1. These two references arise out of the estate duty assessment of the estate of one K. V. AL. RM. RM. Ramanathan Chettiar, hereinafter referred to as the deceased. The deceased was domiciled in India at the time of his death, which was on 9th August, 1955. On the death of the deceased, his sons, who are accountable persons under the Act, filed an account of the estate of the deceased before the Assistant Controller of Estate Duty, Madras. The Assistant Controller of Estate Duty determined the principal value of the estate at Rs. 6,46,434 and the estate duty payable thereon at Rs. 79,727. The accountable persons questioned the said determination of the principal value and contended that out of theprincipal value of Rs. 6,46,434 a sum of Rs. 4,66,373 represented the value of the deceased's share in foreign immovable properties and, therefore, the inclusion of the said value in the principal value was not proper. But it was found by the Assistant Controller of Estate Duty that the deceased and his two sons, who originally constituted a Hindu undivided family, owned extensive properties in India and abroad and a business of moneylenders and land-owners in Kuala Lumpur, Malaya and Singapur, that on 12th April, 1954, they had put an end to the joint family status and discontinued the business of the joint family and started a partnership business as and from 13th April, 1954, and that all the assets and liabilities of the quondam joint family had been transferred to the firm. He also found that the said sum of Rs. 4,66,373 represented the share of the deceased in the firm, that by the application of rule 7(c) of the Estate Duty Rules, 1953, the share of the deceased in the partnership should be taken to be movable property even though the firm owned immovable properties and that, therefore, the value of the said share is includible in the principal value of the estate of the deceased.
2. The order of the Assistant Controller was appealed against to the Board under Section 63 of the Act and the main contention before the Board related to the inclusion in the assessment of the value of the share of the deceased in the foreign immovable properties. The contention of the assessee was that the share of the deceased in the partnership should have been exempted from duty under Section 21(1)(a) of the Act and that the rule 7(c) of the Estate Duty Rules, 1953, which has been invoked in this case by the Assistant Controller, was ultra vires Sections 21(1) and 85 of the Act, inasmuch as it converts a foreign immovable property into movable property, when Section 21(1) specifically exempted the foreign immovable property from duty. It was also urged by the assessee that the immovable properties were not, in fact, the assets of the partnership, but were only managed by the firm for the sake of convenience. Dealing with the above contentions the Board found that, though the immovable properties originally formed part of the assets of the joint family consisting of the deceased and his two sons, on the constitution of a partnership on 13th April, 1954, the properties became the partnership assets, that the deceased and his two sons had earlier declared on 12th May, 1954, by a deed of declaration of trust, that they had entered into a partnership after division of the joint family assets, that each of the parties was entitled to a one-third share in each and every asset and that thereafter all the movable properties are to be treated as the assets of the partnership of which all the three were partners. The Board, therefore, found as a fact that the immovable properties, which were originally the joint family assets, became the assets of the partnership after 13th April, 1954, and, therefore, at the time of his death, thedeceased had a one-third share in the partnership and not a third share in the immovable properties as such. On the question as to whether rule 7(c) of the Estate Duty Rules, 1953, was ultra vires of either Section 21(1) or the rule-making power contained in Section 85 of the Act, it held that it is well within the rule-making power contained in Section 85 nor did it contravene Section 21(1) of the Act as contended for by the assessee. At the instance of the assessee the following two questions have been referred to the court in the above tax cases :
'(i) Whether the inclusion of the sum of Rs. 4,66,373 as share of the deceased in the value of the immovable properties of the firm and the levy of estate duty thereon as 'movable property outside India' is correct in law
(ii) Whether rule 7(c) of the Estate Duty Rules is intra vires ?'
3. On the findings given by the Assistant Controller and the Board, it is clear that the properties, which were originally owned by the joint family of the deceased and his two sons, became the properties of the partnership, which was constituted for the first time on 13th April, 1954, by the deceased and his two sons as partners, that there was a division of the joint family between the deceased and his two sons even before constituting the firm, and it is only thereafter they brought in their assets into the partnership and that this was clear from the deed of declaration of the trust executed by the deceased and his sons on 12th May, 1954.
4. The learned counsel for the assessee contends that there is no regular deed of conveyance under which the properties are transferred to the partnership, that in the absence of any such conveyance, the property should be deemed to be either the joint family assets or the assets of the three individuals, and that in such a case the value of the one-third share of the deceased in all the immovable properties cannot be treated as movable property. As already stated, in this case it has been clearly established that the joint family of the deceased and his sons had ceased to exist and a firm had come into existence, that the deceased had a one-third share at the time of his death in the firm which took over all the assets and the liabilities of the business run by the quondam joint family.
5. In Commissioner of Income-tax v. Janab N. Hyath Batcha Sahib : 72ITR528(Mad) it has been held that when a partner brings in certain items into the partnership at the time of its formation, such items become the property of the partnership and that such change of ownership is brought about not by any transfer, but by the very intention of the parties to treat such property belonging to one or more of the members of the partnership as that of the firm. The learned judges in that case referred to Section 14 of the Indian Partnership Act in support of the said view. Section 14 states that ' theproperty of the firm includes all property and rights and interests in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm'. In Chief Controlling Revenue Authority v. Chidambaram : AIR1970Mad5 a Division Bench of this court took the view that no document is necessary when a partner brings into the partnership some of his assets with an intention to treat the same as partnership assets, that by virtue of Section 14 of the Partnership Act, property could be thrown into the partnership stock without any formal document, so as to make it the property of the firm. The contention of the assessee that unless there is a document of transfer, the immovable properties in question cannot be treated as partnership assets, cannot, therefore, be accepted.
6. If the immovable properties are treated as partnership assets and the deceased had only a one-third share in the partnership, his share can only be treated as movable under rule 7(c) of the Estate Duty Rules, 1953. The question, whether the share of a partner in a partnership firm, which owned, among its assets, immovable properties, can be treated as movable property, was considered by us in Writ Petition No. 1477 of 1968, PL. VRM. Ramaswamy Chettiar v. Assistant Controller of Estate Duty : 92ITR195(Mad) wherein, after considering the relevant statutory provisions and the earlier decisions on the point, we held as follows :
'From the above decisions, it appears to be well-settled that the share of a deceased in a partnership is a movable property, even though the firm owned immovable properties. Rule 8 merely sets out the principles of general law regarding the situs of movable property, and rule 9 likewise sets out the situs of immovable property and these rules also accord with the general law relating to the fixation of situs of movable and immovable properties. We do not, therefore, find in rules 7 to 9 any departure from the principles of the general law as to the nature and location of the properties. Even in the absence of the said rules the authorities have to fix the nature and location of the properties in accordance with general law.'
7. We have to, therefore, agree with the view taken by the Board in this case that the share of the deceased in the partnership is a movable property and as such could be brought to charge under Section 5 of the Act.
8. On the question as to whether rule 7(c) of the Estate Duty Rules, 1953, is ultra vires Section 21(1) or Section 85 of the Act, we have held in Writ Petition No. 1477 of 1968, Ramaswamy Chettiar v. Assistant Controller of Estate Duty, that rule 7(c) is well within the rule-making power contained in Section 21(2) and 85(1) of the Act and that it does not contravene the provisions of Section 21(1) of the Act.
9. The result is that both the questions are answered in the affirmative and in favour of the revenue. The revenue will have its costs in T.C. No. 240 of 1965. Counsel's fee Rs. 250. No costs in T.C. No. 106 of 1973.