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Controller of Estate Duty, Bombay City-i Vs. General Manager, Bank of India - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberEstate Duty Reference No. 8 of 1969
Judge
Reported in(1980)18CTR(Bom)187; [1981]131ITR626(Bom)
ActsEstate Duty Act, 1953 - Sections 10
AppellantController of Estate Duty, Bombay City-i
RespondentGeneral Manager, Bank of India
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateE.S. Dastur, Adv.
Excerpt:
.....applicable in cases where donor makes gift to his wife of residential house and living together in gifted property - section is applicable in cases where wife does not retain possession and enjoyment of residential house to exclusion of donor - section 10 cannot be construed in manner which would require husband to live separately from his wife if he wants to escape from mischief of section 10 - no applicability of section in case of gift of residential property of husband to wife. - - such an interpretation would subvert family life and social order and would be contrary to morality and good sense. unless each of these conditions is satisfied, the property would be liable to estate duty under section 10 of the act. this observation also clearly suggests that the burden is on the..........and enhoyment. in that case, it was held that where a hindu husband lived with his wife in a house gifted by him to his wife, collected rents and included the rent thereof in this income-tax return though the rent note was in the wife's name, theses facts alone would not be sufficient material to come to the conclusion that the wife was not in exclusive possession and enjoyment of the house. in v. n. krishnaswamy v. ced : [1966]61itr333(mad) , the deceased had purchased a house site in the name of his wife in 1929 out of his own funds and constructed a house thereon. before his death he had raised a loan of rs. 35,000 from a bank of overdraft account on the security of the house for his own purposes. he also continued to live with his wife in the property till his death and had.....
Judgment:

Kania, J.

1. This is a reference under s. 64(1) of the E.D. Act, 1953 (hereinafter referred to as 'the said Act'), made at the instance of the Controller of Estate Duty, Bombay City-I, Bombay.

2. The facts giving rise to this reference are as follow : By an indenture dated April 28, 1950 and duly registered under the provisions of the Indian Registration Act, one B. V. Wagh (hereinafter referred to as 'the donor'), gifted his house situated at Khar to his wife, Sarojini B. Wagh. Till his death on March 20, 1963, the donor continued to live with his wife, the donee, in a part of the gifted house. The rest of the house was let out to a tenant and the rental agreement in respect of that portion of the house was executed by the tenant in favour of the donee alone. the rents realised from the tenant in respect of the aforesaid portion of the house were credited in a bank account standing in the joint names of the donee and the donor, the name of the donee appearing first. The Income-tax Appellate Tribunal has found as a fact that the donor withdrew moneys from this joint account by cheque and that moneys other than the rents realised from the said property were also credited to the said account. Although an allegation was made by the accountable person that all the said amounts withdrawn from the said account were utilised by the donee for her exclusive use, no evidence was led in that connection. The Tribunal held that as the donor resided in a portion of the said house he was not totally excluded from the property gifted. The Tribunal further held that not only was the donor not excluded from the possession of the gifted property but he was also not excluded from the enjoyment of the rental income from the gifted house, because the rents were credited to a joint account of the donee and the donor and there was no evidence that the donor's name was added therein merely for he sake of convenience and not with the intention of creating any right in him to the moneys credited in the joint account. Curiously enough, in spite of these findings, the Tribunal came to the conclusion that it was only the value of that portion of the house which was in the personal occupation of the donor and the donee which should be included in the dutiable estate, viz., the estate passing on the death of the donor, and not the value of the entire house. It may be mentioned that about one-third of the house was occupied by the donor with the donee and the remaining two-thirds was let out to the tenant as aforesaid. Being aggrieved by this decision of the Tribunal, the Controller of Estate Duty filed an application under s. 64(1) of the said Act requesting the Tribunal to state a case and to refer to this court for determination the two questions suggested by the Controller of Estate Duty, the applicant herein. The respondent being the accountable person suggested that one additional question should also be referred to this court. Both the applications of the Controller of Estate Duty and of the accountable person, only the following question has been referred to us for our determination :

'Whether, on the facts and in the circumstances of the case, the inclusion in the dutiable estate of the value of that portion of the gifted house, which was subsequent to the date of gift in the occupation of the donor was correct and in accordance with law ?'

3. This question, obviously, could never have been referred on the application of the Controller of Estate Duty. It is common ground before us that the correct questions which should have been referred to this court in view of the aforesaid order of the Tribunal have not been referred. It is further common ground between the parties that the question referred to us does not bring out the real controversy between the parties, and it is agreed between the counsel that the said question should be reframed by substituting the following two questions in its place. Accordingly, with the consent of Mr. Joshi and Mr. Dastur and, in fact, with their assistance, we frame the following two question for determination in this case :

'1. Whether, on the facts and in the circumstances of the case, the inlet portion of the gifted property in which the deceased donor continued to reside with the donee passed on his death

2. Whether, on the facts and in the circumstances of the case, the part of the gifted property which had been let out passed on the death of the deceased, and if so to what extent ?'

