CONTROLLER OF ESTATE DUTY Vs. KUPPUSWAMI S

JUDGEMENT

(1.) THIS is reference under Section 64(1) of the E.D. Act. The following two questions have been referred to us :

(2.) AS the two questions refer to two distinct matters, we shall deal with each one of them separately. The estate duty assessment came to be made on the death of one K. Subramania Iyer, on 17th November, 1969. He was a partner in the firm of T. Purushotham & Co., with 22% share till 8th November, 1969, when he retired from the partnership. On the 9th November, 1969, his two major sons were admitted as partners and his minor son was admitted to the benefits of the partnership, each one of them having a 7 1/3 per cent. share in the firm with the consequence that the 22% share held by him till then came to be held by the two major sons and the minor son after his retirement. The ASst. CED came to the conclusion that there was a transfer by the deceased of interest in the partnership firm in favour of his sons and that it was gift under Section 9 of the E.D. Act (hereinafter referred to as the Act). The net assets of the firm were valued and 22% share representing the interest of the deceased was included in the dutiable estate as the deceased died within a very short period after he retired and the two major sons and the minor joined the partnership. The amount so included came to Rs. 47,739.

(3.) THIS is not a case which comes within the scope of Sub-section (2) of Section 9. The opening words of Section 9, "property taken under a disposition made by the deceased" contemplate a transaction of which the deceased was the author or to which the deceased was a party. He must have made the disposition. In the present case, the document dated November 9, 1969, came to be executed by the partners who constituted the firm from that date. The deceased was not a party to this partnership deed. Therefore, this document by itself cannot be taken to be a transaction or a disposition made by the deceased. The learned counsel for the revenue, however, placed strong reliance on the recital in which it is stated that the deceased, due to old age and ailment, expressed his intention to retire from the partnership in favour of his sons, to which the other parties agreed. As the recital is part of a document to which the deceased was not a party, the learned counsel for the accountable person submitted that the deceased cannot be held responsible for the recital, and that if persons made such a recital for their own purposes, that would not have any consequence as far as the deceased was concerned. Unfortunately, no fact has been brought on record to show that there was an agreement as such between the deceased and the other partners who constituted the firm up to November 8, 1969. As a father, the deceased may have requested his erstwhile partners to take his sons into the firm. The other partners may not have objected to it. But the point is whether there was any enforceable agreement between the deceased and the other partners. He was ill and aged and died soon after retirement. If the other partners, after agreeing to his retirement and after allowing him to retire, did not take the sons into the firm, there would have been no scope for specifically enforcing any such agreement for which there was no consideration. Partnership is a contract between parties, and the parties who entered into the transaction on November 9, 1969, were free to do what they liked, in accordance with their own wishes. Therefore, the recital by itself cannot support the contention that the transaction was in a way a tripartite transaction to which the deceased, his sons and the other partners in the firm up to November 8, 1969, were all parties. It may be that the recital was introduced to ward off any idea of a gift by the surviving partners of the 22% share in favour of those that joined. There is, thus, no disposition or transfer of any interest held by the deceased as his interest was gone on the 8th November. He could not have entered into any transaction in the present case to transfer any interest which had lapsed by his retirement. The learned counsel for the revenue relied on Section 27 in this context. Her submission was that Section 27 has to be read into Section 9; it may be mentioned that there is no reference to Section 27 in the order of the Tribunal or of the estate duty authorities.