1. At the instance of the revenue, the following three question are referred to us for our determination :
'(1) Whether, under fact and in the circumstances of the case, there was a valid gift of Rs 4 lakhs by Shri Gopaldas in favour of his minor sons, Krishnaraja ArunKumar, on November 30, 1954
(2) Whether, in the event of question No. 1 being answered in the affirmative on the facts and in the circumstances of the case, Provision of section 10 could be applied to the credit balance in the account of Krishnaraja and Arunkumar in the books of M/s. Khimji Pooja & Co. So as to justify inclusion in the estate duty assessment of the sum of Rs. 80,865. or Rs. 38,887-1-9 by making appropriate adjustment, as the case may be (3) Whether, on the facts in the circumstances of the case, in the event of question No. 1 being answered to the affirmative, the debit of Rs 4 lakhs to the account of the deceased was liable to the disallowed out of the debts due by the deceased to the firm by virtue of the provisions of section 44(a) of the Estate Duty At (hereinafter referred as the Act)' The above three questions arise out of the assessment to estate duty consequent upon the death of Gopaldas Poonjabhai which took place on August 28, 1958. Gopaldas and his major son were partners along with others in the firm called Messrs. Khimji Poonja & Company, carrying on business in cotton, bullion, shares, etc., On extensive scale. The share of Gopaldas in the side from was 1 & half annas in the rupee. Gopaldas had two accounts in the firm-one was a current account and the other and investment account. Whenever he needed moneys, he took the same from the shares work nearly Rs 14 lakhs. The same were kept by him in deposit with the firm and they were offered as security by the firm for obtaining overdraft facilities in its business.
2. In the Samvat year 2011, on November 30, 1954, there was a debit entry of Rs. 4 lakhs in the cash book of the firm with the following narration :
'Bhai Gopaldas Poonjabhai A/c. debited - being the amount of gift given by you to Krishnaraj Gopaldas and Arunkumar Gopaldas joint A/c. guardian Bhai Gopaldas Poonja, being amount of gift given by Gopaldas Poonja, and this account credited and his account debited Rs. 4,00,000'. Krishnaraj and Arunkumar referred to in these entries where his minor sons. On December 1, 1954, Gopaldas had executed a declaration, inter alia, stating that out of natural love and affection which bore to his sons, Krishnaraj and Arunkumar, aged about 14 and 12 years, respectively, He made a gift of Rs.4 lakhs in their favour as tenants-in-common in equal share.
3. The said sum of Rs.4 lakhs was actually debited to the current account of Gopaldas in the books of the firm. The current account then showed a credit balance of Rs. 20,151 and the investment account showed a debit balance of Rs 3,09,684. The result of the debit of Rs 4.lakhs on November 30, 1954 to the account of Gopaldas was to increase the debit balance considerably. Later on, his account was subsequently overdrawn. On the date of his death, the debit balance in the current account, in which the sum of Rs. 4 lakhs was debited,was Rs. 8.53,000.
4. One Ramanlal Dayabhai owned and immovabe property known as Kurva Castle, situate at Walkeshwar, Bombay. By way of equitable mortage, he mortgaged the side property to Mr. and Mrs. Kapadia with a view to secure the amount of Rs. 3,15,260 taken by way of loan in or about the year 1953. A further encumbrance was created upon the side immovable property by Ramanlal in favour of M/s. Khimji Poonja & Company to the extent of Rs. 30,000. Ramanlal was adjudged insolvent on September 3, 1953. And his estate was being realised for desceration amongst his creditors, on September 16, 1954, and auction sell was held for selling the said property, Kurva Castle. The highest bid was given by Kapadias for Rs. 2,75,000 at the auction. Before the sale was confirmed, Kapadias agreed to sell the property to the persons named by Gopaldas. On November 15,1954, a sum of Rs. 2,75,000 was paid by Khimji Poonja & Company to the Kapadias. Ultimately, after making an application to the court, with the sanction of the court, this property was purchased in the name of the minors, Krishnaraj and Arunkumar. A sale deed was executed in favour of Krishnaraj and Arunkumar on September 28, 1955. After payment of the purchase price, stamp and other expenses, there was a credit balance in the account of Krishnaraj and Arunkumar on November 14, 1955, to the extent of Rs. 95,865 out of the sum of Rs. 4 lakhs transferred to them. As on January 2, 1956, being the last day of S.Y. 2012, this credit balance dropped to Rs. 3,137.89 and as on October 23, 1957, being the last date of S.Y. 2013, the small credit balance was wiped out and the account stood in debit to the extent of Rs. 39,795.03. There is no controversy in these assessment proceedings that Kurva Castle, purchased in the names of Krishnaraj and Arunkumar, belongs to them.
