CONTROLLER OF ESTATE DUTY, A.P., HYDERABAD versus SMT. GODAVARI BAI

TULZAPllRKAR, J. The question raised tion in this appeal is whether on the stances of the case the aoount of Rs.3 the deceased to his three grand nephews includible in the estate of the deceased death? Substantially the answer thereto sec.10 of the Estate Duty Act, 1953 or not.

p. 352, margin C

The facts giving rise to the stated. The deceased, Sri Bankatlal Lahoti the firm of M/s Dayaram Surajmal, which a Bankers. With a view to give Rs.l minor grand nephews (three grand sons the deceased on 4th October 1952 issued lakhs in favour of the firm; this amount was account of the deceased in the firm accounts of the three minors in equal proportion. thus transferred to the three nephews continued their respective accounts in the books dissolution on 4th July 1960, whereafter allotted to each one of them in lieu to their credit. The deceased died on

p. 352, margin E

After the death of the deceased, Bai as the accountable person filed assessee's est<>-te declaring the value thereof at Rs.2,60, 702. This did not include the sum of Rs.3 lakhs transferred by the deceased to the three grand nephews on 4th October 1952. The assessee contended that these transfers were not gifts but amounted to transfer of actionable claims made in conformity with s.130 of the Transfer of Property Act by effecting B entries in the books of account. Alternatively it was contended that the transfer amounted to a novation which did not require an instrument signed by the transferor. The Deputy Controller negatived both the contentions; the first on the ground that there was no valid transfer of actionable claims because it was not effected by an instrument in writing signed by the transferor as required by s.130 of the Transfer of c Property Act while the alternative contention on the ground that the transaction did not amount·to a novation inasmuch as there was no substitution of one debt for another. In this view of the matter the Deputy Controller held that the sum of Rs. 3 lakhs was includible in the estate of the deceased that passed on his death. In the appeal preferred by the assessee D the self same contentions were urged on her behalf before the

pp. 352–353, margin G

Appellate Controller of Estate Duty while the Deputy • Controller justified the assessment on the additional ground that the sum of Rs.3 lakhs was also includible in the Estate of the deceased that passed on his death under s.10 of the Estate Duty Act 1953. The Appellate Controller rejected the assessee's contentions and accepted those of the Deputy Controller and confirmed the inclusion of the amount in the estate of the deceased. In the further appeal preferred to the Appellate Tribunal since it was admitted on behalf of the assessee that apart from the cheque issued by the deceased in favour of M/s Dayaram Surajmal and the entries made in the F books of that firm debiting the deceased's account and crediting the accounts of the donees there was no other document to evidence the transfer the Tribunal presumed that the tansfer was effected as a result of oral instructions which must have been given by the deceased to the fim. Co1insel for the assessee, however, urged that notwithstanding the absence of G an instruirent in writing signed by the assessee the transfer was valid under s.130 of the Transfer of Property Act and in that behalf reliance was placed on Cbettiar and Ors. v. K.S.M. Manicltam Clettiar and Ors., A.I.R. 1938 Madras 236 and Seetbar8ma Ayyar and Aor.v. Narayanaswaa:l Pillai and Aor. 47 Indian Cases 749 but the Tribunal did not accept the H contention and held that the plain reading of s.130 that the tranafer of an actionable claim became complete effectual only upon the execution of an instrument in signed by the tranaferor or by his duly authorised agent; that the cheque issued by the deceased in favour of only authorised the firm to pay to itself ·the sum lakhs from out of the B!DOunt lying at the credit deceased but it did not by itself authorise the transfer this B!DOUnt to anyone else and that such a could be authorised by a separate letter of instructions the deceased but no such instrument obtained and instructions given could not take the place of instrument in writing and therefore the transfer of Rs.3 done in favour of the donees was not in accordance with the requirements of section 130. The alternative contention the tranafer was in the nature of a novation was also on the ground that the donees were not indebted to nor was the deceased indebted to the donees and therefore, entries made in the account books of the firm could not understood as a substitution of one debtor in the another. The Tribunal also held that this amount of Rs.3 lskhs was includible in the estate of the deceased under s.10 Estate Duty Act even if it were assumed that the became complete and effective on the date of the inasn»Jch as on the facts it could not be said that the donees retained possession and enjoyment of the gifted amounts e'ltire exclusion of the donor or of any benefit to that this position continued to exist till the death deceased.

