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Controller of Estate Duty, Gujarat Vs. Babubhai Harjivandas - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberEstate Duty References Nos. 1 and 2 of 1975
Judge
Reported in(1981)21CTR(Guj)204; [1981]129ITR276(Guj)
ActsEstate Duty Act, 1953 - Sections 2(15) and 10
AppellantController of Estate Duty, Gujarat
RespondentBabubhai Harjivandas
Appellant Advocate N.U. Raval, Adv.
Respondent Advocate K.C. Patel, Adv.
Cases ReferredH. R. Munro v. Commissioner of Stamp Duties
Excerpt:
(i) direct taxation - goodwill - sections 2 (15) and 10 of estate duty act, 1953 - x was member of partnership firm - value of shares of x in goodwill of firm also included in dutiable estate - whether value of share of x in goodwill liable to be included in principal value of estate of x - clause 8 of partnership firm stated that heirs of partners of firm will have no claim on goodwill on death of partner - benefit to other partners on cessation of goodwill on death of one of partner cannot be measured in terms of section 40 - held, such benefit not liable to estate duty. (ii) gifts - x gave various amount by way of gifts to members of his family - whether these amounts liable to be included in dutiable estate under section 10 - nothing to show that donor was not excluded from benefits.....divan, c.j. 1. both these references arise out of the same order of the income-tax appellate tribunal. at the instance of the revenue, one question arising out of the decision of the tribunal has been referred to us and that is estate duty reference no. 1 of 1975. at the instance of the accountable person. question no. 1 has been referred to us and that is estate duty reference no. 2 of 1975. since both these questions arise out of the same order of the tribunal, we will dispose of both them by this common judgment. question nos. 1 and 2 referred to us are as under : '(1) whether, on the facts and in the circumstances of the case, the tribunal was right in law in holding that the sum of rs. 56,500 being the value of the share of the deceased in the goodwill of the firm, m/s. harjivandas.....
Judgment:

Divan, C.J.

1. Both these references arise out of the same order of the income-tax Appellate Tribunal. At the instance of the revenue, one question arising out of the decision of the Tribunal has been referred to us and that is Estate Duty Reference No. 1 of 1975. At the instance of the accountable person. question No. 1 has been referred to us and that is Estate Duty Reference No. 2 of 1975. Since both these questions arise out of the same order of the Tribunal, we will dispose of both them by this common judgment. Question Nos. 1 and 2 referred to us are as under :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 56,500 being the value of the share of the deceased in the goodwill of the firm, M/s. Harjivandas Hathibhai, was not liable to be included in the principal value of the estate of the decease

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the aforesaid amounts totalling to Rs. 87,000 gifted by the deceased to his relatives were liable to be included in the principal value of the dutiable estate under section 10 of the Ac ?'

2. The facts leading to these two reference are as follows : One Harjivandas Hathibhai died on May 25, 1967, leaving behind a will dated March 20, 1967. The deceased during his lifetime derived income from the firm of M/s. Harjivandas Hathibhai in which he was a partner having four annas or twenty-five.per cent. share, interest, dividend, etc. At the time of his death his estate consisted of interest in the said partnership firm, shares, insurance, a bungalow at Alkapuri, Ashram Road, Ahmedabad, and one house and a shop in village Anjol. The deceased also had a share in the HUF house at village Anjol. The Asst. Controller of Estate DUty, Ahmedabad, included the sum of Rs. 56,000 being the value of four annas share of the deceased in the goodwill of the firm of M/s. Harjivandas Hathibhai in the dutiable estate.

