CONTROLLER OF ESTATE DUTY Vs. CHAMAN LAL BERY

JUDGEMENT

(1.) THE following question has been referred for the opinion of this court by the Income-tax Appellate Tribunal, Allahabad Bench:

(2.) THE deceased, late Sri B. C. Bery, was originally carrying on a business known as London Machinery Company. On November 1, 1951, he gifted to two of his sons who were majors Rs. 20,000 each and took them as partners in his business with the above sum as their capital. THE sons were given one-fourth share each and he retained half share. Again, on April 1, 1956, when a third son became major he was also given a gift of Rs. 20,000 and taken as a partner in the business with that money as his capital. He was given one-fourth share and the deceased retained the remaining share till his death which took place on March 14, 1963. THE Assistant Controller of Estate Duty was of the opinion that the deceased was not entirely excluded from the benefits of the gifted amount of Rs. 60,000, inasmuch as the amount was invested in the firm in which the deceased was also a partner and the firm had been deriving benefits from the use of this amount. Aggrieved by the decision of the Assistant Controller of Estate Duty the assessee filed an appeal which was dismissed and it was found by the Judicial Appellate Controller of Estate Duty that the deceased admitted his sons into the partnership without charging any premium in lieu of the goodwill of the business without payment of any consideration in this behalf. But, by admitting his sons into the partnership, the deceased unilaterally surrendered his rights to enjoy the profits of the said business into the partnership. He was of the opinion that since the deceased surrendered three-fourths of the profits in favour of his sons without receiving any consideration it would be deemed that the gift was made of the goodwill of the firm to that extent without receiving any consideration. It was further found that since the deceased continued to be a partner in the firm in which his sons also joined as partners he would be deemed to have been not wholly and entirely excluded from the beneficial enjoyment of the shares of the goodwill so transferred to him by his sons. THE assessee further took the matter before the Tribunal and its contention was accepted. THE Tribunal found it as a fact that the gifts made by the deceased to his sons were absolute and the investment was made by the sons on their own and for their own benefit and not for the benefit of the deceased. Mr. A. C. Sinha, appearing for the assessee, has placed reliance on a Fall Bench decision of our court in Controller of Estate Duty v. Thanwar Dass [1974] 94 ITR 101 (All) [FB] and has urged that the principle laid down in this decision squarely applied to the question which we are required to answer. Mr. Deokinandan, on the other hand, has placed reliance on Controller of Estate Duly v. Smt. Parvati Ammal [1974] 97 ITR 621 (SC) and Sakarlal Chunilal v. Controller of Estate Duty [1975] 98 ITR 610 (Guj). He has read the decision given by the Gujarat High Court in extenso and urged that this decision lays down the correct principle of applicability of Section 10 of the Estate Duty Act. Before a donee can escape the liability fixed under Section 10 he has to satisfy two requirements :