pp. 353–354

At the instance of ·the assessee the Tribunal the following question of law to the High Court opinion:

p. 354, margin F

"Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the amount of Rs.3 lal<hs transferred by the assessee to his grand nephews was dible in the estate of the deceased that

p. 354, margin F

his death." On a consideration of the entire material on record Court took the view that the entries made in the books firm by debiting the account of the deceased in the Rs .3 lakhs and crediting the said amount in the three accounts of the donees (grand might not constitute a valid gift of the basis that it was gratuitous transfer claim the interposition of a cheque issued favour of the firm made all the differene transfer of an actionable claim represented instrument like a cheque was governed to s .130 of the Transfer of ·Property Act and together with the· oral instructions (which even t)le presumed were given by the deceased) firm, a trustee or an agent holding the of the minors and as such the transfer valid, complete and effectual. After coming the High Court proceeded to consider this transaction of gift of an actionable Act was applicable or not and relying upon leading case of lblro v. Ccmdss:loner A.C. 61 as well as its two earlier decisions !state Duty v. C.R. Gounder, Controller of 1!atate Duty v. N.R. llamaratbanam, the High Court held that the donor had ed from the subject matter of the gift not applicable. In other words differing by the Tribunal, the High Court held involved in the case was. a gratuitous able claim and that there was in law effectual gift thereof in favour of nephews and since s.10 was not attracted was not includible in the value of the that passed on his death. It, therefore, in the negative in favour of the assessee. come up in appeal.

pp. 354–355, margin G

Counsel for the Revenue did not conclusion in regard to their being actionable claim in favour of the minors issuance of the cheque accompanied by followed by the making of the requisite entries in the firm's books but vehemently

p. 355, margin F

that s.10 was inapplicable to this transaction ~--,urged that possession and enjoyment of the gift was neither assumed by the them to the entire exclusion of the donor inas111Jcb as the donor as a partner of the firm had control over the said sum of Rs.3 lakhs which continued to lie with the firm for being used as the firm's property and this position continued to obtain till the death of the deceased and in fact till the dissolution and as such s.10 was clearly attracted. Strong reliance was placed by counsel for the revenue on the ratio of the Privy Council decision in v. Comdss:l.ooer of Staap Duties of South Wales, 37 I.T.R. E.D. 89 which was followed by this Court in George Da Costa v. Controller of Estate Duty, Mysore, 63 I.T.R. 497 Controller of !'state Duty, Madras v. SD:. Parvati Atmal, 97 I.T.R. 621 as also two decisions of the Gujarat High Court in a Shantaben s. Kapadia v. Controller of Estate Duty, Gujarat:, 73 I.T.R. 171 in Controller of !'state Duty, Gujarat v. Clumdravadan Aaratlal Bhatt, 73 I.T.R. 416. On the other hand counsel for the assessee supported the view of the High Court by placing reliance on the decision in Hunro's case (supra} which has been followed , by this Court in C.R. Ramachandra Gounder's, 88 I.T.R. 448 N.R. Ramarathanaa's case 91 l,T,R. 1 Controller of Estate Duty v. R.V. Vishwanathan & Ors., 105 !, T.R. 653 and Controller of Estate duty v. ICamlavati, 120 I.T.R, 456.

pp. 355–356, margin G

Having regard to the rival contentions urged before us it is clear that the answer to the question raised in this appeal depends upon a proper analysis of s.10 of the Act and whether the instant case falls within the doctrine enunciated in

p. 356

case (supra) or within the ratio of <hicks' case (supra}? Relevant portion of s.10 of the Act runs thus "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

p. 356

otherwise ••••• The object under lying a provision like s.10 of the Act was explained by Issacs J. in the case of John Lang v. 1bollas Prout Webb, 1912 13 C.L.R. 503 decided by the High Court of r Australia in the following words :

p. 356

"The owner of property desiring to make a gift of it to another may do so in any manner known to the law. Apparent gifts may be genuine or colourable, and experience has shown that frequently the process of ascertaining their genuineness is attended with delay, expense and uncertainty - all of which are extremely embarrassing from a public revenue standpoint. With a view to avoiding this inconvenience, the legislature has fixed two standards, both of them consistent with actual genuineness, but prima facie indicating a colourable attempt to escape probate duty. One is the standard of time. A gift, however, real and bona fide, if made within twelve ioonths before the donor's death is for the purpose of dutv regarded as not made. The other is conduct whict; first sight and in the absence of explanation is inconsistent with the gift. The prima facie view is made by the legislature conclusive. If the p ·ies to the transaction choose to act so as to bf in apparent conflict with its purport, they are t_o be held to their conduct. The validity of the transaction itself is left untouched, because it concerns themselves alone. But they are not to embarrass the public treasury

p. 357, margin A

by equivocal acts."

p. 357, margin C

The conditions specified in s.10 will have to be under- } stood by keeping in view the aforesaid object with which the section has been enacted. In George Costa v. Controller of Estate Duty, Mysore (supra) this Court has analysed the conditions on the fulfilment of which the section gets attracted, thus:

p. 357, margin C

"The crux of the section lies iri two parts; (1) the donee nrust 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 donee 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. matter of construction we are of opinion that these conditions are ctllllllative. Unless each these conditions is satisfied, the property would

pp. 357–358, margin F

be liable to estate dutv under s.10 of the Act."

