1. Under Section 64(1) of the E.D. Act, 1953, the following question has been referred :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that provisions of Section 10 of the Estate Duty Act, 1953, are not applicable to this case and, accordingly, deleting the addition of Rs. 5,56,536 '
2. The estate duty assessment came to be made on the death on December 7, 1962, of Shyamala Anni. She had filed O.S. No. 7 of 1940 in the court of the Subordinate Judge, Mayavaram, for partition and separate possession of her 1/5th share in certain properties. The suit was dismissed and there was an appeal to this court in A.S. No. 275 of 1943. There was a compromise in and by I.A. No. 276 of 1945 after the disposal of the appeal by this court, under which very large agricultural lands were allotted to her absolutely. She had no male issue. She had only a daughter and grand-children apart from a brother and sister. She executed settlement deeds on various dates between 6th January, 1949, and 12th March, 1960, by which she gifted to the various persons, that is, her brother, sister, son-in-law, daughter, grand-children and a school, properties consisting of agricultural lands to the extent of 234 acres, 49 cents wet, and 12 acres and 60 cents dry. For our present purpose, it is unnecessary to refer to the details of the various gifts made by her to the several persons or entities mentioned already.
3. The daughter of the deceased filed a return under the E.D. Act. In the course of assessment, the question arose as to whether the several gifts or settlements would come within the scope of Section 10 of the E.D. Act. The lands were mostly under pannai cultivation and some of them had been leased. The rent deeds executed in favour of the donees by the various tenants in respect of the lands settled on the donees were produced before the estate duty authorities. The donees had been assessed to agricultural income-tax, and the pattas in respect of the lands had already been transferred in their favour. Relying on these facts, it was contended for the accountable person that the properties had been absolutely transferred in favour of the donees and that the donees had assumed possession thereof and were in enjoyment of those properties to the entire exclusion of the donor (the deceased).
4. The Asst. CED found that there were no separate accounts maintained by the donees, but only separate folios opened for each of the donees in the books of the deceased wherein the sale proceeds of the paddy got from the gifted lands and the sale proceeds of the other lands were credited. Taking into account these features and also the fact that there were fixed deposits and donations of substantial amounts which, according to him, could not have been made out of her own properties, the Assistant Controller came to the conclusion that the donees had not retained possession of the gifted lands to the entire exclusion of the deceased and he accordingly valued the lands at Rs. 5,56,536 and brought it to tax in the hands of the accountable person as the properties deemed to pass on the death of the deceased by reference to Section 10 of the E.D. Act. The accountable person appealed totbe Appellate Controller who confirmed the assessment. On further appeal to the Tribunal, the Tribunal held that the donees had assumed possession of the gifted lands in pursuance of the settlement deeds. There was no evidence before the Tribunal to show that the deceased had the benefit of the income derived from the gifted properties. In these circumstances, it was held that the provisions of Section 10 of the Act did not apply. In the view of the Tribunal, the fact that the donees had allowed the income from the gifted properties to lie with the deceased could not be said to be a benefit in the properties gifted or even referable to the properties gifted. The result was that the application of Section 10 of the Act was held to be wrong, and the revenue feeling aggrieved by this order of the Tribunal has obtained the reference of the question already extracted.
5. The learned counsel lor the revenue contended that in the present case the provisions of Section 10 of the Act were attracted, that the question that should really be examined is whether the deceased was factually excluded from the enjoyment of the properties and that the fact that the income was pooled and was in the control of the deceaed was enough to show that the deceased was not entirely excluded from the properties, so as to get out of the operation of Section 10 of the Act, He cited various decisions in support of this contention. On behalf of the accountable person, the learned counsel submitted that this is a case in which there was no evidence of any actual enjoyment of the properties gifted so that Section 10 of the Act could be brought into operation. In the submission of the counsel, in the absence of any finding to show that the deceased was in actual enjoyment of any part of the properties gifted, there would be no scope for applying Section 10 of the Act.
6. Section 10 of the Act is one of the provisions that has come in for scrutiny of the courts on numerous occasions. To the extent relevant for our purposes, it runs as follows :
' 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:... '
7. There are two provisos to the section, but it is unnecessary to go into them for the purpose of this case. Though certain earlier decisions have gone into the interpretation of this provision, the Supreme Court in Satyanarayan S. Mody v. CED : 75ITR382(SC) has succinctly, if we may say so with respect, brought out the effect of this provision at page 387, in the passage running as follows :
' The phraseology of the section is somewhat involved. The purport of the section is, however, clear. The section clearly means that if in respect of any property which is gifted, bona fide possession and enjoyment is not immediately assumed by the donee and thenceforward retained by him to the entire exclusion of the donor or of any benefit to him therein the property gifted shall not be excluded from the estate subject to estate duty.'
