Controller of Estate Duty, A.P.,
Hyderabad Vs. Smt. Godavari Bai [1986] Insc 20 (18 February 1986)
TULZAPURKAR, V.D. TULZAPURKAR, V.D.
MUKHARJI, SABYASACHI (J) MISRA RANGNATH
CITATION: 1986 AIR 631 1986 SCR (1) 348 1986
SCC (2) 264 1986 SCALE (1)236
CITATOR INFO :
RF 1988 SC1426 (15) RF 1988 SC1511 (9)
ACT:
Estate Duty Act 1953, s.10 - Ingredients of -
Property taken under any gift - Whether part of estate of deceased donor
passing on his death - Dependent upon what was subject matter of gift and
whether gift of absolute nature or subject to certain rights.
HEADNOTE:
The respondent's husband was a partner in a
firm carrying on business as bankers. He issued a cheque for Rs.3,00,000 in
favour of the firm on 4th October, 1952 with a view to give Rs. 1,00,000 to
each of his three minor grand nephews. This amount was debited to his account
in the firm and credited in the accounts of the three minors in equal
proportion. He died on 21st February 1956. The said sum continued to stand in
the respective accounts of the three minors in the books of the firm till its
dissolution on 4th July, 1960 whereafter some assets were allotted to each one
of them in lieu of the amounts standing to their credit.
The respondent, as the accountable person,
filed an account declaring the value of the assessee's estate without including
the aforesaid sum of Rs. 3,00,000 transferred by the deceased to his three
grand nephews. The respondent- assessee contended before the Deputy Controller
(i) that these transfers were not gifts but amounted to transfer of actionable
claims made in conformity with s. 130 of the transfer of Property Act by
effecting entries in the books of account; and (2) that the transfer amounted
to a novation which did not require an instrument signed by the transferor. The
Deputy Controller negatived both the contentions and held that the sum of Rs. 3
lakhs was includible in the estate of the deceased that passed on his death.
The Appellate Controller confirmed the aforesaid order in appeal. In the
further appeal preferred by the respondent, the Appellate Tribunal, held (i)
that the plain reading of section 130 showed that the transfer 349 of an
actionable claim became complete and effective only upon the execution of an
instrument in writing signed by the transferor or by his duly authorised agent;
(ii) that the cheque issued by the deceased in favour of the firm only
authorised the firm to pay to itself the sum of Rs. 3 lakhs from out of the
amount lying at the credit of the deceased but it did not by itself authorise
the firm to transfer this amount to anyone else and that such a transfer could
be authorised by a separate letter of instructions from the deceased but no
such instrument obtained and the oral instructions given could not take the
place of such an instrument in writing and, therefore the transfer of Rs. 3
lakhs done in favour of the donees was not in accordance with the requirements
of section 130; (iii) that the amount of Rs.3 lakhs was also includible in the
estate of the deceased under section 10 of the Estate Duty Act even if it were
assumed that the transfer became complete and effective on the date of the transfer
inasmuch as on the facts, it could not be said that the donees retained
possession and enjoyment of the gifted amounts to the entire exclusion of the
donor or of any benefit to him and that this position continued to exist till
the death of the deceased.
The High Court in a reference at the instance
of the assessee, set aside the order of the Tribunal on the grounds (i) that it
was a gratuitous transfer of an actionable claim and the inter-position of a
cheque issued by the deceased in favour of the firm made all the difference
inasmuch as the transfer of an actionable claim represented by a negotiable
instrument like a cheque was governed by section 137 in preference to section
130 of the Transfer of Property Act and that the cheque together with the oral
instructions (which even the Tribunal presumed were given by the deceased)
would constitute the firm a trustee or an agent holding the moneys for the
benefit of the minors and, as such, the transfer to minors was valid, complete
and effectual; (ii) that the donor had been completely excluded from the
subject-matter of the gift and, as such, section 10 was not applicable.