3. During his lifetime the deceased had given various amounts by way of gift to different members of his family, namely, to his sons, daughters and to one Jamnaben and these gifts were deposited by the respective donees concerned within a few days after they received these amounts in the firm of M/s. Harjivandas Hathibhai in which the deceased was a partner. The Asst. Controller held that these amounts aggregating to Rs. 87,000 were liable to be included in the dutiable estate under s. 10 of the E. D. Act. On appeal by the accountable person, the Appellate Controller confirmed the orders of the Asst. Controller and thereafter the accountable person filed further appeal before the Income-tax Appellate Tribunal. The Tribunal, following the decision of this High Court in Smt. Mrudula Nareshchandra v. CED : [1975]100ITR297(Guj) , held that the amount of Rs. 56,500 was not liable to be included in the dutiable estate. However, as regards the inclusion of the other amount of Rs. 87,000, the tribunal, following the decision of this High Court in Sakarlal Chunilal v. CED : [1975]98ITR610(Guj) , confirmed the view taken by the authorities below and thereafter one question has been referred to us at the instance of the revenue, being the question in Reference No. 1 of 1975, and the other question has been referred to us at the instance of the accountable person, being the question in Reference No. 2 of 1975.

4. As regards the question of goodwill, there is a peculiar clause in the partnership deed of M/s. Harjivandas Hathibhai and that clause in clause 8 of the partnership deed. The translation of that clause, the original of which is in Gujarati, is in these terms :

'If any partner retires or goes out for any reason from or partnership or for any reason goes out or expires, then, at that time, no goodwill shall be considered of the firm and nothing shall be payable towards goodwill to such partner.'

5. In Mrudula Nareshchandra v. CED : [1975]100ITR297(Guj) , a division Bench of this High Court was concerned with a clause in the relevant partnership deed, which was as follows (p. 299) :

'The firm shall not stand dissolved on death of any of the partners and the partner dying shall have no right whatsoever in the goodwill of the firm.'

6. It was on the latter part of this clause in the partnership deed that emphasis was pleased by the Division Bench and it was held that a partner in a firm has a marketable interest in all the capital assets of the firm including the goodwill even during the substance of the partnership. Interest in goodwill in property within the meaning of s. 2(15) of the E. D. Act. But the goodwill of a firm standing by itself cannot earn any income. In a case where it is specifically stipulated between the partners of a firm that on the death of any of the partners the partnership shall not stand dissolved and that the heirs of the deceased partner shall have no right whatsoever to claim any share in the goodwill of the firm, the benefit arising to the other partners on the cesser of interest in the goodwill, on the death of one of the partners, cannot be measured in terms of s. 40. Therefore, such benefit is not liable to estate duty under s. 7. The Division Bench Considered all the decisions of the different High Courts and of the Supreme Court available till then to come to its conclusion. At pages 311 of the report, T. U. Mehta J., speaking for the Division Bench, observed :

'We have already shown above that the word 'passes' involves the concept of mobility and change of hands resulting from the continuity of the identity of rights in the property. But, if the rights of the deceased cease to exist on the happening of a particular event giving rise to fresh right in favour of those who do not derive their interest as the representatives of the deceased, it cannot be said that the property 'passed' within the meaning of section 5.'

7. Thus, both from the point of view of s. 7 as well as from the point of view of s. 5 and s. 40, the position was considered by the Division Bench and it was held on the particular clause of the partnership deed in Mrudula Nareshchandra's case : [1975]100ITR297(Guj) that there was no liability to pay estate duty so far as the share in the goodwill of the firm was concerned.

8. Mr. Raval for the revenue has drawn our attention to two decisions. One is the decision of a Full Bench of the Punjab High Court in State v. Prem Nath , where the Full Bench of the Punjab High Court in terms differed from the view taken by this High Court in Mrudula Nareshchandra's case : [1975]100ITR297(Guj) and Chinnappa Reddy, Acting C.J., as he then was, observed at page 450 :

'We may, however, add that the view of the learned judges appears to be opposed to the decision of the Privy Council in Perpetual Executors and Trusted Association of Australia Ltd. v. Commissioner of Taxes of the Commonwealth of Australia [1954] 25 ITR (Supp) 47 . In Controller of Estate Duty v. Ibrahim Gulam Hussain Currimbhoy : [1975]100ITR320(Mad) , the Madras High Court expressed disagreement with the view expressed by the Gujarat High Court in Smt. Mrudula Nareshchandra v. Controller of Estate Duty : [1975]100ITR297(Guj) .'

