Sarojini
Ammal Vs. The Controller of Estate Duty, Madras [1996] INSC 1160 (18 September 1996)
Venkataswami
K. (J) Venkataswami K. (J) Bharucha S.P. (J) Venkataswami, J.
ACT:
HEAD NOTE:
In
this appeal by a certificate granted by the High Court of Madras under section
65 of the Estate Duty Act, 1953 (hereinafter referred to as "the
Act"), the vexed question of applicability or otherwise of section, 10 of
the Act arises for decision of this Court.
One Murugesa
Mudaliar, the deceased, passed away on 15.10.1964. He was carrying on a
business under the name and style of `Newton & Company' a proprietory
concern. On 20.7.1962. the deceased made two cash gifts of Rs.40,000/- each to
his two daughters, namely Smt. Rajeswari and Gnanambigai by debiting his
capital account and crediting their accounts in his personal business book. On
20.7.62, both the donee wrote letters to the deceased accepting the gifts and
thanking their father. Again on 27.7.62 each donee by separate letters thanking
once again tor the gifts requested the deceased to retain the same in the
business and admit them as partners. Accordingly, a partnership was formed with
effect from 1.8.1962 in which the donees and also the donor were the partners.
As noticed, the deceased passed away on 15.10.1964. A question arose, inter alia,
whether on the facts and in the circumstances of the case, the gifts of Rs.80,000/-
in all made by the deceased to his two daughters by debiting his capital
account and crediting the accounts of the donees in his personal business book
could not be included in the principal value of the estate of the deceased
under section 10 of the Estate Duty Act.
The
Assistant Controller of Estate Duty overruling the objection of the accountable
persons concluded that since the gifted amounts were not taken possession of
and enjoyed by the donees to the entire exclusion of the donor, the gifted
amounts were liable to be included in the principal values of the estate of the
deceased under section 10 of the Act. On appeal. the Appellate Controller
confirmed the assessment. The accountable persons appealed to the Income Tax
Appellate Tribunal (`Tribunal" for short) and the Tribunal found that the
gifts in question did not fall within the ambit of section 10 of the Act and
consequently they were not liable to estate duty. The Tribunal found as
follows:
"These
sequence of events clearly go to establish:-
1) The
two sums transferred by book entries were still available for purpose of the
business carried on by the deceased.
2)
Under Section 122 of the Transfer of Property Act, the gift must be accepted by
the donee and an offer without acceptance of the donee cannot complete the gift
.
While
accepting the gift, the donees have stipulated for retention of the gifted
amounts in the business of the deceased and admit them as partners. it,
therefore, follows that the transfer of gifts were complete with the condition
or understanding that the gifted amounts for the capital account of the donees
and continue to be available for purposes of the business carried on by the
deceased.
3) On
making the gifts, the donees?assumed such possession and enjoyment of the
subject matter of the gift as it was capable of at that time and that was also
retained to the exclusion of to the donor.
4) If
the donor had some sort of control over the gifted amounts, it was not because
of any reservation made by him while making the gifts, but the gift itself was
made subject to the condition or understanding that the gifted amounts would be
available for the continued use of the business carried on by the
deceased".
The
Revenue aggrieved by the decision of the Tribunal moved the High Court by way
of reference. Before the High Court, on behalf of the accountable persons, a
decision of the Court in Controller of Estate Duty, Kerala vs.R.V. Viswanathan
& Others. (1977 (1) SCC 90) was relied upon.
However,
the High Court distinguished that decision and ruled that on the facts of the
case, Section 10 of the Act is attracted and consequently answered the question
referred to it in favour of the Revenue and against the assessee.
Later
at the instance of the accountable persons, the High Court granted a
certificate of fitness for appeal to this Court in view of the later decision
of this Court in Controller of Estate Duty, Punjab & Haryana, Jammu &
Kashmir, Himachal Pradesh and Chandigarh vs. Kamlavati (1979 (4) SCC 265).
Before
us also learned counsel appearing for the appellant placing reliance on the
decisions of this Court in Viswanathan's case (supra) and Kamlavati's case
(supra) contended that the facts of this case as well as the facts in Vistanathan's
case are identical and the High Court was not correct in stating that the facts
were not identical and therefore, the appellant is entitled to succeed in this
Appeal. The learned counsel appearing for the Revenue, however, submitted that
in almost all the cases, the donor was already a partner in partnership firm
and the donee/donees was/were taken as partner/partners subsequent to the gift
and the principle or the ratio laid down in such cases cannot be pressed into
service to the facts of this case where the donor was sole proprietor of the
concern and subsequent to the gift. the donnes were taken as partners and the
partnership came into existence. We do not think that the learned counsel for
the Revenue is right in making this submission. In Viswanathan's case, the
donor was the sole proprietor when he gifted the total sum of Rs.2,70,000/= to
his four major and two minor sons.
After
going through various decisions of this Court, which have taken into account a
number of English decisions, we find that the rigour with which Section 102 of
the English Act corresponding to Section 10 of our Act was applied, has been
mellowed down, if we may use that expression, and certain amount of leniency has
definitely been shown in favour of the accountable persons. It is true that
when the High Court rendered this decision, there were conflicting views of
High Courts and to a certain extent.
Misunderstanding
of the decisions of this Court was prevailing. That was the reason for this
Court in Kamlavati's case to observe as follows :- "To avoid the conflict
in the application of the ratio of the various Supreme Court cases as seems to
have been done by some of the High Courts, we would like to clarify and elucidate
some of the aspects and facets of the matter a bit further. When a property is
gifted by a donor the possession and enjoyment of which is allowed to a
partnership firm in which the donor is a partner, then the mere fact of the
donor sharing the enjoyment or the benefit in the property is not sufficient
for the application of section 10 of the Act until and unless such enjoyment or
benefit clearly referable to the gift, i.e. to the parting with such enjoyment
or benefit by the donee or permitting the donor to share them out of the bundle
of rights gifted in the property. If the possession, enjoyment of benefit of
the donor in the property is consistent with the other than those of the factum
of gift, then it cannot be said that the donee had not retained the possession
and enjoyment of the property to the entire exclusion of the donor in any
benefit to him by contract of otherwise. It makes no difference whether the donee
is a partner in the firm from before or is taken as such at the partnership
firm by allowing it to make use of the gifted property for the purposes of the
partnership." After observing as above, this Court in the said case
further observed as follows:- "But we want to emphasis that the principles
of law laid down by this Court in several decisions which we have reviewed in
this judgment with some further clarification and elucidation should be
carefully and broadly applied to the facts of each case without doing too much
of dichotomy and hair SD splitting of facts so as not to easily apply or not to
apply the provision of law contained in Section 10 of the Act." We have
already set out the facts as found by the Tribunal and from those, it is clear
that when the gift was made and accepted, it was unconditional. A week later
the donees requested that a partnership be formed and the amounts gifted be
retained and utilised as share capital of the donees in the partnership firm to
be formed. In the light of the letters written by the donees, as noticed above,
we are of the view that there is nothing to suggest that parting with the
enjoyment or benefit by the donee, or permitting the donor to share them out of
the bundle of rights gifted in the property is referable to the gift. We agree
with the contention of the learned counsel for the appellant that the facts are
more or less identical with the facts in Viswanathan's case (supra) and the
ratio laid down therein which has been consistently applied by this Court
subsequently will apply to the facts of this case.
Accordingly,
we allow the Appeal and answer the question referred to the High Court in the
affirmative in favour of the accountable persons and against the revenue.
However.
there will be no order as to cost.
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