p. 358, margin A

The second part of the section, as observed in the aforesaid' decision, has two limbs the deceased llllSt be entirely excluded (i) from the property, and (ii) from any benefit contract or otherwise and that the word 'otherwise should construed ejusdem generis and should be interpreted to some' kind of legal obligation or some transaction enforceable in law or in equity which, though not in the form of contract, may confer a benefit on the donor.

p. 358, margin B

Therefore, the question that arises for our determination in this appeal is whether the aforementioned two cumulative conditions requisite for attracting s.10 are satisfied in case or not? Whether immediately upon the gift the donees had bona fide assumed possession and enjoyment of the property, which was the subject matter of the gift, to the exclusion of the donor and whether they h&! retained such possession enjoyment thereof to the entire exclusion of the donor or of any benefit to him by contract or otherwise?

p. 358, margin A

The question whe'ther gifted property should be regarded as a part of the estate of the deceased donor passing on death for the purpose of s.10 of the Act would depend upon to what precisely is the ·subject matter of the gift whether the gift is of absolute nature or whether it subject to certain rights. If the gift is made without reservation or qualification, that is to say, where the carries fullest right known to law of exclusive possession enjoyment, any subsequent enjoyment of the benefit of property by way of possession or otherwise by the donor would bring the gift within the purview of s.10; but where the is subject to reservation or qualification, that is say, if 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 is referable those rights rights shorn of which the propei:ty is gifted, then in case the subject matter of the gift will not be deemed to on the death of the deceased donor. In other words if deceased donor limits the interest he is parting possesses or enjoys some benefit in the property not account of the interest parted with but because of interest still retained by him, the interest parted not be deemed to be a part of the estate of the deceased donor passing on his death for the purpose of s.10 of the Act. these aspects which mark the.distinction between the ing cases, namely Cbiclt's case and "1nro's case (supra). shall indicate presently Chick's case falls within category while Munro's case falls within the other category.

pp. 358–359, margin D

In Chick's case the question arose under s.102 of South Wales Stamp Duties Act, 1920-56 which was similar s.10 of our Act and the facts were these: I;, 1934 transferred by way of gift to one of his sons a property, the gift having been made without reservation qualification or condition. In 1935, some 17 months after gift, the father, donee-son and another son entered agreement tO carry on in partnership the business of and stock dealers. The agreellM'!nt provided, inter alia father should be the manager of the business and decision should be final and conclusive in connection with matters relating to its .conduct that the capital business should consist of the livestock and plant then by the respective partners that the business should conducted on the respective hol<lings of the partner holdings should be used for the purposes of the partnership only that all lands held by any of the partners at the the agreement should remain the sole property of such partner and should not on any consideration be taken into account as or deemed to be an asset of the partnership and partner should have the sole and free right to deal with he' might think fit. Each of the three partners owned that of the donee-son being that which had been gifted by his father in 1934, and each partner brought into ship livestock and plant, and their three properties thenceforth used for the depasturing of the partnership and this arrangement continued up to the death of the in 1952. The Privy Council held that the value of the given to the son in 1934 was to be included in computing value of the father's estate for the purpose of death duty. While it was not disputed that the son had assUll'ed possession and enjoYllM'!nt of the property immediately gift to the entire exclusion of the father he had riot, on facts, thenceforth retained it to the father entire exclusion, for under the partnership agreement and what ever force effect might be given to .that part of it which gave a partner the sole and free right to deal with his own property, the partners and each of them were in possession and enjoyment the property so long as the partnership subsisted. Judicial Committee observed that where the question whether the donor had been entirely excluded from the subject matter of the gift, that was the single fact to be determined, and, if he had not been so excluded the eye need look further to see whether his non-exclusion had been advantageous or otherwise to the donee. In its opinion it was irrelevant that the father gave (if he did give) full consideration his right as a member of the partnership to possession enjoyment of the property that he had given to his son. Inter alia two or three points emerge clearly from the decision need to be emphasised: (a) there was ~nitially an outright gift of the. property - not of the property shorn of rights, (b) the deceased donor was not in fact excluded the property, but as a partner enjoyed rights over it and that it was immaterial that the donor gave full consideration for enjoying his rights over the property as a partner. It these aspects that brought the gifted property within mischief of the taxing statute. The other decisions of Court on which Counsel for the revenue has relied are clearly cases falling within this category and. hence the ratio chick's case was correctly applied in each of them.