9. Mr. Raval also drew our attention to the decision of the Madras High Court in CED v. Ibrahim Gulam Hussain Currimbhoy : [1975]100ITR320(Mad) , but since there is no subsequent decision of the Supreme Court after the decision in Mrudula Nareshchandra's case : [1975]100ITR297(Guj) , we accept that decision as good law so far as this High Court is concerned.

10. It is true, as Mr. Raval urged before us, that in CED v. Hussainbhai Mohamedbhai Badri : [1973]90ITR148(SC) , the Supreme Court has explained the meaning of the words 'property passing on the death'. It was pointed out that, according to the definition in s. 2(16), 'property passing on the death' includes property passing either immediately on the death or after any interval, either certainly or contigently, and either originally or by way of substitute limitation and 'on the death' includes 'at a period ascertainable only by reference to the death'. The Supreme Court states that this definition was only an inclusive definition. If did not bring out the meaning of the expression 'Property passing on the death'. The Supreme Court, therefore, pointed out that this expression is not a term of law. The word 'passes' means 'changes hands'. To ascertain whether property has passed, a comparison must be made between the persons beneficially interested the moment after the death. The Supreme Court relied upon the observations of Lord Russell of Killowen in Scott and Coutts and Co. v. IRC [1937] AC 174; 2 EDC 579 and the following passage from Green's Death Duties, at page 34, was also relied upon :

'If, after such a comparison, it appears that the beneficial enjoyment of the property (or a definable part thereof) was, in substance and in events, unaffected by the death, the property (or that part thereof) did not pass on the death merely because, as a matter of terminology, one set of limitations then ceased to have effect and another became operative.......... to the extent that there is no change or beneficial enjoyment de facto, property does not pass merely because the exact nature or extent of the beneficial interests after the death was not ascertainable until that event occurred; or because the beneficiary was entitled to income only before the death and to capital thereafter.'

11. So far as the question of goodwill is concerned, it is because of the special provision in clause 8 of the partnership deed in the instant case that the principle laid down in Mrudula Nareshchandra's case : [1975]100ITR297(Guj) will apply. Ordinarily, it is true that every business has some goodwill and in the case of a partnership firm, the goodwill is one of the assets of the firm and on dissolution or on the death of a partner, the deceased partner's share in the goodwill has to be ascertained and that share in the goodwill will pass to his legal representatives on the death of the partner. When the partnership deed itself provides by agreement between the partners that on the death or retirement of any of the partners no goodwill of the firm shall be considered and nothing shall be payable to such partner, it is obvious that nothing passes on the death of the partner of such a firm to his legal representatives and it cannot be said that goodwill or the partner. When the partnership deed itself provides by agreement between partners that on the death or retirement of any of the partners no goodwill of the firm shall be considered and nothing shall be payable to such partner, it is obvious that nothing passes on the death of the partner such partner, it is obvious that nothing passes on the death of the partner of such a firm to his legal representatives and cannot be said that the goodwill or the partner's share in the goodwill shall be deemed to have passed to his legal representatives, Under there circumstances, the principle laid down by this High Court in Mrudula Nareshchandra's case : [1975]100ITR297(Guj) clearly applies and, hence, question No. 1 which is referred to us at the instance of the revenue must be answered in the affirmative, that is, in favour of the accountable person and against the revenue.

12. As regards question No. 2 which has been referred to us at the instance of the accountable person, in order to understand the full impact of the decision of this High Court in Sakarlal Chunilal v. CED : [1975]98ITR610(Guj) , it is necessary to consider several decisions of this High Court which preceded the decision in Sakarlal Chunilal's case : [1975]98ITR610(Guj) and the two decisions of the Supreme Court which have been rendered after the decision of this High Court in Sakarlal Chunilal's case : [1975]98ITR610(Guj) .

