SAKARLAL CHUNILAL Vs. CONTROLLER OF ESTATE DUTY

JUDGEMENT

(1.) THESE two references raise an interesting but rather difficult question of law relating to the construction and application of section 10 of the Estate Duty Act, 1953. It is necessary to state the facts of the two references in some detail in order to appreciate how the question arises. The facts are not the same in the two reference and, therefore, we shall first state the facts of Reference No. 2 of 1970 and then set out the facts of Reference No. 4 of 1970.

(2.) REF . No. 2 of 1970. - This reference arises out of assessment to estate duty made on the principal value of the estate of one Chunilal Nathubhai who died on 9th October, 1961. Chunilal Nathubhai was a partner in a firm called Messrs. Chunilal Nathubhai in which he had 1/7th share. During his life Chunilal Nathubhai made the following gifts in favour of his sons, Chhotalal, Manganlal, Nanalal, Sakarlal and Vasantlal, his grandsons, Hiralal and Balvantrai, and his daughter, Bai Mani, on the dates shown against their respective names : -Name of donee Date of gift Amounted giftedRs.Chhotalal 28 -9 -56 35,000Manganlal 27 -9 -56 35,000Nanalal 19 -9 -56 5,000Sakarlal ,, 10,000Vasantlal ,, 10,000Hiralal ,, 10,000Balvantrai ,, 10,000Bai Mani ,, 5,000 -1,20,000

(3.) REFERENCE No. 4 of 1970. - This reference arises out of assessment to estate duty made on the accountable person in respect of the estate of one Chhotamal Khushaldas who died on 26th July, 1962. During his lifetime Chhotamal Khushaldas was a partner in a firm called Messrs. Chhotamal Khushaldas which carried on business at Rajkot. Chhotamal Khushaldas made gifts of Rs. 2,00,000, each in favour of his two minor sons, Shankardas and Narandas, on 21st March, 1953. These gifts were made by debiting the aggregate sum of Rs. 4,00,000 in the account of Chhotamal Khushaldas and credited a sum of Rs. 2,00,000, each in the respective accounts of Shankardas and Narandas in the books of account of the firm of Messrs. Chhotamal Khushaldas. Subsequently on 22nd December, 1956, Chhotamal Khushaldas made another gift of a sum of Rs. 2,00,000 in favour of his minor grandson, Kishorchand, and this gifts was made by Chhotamla Khushaldas by withdrawing a sum of Rs. 2,00,000 from the firm of Messrs. Chhotamal Khushaldas and handing it over to Kishorchand. Out of the sum of Rs. 2,00,000 received by him by way of gifts, Kishorchand deposited a sum of Rs. 50,000 with the firm of Messrs. Chhotamal Khushaldas on 2nd January, 1957, and a further sum of Rs. 1,49,500 was deposited by him on 3rd January, 1957. Kishorchand thus deposited an aggregate sum of Rs. 1,99,500 with the firm of Messrs. Chhotamal Khushaldas out of the sum of Rs. 2,00,000 gifted to him Chhotamal Khushaldas. It may be pointed out, though it is not material to the question arising for decision in the resent reference, that Shankardas and Narandas were admitted to the benefits of the partnership in the firm of Messrs. Chhotamal Khushaldas on 1st April, 1954. The firm of Messrs. Chhotamal Khushaldas was, however, dissolved with effect from 7th March, 1962, and the terms and condition on which the dissolution was effected were recorded in a deed of dissolution dated 12th March, 1962. On the death of Chhotamal Khushaldas on 26th July, 1962, a question arose as to whether the amounts of Rs. 2,00,000, each gifted to Shankardas, Narandas and Kishorchand were liable to be included in computing the principal value of the estate of Chhotamal Khushaldas. The Assistant Controller held that the amount of Rs. 2,00,000, each gifted to Shankardas and Narandas, were liable to estate duty by reason of section 10 because they had been deposited by the donees with the firm of Messrs. Chhotamal Khushaldas in which Chhotamal Khushaldas was a partner and it could not, therefore, be said that possession and enjoyment of theses amounts was retained by the donees to the entire exclusion of Chhotamal Khushaldas. So also, for the same reason, the amount of Rs. 1,99,500, deposited by Kishorchand with the firm of Messrs. Chhotamal Khushaldas out of the sum of Rs. 2,00,000 gifted to him by Chhotamal Khushaldas was held by the Assistant Controller to be includible in the principal value of the estate of Chhotamal Khushaldas under section 10. The accountable person being aggrieved by the decision of the Assistant Controller preferred an appeal to the Appellate Controller but the Appellate Controller relying on section 10 held the inclusion of the amount of Rs. 5,99,500. This led to the filing of a further appeal to the Tribunal. By the time this appeal came us for hearing before the Tribunal, two decision had been given by this court, one in Shantaben S. Kapadia v. Controller of Estate Duty and the other in Controller of Estate Duty v. Chandravadan Amratlal Bhatt, which appeared to short the view taken by the taxing authorities. The Tribunal was bound by the ratio of these two decisions and the Tribunal accordingly held that the amount of Rs. 5,99,500 was chargeable to estate duty under section 10. The accountable person raised an alternative contention before the Tribunal, namely, that even if section 10 was applicable on the facts of the case, the entire amount of Rs. 5,99,500 was not liable to be included in the principal value of the estate but the charge of estate duty should be confined only to the extent of the interest of Chhotamal Khushaldas had possession and enjoyment of the entire amount of Rs. 5,99,500, as a partner in the firm of Messrs. Chhotamal Khushaldas, it could not be said that assertion and enjoyment of any part of the amount of Rs. 5,99,500 was retained by the donees to the entire exclusion of Chhotamal Khushaldas and the whole of the amount of Rs. 5,99,500 was, therefore, liable to the charge of estate duty under section 10. The accountable person has brought Reference No. 4 of 1970 challenging the validity of this decision taken by the Tribunal.