PETITIONER:
CONTROLLER OF ESTATE DUTY, A.P., HYDERABAD
Vs.
RESPONDENT:
SMT. GODAVARI BAI
DATE OF JUDGMENT18/02/1986
BENCH:
TULZAPURKAR, V.D.
BENCH:
TULZAPURKAR, V.D.
MUKHARJI, SABYASACHI (J)
MISRA RANGNATH
CITATION:
1986 AIR 631 1986 SCR (1) 348
1986 SCC (2) 264 1986 SCALE (1)236
CITATOR INFO :
RF 1988 SC1426 (15)
RF 1988 SC1511 (9)
ACT:
Estate Duty Act 1953, s.10 - Ingredients of - Property
taken under any gift - Whether part of estate of deceased
donor passing on his death - Dependent upon what was subject
matter of gift and whether gift of absolute nature or
subject to certain rights.
HEADNOTE:
The respondent's husband was a partner in a firm
carrying on business as bankers. He issued a cheque for
Rs.3,00,000 in favour of the firm on 4th October, 1952 with
a view to give Rs. 1,00,000 to each of his three minor grand
nephews. This amount was debited to his account in the firm
and credited in the accounts of the three minors in equal
proportion. He died on 21st February 1956. The said sum
continued to stand in the respective accounts of the three
minors in the books of the firm till its dissolution on 4th
July, 1960 whereafter some assets were allotted to each one
of them in lieu of the amounts standing to their credit.
The respondent, as the accountable person, filed an
account declaring the value of the assessee's estate without
including the aforesaid sum of Rs. 3,00,000 transferred by
the deceased to his three grand nephews. The respondent-
assessee contended before the Deputy Controller (i) that
these transfers were not gifts but amounted to transfer of
actionable claims made in conformity with s. 130 of the
transfer of Property Act by effecting entries in the books
of account; and (2) that the transfer amounted to a novation
which did not require an instrument signed by the
transferor. The Deputy Controller negatived both the
contentions and held that the sum of Rs. 3 lakhs was
includible in the estate of the deceased that passed on his
death. The Appellate Controller confirmed the aforesaid
order in appeal. In the further appeal preferred by the
respondent, the Appellate Tribunal, held (i) that the plain
reading of section 130 showed that the transfer
349
of an actionable claim became complete and effective only
upon the execution of an instrument in writing signed by the
transferor or by his duly authorised agent; (ii) that the
cheque issued by the deceased in favour of the firm only
authorised the firm to pay to itself the sum of Rs. 3 lakhs
from out of the amount lying at the credit of the deceased
but it did not by itself authorise the firm to transfer this
amount to anyone else and that such a transfer could be
authorised by a separate letter of instructions from the
deceased but no such instrument obtained and the oral
instructions given could not take the place of such an
instrument in writing and, therefore the transfer of Rs. 3
lakhs done in favour of the donees was not in accordance
with the requirements of section 130; (iii) that the amount
of Rs.3 lakhs was also includible in the estate of the
deceased under section 10 of the Estate Duty Act even if it
were assumed that the transfer became complete and effective
on the date of the transfer inasmuch as on the facts, it
could not be said that the donees retained possession and
enjoyment of the gifted amounts to the entire exclusion of
the donor or of any benefit to him and that this position
continued to exist till the death of the deceased.
The High Court in a reference at the instance of the
assessee, set aside the order of the Tribunal on the grounds
(i) that it was a gratuitous transfer of an actionable claim
and the inter-position of a cheque issued by the deceased in
favour of the firm made all the difference inasmuch as the
transfer of an actionable claim represented by a negotiable
instrument like a cheque was governed by section 137 in
preference to section 130 of the Transfer of Property Act
and that the cheque together with the oral instructions
(which even the Tribunal presumed were given by the
deceased) would constitute the firm a trustee or an agent
holding the moneys for the benefit of the minors and, as
such, the transfer to minors was valid, complete and
effectual; (ii) that the donor had been completely excluded
from the subject-matter of the gift and, as such, section 10
was not applicable.