13. The whole question of s. 10 of the E. D. Act, operating in the case of gifts made by the deceased during his lifetime, has been considered by several decisions. Section 10 provides :

'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.'

14. The provisos to s. 10 are not material for the purposes of this judgment.

15. In Smt. Shantaben S. Kapadia v. CED : [1969]73ITR171(Guj) , what happened was that in the books of account of the partnership firm in which the deceased was a partner, a sum of Rs. 60,000 was debited on October 18, 1962, and credited in the account of his brother and the credit continued in the account of the firm till the date of death, namely, February 20, 1957. Subsequently to the making of the transfer, the deceased made a declaration of gift and also acknowledged on behalf of the firm, in a book belonging to the brother that the amount was kept by the brother with the firm without interest. The Asst. Controller included this sum of Rs. 60,000 in the estate of the deceased for estate duty purposes, rejecting the contention that the gift to he brother was more than two years prior to the date of death and hence not includible in the estate, as, according to him, the conditions laid down in s. 123 of the Transfer of Property Act had not been satisfied, there was no valid gift and even if there was a valid gift, section 10 of the E. D. Act was attracted. On appeal, the Central Board, which was the appellate authority in those days, also agreed with this view, and on a reference to this High Court, it was held by the Division Bench that the amount of the gift having been kept with the firm in which the deceased was a partner till his death, he was in possession and enjoyment of the property gifted by the deceased, resulting in the non-exclusion of the donor from possession and enjoyment of the property which was gifted, and, hence, the amount of gift was clearly attracted. The Division Bench relied upon the decision of the Privy Council in Clifford John Chick v. Commissioner of Stamp Duties [1958] AC 435; [1959] 37 ITR 89; 3 EDC 915. The decision of the Supreme Court in George Da Costa v. CED : [1967]63ITR497(SC) was also considered and it was noted that the decision of the Privy Council in Clifford John Chick's case had been approved and followed by the Supreme Court in George Da Costa's case.

16. In CED v. Chandravadan Amratlal Bhatt : [1969]73ITR416(Guj) , the facts were that the deceased was a partner along with two other persons in a partnership firm, each partner having an equal share. On October 22, 1946, the account of the deceased was debited with Rs. 30,000 and each of his three minor sons, C, J and N, was credited with a sum of Rs. 10,000 in the books of the partnership and the accounts were continued in their respective names. On January 1, 1958, the account of the deceased with the firm was debited with a sum of Rs. 24,000 and a sum of Rs. 12,000 was paid in cash to C and J who had attained majority by that time. Though this sum of Rs. 12,000 was originally deposited by C and J with the state Bank of India, it was subsequently brought into their account with the firm before the death of the deceased. Interest on the amounts standing to the credit of the three sons in their respective accounts was not being charged prior to Samvat year 2014, but after that year, interest was being credited in their respective accounts and this interest was allowed as a deduction in the income-tax assessment of the firm. The Asst. Controller held that the two gifts of Rs. 30,000 and Rs. 24,000 were invalid and, in any event, bona fide possession and enjoyment of the amounts had not been immediately assumed by the donees, since these amounts were retained in the firm in which the deceased was a partner and hence the provisions of s. 10 of the E. D. Act, 1953, would apply. He accordingly brought to charge the principal amount and interest thereon. The Appellate Controller confirmed this view. The Tribunal, however, deleted the inclusion holding the gifts to be valid gifts to which the provision of s. 10 would not apply. When a reference was made to this High Court, a Division Bench of this High Court held that as the subject-matter of the gift was made available to the partnership in which the deceased had an interest as a partner and placed at its disposal, the deceased was not entirely excluded from the subject-matter of the gift and hence the provisions of s. 10 applied to the case, and it was held that as s. 10 applied only to that property which was the subject-matter of the gift and not to the income of subsequent accretion tot he originally gifted property, the accumulated interest referable to the gift of Rs. 30,000 could not be included in the estate of the deceased. After these two decisions of this high Court were rendered, the same question came up before the Supreme Court in CED v. C. R. Ramachandra Gounder : [1973]88ITR448(SC) , and the question under s. 10 directly arose before the Supreme Court. In the case before the Supreme Court the deceased who was a partner in a firm owned a house property let to the firm as tenant-at-will. In August, 1953, 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 each of the two 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 1/2 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. The question was whether the value of the house property and the sum of rupees one 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. D. Act, 1953. On these facts the Supreme Court held that neither the house property nor the sum of rupees one 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 rupees one 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 which 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 which the donor had as a member of the partnership was not a benefit referable in any way to the gift but was unconnected therewith. At page 451 of the report, Jaganmohan Reddy J., speaking for the Supreme Court observed :

