BADRI PR KHEMKA Vs. CONTROLLER OF ESTATE DUTY

JUDGEMENT

(1.) This reference under Section 64(1) of the Estate Duty Act, arises out of the assessment to estate duty on the estate passing on the death of Gourdhandas Khemka. The deceased was a partner in the firm of Messrs. Gourdhandas Badri Prasad Khemka with a ten annas share therein, the other partner being his son, Badri Prasad, who had a six annas share. On the 18th April, 1956, the deceased's capital account in the books of the firm was debited with the sum of Rs. 50,000 and two sums of Rs. 25,000 each were credited to the accounts of his two grandsons, Shri Narayan Khemka and Laxminarayan Khemka, opened in the books of the firm. On the 19th April, 1956, a deed of partnership was entered into between the deceased, Badri Prasad, Shri Narayan and Laxminarayan wherein it was recited that the gift of Rs. 25,000 each made by Gourdhandas to Shri Narayan and Laxminarayan would be treated as their respective capital contribution to the firm constituted under that instrument and that the business formerly carried on by the firm of two partners would now be carried on by the firm of four partners. The shares in the new firm were described as follows : <FRM>JUDGEMENT_552_ITR77_1970Html1.htm</FRM>

(2.) On the 9th April, 1957, two further amounts of Rs. 20,000 and Rs. 5,000, respectively, were purported to have been gifted by the deceased to his two other grandsons, B. K. Khemka and R. C. Khemka, by debiting his capital account in the firm and crediting the account of the two grandsons in the firm's books. Gourdhandas died on the 30th October, 1959.

(3.) The Assistant Controller of Estate Duty held that the two gifts of Rs. 50,000 and Rs. 25,000 made by the deceased on the 18th April, 1956, and the 9th April, 1957, respectively, were not genuine and valid gifts as mere entries in the books of accounts could not complete a gift. He also found as a fact that when these entries were passed there was not sufficient cash balance in the books of the firm to have made the transfers possible. The Assistant Controller was also of the opinion that even if the gifts were held to be valid gifts by the deceased in favour of the donees, as the amounts of the gifts were credited in the books of the firm in which the deceased was a partner up till the date of his death, the deceased was not entirely excluded from the possession and enjoyment of the gifts and as such the entire sum of Rs. 75,000 would be deemed to pass on the deceased's death under Section 10 of the Estate Duty Act. For this proposition he relied on the decision of the Privy Council in the case of Clifford John Chick v. Commissioner of Stamp Duties, [1958] A.C. 435 ; [1959] 37 I.T.R. (E.D.) 89 ; 3 E.D.C, 915 (P.C.).. He, therefore, included the amount of Rs. 75,000 in the principal value of the estate passing on the death of the deceased.