Dismissing the appeal,
^
HELD: 1. The transaction in question clearly fell
within the ratio of the decision in Munro's case and the
High Court
350
was right in coming to the conclusion that to such a
transaction, section 10 was inapplicable. [362 F-G]
2.(i) Section 10 of the Estate Duty Act, 1953
prescribes two conditions, namely,: (1) that 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 (2)
that 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 the
conditions is satisfied, the property would be liable to
estate duty under section 10 of the Act. [357G-H; 358 A]
2.(ii) The second part of s. 10 has two limbs: the
deceased must be entirely excluded (i) from the property;
and (ii) from any benefit by contract or otherwise and that
the word "otherwise" should be construed ejusdem generis and
should be interpreted to mean some kind of legal obligation
or some transaction enforceable in law or in equity which,
though not in the form of a contract, may confer a benefit
on the donor. [358 B-C]
3.(i) The question whether gifted property should be
regarded as a part of the estate of the deceased donor
passing on his death for the purpose of s. 10 of the Act
would depend upon as to what precisely is the subject matter
of the gift and whether the gift is of absolute nature or
whether it is subject to certain rights. If the gift is made
without any reservation or qualification, that is to say,
where the gift carries fullest right known to law of
exclusive possession and enjoyment, any subsequent enjoyment
of the benefit of that property by way of possession or
otherwise by the donor would bring the gift within the
purview of s. 10; but where the gift is subject to some
reservation or qualification, that is to say, if the subject
matter of the gift is property shorn of certain rights and
the possession or enjoyment of some benefit in that property
by the donor is referable to those rights i.e. rights shorn
of which the property is gifted, then in that case the
subject matter of the gift will not be deemed to pass on the
death of the deceased donor. In other words, if the deceased
donor limits the interest he is parting with and
351
possesses or enjoys some benefit in the property not on
account of the interest parted with but because of the
interest still retained by him, the interest parted with
will not be deemed to be a part of the estate of the
deceased-donor passing on his death for the purpose of s. 10
of the Act. It is these aspects which mark the distinction
between the two leading cases, namely Chick's case and
Munro's case. The decision in chicks's case falls within the
first category while Munro's case falls within the other
category. [358 E-H; 359 A-B]
In the instant case, the donees were never admitted to
the benefits of the partnership firm. The Tribunal as well
as the High Court found as a fact that when the cheque was
issued oral instructions must be presumed to have been given
by the deceased to the firm for crediting the three accounts
of the three minors without which the firm could not make
such credit entries. Therefore, the transaction in question
amounted to a gratuitous transfer of an actionable claim to
which s. 137 in preference to s. 130 of the Transfer of
Property Act applied and there was a valid gift thereof to
the minor donees. Moreover, the amount of Rs. 3 lakhs did
not go out of the firm but on being transferred from the
account of the deceased to the accounts of the minor donees
continued to remain with the firm for being used for the
firm's business; in fact the partnership continued to have
the benefit thereof even after the death of the donor till
the firm was dissolved. Obviously, the substance of the
transaction was that the gift was of an actionable claim of
the value of Rs. 3 lakhs out of the donor's right, title and
interest as a whole in the firm and as such was shorn of
certain rights in favour of the partnership and therefore,
the possession or enjoyment of the benefit retained by the
donor as a partner of the firm must be regarded as referable
to partnership rights and had nothing to do with the gifted
property. [361 G-H; 362 A-F]
Munro v. Commissioner of Stamp Duties, [1934] A.C. 61;
C.R. Ramachandra Gounder's case, 88 I.T.R. 448; N.R.
Ramarathanm case, 91 I.T.R.Controller of Estate Duty v. R.V.
Vishwanathan & Ors., 105 I.T.R. 653 & Controller of Estate
Duty v. Kamlava, 120 I.T.R. 456 applied.
Chicks v. Commissioner of Stamp Duties of New South
Wales, 37 I.T.R. (E.D.) 89; George Da Costa v. Controller of
352
Estate Duty, Mysore, 63 I.T.R. 497; Controller of Estate
Duty, Madras v. Smt. Parvati Ammal 97 I.T.R. 621; Shantaben
S. Kapadia v. Controller of Estate Duty, Gujarat, 73 I.T.R.
171 & Controller of Estate Duty, Gujarat v. Chandravadan
Amratlal Bhatt, 73 I.T.R. 416 distinguished.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 79 (NT)
1974.
From the Judgment and Order dated 29.2.1972 of the
Madras High Court in Tax Case No. 209 of 1966.