4. Before considering the aforesaid questions, it will be useful to take note of the provisions of s. 10 of the said Act, it stood at the relevant time. Section 10, as it stood at the relevant time, read as follows :

'Property taken under any gift, whether 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 :'

5. The first proviso to this section is not material for the purpose of this case. The second proviso, which deals with the donor's continued residence in the gifted house, was inserted by the Finance Act of 1965 and hence cannot be taken into account for the purposes of this case.

6. As far as the first question is concerned, it is common ground that the matter is concluded by the decision of the Supreme Court in CED v. Umesh Rudra : [1979]117ITR579(SC) , a case where the relevant period was before the insertion of the second proviso to s. 10 of the said Act, the same as in the present case in that regard. It was held in that case that s. 10 of the said Act does not apply to a case where the donor makes a gift of a residential house to his wife and, thereafter, continues to reside with her in the residential house. When the residential house is gifted to the wife and she obtains possession and remains in enjoyment of it, merely because the donor in his capacity as husband continues to reside there with the wife, it cannot be said that the wife does not retain possession and enjoyment of the residential house to the exclusion of the donor. It has bee observed in that case that s. 10 of the said Act cannot possibly be construed in a manner which would require the husband who has gifted a residential house to the wife to live separately from her, if he wants to escape from the mischief of that section. Such an interpretation would subvert family life and social order and would be contrary to morality and good sense. In view of this decision, it is conceded by Mr. Joshi that question No. 1 must be answered in favour of the accountable person.

7. Coming next to the second question, the arguments in that connection also turn on the provisions of s. 10 of the said Act, which has already been set out earlier. In George Da Costa v. CED : [1967]63ITR497(SC) , the provisions of s. 10 of the said Act came up for consideration before the Supreme Court. Ramaswami J., speaking on behalf of the court, analysed the provisions of the said section as follows (p. 501) :

'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 musts 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. 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 section 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.'

8. It has been observed in this decision, after analysing various cases, that the first limb of the section may be infringed if the donor occupies or enjoys the property or its income, which even though he had no right to do so, he could legally enforce against the donee.

9. The contention of Mr. Dastur, the learned counsel for the accountable person, is that the burden of proving that the donor was not excluded from the gifted property and that he retained a benefit therein or obtained benefit therefrom was on he department. It was submitted by him that, in the present case, the mere fact the rents of the aforesaid let out portion of the gifted property were deposited in the joint account in the names of the done and the donor was not enough nor was the fact that the donor had withdrawn amounts from the said account. It was urged by him that in order to bring the case within section 10 of the said Act, it was the duty of the department to establish by evidence that the amounts withdrawn by the donor from the said account were utilised by the donor either for his personal consumption or for enjoyment.

10. In order to appreciate the aforesaid contention of Mr. Dastur, it is necessary to refer to a few cases. Coming first to the decision of a Division Bench of this court in CED v. Sharangadhar Shamji : [1977]109ITR320(Bom) , we find that in this case, after considering the provisions of s. 10 of the said Act, Tulzapurkar J. (as he then was), who delivered the judgment, held as follows (p. 323) :

'Section 10 contains a deeming provision under which property taken under any gift, whenever made, is 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. In order to avoid the mischief of section 10 it must be established that the donee not only assumed bona fide possession and enjoyment of the property taken under a gift but also possession and enjoyment of the property taken under a gift but also hence forward retain it to the entire exclusion of the donor or of any benefit to him by contract or otherwise.'

