Full Judgment Text
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PETITIONER:
CONTROLLER OF ESTATE DUTY, MADRAS
Vs.
RESPONDENT:
PARVATHI AMMAL
DATE OF JUDGMENT11/11/1974
BENCH:
KHANNA, HANS RAJ
BENCH:
KHANNA, HANS RAJ
GUPTA, A.C.
CITATION:
1975 AIR 435 1975 SCR (2) 685
1975 SCC (4) 176
CITATOR INFO :
F 1977 SC 463 (11,18)
RF 1986 SC 631 (5)
ACT:
Estate Duty Act (34 of 1953) s. 10-Scope of.
HEADNOTE:
A gift of immovable property under s. 10 of the Estate Duty
Act, 1953, will be dutiable unless the donee assumes
immediate exclusive and bona fide possession and enjoyment
of the subject-matter of the gift, and there is no
beneficial interest reserved to the donor by contract or
otherwise, that is, (1) the donee must have bona fide
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 any benefit to
him by contract or otherwise. The two conditions are
uncumulative and unless each of these conditions is
satisfied the property would be liable to estate duty. The
second part of the section has two limbs, namely, that the
deceased must be entirely excluded (a) from the property,
and (b) from any benefit by contract or otherwise. The word
’otherwise’ should be construed ejusdem generis and should
be interpreted to mean some kind of legal obligation or some
transaction enforceable at law or in equity which, though
not in the form of contract may confer a benefit on the
donor. The words ’by contract or otherwise’ however, do not
control the words ’to the entire exclusion of the donor’.
In order to attract the section, consequently, it is not
necessary that the possession of the donor of the gifted
property must be referable to some contractual or other
arrangement enforceable at 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, where the subject matter of gift is a house, it
cannot 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 pass on the death to the donor and will be subject
to levy of estate duty. [691C-692A]
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In the present case, the deceased owned two buildings and
some agricultural land. He was carrying on the business of
boarding and lodging in one of the buildings. In March,
1955, he executed a document, described as a partition deed,
whereby he gave possession of that building to his sons and
retained for himself the other house and agricultural land.
In June, 1955 he entered into an agreement with his sons by
which they ]eased to their father their house, wherein, as
before, he continued to carry on his business of boarding
and lodging. The rent fixed however was not paid in cash
but only entries in books were made. The deceased died on
April 6, 1957. The Assistant Controller under the Act held
that the house in which the business was carried on was
liable to be taken into account for assessing the estate
duty and included it in the estate of the deceased. On
appeal to the Board of Direct Taxes it was held that the
document of March 1955 was not a partition deed; that the
house was gifted by the deceased to his sons; that the
deceased continued to be in undisputed possession of the
building, that the donor (deceased) had not been excluded
from the enjoyment and possession of the property; and that
therefore, estate duty was payable in respect of that
property under s. 10. On reference to the High Court on the
question whether on the facts and in the circumstances of
the case the entire value of the building or any portion of
its value was liable to be included in the estate of the de-
ceased as property deemed to have passed on his death, the
High Court proceeded on the assumption that the document was
a gift deed, that possession and enjoyment of the building
were not retained by the sons of the deceased, and held that
therefore it followed that only the value of the right to
possession and enjoyment in the bands of the deceased, as a
lessee, that would pass on his_death and would attract duty.
686
In appeal to this Court,
HELD : The entire value of the property was liable to be
included in the estate of the deceased as property deemed to
have passed on his death. [701F]
(1) Section 10 would have to be construed for the purpose
of this case as it stood before its amendment by the Finance
Act, 1965, that is, without the second proviso. [691B-C]
(2) If a gift comprises the full ownership of the property
not shorn of any right including tenancy right in favour of
third parties, immediate bona fide physical possession and
enjoyment of the gifted property must ordinarily be assumed
by the donee and retained thereafter to the exclusion of the
donor. in order to prevent the incidence of estate duty. In
case, however, the subject matter of the gift is property
shorn of certain rights in the property, the residue of the
rights in the property would be the subject-matter of gift,
and, in such an event it may not sometimes in the very
nature of things, be possible for the donee to assume
Physical possession and enjoyment of the property. In such
cases, the possession and enjoyment of the gifted property
which may be assumed by the donee would only be such as is
possible under the circumstances. [697D-F].