S.C. Manchanda and Miss A. Subhashini for the
Appellant.
T.A. Ramachandran and Mrs. Janki Ramachandran for the
Respondent.
The Judgment of the Court was delivered by
TULZAPURKAR, J. The question raised for our
determination in this appeal is whether on the facts and in
the circumstances of the case the amount of Rs. 3 lakhs
transferred by the deceased to his three grand nephews in
equal shares was includible in the estate of the deceased
that passed on his death? Substantially the answer thereto
depends upon whether sec.10 of the Estate Duty Act, 1953 is
attracted to the case or not.
The facts giving rise to the question may briefly be
stated. The deceased, Sri Bankatlal Lahoti was a partner in
the firm of M/s Dayaram Surajmal, which carried on business
as a Bankers. With a view to give Rs.1 lakh each to his
three minor grand nephews (three grand sons of his deceased
brother) the deceased on 4th October 1952 issued a cheque
for Rs.3 lakhs in favour of the firm; this amount was
debited in the account of the deceased in the firm and
credited in the accounts of the three minors in equal
proportion. The said sum thus transferred to the three
nephews continued to stand in their respective accounts in
the books of the firm till its dissolution on 4th July 1960,
whereafter some assets were allotted to each one of them in
lieu of the amounts standing to their credit. The deceased
died on 21st February 1956.
After the death of the deceased, his widow Smt.
Godavari Bai as the accountable person filed an account of
the
353
assessee’s estate declaring the value thereof at
Rs.2,60,702. This did not include the sum of Rs.3 lakhs
transferred by the deceased to the three grand nephews on
4th October 1952. The assessee contended that these
transfers were not gifts but amounted to transfer of
actionable claims made in conformity with s.130 of the
Transfer of Property Act by effecting entries in the books
of account. Alternatively it was contended that the transfer
amounted to a novation which did not require an instrument
signed by the transferor. The Deputy Controller negatived
both the contentions; the first on the ground that there was
no valid transfer of actionable claims because it was not
effected by an instrument in writing signed by the
transferor as required by s.130 of the Transfer of Property
Act while the alternative contention on the ground that the
transaction did not amount to a novation inasmuch as there
was no substitution of one debt for another. In this view of
the matter the Deputy Controller held that the sum of Rs.3
lakhs was includible in the estate of the deceased that
passed on his death. In the appeal preferred by the assessee
the self same contentions were urged on her behalf before
the Appellate Controller of Estate Duty while the Deputy
Controller justified the assessment on the additional ground
that the sum of Rs.3 lakhs was also includible in the Estate
of the deceased that passed on his death under s.10 of the
Estate Duty Act 1953. The Appellate Controller rejected the
assessee’s contentions and accepted those of the Deputy
Controller and confirmed the inclusion of the amount in the
estate of the deceased. In the further appeal preferred to
the Appellate Tribunal since it was admitted on behalf of
the assessee that apart from the cheque issued by the
deceased in favour of M/s Dayaram Surajmal and the entries
made in the books of that firm debiting the deceased’s
account and crediting the accounts of the donees there was
no other document to evidence the transfer the Tribunal
presumed that the tansfer was effected as a result of oral
instructions which must have been given by the deceased to
the firm. Counsel for the assessee, however, urged that
notwithstanding the absence of an instrument in writing
signed by the assessee the transfer was valid under s.130 of
the Transfer of Property Act and in that behalf reliance was
placed on Ramaswamy Chettiar and Ors. v. K.S.M. Manickam
Chettiar and Ors., A.I.R. 1938 Madras 236 and Seetharama
Ayyar and Anr.v. Narayanaswami Pillai and Anr. 47 Indian
Cases 749 but the Tribunal did not accept the
354
contention and held that the plain reading of s.130 showed
that the transfer of an actionable claim became complete and
effectual only upon the execution of an instrument in
writing signed by the transferor or by his duly authorised
agent; that the cheque issued by the deceased in favour of
the firm only authorised the firm to pay to itself the sum
of Rs.3 lakhs from out of the amount lying at the credit of
the deceased but it did not by itself authorise the firm to
transfer this amount to anyone else and that such a transfer
could be authorised by a separate letter of instructions
from the deceased but no such instrument obtained and the
oral instructions given could not take the place of such an
instrument in writing and therefore the transfer of Rs.3
lakhs done in favour of the donees was not in accordance
with the requirements of section 130. The alternative
contention that the transfer was in the nature of a novation
was also rejected on the ground that the donees were not
indebted to the firm nor was the deceased indebted to the
donees and therefore, the entries made in the account books
of the firm could not be understood as a substitution of one
debtor in the place of another. The Tribunal also held that
this amount of Rs.3 lakhs was includible in the estate of
the deceased under s.10 of the Estate Duty Act even if it
were assumed that the transfer became complete and effective
on the date of the transfer inasmuch as on the facts it
could not be said that the donees retained possession and
enjoyment of the gifted amounts to the entire exclusion of
the donor or of any benefit to him and that this position
continued to exist till the death of the deceased.
