V N KRISHNASWAMY Vs. CONTROLLER OF ESTATE DUTY

JUDGEMENT

(1.) THE question referred to us under S. 64(1) of the Estate Duty Act, 1953 is:

(2.) TO answer the question referred to us, it is necessary to have a precise appreciation of the scope and effect of S. 10. It deals with gifts with reservation and broadly speaking, contains two limbs, the first what may be called a non-exclusion clause, and the second, retention clause. From the standpoint of taxes, the section is intended to reach any gift, which in reality is not so or which detracts from the nature of the disposition by reason of the reservation in the subject matter of the gift in favour of the donor, either in specie or otherwise, tangibly or intangibly, directly or indirectly. S. 10 does not touch a gift which is real, complete and effective to the entire extent of its subject matter, both in respect of possession and enjoyment and also the benefit from out of or in respect of it. The section commences by using the words "property taken under any gift". It seems to us that the word "taken" is of importance in the construction of the section, more especially of the effect and ambit of the two limbs, which bring to tax the value of the subject matter of a gift as passing on death of the deceased. The two limbs cannot, in our view, be understood de hors the disposition by gift itself, and that is implied in the word "taken". The crux of the section lies in the requisites (1) bona fide possession and enjoyment are assumed by the donee immediately on making the gift, (2) thereafter retention of possession and enjoyment by the donee, (3) such retention is to the entire exclusion of the donor and (4) the entire exclusion of the donor is also from any benefit to him out of or in respect of the subject matter of the gift, by contract or otherwise. If any of these requisites is not satisfied, to that extent the property taken under the gift shall be deemed to pass tax on the death of the donor. The essence of these requisites is total exclusion of the donor both from possession and enjoyment as well as benefit. Whether, where there is only a partial exclusion, the entire property will nevertheless pass, we are not called upon to consider in this case.

(3.) ORDER accordingly.