pp. 359–360, margin B

On the other hand in Munro's case the facts were these who was the owner of 35,000 acres of land in New South Wales on which he carried on the business of a grazier, verbally agreed with his six children in 1909 that thereafter business should be carried on by him and them as partners under a partnership at will and the business was to be managed solely by M and each partner was to receive a specified share of profits. In 1913, by six registered transfers M transferred by way of gift all his right title and interest in portions of his land to each of his four sons and to trustees for each of his two daughters and their children. The evidence showed that the transfers were taken subject to the partnership agreement and on understanding that any partner could• withdraw and work his land separately. In 1919 M and. children entered into a formal partnership agreement, which provided that during the life time of M no partner should withdraw from the partnership. On the death of M in 1929 the land transferred in 1913 was included in assessing his estate to death duties under the Stamp Duties Act, 1920-1931 (N.W.W.), on the ground that they were gifts dutiable under s.102(2a) of that Act. The Privy Council held that the property comprised in the transfers was the land separated from the rights therein belonging to the partnership and was excluded by the terms of s.102, sub-s 2(a), from being dutiable, becauae the donees had assumed and' retained possession tjtereof, and any benefit remaining in the donor was referable to the partnership agreement of 1909 and not to the gifts. It was urged that the transfer deeds did not mention the rights of the partnership and therefore under s.42 of the Real Property Act, 1900 (N.S.W~) the transfer~ gave a title free from those rights but the Judicial Committee negatived the contention on the ground that substance of the transactions and not the forms employed had to be ascertained and so ascertained the substance showed that the transfers were shorn of rights in favour of the partnership and the benefit remaining in the donor was referable to such rights of the partnership subject to Which the gifts had been made. Thus this decision clearly enunciates the principle that if the subject matter of the gift is property shorn of certain rights and if the possession or enjayment of some benefit in that property by the donor is referable . to those rights, i.e. rights shorn of which the property is gifted then the subject matter of the gift will not be deemed to pass on the death of the deceased donor. The ratio of this decision has been follOW'ed and applied by this Court in 189A(:handra Gounder's case, N.L Ramarath••'s case, B..V. Vishlraoatban's case and Xaml.avsti's case (supra).

pp. 360–361, margin E

Having regard to the undisputed facts and facts found by the High Court it seems to ua clear that the instant case falls within the principle enunciated in ~·s case. Admittedly the deceased donor was a partner in the banking firm of M/s Dayaram Surajmal, whereas the minor donees were never admitted to the benefits of the partnership firm. Ao extract of account filed by the assessee before the High Court brought out the procedure follOW'ed for effecting the transaction in question the deceased had his account comprising his capital contribution and advances made by him to the firm; he drew a cheque for Rs.3 lakhs against his account with the firm which was made out in the name of the firm as a result whereof the firm could pay itself but the account of the deceased was debited with the· sum of Rs.3 lakhs and on the same day si1111ltaneously three accounts of the minor donees with the said firm were credited with the sum of Rs .1 lakh each. The Tribunal as well as the High Court found as a fact that when the cheque was issued oral instructions 1111st be presumed to have been given by the deceased to the firm for crediting the three accounts of the three minors without which the firm could'not make such credit entries. From these facts the High Court rightly inferred that "in effect the cheque was issued in favour of the firm• but for the benefit of the minors" and that "in such a situation the firm shall be treated as a trustee or an agent holding the money for the benefit of the minors." Clearly, in this view of the matter, the transaction in question amounted to a gratuitous transfer of an actionable claim to which s.137 in preference to s.130 of the Transfer of Property Act applied and there was a valid gift thereof to the minor donees. Further undisputed facts were that the amount of Rs.3 lakhs did not go out of the firm but on being transferred from the account of the deceal!ed to the accounts of the minor donees continued to remain with the firm for being used for the firm's business; in fact the partnership continued to have the benefit thereof even after the death of the donor till the firm was dissolved. Obviously the substance of the transaction was that the gift was of an actionable claim of the value of Rs.3 lakhs out of the donor's right, title and interest as a whole 'in the fit'm and as such was shorn of certain rights in favour of the partnership and therefore, the possession or enjoyment of the benefit retained by the donor as a partner of the firm OlllSt be regarded as referable to partnership rights and had nothing to with the gifted property. In our view the transaction in question, therefore, clearly fell within the ratio of the decision in llllaro'a case and the High Court was right in coming to the conclusion that to such transaction s.10 was inapplicable.

pp. 361–362, margin F

We would like to point out that the facts of the instant case are almost similar to the facts that obtained in Controller of Estate Duty v. Jai Gopal llehra, a companion matter that was decided and disposed of by this Court by a judgment in Xamlavati 'a case (supra) where it was held that the transaction of gift was one to which s.10 was inapplicable.

pp. 362–363, margin G

In the result the appeal is dismissed with no order as to costs.

p. 363

M.L.A. Appeal dismissed. --

p. 363