In the present case, the property which was the subject
matter of the gift was the entire building with all the
rights. The gift was not subject to any claim or
reservation. The donees had assumed possession and
enjoyment of the entirety of the gifted property, but such
possession and enjoyment of the building was not, subsequent
to the gift, retained by the donees ’to the entire exclusion
of the donor or of any benefit to him by the contract or
otherwise’. [696H697B]
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Controller of Estate Duty Madras, v. C. R. Ramachandra
Gounder [1973] 88 I.T.R. 448, distinguished.
John Lang & Ors. v. Thomas Prout Webb, 13 C.L.R. 503,
Clifford John Chick & Anr. v. Commissioner of Stamp Duties
[1958] A.C. 435; B. R. Munro & Ors. v. Commissioner of Stamp
Duties [1934] A.C. 61; Commissioner for Stamp Duties of New
South Wales v. Perpetual Trustees Company Ltd. [1943] A. C.
425; St. Aubyn & Ors. v. Attorney-General [1952] A.C. 15;
and Controller of Estate Duty v. R. Kanakasabai & Ors.
[1973] 89 ITR 251 referred to,
(3) Section 10 does contain the words ’to the extent’
which are not found in the corresponding section of the New
South Wales Act. The words ’to the extent’ connote that if
the donee does not assume immediate bona fide possession and
enjoyment of a part or fraction of the gifted property and
thenceforward retain it to the entire exclusion of the donor
or of any benefit to him by contract or otherwise, it shall
be that part or fraction of the gifted property which shall
be deemed to pass on the death of the donor. [699F-G]
In the present case, it was the ownership of the entire
property which constituted the bundle of rights and the view
urged on behalf of the respondent and accepted by the High
Court that the estate duty was payable only in respect of
the value of the right to possession and enjoyment in the
hands of the deceased as a lessee of the building runs
counter to the plain language of the section.
[700D-E]
George Da Costa v. Controller of Estate Duty Mysore [1967]
63 ITR 497 followed.
Rash Mohan Chatterjee & Ors. v. Controller of Estate Duty
West Bengal [1964] 52 ITR 1 (Estate Duty Part), referred to.
(4) The basis on which the High Court and Board of Direct
Taxes proceeded makes it unnecessary to remand the case for
finding whether the deed of March 1955, constituted a deed
of partition. [701D-E]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1395 of
1970.
Appeal from the Judgment and Order dated the 4th March 1969
of the Madras High Court- in Tax Case No. 215 of 1965 and
Referred No. 109 of 1965.
687
B. B. Ahuia and S. P. Nayyar, for the appellant.
S. Swaminathan and S. Gopalakrishnan, for the respondent.
The Judgment of the Court was delivered by
KHANNA, J.-This appeal by the Control of Estate Duty on cer-
tificate is against the judgment of the Madras High Court
whereby that court answered the following question referred
to it under section 64(1) of the Estate Duty Act, 1953 (Act
34 of 1953) (hereinafter referred to as the Act) partly in
favour of the assessee and partly in favour of the revenue :
"Whether, on the facts and in the
circumstances of the case, the entire value of
the, property known as "Mayavaram Lodge" or
any portion of its value is liable to be
included in the principal value of the Estate
of the deceased as property deemed to have
passed on his death?"
The matter arises out of the estate duty case of Shri R.
Venkateswara Iyer who died on April 6, 1957. The
respondent, Smt. Parvathi Ammal who is the widow of the
deceased and is an accountable person in the case, filed
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statement relating to the estate of the deceased before the
Assistant Controller of Estate Duty. The Assistant Con-
troller determined the principal value of the estate to be
Rs. 2,50,374. In computing the principal value the
Assistant Controller took into account a sum of Rs. 1,50,000
on account of the value of property known as "Mayavaram
Lodge".