Dismissing the appeal, ^
HELD: 1. The transaction in question clearly
fell within the ratio of the decision in Munro's case and the High Court 350
was right in coming to the conclusion that to such a transaction, section 10
was inapplicable. [362 F-G] 2.(i) Section 10 of the Estate Duty Act, 1953
prescribes two conditions, namely,: (1) that 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) that
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 the conditions is satisfied, the property would be liable to estate
duty under section 10 of the Act. [357G-H; 358 A] 2.(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 and that the word "otherwise" should be construed ejusdem
generis and should be interpreted to mean some kind of legal obligation or some
transaction enforceable in law or in equity which, though not in the form of a
contract, may confer a benefit on the donor. [358 B-C] 3.(i) The question
whether gifted property should be regarded as a part of the estate of the
deceased donor passing on his death for the purpose of s. 10 of the Act would
depend upon as to what precisely is the subject matter of the gift and whether
the gift is of absolute nature or whether it is subject to certain rights. If
the gift is made without any reservation or qualification, that is to say,
where the gift carries fullest right known to law of exclusive possession and
enjoyment, any subsequent enjoyment of the benefit of that property by way of
possession or otherwise by the donor would bring the gift within the purview of
s. 10; but where the gift is subject to some reservation or qualification, that
is to say, if the subject matter of the gift is property shorn of certain
rights and the possession or enjoyment of some benefit in that property by the
donor is referable to those rights i.e. rights shorn of which the property is
gifted, then in that case the subject matter of the gift will not be deemed to
pass on the death of the deceased donor. In other words, if the deceased donor
limits the interest he is parting with and 351 possesses or enjoys some benefit
in the property not on account of the interest parted with but because of the
interest still retained by him, the interest parted with will not be deemed to
be a part of the estate of the deceased-donor passing on his death for the
purpose of s. 10 of the Act. It is these aspects which mark the distinction
between the two leading cases, namely Chick's case and Munro's case. The decision
in chicks's case falls within the first category while Munro's case falls
within the other category. [358 E-H; 359 A-B] In the instant case, the donees
were never admitted to the benefits of the partnership firm. The Tribunal as
well as the High Court found as a fact that when the cheque was issued oral
instructions must be presumed to have been given by the deceased to the firm
for crediting the three accounts of the three minors without which the firm
could not make such credit entries. Therefore, the transaction in question
amounted to a gratuitous transfer of an actionable claim to which s. 137 in
preference to s. 130 of the Transfer of Property Act applied and there was a
valid gift thereof to the minor donees. Moreover, the amount of Rs. 3 lakhs did
not go out of the firm but on being transferred from the account of the
deceased to the accounts of the minor donees continued to remain with the firm
for being used for the firm's business; in fact the partnership continued to
have the benefit thereof even after the death of the donor till the firm was
dissolved. Obviously, the substance of the transaction was that the gift was of
an actionable claim of the value of Rs. 3 lakhs out of the donor's right, title
and interest as a whole in the firm and as such was shorn of certain rights in
favour of the partnership and therefore, the possession or enjoyment of the
benefit retained by the donor as a partner of the firm must be regarded as
referable to partnership rights and had nothing to do with the gifted property.
[361 G-H; 362 A-F] Munro v. Commissioner of Stamp Duties, [1934] A.C. 61;
C.R. Ramachandra Gounder's case, 88 I.T.R.
448; N.R. Ramarathanm case, 91 I.T.R.Controller of Estate Duty v. R.V. Vishwanathan
& Ors., 105 I.T.R. 653 & Controller of Estate Duty v. Kamlava, 120
I.T.R. 456 applied.
Chicks v. Commissioner of Stamp Duties of New
South Wales, 37 I.T.R. (E.D.) 89; George Da Costa v. Controller of 352 Estate
Duty, Mysore, 63 I.T.R. 497; Controller of Estate Duty, Madras v. Smt. Parvati
Ammal 97 I.T.R. 621; Shantaben S. Kapadia v. Controller of Estate Duty,
Gujarat, 73 I.T.R.