5. On the demise of Gopaldas, a question arose as to whether the sum of Rs. 4 lakhs gifted to the minors, Krishnaraj and Arunkumar, on November 30 1954, was liable to be taxed. The Deputy Controller of Estate Duty took the view that the contention of the accountable person that the deceased had made a cash gift of Rs. 4 lakhs to his minor sons was untenable and the amount which was debited to his account and which formed part of the debt owing by the deceased to the firm together with interest would have to be included in the principal value of the estate. He also considered the question of applicability of s. 44 of the Act and held in the alternative that to the extent of Rs. 4 lakhs, out of the deceased's liability to the firm, the debt had not been incurred wholly for the deceased's own purpose, viz., for his use and benefit. In this view, the debt due by the deceased was, reduced by Rs. 4 lakhs for the purpose of determining the value of the properties that passed. The result was that on either of the said findings the principal value of the estate of the deceased was increased by Rs. 4 lakhs and it was subject to levy of estate duty. This order of the Dy Controller was confirmed in appeal by the Appellate Controller, more or less for the same reasons. The accountable person thereafter filed the appeal before the Tribunal. It was sought to be urged on his behalf before the Tribunal that there was a valid gift of the sum of Rs. 4 lakhs on November 30, 1954, and the provisions of s. 10 of the Act cannot support the assessment or levy of estate duty, nor can any liability be disallowed as set out by reference to s. 44.
6. On behalf of the revenue, it was urged that there was no valid gift because there was no cash available to the extent of Rs. 4 lakhs with the firm and the transaction in this case was merely a transfer of actionable claim, which, in law, can be validly effected by a document. As in the present case, there was no such document, there was no effective transfer of such actionable claim. In the alternative, the levy of estate duty was sought to be supported by reference to s. 10 of the Act, or in the further alternative, by reference to s. 44. The Tribunal accepted the contentions on behalf of the accountable person and held that there was a valid gift, as it was virtually a gift of cash in favour of Krishnaraj and Arunkumar. The firm could easily have, with all its resources about which there was no dispute, given the amount of Rs. 4 lakhs by borrowing, if necessary. It further held that there was no transfer of an actionable claim in this case, as there was no actionable claim when there was no balance due to or from a partner in a running firm.
7. On the question of applicability of s. 10, the Tribunal held that the possession and enjoyment in this case has been assumed by the donees to the entire exclusion of the donor and that the retention of the amount in the books of the firm in which the deceased was a partner could not justify the application of s. 10. It was also pointed out that the contention on the application of s. 10 would be applicable only to the extent of the credit balance in favour of the minors within the period of two years proceeding the death and not to the whole of Rs. 4 lakhs as considerable portion thereof had been withdrawn even in 1955. According to the Controller, the sum so outstanding two years prior to his death was Rs. 80,865. But according to the accountable person, the amount actually outstanding against the donees up to August 28, 1958, the date preceding two years prior to the death of Gopaldas, was Rs. 38,987-1-6, if the debits and credits were taken together in the two accounts relating to them, viz., Kurva Castle account and the joint account. So far as s. 44 was concerned, the Tribunal held that so long as the deceased had obtained the loan for the purpose of disposal, according to his own wishes, it cannot be said that the loan was not wholly for the deceased's own use and benefit. Thus, the Tribunal partly allowed the appeal of the accountable person.
8. It is from this order of the Tribunal that the above three questions are referred to us for our determination at the instance of the revenue.
9. So far as the first question referred to above is concerned, it was sought to b urged by Mr. Joshi, on behalf of the revenue, that except for making a book entry no cash was handed over and there was no valid gift of Rs. 4 lakhs by the deceased, Gopaldas, in favour of his minor sons, Krishanraj and Arunkumar, on November 30, 1954.
