1. At the instance of the Revenue, the following question has been referred to us for opinion by the ITAT :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sum of Rs. 85,000 being the amount gifted by the deceased to his sons, wife, daughter and grandsons was not liable to be included under s. 10 of the E.D. Act ?'
2. One Sri M. A. Ramanujam Pillai was running a rice mill in his individual capacity. In 1956-57, a sum of Rs. 85,000 was gifted by way of transfer to the debit of capital account of the deceased and to the credit of th e account of his sons, wife, daughter and grandsons. Thereafter, the donees were taken in as partner and the credit balances in their favour were credited to their capital account. The said Rammanujam Pillai died on October 16, 1969. in the course of the assessment proceedings under the E.D. Act, the Asst. CED held that since the possession and enjoyment of the funds gifted had not been retained by the donees to the entire exclusion of the deceased or of any benefit to him, s. 10 should be applied. He, therefore, added the said sum of Rs. 85,000 as forming part of the estate of the deceased.
3. The accountable person appealed to the Appellate Controller, and he found that the gift was made on April 1, 1957, and on the same day, the proprietary concern was converted into a partnership by making the donees as partners along with the deceased. He also found that gift tax has been levied in respect of the gift relating to Rs. 85,000. He, therefore, did not agree with the Assistant Controller that s. 10 should apply. In this view, he deleted the sum of Rs. 85,000 from the value of the estate of the deceased. The Revenue, aggrieved by the decision of the Appellate Controller, went before the Tribunal The Tribunal found that the deceased was carrving on business in rice mill under the name and style of Deshabandhu Rice Mill as sole proprietor thereof till March 31, 1957, that on April 1, 1957, he converted the business into a partnership by taking his sons, wife and daughters as partners, that on the same date he gifted to them Rs. 85,000 in all and the said gifts were made by debiting the capital account of the deceased in the books of the firm and crediting the respective ammounts gifted to the donees' capital account. On these materials, the Tribunal held that s. 10 of the E.D. Act was not applicable. According to the Tribunal, the gifts made to the donees were made subject to the condition that the gifted amounts should be available for the carrying on of the business of the partnership, that though the deceased had the benefit of the gifted amounts, the benefit should be traced to his capacity as a partner and not to his capacity as a donor and that, therefore, since the benefit is not referable in any way to the gift and is, in fact, unconnected with the gift, s. 10 of the E.D. Act cannot be applied. In support of that view, the Tribunal relied on the decision of the Supreme Court in CED v. Ramachandra Gounder : 88ITR448(SC) . Aggrieved by the decision of the Tribunal, the Revenue has sought and obtained the reference on the question set out above.
4. The learned counsel for the Revenue refers to the decision of this court in CED v. Suryanarayanan : 114ITR599(Mad) and submits that the said decision will apply on all fours to the facts before us. The learned counsel for the assessee, on the other hand, submits that the decision in CED v. Suryanarayanan : 114ITR599(Mad) relied on by the Revenue is not in accord with the decisions rendered by the Supreme Court on similar set of facts in CED v. Vishwanathan : 105ITR653(SC) and in CED v. Kamlavati : 120ITR456(SC) . It is no doubt true, as contended by the Revenue, that this court has held in CED v. Suryanarayanan : 114ITR599(Mad) that the enjoyment of the gifted amount by the doer even as a partner will be sufficient to attract s. 10 and the said decision proceeds on the basis that the factual possession and enjoyment by the donor of the gift amount is sufficient to attract s. 10 of the E.D. Act, even though the possession or benefit is not traceable to the actual gift, but the Supreme Court has categorically ruled in CED v. Viswanathan : 105ITR653(SC) that if the use of the gifted property or the receipt of any benefit by the donor is not traceable to the gift, then s. 10 of the E.D. Act cannot be invoked. In CED v. Kamlavati : 120ITR456(SC) . the Supreme Court has reiterated the principle laid down earlier in CED v. Viswanathan : 105ITR653(SC) and has also in its earlier decision in CED v. Ramachandra Gounder : 88ITR448(SC) and observed that where the donor makes a gift to his sons and using the amount gifted as capital, brings his children as partners and continues to have the benefit of the amount gifted as a partner of the firm, such benefit to the donor is referable to his membership of the partnership and it is not a benefit referable in any way to the gift but it is unconnected therewith. These decision in CED v. Ramachandra Gounder  88 ITR 488 , CED v. Viswanathan : 105ITR653(SC) and CED Kamlavati : 120ITR456(SC) have uniformly laid down the principle that unless the benefit the donor has on the amounts gifted is referable to the gift, s. 10 cannot be attracted
5. Following the Supreme Court decisions referred to above, we answer the question in the affirmative and against the Revenue. There will be no order as to costs.