171 & Controller of Estate Duty, Gujarat
v. Chandravadan Amratlal Bhatt, 73 I.T.R. 416 distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 79 (NT) 1974.
From the Judgment and Order dated 29.2.1972
of the Madras High Court in Tax Case No. 209 of 1966.
S.C. Manchanda and Miss A. Subhashini for the
Appellant.
T.A. Ramachandran and Mrs. Janki Ramachandran
for the Respondent.
The Judgment of the Court was delivered by
TULZAPURKAR, J. The question raised for our determination in this appeal is
whether on the facts and in the circumstances of the case the amount of Rs. 3
lakhs transferred by the deceased to his three grand nephews in equal shares
was includible in the estate of the deceased that passed on his death?
Substantially the answer thereto depends upon whether sec.10 of the Estate Duty
Act, 1953 is attracted to the case or not.
The facts giving rise to the question may
briefly be stated. The deceased, Sri Bankatlal Lahoti was a partner in the firm
of M/s Dayaram Surajmal, which carried on business as a Bankers. With a view to
give Rs.1 lakh each to his three minor grand nephews (three grand sons of his
deceased brother) the deceased on 4th October 1952 issued a cheque for Rs.3
lakhs in favour of the firm; this amount was debited in the account of the
deceased in the firm and credited in the accounts of the three minors in equal
proportion. The said sum thus transferred to the three nephews continued to
stand in their respective accounts in the books of the firm till its
dissolution on 4th July 1960, whereafter some assets were allotted to each one
of them in lieu of the amounts standing to their credit. The deceased died on
21st February 1956.
After the death of the deceased, his widow
Smt.
Godavari Bai as the accountable person filed
an account of the 353 assessee's estate declaring the value thereof at
Rs.2,60,702. This did not include the sum of Rs.3 lakhs transferred by the
deceased to the three grand nephews on 4th October 1952. The assessee contended
that these transfers were not gifts but amounted to transfer of actionable
claims made in conformity with s.130 of the Transfer of Property Act by
effecting entries in the books of account. Alternatively it was contended that
the transfer amounted to a novation which did not require an instrument signed
by the transferor. The Deputy Controller negatived both the contentions; the
first on the ground that there was no valid transfer of actionable claims
because it was not effected by an instrument in writing signed by the
transferor as required by s.130 of the Transfer of Property Act while the
alternative contention on the ground that the transaction did not amount to a
novation inasmuch as there was no substitution of one debt for another. In this
view of the matter the Deputy Controller held that the sum of Rs.3 lakhs was
includible in the estate of the deceased that passed on his death. In the
appeal preferred by the assessee the self same contentions were urged on her
behalf before the Appellate Controller of Estate Duty while the Deputy
Controller justified the assessment on the additional ground that the sum of
Rs.3 lakhs was also includible in the Estate of the deceased that passed on his
death under s.10 of the Estate Duty Act 1953. The Appellate Controller rejected
the assessee's contentions and accepted those of the Deputy Controller and
confirmed the inclusion of the amount in the estate of the deceased. In the
further appeal preferred to the Appellate Tribunal since it was admitted on
behalf of the assessee that apart from the cheque issued by the deceased in
favour of M/s Dayaram Surajmal and the entries made in the books of that firm
debiting the deceased's account and crediting the accounts of the donees there
was no other document to evidence the transfer the Tribunal presumed that the
tansfer was effected as a result of oral instructions which must have been
given by the deceased to the firm. Counsel for the assessee, however, urged
that notwithstanding the absence of an instrument in writing signed by the
assessee the transfer was valid under s.130 of the Transfer of Property Act and
in that behalf reliance was placed on Ramaswamy Chettiar and Ors. v. K.S.M.