At the instance of the assessee the Tribunal referred
the following question of law to the High Court for its
opinion:
“Whether on the facts and in the circumstances of
the case, the Appellate Tribunal was right in law
in holding that the amount of Rs.3 lakhs
transferred by the assessee to his grand nephews
was includible in the estate of the deceased that
passed on his death.”
On a consideration of the entire material on record the High
Court took the view that the entries made in the books of
the firm by debiting the account of the deceased in the sum
of
355
Rs.3 lakhs and crediting the said amount in equal proportion
in the three accounts of the donees (grand nephews) might or
might not constitute a valid gift of money but proceeding on
the basis that it was gratuitous transfer of an actionable
claim the interposition of a cheque issued by the deceased
in favour of the firm made all the differene inasmuch as the
transfer of an actionable claim represented by a negotiable
instrument like a cheque was governed by s.137 in preference
to s.130 of the Transfer of Property Act and that the cheque
together with the oral instructions (which even the Tribunal
presumed were given by the deceased) would constitute the
firm, a trustee or an agent holding the moneys for the
benefit of the minors and as such the transfer to the minors
was valid, complete and effectual. After coming to this
conclusion the High Court proceeded to consider the question
whether to this transaction of gift of an actionable claim
s.10 of the Act was applicable or not and relying upon the
decision in the leading case of Munro v. Commissioner of
Stamp Duties, 1934 A.C. 61 as well as its two earlier
decisions in Controller of Estate Duty v. C.R. Ramachandra
Gounder, 73 I.T.R. 166 and Controller of Estate Duty v. N.R.
Ramarathanam, 74 I.T.R. 432 the High Court held that the
donor had been completely excluded from the subject matter
of the gift and as such s.10 was not applicable. In other
words differing from the view taken by the Tribunal, the
High Court held that the transaction involved in the case
was a gratuitous transfer of an actionable claim and that
there was in law a valid, complete and effectual gift
thereof in favour of the three minor grand nephews and since
s.10 was not attracted the sum of Rs.3 lakhs was not
includible in the value of the estate of the deceased that
passed on his death. It, therefore, answered the question in
the negative in favour of the assessee. The Revenue has come
up in appeal.
Counsel for the Revenue did not assail the High Court
conclusion in regard to their being a valid gift of the
actionable claim in favour of the minors resulting from the
issuance of the cheque accompanied by oral instructions and
followed by the making of the requisite debit and credit
entries in the firm’s books but vehemently criticised the
view that s.10 was inapplicable to this transaction of gift.
He urged that possession and enjoyment of the subject matter
of the gift was neither assumed by the donees nor retained
by
356
them to the entire exclusion of the donor inasmuch as the
donor as a partner of the firm had control over the said sum
of Rs.3 lakhs which continued to lie with the firm for being
used as the firm’s property and this position continued to
obtain till the death of the deceased and in fact till the
dissoiution and as such s.10 was clearly attracted. Strong
reliance was placed by counsel for the revenue on the ratio
of the Privy Council decision in Chicks v. Commissioner of
Stamp Duties of New South Wales, 37 I.T.R. E.D. 89 which was
followed by this Court in George Da Costa v. Controller of
Estate Duty, Mysore, 63 I.T.R. 497 and Controller of Estate
Duty, Madras v. Smt. Parvati Ammal, 97 I.T.R. 621 as also
two decisions of the Gujarat High Court in a Shantaben S.