10. It is undoubtedly true that on November 30, 1954, there was no credit balance in favour of Gopaldas in any of the two accounts that he had with the firm, but his property was worth several lakhs of rupees, so that the firm could utilise the same by way of giving security to the banks for overdraft facilities. In the present case, out of the amounts standing to the credit of the two minors, the price of Kurva Castle was paid and it is not even controverted on behalf of the revenue that Kurva Castle belongs to the two minors, Krishnaraj and Arunkumar. If Kurva Castle belongs to, the two minors, then naturally there was an effective and valid gift of the sum of Rs. 4 lakhs. The price of Kurva Castle was paid only by debiting the amount to the account of the minors and there is no distinction between the price paid and debiting the account. The very fact that the ownership of Kurva Castle by the minors has not been disputed, would automatically lead to the conclusion that there was a valid and effective gift, in law, of the sum of Rs. 4 lakhs by the deceased, Gopaldas, in favour of his minor sons and part of the amount, so gifted, was utilised in paying the price of Kurva Castle. It is not the contention, on behalf of the revenue, that there was an effective gift only in respect of a part of the amount of Rs. 4 lakhs, while there was no effective gift in respect of the rest of the amount. Once the ownership of Kurva Castle by the minors is accepted, there is no further scope left for the contention that there was no valid and effective : gift in respect of the sum of Rs. 4 lakhs.
11. Apart from that, on the facts of the present case, Mr. Dastoor stated that there was a valid and effective gift in the sum of Rs. 4 lakhs, if the principle laid down by this court in the case of CIT v. Popatlal Mulji : 108ITR4(Bom) was applied. In this case, the Division Bench, to which my learned brother was a party, had taken the view that there can be a valid gift effectuated by making entries in the books of account, if there was evidence to show that the gift was made by the donor and accepted by the donee and was acted upon by both of them. In that case, in the books of account of the separate business of a father, a certain amount was credited to his sons as the son's share of the capital for his being taken in as a partner in the business. The Tribunal found that the amount so credited to the son in the books was solely operated upon by the son. This court held that there was a valid gift, in favour of the son, of the sum credited to his account. Thus, having regard to the facts, of this case, applying the ratio of this decision, so far as question No. 1 is concerned. that controversy does not remain and it has been answered in the affirmative in favour of the accountable person.
12. That takes us to the second question. It relates to the applicability of the provisions of s. 10 of the Act. Section 10 provides as under :
'Property taken under any gift, whenever made, shall be deemed to pass on the donor's death to the extent that bonafide 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.'
13. There are two provisos to this section, but they are not relevant for our present purpose. It was sought to be urged by Mr. Joshi that since the gift was effected by debiting a sum of Rs. 4 lakhs in the account of the deceased, Gopaldas, in the firm and crediting the same to the account of the two minors, the bonafide possession and enjoyment of the said sum of Rs. 4 lakhs was not immediately assumed by the two minors and henceforward retained to the entire exclusion of the donor and the amount that ultimately remained to the credit of the minors in these two accounts within a period of two years prior to the date of the death of the deceased should be regarded as property passing under s. 10. Such a contention, in our opinion, cannot be accepted, in view of the decision of the Supreme Court in the case of CED v. C. R. Ramachandra Goundar : 88ITR448(SC) . In that case, the deceased who was a partner in a firm owned a house property let to the firm as tenant-at-will. In August, 1963, he executed a deed of settlement under which he transferred the property let to the firm to his two sons absolutely and irrevocably and, thereafter, the firm paid the rent to the donees by crediting the amount in their accounts in equal shares. The deceased further directed the firm to transfer from his account a, sum of Rs. 20,000 to the credit of each of his five sons in the firm's books with effect from April 1, 1953, and he also informed them of this transfer. An amount of Rs. 20,000 was credited in cash to each of the sons' accounts with the firm. The sons did not withdraw any amount from their accounts in the firm and the amounts remained invested with the firm for which interest at 7 & half per cent. was paid to them. The deceased continued to be a partner of the firm till April 13, 1957, when the firm was dissolved and thereafter he died on May 5, 1957. A question arose whether the value of the house property and the sum of Rs.1 lakh could be included in the principal value of the estate of the deceased as property deemed to pass under s. 10 of the E.P. Act, 1953. The Supreme Court took the view that either the house property nor the sum of Rs.1 lakh could be deemed to pass under s 10. The first two conditions of the section were satisfied because there was an unequivocal transfer of the property by a settlement deed and of the sum of Rs.1 lakh by crediting the amount in each of the sons' accounts with the firm which thenceforward became liable to the sons for payment of that amount and the interest thereon : the possession that the donor could give was the legal possession which the circumstances and the nature of the property would admit and this the donor had given. The benefit the donor had as a member of the partnership was not a benefit referable in any way to the gift but was unconnected therewith.
