included in the principal values of the estate of the deceased under section 10 of the Act. On  appeal.  the  Appellate  Controller  confirmed  the assessment. The  accountable persons  appealed to the Income Tax  Appellate  Tribunal  (‘Tribunal"  for  short)  and  the

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Tribunal found  that the  gifts in  question  did  not  fall within the  ambit of  section 10 of the Act and consequently they were  not liable  to estate duty. The Tribunal found as follows:      "These sequence  of events  clearly      go to establish:-      1) The two sums transferred by book      entries were  still  available  for      purpose of  the business carried on      by the deceased.      2)  Under   Section  122   of   the      Transfer of  Property Act, the gift      must be  accepted by  the donee and      an offer  without acceptance of the      donee cannot  complete the  gift  .      While  accepting   the  gift,   the      donees    have    stipulated    for      retention of  the gifted amounts in      the business  of the  deceased  and      admit   them   as   partners.   it,      therefore,   follows    that    the      transfer  of  gifts  were  complete      with the condition or understanding      that the  gifted  amounts  for  the      capital account  of the  donees and      continue  to   be   available   for      purposes of the business carried on      by the deceased.      3)  On   making  the   gifts,   the      donees?assumed such  possession and      enjoyment of  the subject matter of      the gift  as it  was capable  of at      that  time   and  that   was   also      retained to the exclusion of to the      donor.      4) If  the donor  had some  sort of      control over the gifted amounts, it      was not  because of any reservation      made by him while making the gifts,      but  the   gift  itself   was  made      subject   to   the   condition   or      understanding   that   the   gifted      amounts would  be available for the      continued  use   of  the   business      carried on by the deceased".      The Revenue  aggrieved by  the decision of the Tribunal moved the  High Court  by way  of reference. Before the High Court, on  behalf of  the accountable persons, a decision of the Court  in Controller  of  Estate  Duty,  Kerala  vs.R.V. Viswanathan &  Others. (1977  (1) SCC  90) was  relied upon. However, the  High Court  distinguished  that  decision  and ruled that  on the  facts of the case, Section 10 of the Act is attracted and consequently answered the question referred to it in favour of the Revenue and against the assessee.      Later at  the instance  of the accountable persons, the High Court  granted a  certificate of  fitness for appeal to this Court  in view  of the  later decision of this Court in Controller  of  Estate  Duty,  Punjab  &  Haryana,  Jammu  & Kashmir, Himachal Pradesh and Chandigarh vs. Kamlavati (1979 (4) SCC 265).      Before  us  also  learned  counsel  appearing  for  the appellant placing reliance on the decisions of this Court in Viswanathan’s case  (supra)  and  Kamlavati’s  case  (supra) contended that  the facts  of this case as well as the facts in Vistanathan’s  case are  identical and the High Court was

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not correct in stating that the facts were not identical and therefore, the  appellant is  entitled to  succeed  in  this Appeal. The  learned  counsel  appearing  for  the  Revenue, however, submitted  that in  almost all the cases, the donor was  already   a  partner   in  partnership   firm  and  the donee/donees was/were  taken as  partner/partners subsequent to the gift and the principle or the ratio laid down in such cases cannot  be pressed  into service  to the facts of this case where  the donor was sole proprietor of the concern and subsequent to  the gift.  the donnes  were taken as partners and the  partnership came  into existence.  We do  not think that the  learned counsel for the Revenue is right in making this submission.  In Viswanathan’s  case, the  donor was the sole  proprietor   when  he   gifted  the   total   sum   of Rs.2,70,000/= to his four major and two minor sons.      After going  through various  decisions of  this Court, which have taken into account a number of English decisions, we find  that the  rigour with  which  Section  102  of  the English Act  corresponding to  Section 10  of  our  Act  was applied,  has  been  mellowed  down,  if  we  may  use  that expression, and  certain amount  of leniency  has definitely been shown  in favour of the accountable persons. It is true that when  the High Court rendered this decision, there were conflicting views  of High  Courts and  to a certain extent. misunderstanding  of   the  decisions   of  this  Court  was prevailing.  That   was  the   reason  for   this  Court  in Kamlavati’s case to observe as follows :-      "To  avoid   the  conflict  in  the      application of  the  ratio  of  the      various  Supreme   Court  cases  as      seems to  have been done by some of      the High  Courts, we  would like to      clarify and  elucidate some  of the      aspects and  facets of the matter a      bit further.  When  a  property  is      gifted by  a donor  the  possession      and enjoyment  of which  is allowed      to a  partnership firm in which the      donor is  a partner,  then the mere      fact  of   the  donor  sharing  the      enjoyment or  the  benefit  in  the      property is  not sufficient for the      application of  section 10  of  the      Act until and unless such enjoyment      or benefit clearly referable to the      gift, i.e. to the parting with such      enjoyment or  benefit by  the donee      or permitting  the donor  to  share      them out  of the  bundle of  rights      gifted  in  the  property.  If  the      possession, enjoyment of benefit of      the  donor   in  the   property  is      consistent  with   the  other  than      those of  the factum  of gift, then      it cannot  be said  that the  donee      had not retained the possession and      enjoyment of  the property  to  the      entire exclusion  of the  donor  in      any benefit  to him  by contract of      otherwise. It  makes no  difference      whether the  donee is  a partner in      the firm from before or is taken as      such at  the  partnership  firm  by      allowing it  to  make  use  of  the      gifted property for the purposes of

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    the partnership."      After observing  as above,  this Court in the said case further observed as follows:-      "But we  want to  emphasis that the      principles of law laid down by this      Court in several decisions which we      have reviewed in this judgment with      some  further   clarification   and      elucidation should be carefully and      broadly applied  to  the  facts  of      each case without doing too much of      dichotomy and  hair SD splitting of      facts so  as not to easily apply or      not to  apply the  provision of law      contained  in  Section  10  of  the      Act."      We have  already set  out the  facts as  found  by  the Tribunal and  from those, it is clear that when the gift was made and  accepted, it  was unconditional.  A week later the donees requested  that  a  partnership  be  formed  and  the amounts gifted  be retained and utilised as share capital of the donees  in the  partnership firm  to be  formed. In  the light of  the letters  written by  the  donees,  as  noticed above, we  are of  the view that there is nothing to suggest that parting  with the enjoyment or benefit by the donee, or permitting the  donor to  share them  out of  the bundle  of rights gifted  in the  property is referable to the gift. We agree with  the contention  of the  learned counsel  for the appellant that the facts are more or less identical with the facts in  Viswanathan’s case (supra) and the ratio laid down therein which  has been  consistently applied  by this Court subsequently will apply to the facts of this case.      Accordingly,  we   allow  the  Appeal  and  answer  the question referred  to the  High Court  in the affirmative in favour of  the accountable  persons and against the revenue. However. there will be no order as to cost.