'The crux of the above section as pointed out by this court in George Da Costa v. CED : [1967]63ITR497(SC) , lies in two parts : (1) the donees 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 donees 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 these conditions is satisfied, the property would be liable to estate duty under s. 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. The words 'by contract or otherwise' in the second limb of the section will not control the words 'to the entire exclusion of the donor' in the first limb. The first limb may be infringed if the donor occupies or enjoys the property or its income, even though he has no right to do so which he could legally enforce against the donee. In order words, in order to attract the section, it is not necessary that the possession of the donor of the gift must be referable to some contractual or other arrangement enforceable in law or in equity.

In the context of the section, the word `otherwise' should be construed ejusdem generis and it must be interpreted to mean some kind of legal obligation or some transaction enforceable at law or in equity, which, though not in the form of a contract may confer a benefit on the donor.

........ The last limb of the condition relating to any benefit to the donor by contract or otherwise in inapplicable in this case. The donor on the date when he gifted the property to his sons which was leased out to the firm, had two rights......'

17. At page 454 of the report, Jagamohan Reddy J. observed :

'The views expressed by the Privy Council are in complete accord with our views already expressed. This was also the view held in CED v. Aswathanarayana Setty : [1969]72ITR29(KAR) , where a Bench of the Mysore High Court considered both the cases of Clifford John Chick [1958] AC 435; [1959] 37 ITR 89; 3 EDC 915 and of Munro [1934] AC 61; 2 EDC 462 above referred to. In that case, on June 30, 1954, the deceased transferred to his two sons Rs. 57,594 being half of the share standing to his credit as on the date in the books of a firm in which he was a partner and from July 1, 1954, the sons were also taken as partners in the firm. On the death of the deceased on November 16, 1957, the Assistant Controller held that the amount transferred to the sons must be deemed to pass as per the provision of section 10 of the Estate Duty Act, which decision was confirmed by the Appellate Controller. The Tribunal, however, held that the sum which subsequently was rectified to be Rs. 73,695 was not so includible. One of us (Hegde J., as he then was), speaking for the Bench, observed at p. 32 of 72 ITR : 'On the facts of the case, it cannot be said that, after the gifts, the donees did not retain the property gifted to the entire exclusion of the donor or that the donor had any benefit either by contract or otherwise in the property gifted. That in order that the property could deem to pass and estate duty could be leviable in such cases, the benefit of the donor must bw a benefit referable to the gift and not a benefit referable to his own property. The view, that if it is onice found that the deceased had some benefit in the property, that in itself was sufficient to bring the case within the ambit of section 10 irrespective of the question whether that benefit was referable or not referable to the gift, in our opinion, is erroneous'.'

18. The Supreme Court held that neither the property gifted to the donees, nor the amount of rupees one lakh gifted to the five sons, could be included in the estate of the deceased.