Manickam Chettiar and Ors., A.I.R. 1938 Madras 236 and Seetharama Ayyar and
Anr.v. Narayanaswami Pillai and Anr. 47 Indian Cases 749 but the Tribunal did
not accept the 354 contention and held that the plain reading of s.130 showed
that the transfer of an actionable claim became complete and effectual only
upon the execution of an instrument in writing signed by the transferor or by
his duly authorised agent; that the cheque issued by the deceased in favour of
the firm only authorised the firm to pay to itself the sum of Rs.3 lakhs from
out of the amount lying at the credit of the deceased but it did not by itself
authorise the firm to transfer this amount to anyone else and that such a
transfer could be authorised by a separate letter of instructions from the
deceased but no such instrument obtained and the oral instructions given could
not take the place of such an instrument in writing and therefore the transfer
of Rs.3 lakhs done in favour of the donees was not in accordance with the
requirements of section 130. The alternative contention that the transfer was
in the nature of a novation was also rejected on the ground that the donees
were not indebted to the firm nor was the deceased indebted to the donees and
therefore, the entries made in the account books of the firm could not be
understood as a substitution of one debtor in the place of another. The
Tribunal also held that this amount of Rs.3 lakhs was includible in the estate
of the deceased under s.10 of the Estate Duty Act even if it were assumed that
the transfer became complete and effective on the date of the transfer inasmuch
as on the facts it could not be said that the donees retained possession and
enjoyment of the gifted amounts to the entire exclusion of the donor or of any
benefit to him and that this position continued to exist till the death of the
deceased.
At the instance of the assessee the Tribunal
referred the following question of law to the High Court for its opinion:
"Whether on the facts and in the
circumstances of the case, the Appellate Tribunal was right in law in holding
that the amount of Rs.3 lakhs transferred by the assessee to his grand nephews
was includible in the estate of the deceased that passed on his death." On
a consideration of the entire material on record the High Court took the view
that the entries made in the books of the firm by debiting the account of the
deceased in the sum of 355 Rs.3 lakhs and crediting the said amount in equal
proportion in the three accounts of the donees (grand nephews) might or might
not constitute a valid gift of money but proceeding on the basis that it was
gratuitous transfer of an actionable claim the interposition of a cheque issued
by the deceased in favour of the firm made all the differene inasmuch as the
transfer of an actionable claim represented by a negotiable instrument like a
cheque was governed by s.137 in preference to s.130 of the Transfer of Property
Act and that the cheque together with the oral instructions (which even the
Tribunal presumed were given by the deceased) would constitute the firm, a
trustee or an agent holding the moneys for the benefit of the minors and as
such the transfer to the minors was valid, complete and effectual. After coming
to this conclusion the High Court proceeded to consider the question whether to
this transaction of gift of an actionable claim s.10 of the Act was applicable
or not and relying upon the decision in the leading case of Munro v.
Commissioner of Stamp Duties, 1934 A.C. 61 as well as its two earlier decisions
in Controller of Estate Duty v. C.R. Ramachandra Gounder, 73 I.T.R. 166 and
Controller of Estate Duty v. N.R.
Ramarathanam, 74 I.T.R. 432 the High Court
held that the donor had been completely excluded from the subject matter of the
gift and as such s.10 was not applicable. In other words differing from the
view taken by the Tribunal, the High Court held that the transaction involved
in the case was a gratuitous transfer of an actionable claim and that there was
in law a valid, complete and effectual gift thereof in favour of the three
minor grand nephews and since s.10 was not attracted the sum of Rs.3 lakhs was
not includible in the value of the estate of the deceased that passed on his
death. It, therefore, answered the question in the negative in favour of the
assessee. The Revenue has come up in appeal.
Counsel for the Revenue did not assail the
High Court conclusion in regard to their being a valid gift of the actionable
claim in favour of the minors resulting from the issuance of the cheque
accompanied by oral instructions and followed by the making of the requisite
debit and credit entries in the firm's books but vehemently criticised the view
that s.10 was inapplicable to this transaction of gift.