8. The question that must be determined in the present case is whether the donees have immediately assumed possession and enjoyment of the properties gifted. With reference to this aspect there is a finding of the Tribunal in para. 5 of its order. After referring to the lease deeds in favour of the donees, the orders passed under the Agrl. I.T. Act and the transfer of pattas in the names of the respective donees, the Tribunal has stated :
' On these facts, the reasonable conclusion is that the donees immediately assumed possession of the gifted lands in pursuance of the settlement deeds.'
9. The finding on this aspect has not been challenged by the revenue raising any appropriate question and in fact the learned counsel for the revenue did not and could not dispute this finding.
10. The next point to be examined is whether the donees retained the properties to the entire exclusion of the donor. On this aspect, the Tribunal has stated in para. 6 of its order as follows :
' The appellant (the accountable person) has placed before us true copies of the account of the various donees, namely, Ramanatha Mudaliar, Smt. Parvathavarthini, Smt. Shyamala, Smt. Thirupurasundari and Muralidharan in the books of the deceased. It is seen that as on the date of death of the deceased, there was credit balance in the account of all these persons. It does not appear therefrom that the deceased had used the moneys of the settlees credited to their accounts. On the other hand, it is apparent that the settlees withdrew from time to time moneys standing to their credit, being the sale proceeds of paddy derived from the lands. There is thus no evidence to support the finding of the lower authorities that the deceased had the benefit of income derived from the gifted lands. It has been observed by the lower authorities that but for the availability of the funds, the deceased could not have met the cost of construction of the Shyamala Anni Girls' High School building. This again is not based on any evidence and is a mere surmise. The lower authorities have not given any material for drawing such an inference. Thus, there is absolutely no evidence to show that the deceased had the benefit of the income derived from the gifted properties.'
11. The finding given above rules out the application of Section 10. The learned counsel for the revenue submitted that from the mere fact that the sale proceeds of the paddy were credited in the accounts of the deceased, though in the folios of the respective donees, it would be clear that the deceased could enjoy the money so credited and that, therefore, the provision would be attracted. This aspect has been gone into in two decisions of this court. In M. Ranganatha Sastri v. CED : 60ITR783(Mad) , a Hindu husband lived with his wife in a house gifted by him to his wife, collected the rents and included the rent thereof in his income-tax return, though the rent note was in the wife's name. These facts, it was held, would not be sufficient to come to the conclusion that the wife was not in exclusive possession and enjoyment of the property. However, the decision went against the accountable person in that case, because there was a finding that the husband had used the rents for his own purposes. At page 788, it has been observed :
' We are also of the view that, if nothing more happened, then the husband received the rents and put them in his current account, that would not be inconsistent with the donee having taken exclusive possession of the subject-matter of the gift. '
12. It was pointed out that factual investigation would be necessary to find out whether the rental income had been applied by the husband for his own purpose so as to justify the conclusion that he, as the donor, was not excluded from the property, but the facts were against the accountable person in that case.
13. In CED v. Mrs. Kamala Pandalai : 105ITR531(Mad) , the matter came to be examined in some detail. The deceased had gifted to his wife some house properties and a vacant site on which a house was constructed. The wife was collecting the rents from the houses and leasing them as and when they fell vacant. The deceased had also acquired certain shares in the name of his wife, the source for the investment having been provided by him. The rents from the house and the dividends from the shares were credited to a bank account in the sole name of the deceased till March 12, 1958, after which date, a joint account was opened in the name of the deceased and his wife. The rents and dividends received after that date, along with the pension received by the deceased, were deposited in the joint account. There were withdrawals both by the husband as well as the wife. On the death of the deceased on 5th February, 1960, the question arose whether, with reference to the properties and investments, the provisions of Section 10 of the E,D. Act applies. It was held that the donee had assumed such possession and enjoyment of the properties as was possible in the circumstances, and that as the donee was in receipt of rents, profits and dividends from the settled properties, the crediting of the amounts in the deceased's bank account would not bring the case within the scope of Section 10 of the Act. At p. 542, it was observed:
' The mere existence of the bank account of the deceased and the deposits made therein do not, in our opinion, show that the donee had not retained possession and enjoyment of the properties gifted to the entire exclusion of the deceased. If the revenue authority has to succeed on this aspect, some materials should have been placed before us to show that the deceased enjoyed the said income.'