19. The decision in CED v. C. R. Ramachandra Gounder : [1973]88ITR448(SC) was considered by a Division Bench of this High Court in Sakarlal Chunilal v. CED : [1975]98ITR610(Guj) . A distinction was made so far as havala entries in the books of account of the firm in which the deceased was a partner, and the amounts paid in cash which the donees subsequently deposited with the firm in which the deceased was a partner. As regards cash gifts the principle laid down in Clifford John Chick's case [1958] AC 435; [1959] 37 ITR 89; 3 EDC 915 was applied whereas as regards transfer entries the principle laid down in H. R. Munro v. Commissioner of Stamp Duties [1934] AC 61; 2 EDC 462 (PC) was applied.

20. So far as gifts in the form of transfer entries were concerned, at page 630 of the report (98ITR) it was observed :

'..... it cannot be said that bona fide possession and enjoyment of the properties respectively gifted to them was not assumed and retained by them to the entire exclusion of the donor.'

21. And as regards gifts made in cash it was observed at page 631 :

'When any property is in possession and enjoyment of a firm, it is in possession and enjoyment of the partners and each of them and where the deceased is a partner in the firm, he would be equally in possession and enjoyment of the property. That is clear from the law of partnership and is amply supported by the decision of the Judicial Committee in Clifford John Chick's case [1959] 37 ITR 89; 3 EDC 915 .'

22. And it wa held that so far as the amounts gifted by cash were concerned, bona fide possession and enjoyment of those amounts was not retained by the donees to the entire exclusion of the donor and they were accordingly includible in the principle value of the estate of the deceased concerned under s. 10.

23. Subsequent to the decision in Sakarlal Chunilal's case : [1975]98ITR610(Guj) , the provisions of s. 10 were considered by the Supreme Court in CED v. R. V. Viswanathan : [1976]105ITR653(SC) . In that case the deceased was the sole proprietor of two business concerns. With a view to converting the business of the two concerns into a partnership with his four major sons, the deceased transferred a sum of Rs. 45,000 from his personal account to the credit of each of the four sons on September 12, 1955. A partnership deed was executed on September 17, 1955, by the deceased and his four sons, the sum of Rs. 45,000 transferred to each of them being treated as their share capital. On September 18, 1955, two minor sons were also admitted to the benefits of the partnership and the deceased similarly transferred a sum of Rs. 45,000 from his personal account in the firm to each of his minor sons. Upon the death of the deceased on November 18, 1960, the question arose whether the sum of Rs. 2,70,000 being the aggregate of the amounts transferred by the deceased from his personal account to the credit of his six sons could be included in the estate passing on his death under s. 10 of the E. D. Act, 1953. The High Court of Kerala on a reference held that the subject-matter of the transfers in favour of each of the sons were the assets to the extent of Rs. 45,000 subject to the rights of those assets being available for the continued use of the business and that, therefore, the sum of Rs. 2,70,000 was not includible in the estate of the deceased under s. 10. The Supreme Court confirmed this view of the High Court that the transfer of Rs. 45,000 by book entries in favour of each of the minor sons on September 18, 1955, the execution of the partnership deed on September 17, 1955, and f the other agreement on September 18, 1955, were all parts of one integrated transaction, the object of which was to bring about transfer of six-sevenths share of the deceased in his business in favour of his sons so that he and his sons might have each one-seventh share therein. In view of the Tribunal's finding that the deceased transferred six-sevenths share in his business and retained one-seventh share therein, no question could possibly arise of the inclusion of the six-sevenths share or of the amount of Rs. 2,70,000 in the estate of the deceased under s. 10 of the E. D. Act of 1973. The transfer of that amount was not in cash but by means of book entries and as part of a scheme to transfer six-sevenths share in the business. There was no absolute transfer of the sum of Rs. 2,70,000 but the transfer was made subject to the condition that the sons would use it as capital and not for any benefit of the deceased donor but for each of them becoming entitled to one-seventh share in the business. No benefit was also conferred under the deed of partnership upon the deceased although some extra benefit was conferred upon two of the major sons in the form of remuneration because of their active and full participation in the business. It was held by the Supreme Court in that case (headnote) :

