MAHABIR PRASAD PODDAR Vs. CONTROLLER OF ESTATE DUTY

JUDGEMENT

(1.) A statement of the case under Section 64(1) of the Estate Duty Act, 1953 (hereinafter referred to as "the Act"), has been submitted by the Income-tax Appellate Tribunal, Patna Bench, and the following two questions of law have been referred for the, opinion of this court :

(2.) THE facts relevant for the disposal of this case are not in controversy. THE estate duty proceedings are in respect of the estate of the deceased, Debi Prasad Poddar, who died on the 6th of December, 1964. THE accountable person is one of his sons, Mahabir Prasad Poddar, at whose instance this reference has been made. THE deceased had two sons, Mahabir Prasad and Gopi Krishna. He was the proprietor of the proprietary firm doing business under the name and style of M/s, Mahabir Prasad Gopi Krishna. On the 23rd of May, 1959, the decased made a cash gift of Rs. 25,000 to each of the two sons. THE two donees deposited the gifted amounts in their bank accounts. THEreafter, on the 26th of May, 1959, Gopi Krishna withdrew Rs. 25,000 from his bank and invested the same in the proprietary firm of the deceased. So did the other son, Mahabir Prasad, on the. 30th of May, 1959. THE proprietary firm continued till the 30th of September, 1959, and with effect from October, 1959, it was converted into a partnership firm with the deceased and his two sons as partners. During the continuance of the partnership, the deceased made the following further gifts of Rs. 15,000 each to his two sons : <FRM>JUDGEMENT_612_ITR104_1976Html1.htm</FRM>

(3.) WHILE construing the true scope and purport of the deeming clause, the Supreme Court in the case of George Da Costa v. Controller of Estate Duty, 1967 63 ITR 497; [1967] 1 SCR 1004 (SC) laid down the principle to be applied to cases which may be sought to be covered by the provisions of the deeming clause under Section 10. In the case of George Da Costa the Supreme Court has laid down that the crux of section 10 of the Act lies in two parts: (i) the donee must bona fide have assumed possession and enjoyment of the property which is the subject-matter of the gift to the exclusion of the donor, immediately upon the gift, and (ii) the donee must have retained such possession and enjoyment of the property to the entire exclusion of the donor or of any benefit to him by contract or otherwise. Both these conditions are cumulative. Unless each of these conditions is satisfied the property would be liable to estate duty under Section 10 of the Act. The second part of Section 10 has two limbs ; the deceased must be entirely excluded, (i) from the property, and (ii) from any benefit by contract or otherwise. The words "by contract or otherwise" in the second limb of the section will not control the words "to the entire exclusion of the donor" in the first limb. The first limb may be infringed if the donor occupies or enjoys the property or its income, even though he has no right to do so which he could legally enforce against the donee. In other words, in order to attract the section, it is not necessary that the possession of the donor of the gift must be referable to some contractual or other arrangement enforceable in law or in equity; even if the donor is content to rely upon the mere filial affection of his sons with a view to enable him to continue to reside in the house which he had given to them, it could not be said that he was entirely excluded from possession and enjoyment within the meaning of the first limb of the section, and, therefore, the property will be deemed to have passed on the death of the donor and will be subject to levy of estate duty. The general principles in construing the provisions of Section 10 of the Act are to my mind by now well-settled. In construing liability under the provisions it is necessary to examine exactly what was the property taken under the gift. If it is found that the deceased instead of reserving an interest in the property given has retained and excluded from the gift some beneficial interest, the interest which he has retained is not a reservation in relation to the interest which he has given; it is simply something which was not included in the gift-The principle is that what a donor keeps back is no gift at all. It is merely the application of this principle to the facts of different types of cases which has resulted in the two leading decisions on the subject, one of the Judicial Committee of the Privy Council in the case of H.R. Munro v. Commissioner of Stamp Duties, 1934 AC 61, 2 EDC 462 (PC) and the other that of the House of Lords(?) in the case of Clifford John Chick v. Commissioner of Stamp Duties, [1959] 37 ITR (ED) 89, [1958] AC 435, 3 EDC 915 (PC). Both Munro's case and Chick's case have been approved and the principles enunciated therein have been followed by our Supreme Court as well as all the High Courts in the country. Munro's case lays clown the proposition that if what was comprised in the gift was the property, shorn of the right which belonged to the partnership, then to that extent it cannot be said that the right reserved to the partnership was in any way gifted. And what was the subject-matter of gift did pass exclusively and was retained thenceforward by the donee. In such circumstances the property taken under the gift was held not deemed to have passed on the donor's death. Chick's case, on the other hand, lays down the proposition that where the question is whether the donor has been entirely excluded from the subject-matter of the gift, that is the single fact to be determined, and, if he has not been so excluded, the eye need look no further to see whether his non-exclusion has been advantageous or otherwise to the donee. In that case, while it was not disputed that the son had assumed bona fide possession and enjoyment immediately upon the gift to the entire exclusion of the father, he had not, on the facts, thenceforth retained it to the father's entire exclusion. It was, therefore, held in Chick's case that the property would be deemed to have passed on the death of the donor. These principles have been followed in all the cases cited at the Bar either in support of the case of the accountable person or that of the revenue. Learned counsel for the accountable person placed reliance on Munro's case and on the cases of Controller of Estate Duty v. S. Aswathanarayana Setty, 1969 72 ITR 29 a judgment of the Mysore High Court which was approved by the Supreme Court in the case of Controller of Estate Duty v. C.R. Ramachandra Gounder, 1973 88 ITR 448 (SC), Commissioner of Income-tax and Controller of Estate Duty v. N.R. Ramarathnam, 1973 91 ITR 1 (SC), Controller of Estate Duty v. Thanwar Dass, 1974 94 ITR 101 A11, Balkishan Muchhal v. Controller of Estate Duty, 1974 94 ITR 243 and Sakarlal Chunilal v. Controller of Estate Duty, 1975 98 ITR 610. The learned senior standing counsel for the department placed reliance on the cases of George Da Costa v. Controller of Estate Duty, 1967 63 ITR 497 (SC) dealt with above, Controller of Estate Duty v. N.K. Sanghi, 1974 97 ITR 119, Radhabhai Ramchand v. Controller of Estate Duty, 1975 98 ITR 660 and Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300. I shall presently show that there is no conflict in these decisions. On the facts of each particular case what has been decided is that if the gift has been made shorn of certain rights belonging to the partnership then that part which is excluded from the gift is no gift at all and what was gifted to the donee shorn of such right was exclusively held as owner and retained by him. In such cases the property gifted is not deemed to have passed on the donor's death. In the other line of cases, on the facts found, the donees were held to have been given under the deed of gift the absolute property without any reservation or interest in the property, without being shorn of any right which belonged to the partnership. In such cases the inevitable conclusion was that if the donee had not assumed bona fide possession and retained the property to the entire exclusion of the donor, the property would be deemed to have passed under the provisions of Section 10 of the Act.