The Assistant Controller found that till March 11, 1955 the
deceased, who was a self-made man, owned two buildings,
including Mayavaram Lodge, besides some agricultural land.
The deceased was carrying on the business of boarding and
lodging in Mayavaram Lodge. He had also a small chit
business. On March 11, 1955 the deceased executed a
document described as a partition deed, whereby he gave
"Mayavaram Lodge’, to his five sons in equal shares and
retained for himself the other house and agricultural land.
On June 25, 1955 the deceased entered into an agreement with
his sons by which they leased to the deceased Mayavaram
Lodge wherein as before he continued to carry on his
boarding and lodging business. In the profit and loss
account a sum of Rs. 15,000 was mentioned for payment of
rent of Mayavaram Lodge. Later on, the deceased gave the
boarding house on sub-lease to a third party.
The respondent claimed that Mayavaram Lodge should be
excluded from the estate duty assessment of the deceased on
the ground that the said property was transferred on March
11, 1955 more than two years before his death. It was urged
that the fact that the sons let out the building to the
deceased should not be taken to be a special benefit derived
by the deceased. The respondent also pointed out that
Mayavaram Lodge was taken on lease long after the original
transfer and the lease and the transfer could not be treated
as associated transactions. Plea was also taken that the
document of March 11, 1955 constituted deed of partition of
joint family properties.
3-L319Sup.CI/75
688
The Assistant Controller rejected these contentions. He
found that the property referred to in the deed dated March
11, 1955 was the self acquired property of the deceased and
that there was no evidence to show that the deceased treated
it as joint family property. He accordingly held that the
deed, though described as a partition deed, should be
treated as a settlement. Although the settlement was found
to have been made by the deceased more than two years before
his death, the fact that the deceased took back the property
from his sons shortly thereafter to continue his business
therein showed, in the opinion of the Assistant Controller,
that the deceased got a direct benefit in the property. The
Assistant Controller in this context referred to the fact
that there was not much interval of time between the
settlement and lease and that the payment of rent was not in
cash but by book entries. The Assistant Controller accord-
ingly held that Mayavaram Lodge was liable to be taken into
account for assessing the estate duty. He accordingly
included a sum of Rs. 1,50,000 on that account.
The respondent preferred an appeal to the Board of Direct
Taxes against the order of the Assistant Controller. The
only ground which was pressed before the Board related to
the inclusion of the value of Mayavaram Lodge. It was urged
on behalf of the respondent that the property owned by the
deceased became the joint family property and that the deed
of March 11, 1955 was a partition deed. In the alternative,
it was urged on behalf of the respondent that even if the
deed of March 11, 1955 was a deed of settlement and not of
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partition, the value of Mayavaram Lodge ought not to have
been included inasmuch as the deceased had transferred his
right, title and interest in the above property more than
two years prior to his death. The Board found that the
deed, though executed on March 11, 1955 more than two years
prior to the death of the deceased, was registered only on
June 29, 1955. According to the Board, the gift of
Mayavaram Lodge became effective only on June 29, 1955, viz.
the date of registration. As that date fell within the
statutory period of two years before the death of the
deceased, the Assistant Controller was held to be justified
in view of section 9 of the Act in including the value of
Mayavaram Lodge in the principal value of the estate of the
deceased. In the alternative, the oBard found that the
deceased continued to be in undisputed possession of Maya-
varam Lodge. It was held that the donor had not been
excluded from the enjoyment and possession of the property
and. therefore, estate duty was payable in respect of that
property under section 10 of the Act. The Board rejected
the contention that the document ,of March 11, 1955
constituted partition deed. The appeal of the respondent
was accordingly dismissed. On being moved by the respondent
the Board referred the question reproduced above to the High
Court.
The High Court held that the subject matter of allotment to
the sons by the deed of March 11, 1955 was the entirety of
Mayavaram Lodge with all the rights that could possibly go
into it and that the allotment was not subject to any claim
to or right in that property.
