(1) The question referred to us under S. 64(1) of the Estate Duty Act, 1953 is:
"Whether on the facts and in the circumstances of the case, the house property No. 5 Avenue Road, Nungambakam, Madras standing in the name of Smt. Parvathi Ammal was correctly included in the estate of the deceased as property deemed to pass under S. 10 of the Act?"
The site on which the house was built was purchased by P. Natesan, deceased, on 18-7-1929, in the name of his wife, Smt. Parvathi Ammal out of his own funds. By the following year, he constructed a house on the site. Since then and until his death, the deceased was residing with his wife in the house. The income from the property was being assessed to income-tax in the hands of the deceased. The property also was admitted as his by the deceased in the wealth statements filed by him on 31-3-1942, and as on 31-3-1952. Some time before his death it is not clear from the record, when this happened, a loan of Rs. 35000 was raised by the deceased from a bank on an overdraft account with it, which was secured by deposit of title deeds relating to the house. It is not in dispute that this amount was utilised by the deceased for his own purposes. The accountable person, the widow of the deceased claimed before the Revenue, though unsuccessfully that the value of the house was not liable to be included in the principal value of the estate of the deceased liable to duty. The Assistant Controller considered, in effect, that on the facts, there was no gift of the house and that even assuming that there was a gift, the provisions of S. 10 were applicable to the facts.
On appeal by the accountable person, the Central Board of Revenue, state that in the circumstances, there can be no dispute regarding the fact that the appellant got the property as a gift from the deceased. Nevertheless, the Board agreed with the Assistant Controller that S. 10 was applicable. This it did on two grounds. The first was that the deceased was residing along with his family in the property till his death. This, in the view of the Board, meant that there was no entire exclusion of the deceased pursuant to the gift from possession and enjoyment of the subject matter. The Board was aware of the relationship between the parties and the necessity of both spouses living together at the residence, but it thought that what mattered for purposes of S. 10 was the factual position, namely, that as a matter of fact, the deceased even after making the gift continued to live in the premises. The second ground of the Board was based on the second limb of S. 10, namely, that on account of the deposit of title deeds to secure his overdraft account, and the fact that the money borrowed was utilised by him for his own purposes, he derived a benefit from the subject matter of the gift.
(2) To answer the question referred to us, it is necessary to have a precise appreciation of the scope and effect of S. 10. It deals with gifts with reservation and broadly speaking, contains two limbs, the first what may be called a non-exclusion clause, and the second, retention clause. From the standpoint of taxes, the section is intended to reach any gift, which in reality is not so or which detracts from the nature of the disposition by reason of the reservation in the subject matter of the gift in favour of the donor, either in specie or otherwise, tangibly or intangibly, directly or indirectly. S. 10 does not touch a gift which is real, complete and effective to the entire extent of its subject matter, both in respect of possession and enjoyment and also the benefit from out of or in respect of it. The section commences by using the words "property taken under any gift". It seems to us that the word "taken" is of importance in the construction of the section, more especially of the effect and ambit of the two limbs, which bring to tax the value of the subject matter of a gift as passing on death of the deceased. The two limbs cannot, in our view, be understood de hors the disposition by gift itself, and that is implied in the word "taken". The crux of the section lies in the requisites (1) bona fide possession and enjoyment are assumed by the donee immediately on making the gift, (2) thereafter retention of possession and enjoyment by the donee, (3) such retention is to the entire exclusion of the donor and (4) the entire exclusion of the donor is also from any benefit to him out of or in respect of the subject matter of the gift, by contract or otherwise. If any of these requisites is not satisfied, to that extent the property taken under the gift shall be deemed to pass tax on the death of the donor. The essence of these requisites is total exclusion of the donor both from possession and enjoyment as well as benefit. Whether, where there is only a partial exclusion, the entire property will nevertheless pass, we are not called upon to consider in this case.
(3) If literal effect is given to the first requisite, there is no doubt, that it is not satisfied in this case. But should we construe it in such a manner as it may cover even cases of donors who, notwithstanding the gifts made by them and an intention on their part to divest themselves completely of any interest in the subject matter of the gifts, are compelled, nevertheless, to be in possession and enjoyment of the subject matter of the gift along with the donees, because of their peculiar relationship? We are of the view that the section does not compel us to place such a construction on it. It only contemplates assumption by the donee of such possession, as the circumstances would permit, and no more, and if on account of those circumstances, the donor has no option but to continue in the house as before because of the relationship, it cannot in our opinion, be said that he has not divested himself of possession and enjoyment. That situation in which he continues in possession, even after the gift, along with the donee, dictated as it is by the status and personal relationship of the parties, the law cannot fail to take note of it and demand a literal application of the first requisite. We do not think by S. 10, the legislature intended otherwise. Such a situation is not confined to cases of relationship of the spouses where one of them makes a gift of the house, in which they reside, to the other, as illustrated by a co-tenancy where one of the co-tenants happens to make a gift of a part of his interest in the joint tenancy and the law deems that every co-tenant is in possession of the entirety of the property for himself and on behalf of the others.
