CONTROLLER OF ESTATE-DUTY Vs. N R RAMARATHANAM

JUDGEMENT

(1.) ONE Mr. N. S. Ramaswami Iyer died on October 17, 1960. He was a landlord owning agricultural lands, house properties and also investments. He was instrumental in starting a partnership styled as Ennessor and Company, at Coimbatore in 1947. Besides himself, the other partners were his three sons and daughter. The firm was engaged in money-lending business and was registered under section 26A of the Income-tax Act, 1922. On March 31, 1953, and April 1, 1956, the deceased transferred, by book adjustments in the account of the firm, Rs. 52, 042-7-3 and Rs. 77, 881-11-8, respectively, to his sons and daughter. In the return for purposes of estate duty, the accountable persons excluded from the principal value of the estate the total of the two sums, namely, Rs. 1, 29, 924. The revenue disagreed with the accountable persons and included the same as dutiable, but the Tribunal was not prepared to accept that view. In doing so, the Tribunal felt supported by Munro v. Commissioner of Stamp Duties. At the instance of the Commissioner of Income-tax who is the Controller of Estate Duty, the following question has been referred to this court "Whether, on the facts and in the circumstances of the case, the sum of Rs. 1, 29, 924 was liable to estate duty as property deemed to pass on the death of the deceased under section 10 of the Estate Duty Act, 1953 ?" *The revenue's point of view was that there were no cash gifts of the two sums but they were brought about by mere adjustments in the books without physical handing over of the cash and further by being a partner in the firm, the deceased was not entirely excluded from the subject-matter and beneficial enjoyment of the gifts.

(2.) THE Assistant Controller noticed that this was not a case of the deceased parting with cash and thereafter the donees re-introducing such cash in the business at a later stage, but nevertheless he thought that this made no difference and he would add that the deceased had also beneficial enjoyment of the gifted properties. Confronted with Munro v. Commissioner of Stamp Duties and Clifford John Chick v. Commissioner of Stamp Duties the Tribunal found that Munro v. Commissioner of Stamp Duties was nearer to this caseIn spite of the fact that the scope and intendment of section 10 of the Estate Duty Act, 1953, have been considered and defined in numerous cases of the High Courts and of the Supreme Court, largely in the background of English cases decided both by the Privy Council as also the Court of Appeal and the House of Lords with reference, to a section more or less similarly worded, it often raised in its application to particular facts subtle questions not always free from difficulty. THE intention of section 10 is that gifts with reservations passed to the extent of such reservations.

(3.) THAT is precisely the case hereThe nature, extent and manner of enjoyment of the two sums gifted by the father to his sons and daughter were no different in the hands of the donees. At the time of making the gift, having regard to the facts, it has to be taken that the two sums transferred by book entries were still available for purposes of the business of the firm which mean that their user for that purpose would be controlled by the managing partner. In the very nature of things, therefore, the transfer of the two sums by way of gift should be taken subject to the rights of the firm and in the words of the Privy Council in Munro v. Commissioner of Stamp Duties' the two sums were transferred to the donees shorn of the rights which belonged to their partnership. On that view, there can be no question that immediately on the making of the gift, the donees assumed such possession and enjoyment of the subjectmatter of gifts as it was capable of at the time and also that they retained that to the exclusion of the donor. If the donor continued to have control over the two sums, that was not because of any reservation in him while making the gift but because the gift itself was made subject to the condition that the funds would be available for the use of the partnership business and, as such, they would be subject also to the control and management by the donor in his capacity as managing partnerIn Munro v. Commissioner of Stamp Duties, after deciding the scope of the subject-matter of the gift, the Privy Council went on to make further observations that the benefit which the donor in that case had as a member of the partnership in the right to which the gift was subject, was a benefit referable in no way to the gift but to the agreement and it was not such a benefit as is contemplated by section 102(2)(d). A reference was made to this observation by Viscount Simonds in Clifford John Chick v. Commissioner of Stamp Duties and it was stated"They might become of importance if it was the second limb of the sub-section which was under consideration and the question, therefore, was whether the donor had been entirely excluded from any benefit of whatsoever kind." *It seems to us that by these observations it is not to be taken that Munro v. Commissioner of Stamp Duties, as is contended for the revenue, was decided with reference to the limb relating to the reservation of benefit.