14. The ratio of this decision is directly applicable to the facts of this case and there was an unequivocal transfer of the sum of Rs. 4 lakhs to the two minors by crediting the same in their accounts. In fact, that sum was treated as belonging to the minors and was partially utilised later on for paying the purchase price of Kurva Castle, which was ultimately purchased. Deceased, Gopaldas, had given such legal possession, which the circumstances and visions of s. 10 cannot be applied to the present case. In the result, question No. 2 is answered in the negative and against revenue.
15. That takes us to the third question which relates to the provisions of s. 44(a) of the Act. Chapter. VI deals with deductions and s. 44 is contained in the said Chapter. The material part of s. 44 for our present purpose is as under :
'In determining the value of an estate for the purpose of estate duty, allowance shall be made for funeral expenses (not exceeding rupees one thousand) and for debts and incumbrances; but an allowance shall not be made - (a) for debts incurred by the deceased, or incumbrances created by a disposition made by the deceased, unless, subject to the provisions of section 27, such debts or incumbrances were incurred or created bona fide for' full consideration in money or money's worth wholly for the deceased's own use and benefit and take effect out of his interest, or...'
16. Under this provision, allowance in respect of debts in determining the value of the estate for the purpose of estate duty shall not be made unless four conditions have been fulfilled :
(1) such debts were incurred bona fide;
(2) for full consideration in money or money's worth; .
(3) wholly for the deceased's own use and benefit; and
(4) that they take effect out of his interest.
17. The contention of Mr. Joshi, on behalf of the revenue, is that as a gift was made in favour of the two minor sons by debiting the sum of Rs. 4 lakhs to the deceased and simultaneously crediting the same in the books of the firm to the accounts of the two minors, the incurring of such debts cannot be regarded as wholly for the deceased's own use and benefit. It was urged that if the deceased had withdrawn the amount from the firm by making a debit entry to his account and retained the amount for himself, either for a day or for some longer period and thereafter gifted the same by making a credit entry, it may be said that the debt was incurred by the deceased wholly for his own use and benefit. As, however, in the present case, there : was a simultaneous making of the debit entry in his name in the books of the firm and credit entry of the same amount in favour of the minors in the said books, the debt cannot be regarded as having been incurred wholly for the deceased's own use and benefit. This contention, in our opinion, is concluded by more than one decision of the English courts, where there is identical provision so far as the estate duty is concerned. Reference may be made to the decision of the House of Lords in the case of Attorney-General v. Duke of Richmond and Gordon  AC 466; 1 EDC 527. In that case, the provisions of s. 7(1)(a) of the Finance Act, 1894, came to be considered by the House of Lords, which are identical with the provisions of s. 44 of the Act, with which are concerned. The question, when the debts and incumbrances are incurred and created can be said to be wholly for the deceased's own use and benefit, had been considered. At page 472, Lord Macnaghten observed (see also 1 EDC at pp. 53-3, 534)' :
'Were these debts and incumbrances incurred and created 'wholly for the deceased's own use and benefit' The learned counsel for the Crown says, 'No. They wore mainly, if not wholly, for the benefit of the deceased's successors'. And that is perfectly true in the result. If you give the expression its strict meaning, adhering slavishly to the letter, no allowance can be made for any debt incurred by the deceased or any incumbrance created by him which in the slightest degree operates for the benefits of any other human being. The argument must go this length. The word 'wholly' forbids anything short of it. The condition that a debt or incumbency or the consideration for such debt or incumbrance (if that be the true reading) must be wholly for the benefit of a particular individual excludes every case where anybody else participates in the benefit..... I cannot bring myself to think that the legislature deliberately intended to put a premium on extravagance purely selfish, and to penalize expenditure on objects generally considered more worthy.
What, then, is the meaning of the expression of which so much was made in the argument It seems to me that the words of the enactment are satisfied if the direct and immediate purpose of the person incurring the debt, or creating the incumbrance, is to make himself master of a sum of money over which he, and he alone, has power of disposition; and that it was not intended that there should be any inquiry into the ulterior and more remote purposes of the transaction or any investigation into motives.'