(4) On that matter, our attention has been invited to certain decided cases in England and Australia, to some of which we made reference in T.C. No. 171 of 1963. In one of those cases, Attorney General v. Seccombe, 1911-2 KB 688, the donor after making a gift of certain premises in favour of his nephew continued to live with him and it was held that it was not a colourable transfer but a real one and if the donor continued to live there, it was only by the leave and licence of the donee. That was a case which was based upon the relationship of the parties but it illustrates that circumstances may exist in which the donor may continue to live in the premises he has made a gift of by himself or along with the donee, which fact may not detract from the completeness and genuineness of the transfer by way of gift and which may not attract the applicability of S. 10. In Controller of Estate Duty v. Dr. Gurusami, this court has to consider a similar point and expressed the view:
"The living of the deceased with his wife in the building (which was gifted to the wife) is consistent with their relationship and not because that he retained any interest in the property, namely, in the superstructure which he absolutely gifted to his wife. There are no words in the deed of gift to support any theory that he reserved any interest in the property to himself."
On that view, this court held that S. 10 was not applicable. Mr. Balasubramaniam contends, as he is entitle to that this view is not based upon any reasoning. We cannot take that view, for the order of this Court does state, though cryptically, the reason for it, namely, the compelling circumstances--the relationship between the spouses--which explains the fact of the husband continuing to live in the gifted premises with his wife, the donee, and which does not detract from the completeness of the gift in any sense. In T.C 171 of 1963 also we were inclined to take, more or less, a similar view, though the facts in that case were different. We are, therefore, unable to accept the view of the Revenue that the first limb relates to non-exclusion from possession and enjoyment is applicable to the facts.
(5) The applicability of the second limb is a nice question which turns on its scope. Though at first sight, it might appear that any benefit derived by the donor is within its ambit, it is manifest from a careful reading of the entire section that the scope of the second limb is not so wide as that. "Any benefit" in the section, understood in the context, is linked to a benefit either derived out of the gift or related to or associated with the transaction of the gift. It may be that, in point of time, the benefit derived and the making of the gift, may not be contemporaneous. It need not necessarily be so. But, a benefit totally unconnected or dissociated or not linked up with the gift itself, will not be within the purview of the second limb of the section. The two limbs of the section are obviously related to property taken under any gift. It is also necessary for any benefit to come within the ambit of the section, that it must be by "contract or otherwise". This court has taken the view in T.C. No. 171 of 1963 (Mad):
"In the context 'otherwise' should be understood as implying some obligation either in law or in equity in the law or in equity in the nature of a contract or a quasi-judicial contract or in some other form. In other words, reservation of benefit to the donor should be one enforceable by him".
The Revenue here was of the view that because the loan raised by the deceased from his overdraft account secured by deposit of title deeds relating to the property was for his own purposes and was utilised by him for such purposes, it must be taken that this was a benefit derived by him from the property and that derogated from the completeness of the gift and brought it within the mischief of the second limb of S.
10. We are unable to accept this view as sound. Once it is common ground that a gift was as a matter of fact made of the house, it does not appear to us that the factum of utilisation of the amount borrowed for the donor's purposes will be of any consequence in respect of the applicability of S. 10. It may be conceded that in so far as he raised a loan on the overdraft account, secured in that way, and utilised the money for his own purposes, he did derive a benefit. But it is a benefit which did not accrue to him by any benefit which did not accrue to him by any "contract or otherwise", in the sense in which these words were understood by this court in T.C. No. 171 of 1963. Quite apart from that, the benefit was not reserved by the gift, not that we say that the reservation should necessarily always be in that fashion. The benefit, as we think, the donor obtained was entirely collateral. It is true that even collateral benefit may, in certain circumstances, fall within the ambit of the second limb. But where the collateral benefit is unconnected or has no relation to or is not linked up with the transaction of gift itself, it will not be comprehended by the second limb.
The benefit here is not incidental or referable to the gift. We have already indicated what the broad scope of the section is, namely, that it hits at gifts with reservations. If a gift is held to be complete, when it was made, and thereafter no benefit accrued to the donor, which is linked with or referable to the gift, merely because after a real gift has been made the donee, like any other full or absolute owner, goes to the assistance of the donor, as in this case by offering the property gifted as security for a loan, raised by the donor, it cannot be held that to that extent there is a benefit accrued to the donor under S. 10, which will detract from the completeness of the gift. We are of the view that the second limb of S. 10 is also not applicable to the facts.
(6) The question referred to us is answered in favour of the assessee with costs. Counsel's fee Rs. 250.
(7) Order accordingly.