'If the gift of property be made without reservation or qualification or condition, or where the gift carries the fullest right known to the law of exclusive possession and enjoyment, any subsequent enjoyment by the donor of the benefit of that property in the nature of possession or otherwise would attract the levy of estate duty on the death of the donor according to section 10 of the Act. Where, however, the gift is subject to certain rights or 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 can be ascribed to those rights, i.e., rights subject to which the gift is made or rights shorn of which the property is gifted, then in such cases the subject-matter of the gift shall not be deemed to pass on the death of the deceased donor. If the deceased donor delimits the interest he is parting with and possesses and enjoys some benefit in the property not on account of the interest parted with but because of the interest still retained by him, the him, the interest parted with shall not be deemed to be part of the estate of the deceased donor passing on his death for the purpose of section 10 of the Act. The principle is that by retaining something which he has never given. a donor does not bring himself within the mischief of that section, nor would the provisions of the section be attracted because of some benefit accruing to the donor on account of what was retained by him.'

24. Obviously, in the case, the Supreme Court applied the principle laid down by the Privy Council in H. R. Munro v. Commissioner of Stamp Duties [1934] AC 61; 2 EDC 462 (PC) and also the principle laid down by the Supreme Court itself in C. R. Ramachandra Gounder's case : [1973]88ITR448(SC) . Thus, it is clear that according to the decision in R. V. Viswanathan : [1976]105ITR653(SC) if the gift was made by havala entry, the amount thus transferred by way of havala entry in favour on any donee by the deceased partner could not be said to be property deemed to pass on the death of the deceased by the virtue of s. 10 of the Act.

25. As regards cash gifts which were subsequently invested by the donees in the firm in which the deceased donor was a partner, the point is now clarified by the decision of the Supreme Court in CED v. Kamalavati : [1979]120ITR456(SC) . The Supreme Court in that case by one judgment disposed of two case, one of Kamalavati and another of Jai Gopal Mehra. In the second case of jai Gopal Mehra the facts were that in April or May, 1958, the deceased, Jai Gopal Mehra, made gifts of Rs. 20,000 each in favour of a son and four daughters-in-law. The donees invested the entire amounts gifted to them in a firm in which J was a partner. The donees were not partners in the firm nor were they taken as partners after the gifts were made. The sums gifted were already being utilised by the firm and they remained being utilised after the gifts. J died on October 23, 1961, and it was held that the sum of rupees one lakh so given could not be included in the property passing on J's death. At page 463 of the report, Untwalia J., speaking for the Supreme Court, observed :

'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 s. 10 of the Act until and unless such enjoyment or benefit is 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 or benefit of the donor in the property is consistent with the other facts and circumstances of the case, 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 or, to the entire exclusion of the donor, in any benefit to them by contract or otherwise. It makes no difference whether the donee is a partner in the firm from before or is taken as such at the time of the gift or he becomes a creditor of the partnership firm by allowing it to make use of the gifted property for the purpose of the partnership.' firm by allowing it to make use of the gifted property for the purposes of the partnership.'

26. After citing the facts of the case in Jai Gopal Mehra's case : [1979]120ITR456(SC) , the Supreme Court observed at page 465 of the report :

'It appears these donees were not partners in the firm nor were they taken as such after the gifts were made in their favour. Yet, applying the same principle of law, the Tribunal as well as the High Court has held that the accountable person is not liable to pay estate duty on the sum of Rs. 1,00,000. Here the donees remained creditors and the sums gifted were already being utilised by the firm. The same remained being utilised. Squarely, Munro's ratio [1934] AC 61; 2 EDC 462 (PC) is applicable. In our opinion, this case is on a stronger footing than that of Civil Appeal No. 2527 (Kamlavati's case : [1979]120ITR456(SC) ).......'