Kapadia v. Controller of Estate Duty, Gujarat, 73 I.T.R. 171
and in Controller of Estate Duty, Gujarat v. Chandravadan
Amratlal Bhatt, 73 I.T.R. 416. On the other hand counsel for
the assessee supported the view of the High Court by placing
reliance on the decision in Munro’s case (supra) which had
been followed by this Court in C.R. Ramachandra Gounder’s,
88 I.T.R. 448 N.R. Ramarathanam’s case 91 I.T.R. 1
Controller of Estate Duty v. R.V. Vishwanathan & Ors., 105
I.T.R. 653 and Controller of Estate duty v. Kamlavati, 120
I.T.R. 456.
Having regard to the rival contentions urged before us
it is clear that the answer to the question raised in this
appeal depends upon a proper analysis of s.10 of the Act and
whether the instant case falls within the doctrine
enunciated in Munro’s case (supra) or within the ratio of
Chicks’ case (supra)? Relevant portion of s.10 of the Act
runs thus
“Property taken under any gift, whenever made,
shall be deemed to pass on the donor’s death to
the extent that bona fide possession and enjoyment
of it was not immediately assumed by the donee and
thenceforward retained to the entire exclusion of
the donor or of any benefit to him by contract or
otherwise…..”
The object under lying a provision like s.10 of the Act was
explained by Issacs J. in the case of John Lang v. Thomas
Prout Webb, 1912 13 C.L.R. 503 decided by the High Court of
Australia in the following words :
357
“The owner of property desiring to make a gift of
it to another may do so in any manner known to the
law. Apparent gifts may be genuine or colourable,
and experience has shown that frequently the
process of ascertaining their genuineness is
attended with delay, expense and uncertainty – all
of which are extremely embarrassing from a public
revenue standpoint.
With a view to avoiding this inconvenience, the
legislature has fixed two standards, both of them
consistent with actual genuineness, but prima
facie indicating a colourable attempt to escape
probate duty. One is the standard of time. A gift,
however, real and bona fide, if made within twelve
months before the donor’s death is for the purpose
of duty regarded as not made. The other is conduct
which first sight and in the absence of
explanation is inconsistent with the gift. The
prima facie view is made by the legislature
conclusive. If the presies to the transaction
choose to act so as to begin apparent conflict
with its purport, they are to be held to their
conduct.
The validity of the transaction itself is left
untouched, because it concerns themselves alone.
But they are not to embarrass the public treasury
by equivocal acts.”
The conditions specified in s.10 will have to be
understood by keeping in view the aforesaid object with
which the section has been enacted. In George Da Costa v.
Controller of Estate Duty, Mysore (supra) this Court has
analysed the conditions on the fulfilment of which the
section gets attracted, thus:
“The crux of the section lies in two parts; (1)
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 (2) the
donee must have retained such possession and
enjoyment of the property to the entire exclusion
of the donor or of
358
any benefit to him by contract or otherwise. As a
matter of construction we are of opinion that both
these conditions are cumulative. Unless each of
these conditions is satisfied, the property would
be liable to estate duty under s.10 of the Act.”
The second part of the section, as observed in the
afore said decision, has two limbs the deceased must be
entirely excluded (i) from the property, and (ii) from any
benefit by contract or otherwise and that the word
‘otherwise should be construed ejusdem generis and should be
interpreted to mean some kind of legal obligation or some
transaction enforceable in law or in equity which, though
not in the form of a contract, may confer a benefit on the
donor.
Therefore, the question that arises for our
determination in this appeal is whether the aforementioned
two cumulative conditions requisite for attracting s.10 are
satisfied in this case or not? Whether immediately upon the
gift the donees had bona fide assumed possession and
enjoyment of the property, which was the subject matter of
the gift, to the exclusion of the donor and whether they had
retained such possession and enjoyment thereof to the entire
exclusion of the donor or of any benefit to him by contract
or otherwise?