11. A plain reading of these observations makes it clear that the burden was on the accountable person to establish that the donee assumed bona fide possession and enjoyment of the gifted property and thenceforward retained it to the entire exclusion of the donor. it is significant that in CED v. Umesh Rudra : [1979]117ITR579(SC) , which we have already referred to, it has been observed by the Supreme Court that on a proper interpretation of s. 10 of the said Act the donee must retain possession and enjoyment of the property gifted to the entire exclusion of the donor in order to repel the applicability of that section. This observation also clearly suggests that the burden is on the accountable person to show that the donee retained possession and enjoyment of the property gifted to the entire exclusion of the donor in order to avoid he applicability of s. 10 of the said Act. In the present cases, it is not disputed that as for as the let out portion of the said house is concerned, the donee did assumebona fide possession and enjoyment of the said portion. The question is whether, on the facts and in the circumstances of this case, it can be said that the donee retained bona fide possession and enjoyment thereof, to the entire exclusion of the donor. In view of the aforesaid decisions of this court and the Supreme Court, which we have referred to above, it appears to us that the burden clearly was on the accountable person to established that the donee retained possession and enjoyment of the gifted property to the entire exclusion of the donor. The facts found show that the rents realised from the tenant were deposited in the joint account which stood in the names of the donee and the donor. It may be that this by itself would not shown that the donee had not retained exclusive possession and enjoyment of the gifted property. What is significant, however, is that further facts found would shown that the donor had withdrawn amounts from this joint account and no evidence has been led in support of the contention of the accountable person that the amounts withdrawn by the donor were utilised for the enjoyment or benefit of the donee. It is true, as suggested by Mr. Dastur, that there is no positive finding that the donee did not withdraw any amount from this joint account. What is important, however, is that the only positive finding is that it was the donor who withdrew moneys from this account and there was no evidence regarding the question as to how these amounts were utilised. In view of he aforesaid decisions, it is clear that the burden of establishing that the amounts withdrawn by the donor were utilised for the benefit of the donee or, in any event, not for the sole benefit or enjoyment of the donor lay on the accountable person. in this regard, it musts be borne in mind that if the burden of establishing that the amounts were utilised by the donor for his own personal enjoyment and benefit were cast on the department, as suggested by Mr. Dastur, it would clearly be a burden which would be impossible to discharge. The accountable person in this case had clearly failed to discharge the burden to show that the amounts withdrawn were utilised by the donor for the benefit or enjoyment of he donee, or in any event not for his won benefit or enjoyment. In view of this, the provisions of s. 10 of the said Act would be attracted to this case.

12. Mr. Dastur has relied on several decisions which we now propose to discuss. In CED v. Mrs. Kamala Pandalai : [1976]105ITR531(Mad) , the deceased had gifted to his wife three house properties and a vacant site, on which also a house was constructed. Thereafter, the wife was collecting rents from the houses and leasing them as and when they fell vacant. The rents from the houses were being credited to a bank account in the sole name of the deceased till March 12, 1958, when a joint account was opened in the names of the deceased and his wife. The rents received from the houses as well as dividends from certain shares purchased by the deceased in the name of his wife and the pension received by the deceased were thereafter deposited in the said joint account. Withdrawals from this account were made by both the deceased and his wife. The deceased died on February 5, 1960. The Tribunal found as a fact that the rents from the properties gifted were being collected by the wife and as the amounts deposited by the donor by way of his pension were much more than his drawings, it was held that the donor had no benefit from the income of the gifted properties. It may be pointed out here that the facts found by the Tribunal in that case were that only Rs. 5,600 were withdrawn by the deceased from the said account for his own purposes whereas he had deposited therein Rs. 21,200 being his pension. It was held by the Madras High Court that the donee had assumed such possession and enjoyment of the properties as was possible in the circumstances of the case, that as the donee was in perception of he rents, profits and dividends from the settled properties, her choosing voluntarily and out of her own free will to keep the amounts in deposit in the deceased's bank account would not bring the case within the scope of the first limb of s. 10 of the said Act, that the mere existence of a bank account in the name of the deceased and the deposits therein made by the donee of the income from the settled properties does not show that the donee had not retained possession and enjoyment of the gifted properties to the entire exclusion of the deceased donor and that the donor to the extent of the amounts deposited in his account was either in the nature of a banker to the donee or had a fiduciary capacity with reference to the said amounts and there was no benefit which he had contracted so as to bring the case within the second limb of the second part of s. 10 of the said Act. On the basis of these conclusions, it was held that the value of the properties gifted could not be included in the principal value of the estate of the deceased. Reference was also made by Mr. Dastur to another decision of the Madras High Court in M. Ranganatha Sastri v. CED : [1966]60ITR783(Mad) , where it was observed that even in the matter of dealing with each other's property, a Hindu wife is placed in a peculiar situation in respect of her property and it would be a matter for consideration in each case whether the act of the husband in relation to the property gifted to the wife by him could be construed as being inconsistent with the wife having exclusive possession and enhoyment. In that case, it was held that where a Hindu husband lived with his wife in a house gifted by him to his wife, collected rents and included the rent thereof in this income-tax return though the rent note was in the wife's name, theses facts alone would not be sufficient material to come to the conclusion that the wife was not in exclusive possession and enjoyment of the house. In V. N. Krishnaswamy v. CED : [1966]61ITR333(Mad) , the deceased had purchased a house site in the name of his wife in 1929 out of his own funds and constructed a house thereon. Before his death he had raised a loan of Rs. 35,000 from a bank of overdraft account on the security of the house for his own purposes. He also continued to live with his wife in the property till his death and had included this property in his wealth statement of 1952. It was held by the Madras High Court that the property as one gifted to the wife in the house till his death not the fact that he had raised a loan for hi own purpose on the security of the house detracted from the reality and completeness of the gift, and the property was not includible in the estate of the deceased which was liable to estate duty. In CED v. Estate of late V. Shyamala Anni : [1979]119ITR391(Mad) , it was held, inter alia, by the Madras High Court that whether the deceased was excluded from enjoyment of the gifted properties or not is a question which is capable of decision only by reference to the facts. There must be some evidence, circumstantial or otherwise, that there has been enjoyment of the gifted property by the deceased. A joint account in which the money of the donees were accounted or maintenance of a common account books was not enough to establish enjoyment. It could not be contended that a possibility of appropriation of the amount would be enough to bring into operation s. 10 of the said Act which would require some enjoyment and the enjoyment would be only physical and not notional or potential. It was held that there was no evidence in that case of enjoyment by the donor of the property or its income and hence s. 10 of the said Act was not applicable. It was submitted by Mr. Joshi that these decisions of the Madras High Court were not correctly decided particularly in view of the decision of the Supreme Court in George Da Costa v. CED : [1967]63ITR497(SC) and the other cases which we have already referred to earlier. In our view, it is not necessary to go into the question as to whether these case have been correctly decided or not, because all the aforesaid case cited by Mr. Dastur are clearly distinguishable on facts. It must be observed, in the first place, that in view of the decision of the Supreme Court in CED v. Umesh Rudra : [1979]117ITR579(SC) , the mere fact that the husband continues to reside with the wife in a house or residential property gifted by the husband to the wife would not attracted the provisions of s. 10 of the said Act. A far as the aforesaid decisions cited by Mr. Datur are concerned, it is significant that in none of these case was there evidence to show that the donor had withdrawn moneys from the joint account in which the income of the property gifted had been deposited without there being any evidence as to how these amounts had been utilised boy the donor. As we have already pointed out, the burden of establishing that these amounts withdrawn by the donor were utilised by the donor for the benefit of the donee or in any event not for his personal enjoyment or benefit was clearly on the accountable person. In the present case, the accountable person has failed to discharge that burden. In view of this, these decisions, in our opinion, are of no assistance to Mr. Dastur.