14. In the same case at page 543 it was further observed:
' The deposit of the income into the individual account of the donor or in a joint account with him without the donee evincing any intention to make them over to the donor absolutely would not lead to the inference that she did not intend to retain the possession and enjoyment of the gifted properties exclusively to herself.'
15. The principle set out above would apply here. Essentially whether the deceased was excluded from enjoyment or not is a question which is capable of decision only by reference to facts. There must be some evidence, circumstantial or otherwise, that there has been an enjoyment of the gifted property by the deceased. A joint account in which the moneys of the donees are accounted or maintenance of a common account book is not enough to establish enjoyment.
16. The learned counsel for the revenue sought to distinguish these decisions by contending that they were rendered on the special facts therein, namely, that the donor was the husband and that the donee was the wife, and that they were living together, so that the said relationship existing between them was the basis for the inference drawn in those cases. Though the said cases as such arose with reference to transactions between the husband and wife who were living together, the matter has been analysed in detail and the passages extracted above are of general application.
17. The learned counsel for the accountable person drew our attention to the decision of the Bombay High Court in CED v. Sharangadhar Shamji : 109ITR320(Bom) . In that case, certain Government securities had been gifted by the deceased. He was doing money-lending and commission business. The donees were his wife and sons and the gift was more than two years before his death. It was found that the deceased had made bona fide gifts of the securities and that the corpus was undoubtedly transferred by the deceased to his wife and children as the securities stood in their names. The interest on those securities was realised by the deceased and credited to his own bank account. The deceased, who was as seen earlier a money-lender, kept detailed books of accounts, and showed in his books the interest as having been duly credited to the respective accounts of the donees. There was no evidence on record to show that such interest was drawn by the deceased either for private consumption or for investment in his own name. Simply because the interest was credited by the deceased in his own bank account, it was held, it could not be said that the deceased had used such interest for his benefit. In this view, Section 10 was found to be not attracted. Thus, the Bombay High Court has also applied the same tests as this court.
18. In the present case also, the respective amounts realised from the lands of the respective 'donees were separately credited. There was no evidenceof any intention on the part of the donees to allow the money to be used by the deceased. On the facts, the decisions in CED v. Mrs. Kamala Pandalai : 105ITR531(Mad) and CED v. Sharangadhar Shamji : 109ITR320(Bom) would squarely apply.
19. The learned counsel for the revenue relied on in support of his contention that Section 10 was attracted, on a passage from Green's Death Duties (seventh edn.), page 140, which reads as follows :
'Exclusion from possession, etc.--This condition is not satisfied if, within the statutory period, the deceased in fact had some measure of possession or enjoyment of the gifted property, however he came to acquire it. It is immaterial for this purpose whether or not he had any enforceable right to possession and enjoyment; he may, for example, merely have been allowed by the donee to occupy, or to receive the income of, the gifted property. Nor is it necessary that the deceased's non-exclusion should have commenced at, or been continuous from, the time of the gift; the condition is not satisfied if the deceased, though entirely excluded at the outset, subsequently, with the concurrence of the donee, reassumed a measure of possession and enjoyment'.
20. From this passage, the learned counsel sought to build an argument that a possibility of appropriation of the amount would be enough to bring into operation Section 10. The authorities of this court as well as of the Supreme Court do not support this extreme contention taken at the instance of the revenue. Section 10, as it is worded, would require some enjoyment and the enjoyment will be only physical and not notional or potential. Therefore, on the language of the provision, it is not possible to accept this submission of the learned counsel for the revenue.
21. What is overlooked by the learned counsel in his submission is that in the present case the income as such is not received by the donor. What was kept with her was only the money and, therefore, in such a case it cannot be contended that she was allowed to enjoy the gifted properties or the income therefrom, so long as there is no evidence of enjoyment by her of the property or income by her or so long as there was no evidence to show that she was allowed to enjoy the properties or the income. The reference is accordingly answered in the affirmative and in favour of the accountable person. The accountable person will have her costs. Counsel's fee Rs. 500.