The question whether gifted property should be regarded
as a part of the estate of the deceased donor passing on his
death for the purpose of s.10 of the Act would depend upon
as to what precisely is the subject matter of the gift and
whether the gift is of absolute nature or whether it is
subject to certain rights. If the gift is made without any
reservation or qualification, that is to say, where the gift
carries fullest right known to law of exclusive possession
and enjoyment, any subsequent enjoyment of the benefit of
that property by way of possession or otherwise by the donor
would bring the gift within the purview of s.10; but where
the gift is subject to some reservation or qualification,
that is to say, if the subject matter of the gift is
property shorn of certain rights and the possession or
enjoyment of some benefit in that property by the donor is
referable those rights i.e.rights shorn of which the
property is gifted, then in that case the subject matter of
the gift will not be deemed to pass on the death of the
deceased donor. In other words if the
359
deceased donor limits the interest he is parting with and
possesses or enjoys some benefit in the property not on
account of the interest parted with but because of the
interest still retained by him, the interest parted with
will not be deemed to be a part of the estate of the
deceased donor passing on his death for the purpose of s.10
of the Act. It is these aspects which mark the distinction
between the two leading cases, namely Chick’s case and
Munro’s case (supra). As we shall indicate presently Chick’s
case falls within the first category while Munro’s case
falls within the other category.
In Chick’s case the question arose under s.102 of the
New South Wales Stamp Duties Act, 1920-56 which was similar
to s.10 of our Act and the facts were these: In 1934 a
father transferred by way of gift to one of his sons a
pastoral property, the gift having been made without
reservation or qualification or condition. In 1935, some 17
months after the gift, the father, donee-son and another son
entered into an agreement to carry on in partnership the
business of graziers and stock dealers. The agreement
provided, inter alia that the father should be the manager
of the business and that his decision should be final and
conclusive in connection with all matters relating to its
conduct that the capital of the business should consist of
the livestock and plant then owned by the respective
partners that the business should be conducted on the
respective holdings of the partner and such holdings should
be used for the purposes of the partnership only that all
lands held by any of the partners at the date of the
agreement should remain the sole property of such partner
and should not on any consideration be taken into account as
or deemed to be an asset of the partnership and any such
partner should have the sole and free right to deal with it
as he might think fit. Each of the three partners owned
property, that of the donee-son being that which had been
gifted to him by his father in 1934, and each partner
brought into partnership livestock and plant, and their
three properties were thenceforth used for the depasturing
of the partnership stock and this arrangement continued up
to the death of the father in 1952. The Privy Council held
that the value of the property given to the son in 1934 was
to be included in computing the value of the father’s estate
for the purpose of death duty. While it was not disputed
that the son had assumed bona fide possession and enjoyment
of the property immediately upon the
360
gift to the entire exclusion of the father he had not, on
the facts, thenceforth retained it to the father entire
exclusion, for under the partnership agreement and what ever
force and effect might be given to that part of it which
gave a partner the sole and free right to deal with his own
property, the partners and each of them were in possession
and enjoyment of the property so long as the partnership
subsisted. The Judicial Committee observed that where the
question was whether the donor had been entirely excluded
from the subject matter of the gift, that was the single
fact to be determined, and, if he had not been so excluded
the eye need look no further to see whether his non-
exclusion had been advantageous or otherwise to the donee.
In its opinion it was irrelevant that the father gave (if he
did give) full consideration for his right as a member of
the partnership to possession and enjoyment of the property
that he had given to his son. Inter alia two or three points
emerge clearly from the decision that need to be emphasised:
(a) there was initially an outright gift of the property –
not of the property shorn of any rights, (b) the deceased
donor was not in fact excluded from the property, but as a
partner enjoyed rights over it and (c) that it was
immaterial that the donor gave full consideration for
enjoying his rights over the property as a partner. It was
these aspects that brought the gifted property within the
mischief of the taxing statute. The other decisions of this
Court on which Counsel for the revenue has relied are
clearly cases falling within this category and hence the
ratio of chick’s case was correctly applied in each of them.