13. It was next submitted by Mr. Dastur that even assuming that the provisions of s. 10 of the said Act were attracted in respect of the portion of the said gifted house which was let out, it was not the value of the said entire portion which could be included in the estate of the deceased under the provisions of s. 10 of the said Act but only a proportionate part thereof. It was submitted by Mr. Dastur that it must be determined as to what was the proportion which the amount withdrawn by the deceased for two years prior to his death from the joint account bore to the total income of the let out portion of the property and only that proportion of the value of the let out portion should be included in the estate of the deceased. Mr. Dastur laid emphasis on the expression 'to the extent that bona fide possession and enjoyment of it was not..... retained to the entire exclusion of the donor' used in s. 10 of the said Act in support of this contention. It was submitted by him that it was really for the department to show as to what was the amount of the rental income which was utilised by the donor for his own purposes, and only a proportionate amount of the total value of the rented portion of the said property could be included in the estate of the deceased under s. 10 of the said Act. In support of his contention, Mr. Dastur relied on the decision of the Andhra Pradesh High Court in Mohammed Bhai v. CED [1968] ITR 69 . As against this, it was submitted by Mr. Joshi that the decision of the Andhra Pradesh high Court was not good law and in support of this contention he relied on the decision of the Gujarat High Court in Kakabhai Samuddin v. CED : [1969]73ITR241(Guj) . In our view, it is not necessary to go into this controversy in the present case at all. There is no evidence that the deceased withdrew only a particular portion or proportion of the total rental income, the finding of the Tribunal clearly being that it was the deceased donor who withdrew moneys from the joint account in which the rents were deposited. In view of this, there is no question of only a particular portion of the value of the let out portion of the gifted property being included in the estate of the deceased under s. 10 of the said Act. If the accountable person wanted to establish that only a particular part of the rental income was withdrawn by the donor it was for him to establish that fact, as it was for him to establish as to how the amounts withdrawn by the donor had been utilised. The accountable person had failed to do this. In view of this, the value of the entire let out portion of the gifted property must be included in the property of the deceased donor for the purposes of the said Act. In our view, question No. 2 must be answered against the accountable person.

14. In the result, the questions reframed by us are answered as follows :

Question No. 1 - in the negative.

Question No. 2 - in the affirmative, it being clarified that the value of the entire portion of the gifted property which had been let out passed on the death of the deceased.

15. In view of the facts and circumstances of the case, there will be no order as to costs of this reference.


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