He urged that possession and enjoyment of the
subject matter of the gift was neither assumed by the donees nor retained by
356 them to the entire exclusion of the donor inasmuch as the donor as a
partner of the firm had control over the said sum of Rs.3 lakhs which continued
to lie with the firm for being used as the firm's property and this position
continued to obtain till the death of the deceased and in fact till the
dissoiution and as such s.10 was clearly attracted. Strong reliance was placed
by counsel for the revenue on the ratio of the Privy Council decision in Chicks
v. Commissioner of Stamp Duties of New South Wales, 37 I.T.R. E.D. 89 which was
followed by this Court in George Da Costa v. Controller of Estate Duty, Mysore,
63 I.T.R. 497 and Controller of Estate Duty, Madras v. Smt. Parvati Ammal, 97
I.T.R. 621 as also two decisions of the Gujarat High Court in a Shantaben S. Kapadia
v. Controller of Estate Duty, Gujarat, 73 I.T.R. 171 and in Controller of
Estate Duty, Gujarat v. Chandravadan Amratlal Bhatt, 73 I.T.R. 416. On the
other hand counsel for the assessee supported the view of the High Court by
placing reliance on the decision in Munro's case (supra) which had been
followed by this Court in C.R. Ramachandra Gounder's, 88 I.T.R. 448 N.R.
Ramarathanam's case 91 I.T.R. 1 Controller of Estate Duty v. R.V. Vishwanathan
& Ors., 105 I.T.R. 653 and Controller of Estate duty v. Kamlavati, 120 I.T.R.
456.
Having regard to the rival contentions urged
before us it is clear that the answer to the question raised in this appeal
depends upon a proper analysis of s.10 of the Act and whether the instant case
falls within the doctrine enunciated in Munro's case (supra) or within the
ratio of Chicks' case (supra)? Relevant portion of s.10 of the Act runs thus
"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 or of any benefit to him by contract or
otherwise....." The object under lying a provision like s.10 of the Act
was explained by Issacs J. in the case of John Lang v. Thomas Prout Webb, 1912
13 C.L.R. 503 decided by the High Court of Australia in the following words :
357 "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 time. A gift, however, real and bona fide, if made
within twelve months before the donor's death is for the purpose of duty
regarded as not made. The other is conduct which 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 presies to the transaction choose to act so
as to begin 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 conditions specified in s.10 will have to
be understood by keeping in view the aforesaid object with which the section
has been enacted. In George Da Costa v. Controller of Estate Duty, Mysore
(supra) this Court has analysed the conditions on the fulfilment of which the
section gets attracted, thus:
"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 358 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." The second part of the section, as
observed in the afore said decision, has two limbs the deceased must be
entirely excluded (i) from the property, and (ii) from any benefit by contract
or otherwise and that the word 'otherwise should be construed ejusdem generis
and should be interpreted to mean some kind of legal obligation or some
transaction enforceable in law or in equity which, though not in the form of a
contract, may confer a benefit on the donor.
Therefore, the question that arises for our
determination in this appeal is whether the aforementioned two cumulative
conditions requisite for attracting s.10 are satisfied in this case or not?