On the other hand in Munro’s case the facts were these
M, who was the owner of 35,000 acres of land in New South
Wales on which he carried on the business of a grazier,
verbally agreed with his six children in 1909 that
thereafter the business should be carried on by him and them
as partners under a partnership at will and the business was
to be managed solely by M and each partner was to receive a
specified share of profits. In 1913, by six registered
transfers M transferred by way of gift all his right title
and interest in the portions of his land to each of his four
sons and to trustees for each of his two daughters and their
children. The evidence showed that the transfers were taken
subject to the partnership agreement and on understanding
that any partner could withdraw and work his land
separately. In 1919 M and his
361
children entered into a formal partnership agreement, which
provided that during the life time of M no partner should
withdraw from the partnership. On the death of M in 1929 the
land transferred in 1913 was included in assessing his
estate to death duties under the Stamp Duties Act, 1920-1931
(N.W.W.), on the ground that they were gifts dutiable under
s.102(2a) of that Act.The Privy Council held that the
property comprised in the transfers was the land separated
from the rights therein belonging to the partnership and was
excluded by the terms of s.102, sub-s 2(a), from being
dutiable, because the donees had assumed and retained
possession thereof, and any benefit remaining in the donor
was referable to the partnership agreement of 1909 and not
to the gifts. It was urged that the transfer deeds did not
mention the rights of the partnership and therefore under
s.42 of the Real Property Act, 1900 (N.S.W.) the transfers
gave a title free from those rights but the Judicial
Committee negatived the contention on the ground that
substance of the transactions and not the forms employed had
to be ascertained and so ascertained the substance showed
that the transfers were shorn of rights in favour of the
partnership and the benefit remaining in the donor was
referable to such rights of the partnership subject to which
the gifts had been made. Thus this decision clearly
enunciates the principle that if the subject matter of the
gift is property shorn of certain rights and if the
possession or enjoyment of some benefit in that property by
the donor is referable to those rights, i.e. rights shorn of
which the property is gifted then the subject matter of the
gift will not be deemed to pass on the death of the deceased
donor. The ratio of this decision has been followed and
applied by this Court in Ramachandra Gounder’s case, N.R.
Ramarathanam’s case, R.V. Vishwanathan’s case and
Kamlavati’s case (supra).
Having regard to the undisputed facts and facts found
by the High Court it seems to us clear that the instant case
falls within the principle enunciated in Munro’s case.
Admittedly the deceased donor was a partner in the banking
firm of M/s Dayaram Surajmal, whereas the minor donees were
never admitted to the benefits of the partnership firm. An
extract of account filed by the assessee before the High
Court brought out the procedure followed for effecting the
transaction in question the deceased had his account
comprising his capital contribution and advances made by him
to the firm; he
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drew a cheque for Rs.3 lakhs against his account with the
firm which was made out in the name of the firm as a result
whereof the firm could pay itself but the account of the
deceased was debited with the sum of Rs.3 lakhs and on the
same day simultaneously three accounts of the minor donees
with the said firm were credited with the sum of Rs.1 lakh
each. The Tribunal as well as the High Court found as a fact
that when the cheque was issued oral instructions must be
presumed to have been given by the deceased to the firm for
crediting the three accounts of the three minors without
which the firm could not make such credit entries. From
these facts the High Court rightly inferred that “in effect
the cheque was issued in favour of the firm, but for the
benefit of the minors” and that “in such a situation the
firm shall be treated as a trustee or an agent holding the
money for the benefit of the minors.” Clearly, in this view
of the matter, the transaction in question amounted to a
gratuitous transfer of an actionable claim to which s.137 in
preference to s.130 of the Transfer of Property Act applied
and there was a valid gift thereof to the minor donees.
Further undisputed facts were that the amount of Rs.3 lakhs
did not go out of the firm but on being transferred from the
account of the deceased to the accounts of the minor donees
continued to remain with the firm for being used for the
firm’s business; in fact the partnership continued to have
the benefit thereof even after the death of the donor till
the firm was dissolved. Obviously the substance of the
transaction was that the gift was of an actionable claim of
the value of Rs.3 lakhs out of the donor’s right, title and
interest as a whole in the firm and as such was shorn of
certain rights in favour of the partnership and therefore,
the possession or enjoyment of the benefit retained by the
donor as a partner of the firm must be regarded as referable
to partnership rights and had nothing to with the gifted
property. In our view the transaction in question,
therefore, clearly fell within the ratio of the decision in
Munro’s case and the High Court was right in coming to the
conclusion that to such transaction s.10 was inapplicable.
We would like to point out that the facts of the
instant case are almost similar to the facts that obtained
in Controller of Estate Duty v. Jai Gopal Mehra, a companion
matter that was decided and disposed of by this Court by a
common judgment in Kamlavati’s case (supra) where it was
held
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that the transaction of gift was one to which s.10 was
inapplicable.
In the result the appeal is dismissed with no order as
to costs.
M.L.A. Appeal dismissed.
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