RADHABAI RAMCHAND Vs. CONTROLLER OF ESTATE DUTY

JUDGEMENT

(1.) ONE Ramchand Khoobchand died on July 28, 1963. His wife, Radhabai Ramchand, is the accountable person. In the estate duty proceedings that followed the death of Ramchand Khoobchand, the Assistant Controller of Estate Duty included the amount of Rs. 85,000 in the principal value of his estate under the provisions of Section 10 of the Estate Duty Act on the ground that the amount had been gifted by the deceased to his sons who had invested the same in the partnership concern known as Messrs. Seth Bhikchand Ramchand, Madras, in which the deceased was a partner and that the deceased was not excluded from the possession and enjoyment of the amount. According to the Assistant Controller, the deceased gifted the following amounts to his sons, who invested the same in the firm in which the deceased was a partner, but the donees did not enjoy the amounts gifted to them to the entire exclusion of the deceased and, therefore, Section 10 of the Estate Duty Act is applicable. <FRM>JUDGEMENT_660_ITR98_1975Html1.htm</FRM>

(2.) THE accountable person preferred an appeal before the Appellate Controller contending that the amounts gifted had been withdrawn by the donees as soon as the gifts were made and they had only been subsequently invested in the firm as their funds, that, therefore, the donees should be taken to have been in possession and enjoyment of the amounts to the entire exclusion of the deceased, and that the case was covered by the decision of the Assam High Court in Controller of Estate Duty v. Birendra-kumar Sen. THE Appellate Controller, however, rejected the said contentions and held that as the partnership in which the deceased was a partner was in possession and enjoyment of the amounts which were gifted by the deceased, it has to be held that the deceased was not entirely excluded from possession and enjoyment of the amounts. In that view he affirmed the order of the Assistant Controller.

(3.) AS already stated, out of the total amount of Rs. 85,000 gifted a sum of Rs. 60,000 was gifted in cash by the deceased and they were invested in the first instance with a third party, but later on brought into the firm in which the deceased was a partner. AS regards the balance of Rs. 25,000 it is not in dispute that the amounts gifted continued with the firm in which the deceased was a partner though to the credit of the donees. The learned counsel for the accountable person, therefore, sought to treat the two amounts as distinct and separate and submitted his arguments on that basis. According to the learned counsel the sum of Rs. 60,000 has been gifted by the deceased in cash to his four sons which they have, after taking possession, invested originally with a third party and later on in the partnership firm in which the deceased was a partner, that such investment of funds by the donees in the partnership was only as creditors of the firm and that though the partnership had the use of these funds in its capacity as a borrower it was not entitled to the same. It was also contended by the learned counsel that the partnership-firm being different from the partners the use of the money by the partnership cannot be treated as an user by the partner and that, therefore, the possession and enjoyment of the monies by the partnership cannot be equated to the possession and enjoyment by the partner so that, it could be said that the deceased partner was not excluded from possession and enjoyment of the monies. According to him the amounts given to a firm cannot be said to have been given to a partner and, therefore, the possession and enjoyment of the amounts by the firm as a debtor is not of any consequence, and the mere fact that the deceased happened to be a partner of the firm is not sufficient to attract Section 10 of the Estate Duty Act. Thus the basis of the submission made by the learned counsel for the accountable person is that a firm is different from a partner and the firm's possession of the gifted amounts is not the possession by a partner. If this assumption were to be correct, then the learned counsel will be right in his submission that the investment of the amounts in the partnership of which the deceased was a partner cannot be taken advantage of by the revenue to invoke Section 10 of the Estate Duty Act on the ground that the donees had not been in possession and enjoyment of the gifted amounts to the exclusion of the donor, the deceased. We have to, therefore, find out as to whit is the exact relationship between the partner and the firm.