Whether immediately upon the gift the donees had bona fide assumed possession
and enjoyment of the property, which was the subject matter of the gift, to the
exclusion of the donor and whether they had retained such possession and
enjoyment thereof to the entire exclusion of the donor or of any benefit to him
by contract or otherwise? The question whether gifted property should be
regarded as a part of the estate of the deceased donor passing on his death for
the purpose of s.10 of the Act would depend upon as to what precisely is the
subject matter of the gift and whether the gift is of absolute nature or
whether it is subject to certain rights. If the gift is made without any reservation
or qualification, that is to say, where the gift carries fullest right known to
law of exclusive possession and enjoyment, any subsequent enjoyment of the
benefit of that property by way of possession or otherwise by the donor would
bring the gift within the purview of s.10; but where the gift is subject to
some reservation or qualification, that is to say, if the subject matter of the
gift is property shorn of certain rights and the possession or enjoyment of
some benefit in that property by the donor is referable those rights i.e.rights
shorn of which the property is gifted, then in that case the subject matter of
the gift will not be deemed to pass on the death of the deceased donor. In
other words if the 359 deceased donor limits the interest he is parting with
and possesses or enjoys some benefit in the property not on account of the
interest parted with but because of the interest still retained by him, the
interest parted with will not be deemed to be a part of the estate of the
deceased donor passing on his death for the purpose of s.10 of the Act. It is
these aspects which mark the distinction between the two leading cases, namely
Chick's case and Munro's case (supra). As we shall indicate presently Chick's
case falls within the first category while Munro's case falls within the other
category.
In Chick's case the question arose under
s.102 of the New South Wales Stamp Duties Act, 1920-56 which was similar to
s.10 of our Act and the facts were these: In 1934 a father transferred by way
of gift to one of his sons a pastoral property, the gift having been made
without reservation or qualification or condition. In 1935, some 17 months
after the gift, the father, donee-son and another son entered into an agreement
to carry on in partnership the business of graziers and stock dealers. The
agreement provided, inter alia that the father 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 livestock and plant then owned by the respective partners
that the business should be conducted on the respective holdings of the partner
and such holdings should be used for the purposes of the partnership only that
all lands held by any of the partners at the date of the agreement should
remain the sole property of such partner and should not on 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 property, that of the donee-son being
that which had been gifted to him by his father in 1934, and each partner
brought into partnership livestock and plant, and their three properties were
thenceforth used for the depasturing of the partnership stock and this
arrangement continued up to the death of the father in 1952. The Privy Council
held that the value of the property given to the son in 1934 was to be included
in computing the value of the father's estate for the purpose of death duty.
While it was not disputed that the son had assumed bona fide possession and
enjoyment of the property immediately upon the 360 gift to the entire exclusion
of the father he had not, on the facts, thenceforth retained it to the father
entire exclusion, for under the partnership agreement and what ever force and
effect might be given to that part of it which gave a partner the sole and free
right to deal with his own property, the partners and each of them were in
possession and enjoyment of the property so long as the partnership subsisted.
The Judicial Committee observed that where the question was whether the donor
had been entirely excluded from the subject matter of the gift, that was the
single fact to be determined, and, if he had not been so excluded the eye need
look no further to see whether his non- exclusion had been advantageous or
otherwise to the donee.
In its opinion it was irrelevant that the
father gave (if he did give) full consideration for his right as a member of
the partnership to possession and enjoyment of the property that he had given
to his son. Inter alia two or three points emerge clearly from the decision
that need to be emphasised:
(a) there was initially an outright gift of
the property - not of the property shorn of any rights, (b) the deceased donor
was not in fact excluded from the property, but as a partner enjoyed rights
over it and (c) that it was immaterial that the donor gave full consideration
for enjoying his rights over the property as a partner. It was these aspects
that brought the gifted property within the mischief of the taxing statute. The
other decisions of this Court on which Counsel for the revenue has relied are
clearly cases falling within this category and hence the ratio of chick's case
was correctly applied in each of them.