18. The view that has been taken by the House of Lords in this case has been considered later in In re Whitfield's Estate : IRC v. Whitfield  1 All ER 807;  2 WLR 657. The Court of Appeal considered the scope of this expression 'for the deceased's own use and benefit'. In that case shortly before her death, the deceased decided to effect four policies of assurance on her lift. At the deceased did not have the necessary sum immediately available, arrangements were made with her bank to obtain a loan of pounds 80,000 on the security of certain stocks and shares which she owned. The deceased executed a power of attorney in favour of her son empowering him to effect the policies and to borrow from the bank the sums required to pay the premiums. The bank did not open a loan account and credit the deceased's current account with pounds 80,000 but opened a 'No. 2 account' on which she was entitled to a temporary overdraft up to the required amount. On the day the transactions were to be completed , a representative of her bank, a representative of an assurance society , the deceased's solicitor and her attorney met at the deceased's bank. The attorney drew a cheque on the No. 2 account for pounds 80,000 in favour of the assurance society. The representative of the society there upon presented the cheque which was credited to the bank's draft account and received, in turn, a banker's draft for pounds 80,000. Thereupon, he issue receipts and the policies commenced. The deceased died on the following day. Her executors claimed that the sum of pounds 80,000 owing by her estate in respect of the debit balance in the No. 2 account was deductible from her estate for estate duty purposes by virtue of s. 7(1 Ha) of the Finances Act, 1894, on the ground that it had been incurred for 'full consideration in money's worth wholly for the deceased's own use and benefit'. The executors' claim was rejected by Walton J., holding that the requirements of s. 7(1)(a) of the Finance Act (which is similar to s. 44(a) of the Act) had not been satisfied since the deceased had obtained, in exchange for her liability to repay the bank, a consideration in the shape of policies of assurance, which were not for her own use and benefit, but only for the use and benefit the beneficiaries. In an appeal preferred by the executors, the decision on of Walton J. was reversed. The Court of Appeal held :
'In determining whether the debt to the bank had been incurred wholly for the deceased's own use and benefit, the only relevant transaction was that which had taken place between the deceased and the bank whereby the debt had been incurred. That transaction was a bona fide commercial transaction involving no element of bounty or gift to the bank. Accordingly, the debt had been incurred for full consideration and, since the bank was not concerned with how the deceased disposed of the money lent, the debt had, so far as the bank was concerned, been incurred wholly for the deceased's own use and benefit. The bank was not concerned with the transaction between the deceased and the assurance society, except to see that the money lent to its customer was not dealt with otherwise than in accordance with her authority. Furthermore, it was immaterial that the deceased had chosen to dispose of the money lent by directing the bank to pay it direct to the assurance society rather than receiving it herself before paying it to the society. Accordingly, the consideration obtained by the deceased in return for the debt had been obtained 'wholly for [her] own use and benefit', within s. 7(1)(a).'
19. The appeal was accordingly allowed and the decision of Walton J. was reversed. The Court of Appeal, in this case, followed the observations by Lord Macnaghten in Attorney-General v. Duke of Richmond and Gordon  AC 466 (HL). This case directly negatives the contention that has been urged by Mr. Joshi, on behalf of the revenue, for at no point of time the deceased had retained the amount of pounds 80,000 with her; it was directly utilised for effecting policies; still the Court of Appeal held that the provisions of s. 7(1)(a) of the Finance Act, 1894, including its ingredients 'wholly for the deceased's own use and benefit' was fully satisfied. Thus, this contention of Mr. Joshi must also fail.
20. So far as question No. 3 is concerned, we may incidentally point out that Mr. Dastoor, who appears on behalf of the accountable person, drew our attention to the fast that it was not permissible for the revenue to raise such a question in respect of the debit item of Rs. 4 lakhs because, he posed, that long after this debit entry was effected, there were several credit and debit entries and the subsequent credit entries were in excess of Rs. 4 lakhs and it would not be permissible to the revenue to pick up a solitary item for the purpose of urging a contention restricted to the provisions of s. 44(a) of the Act. As, on merits, we have taken a view against the revenue, it is unnecessary for us for the purposes of this case to deal with this aspect of the matter.
21. Accordingly, our answer to question No. 3 is in the negative and in favour of the accountable person. The revenue shall pay the costs of the accountable person.