27. In Kamlavati's case : [1979]120ITR456(SC) , the gift was made by transfer entries in the books of account of the firm. Thus, according to these two decisions, one in R. V. Viswanathan's case : [1976]105ITR653(SC) and the other in Kamlavati's case, the Supreme Court has clearly indicated that unless there is something more, over and above the mere factum of the grant of gift being kept as deposit, either as creditor or as a partner's contribution to the capital of the firm by the donee, the mere factum of such deposit cannot attract the provisions of s. 10 of the Act. What is required to be looked at is the character in which the deceased donor continued to enjoy the benefit of the property, either by contract or otherwise. If he continues to enjoy that property, either by contract or other-wise. If he continues to enjoy that property even after the gift in his capacity as donor or in the capacity in which he made the gift and not in his capacity as partner, then only the provisions of s. 10 would be attracted. Otherwise, in all such cases, whatever be the character of the donee vis-a-vis the partnership firm in which the amount of the gift is invested, the provisions of s. 10 will not apply as the ratio in Munro's case [1934] AC 61; 2 EDC 462 would be applicable according to these two decisions of the Supreme Court.

28. It is clear, therefore, in the light of these two decisions in the case of R. V. Viswanathan : [1976]105ITR653(SC) and in the case of Kamlavati : [1979]120ITR456(SC) , that the ratio of the decision of this High Court in Sakarlal Chunilal's case : [1975]98ITR610(Guj) , that in so far as the amount given as gift in the form of cash, if brought back to the partner-ship firm in which the donor was a partner, would be property deemed to pass on the death of the deceased under s. 10, is no longer good law and we find that this is the view taken by a Division Bench of the Bombay High Court in Khatijabai Abdulla Soomer v. CED : [1980]124ITR160(Bom) . It is true that, in terms, the decision of this High Court in Sakarlal Chunilal's case : [1975]98ITR610(Guj) has not been overruled by the decisions of the Supreme Court in the above two cases, but the principles laid down and the test laid down by the Supreme Court in Kamlavati's case : [1979]120ITR456(SC) are very clear and if those principles were to be applied, the decision in Sakarlal Chunilal's case : [1975]98ITR610(Guj) cannot be invoked by the revenue.

29. Applying the test laid down by the Supreme Court in Kamlavati's case, it is clear that in the instant case beyond the factum of the gift in cash by the deceased to the different members of his family and the different donees and beyond the factum of those amounts being invested by the respective donees within a few days of the respective gifts with the firm of Harjivandas Hathibhai in which the deceased was a partner, nothing else has been established which would show that over and above the factum of gifts there was something else which indicated that in his character as donor the deceased was not excluded from the benefit of the amounts gifted. Merely because he was a partner in the firm in which the amounts were kept as deposit by the respective donees, it does not follow that the deceased was not excluded wholly from the enjoyment or benefit of those amounts gifted.

30. Under these circumstances, in the light of the decisions of the Supreme Court in R. V. Viswanathan's case : [1976]105ITR653(SC) and Kamlavati's case : [1979]120ITR456(SC) , which flow from the earlier decision in Ramachandra Gounder's case : [1973]88ITR448(SC) , it must be held that the amount of Rs. 87,000 should not be included in the principal value of the estate of the deceased under s. 10 of the Act. Question No. (2) must, therefore, be answered in the negative, that is, in favour of the accountable person and against the revenue.

31. We, therefore, answer the questions referred to us as follows :

Question No. (1)-Which is the question in Estate Duty Reference No. 1 of 1975 - in the affirmative, that is, in favour of the accountable person and against the revenue.

Question No. (2)-Which is the question in Estate Duty Reference No. 2 of 1975 - in the negative, that is, in favour of the accountable person and against the revenue.

32. The Controller will pay the costs of these two references to the accountable person.


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