On the other hand in Munro's case the facts
were these 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 in 1909 that thereafter the business should be carried on by him and
them as partners under a partnership at will and the business was to be managed
solely by M and each partner was to receive a specified share of profits. In
1913, by six registered transfers M transferred by way of gift 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 their children. The evidence showed
that the transfers were taken subject to the partnership agreement and on
understanding that any partner could withdraw and work his land separately. In
1919 M and his 361 children entered into a formal partnership agreement, which
provided that during the life time 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,
1920-1931 (N.W.W.), on the ground that they were gifts dutiable under s.102(2a)
of that Act. The Privy Council held that the property comprised in the
transfers was the land separated from the rights therein belonging to the
partnership and was excluded by the terms of s.102, sub-s 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. It was urged that the transfer deeds did not
mention the rights of the partnership and therefore under s.42 of the Real
Property Act, 1900 (N.S.W.) the transfers gave a title free from those rights
but the Judicial Committee negatived the contention on the ground that
substance of the transactions and not the forms employed had to be ascertained
and so ascertained the substance showed that the transfers were shorn of rights
in favour of the partnership and the benefit remaining in the donor was
referable to such rights of the partnership subject to which the gifts had been
made. Thus this decision clearly enunciates the principle that if the subject
matter of the gift is property shorn of certain rights and if the possession or
enjoyment of some benefit in that property by the donor is referable to those
rights, i.e. rights shorn of which the property is gifted then the subject
matter of the gift will not be deemed to pass on the death of the deceased
donor. The ratio of this decision has been followed and applied by this Court
in Ramachandra Gounder's case, N.R.
Ramarathanam's case, R.V. Vishwanathan's case
and Kamlavati's case (supra).
Having regard to the undisputed facts and
facts found by the High Court it seems to us clear that the instant case falls
within the principle enunciated in Munro's case.
Admittedly the deceased donor was a partner
in the banking firm of M/s Dayaram Surajmal, whereas the minor donees were
never admitted to the benefits of the partnership firm. An extract of account
filed by the assessee before the High Court brought out the procedure followed
for effecting the transaction in question the deceased had his account
comprising his capital contribution and advances made by him to the firm; he
362 drew a cheque for Rs.3 lakhs against his account with the firm which was
made out in the name of the firm as a result whereof the firm could pay itself
but the account of the deceased was debited with the sum of Rs.3 lakhs and on
the same day simultaneously three accounts of the minor donees with the said
firm were credited with the sum of Rs.1 lakh each. The Tribunal as well as the
High Court found as a fact that when the cheque was issued oral instructions
must be presumed to have been given by the deceased to the firm for crediting
the three accounts of the three minors without which the firm could not make
such credit entries. From these facts the High Court rightly inferred that
"in effect the cheque was issued in favour of the firm, but for the
benefit of the minors" and that "in such a situation the firm shall
be treated as a trustee or an agent holding the money for the benefit of the
minors." Clearly, in this view of the matter, the transaction in question
amounted to a gratuitous transfer of an actionable claim to which s.137 in
preference to s.130 of the Transfer of Property Act applied and there was a
valid gift thereof to the minor donees.
Further undisputed facts were that the amount
of Rs.3 lakhs did not go out of the firm but on being transferred from the
account of the deceased to the accounts of the minor donees continued to remain
with the firm for being used for the firm's business; in fact the partnership
continued to have the benefit thereof even after the death of the donor till
the firm was dissolved. Obviously the substance of the transaction was that the
gift was of an actionable claim of the value of Rs.3 lakhs out of the donor's
right, title and interest as a whole in the firm and as such was shorn of
certain rights in favour of the partnership and therefore, the possession or
enjoyment of the benefit retained by the donor as a partner of the firm must be
regarded as referable to partnership rights and had nothing to with the gifted
property. In our view the transaction in question, therefore, clearly fell
within the ratio of the decision in Munro's case and the High Court was right
in coming to the conclusion that to such transaction s.10 was inapplicable.
We would like to point out that the facts of
the instant case are almost similar to the facts that obtained in Controller of
Estate Duty v. Jai Gopal Mehra, a companion matter that was decided and disposed
of by this Court by a common judgment in Kamlavati's case (supra) where it was
held 363 that the transaction of gift was one to which s.10 was inapplicable.
In the result the appeal is dismissed with no
order as to costs.
M.L.A. Appeal dismissed.
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