689
It was also held that on the execution of the deed the sons
had assumed possession and enjoyment of the entirety of the
house. The High Court then referred to its earlier decision
in Y. S. Mani v. Controller of Estate Duty(1) wherein it had
held that to the extent to which the donor retains an
interest in the entirety of the property given away by him
as gift, there will be pro tanto liability to estate duty.
It was further observed by the High Court as under
" Mayavaram Lodge was certainly a bundle of
rights of which possession and enjoyment
formed a part which as we have observed, were
not subsequently to their assumption retained
by the sons of the deceased. To that extent,
there was non-exclusion of the deceased. So
far as the ownership of the property is
concerned, there can be no question that the
donees exclusively retained it. It follows
that it is only the value of the right to
possession and enjoyment in the hands of the
deceased as a lessee that would pass on his
death and would attract duty. For the Revenue
it is urged that the entire premises being in
the occupation and enjoyment of the deceased
until his death, its entire value would pass.
We are unable to accede to this view because
it does not take note of the value of the
other rights of the donees including the
ownership of the property, which they %retain-
ed to the exclusion of the deceased. Since we
have held that only to the extent of the non-
exclusion mentioned the proportionate property
referable to it would pass, it would be
necessary for the Revenue to apportion its
value taking all the facts into account and
revise the assessment.
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That is sufficient to dispose of the
reference. In view of this, we, do not think
it necessary to deal with the other point as
to whether the transaction of March 11, 1955,
amounted to a gift. We have proceeded on the
basis that it was a gift.
The question is answered partly in favour of
the Revenue and partly in favour of the
assessee. This is because , on the view we
have expressed, the Revenue cannot charge
estate duty on the entire value of the
property, while at the same time the
accountable person cannot escape duty to the
extent of the non-exclusion we have
indicated."
In appeal before us Mr. Ahuja on behalf of the appellant has
assailed the judgment and reasoning of the High Court- and
has contended that as subsequent to the deed of March 11,
1955, which as observed by the High Court would have to be
assumed to be a deed of gift, the donor took the gifted
property on lease, the donees cannot be said to have
retained possession of that property "to the entire
exclusion of the donor or of any benefit to him by contract
or otherwise". As against that, Mr. Swaminathan on behalf
of the respondent has canvassed for the correctness of the
view taken by the High Court.
(1) [1966] 601.T.R.810.
690
Before dealings with the contention of the parties, we may
referring to section 2(16), to the relevant provisions of
the Act. According to section 2(16) "property passing on
the death" includes property passing either immediately on
the death or after any interval, either certainly or con-
tingently, and either originally or by way of substitutive
limitation. Section 5 contains the charging provision, and
provides that "in the case of every person dying after the
commencement of this Act, there shall, save as hereinafter
expressly provided, be levied and paid upon the principal
value ascertained as hereinafter provided, of all property,
settled or not settled, including agricultural land......
which passes on the death of such person, a duty called
"estate duty" at the rates fixed in accordance with section
35". According to section 6, property which the deceased
was at the time of his death competent to dispose of shall
be deemed to pass on his death. Sub-section (1) of section
7 of the Act provides that subject to the provisions of that
Section, property in which the deceased or any other person
had an interest ceasing on the death of the deceased
shall be deemed to pass on the deceased’s death to the
extent to which a benefit accrues or arises by the ceaser of
such interest, including in particular, a coparcenary
interest in the joint family property of a Hindu family
governed by the Mitakshara, Marumakkattayam or Aliyasantana
law. According to section 9, property taken under a
disposition made by the deceased purporting to operate as an
immediate gift inter vivos whether by way of transfer,
delivery, declaration of trust, settlement upon persons in
succession, or otherwise, which shall not have been bona
fide made two years or more before the death of the deceased
shall be deemed to pass on the death : Provided that in the
case of gifts made for public charitable purposes the period
shall be six months. Section 10 of the Act reads as under :
"10. Gifts whenever made where donor not
entirely excluded.-Property taken under any
gift, whenever made, shall be deemed to pass
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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 :
Provided that the property shall not be deemed
to pass by reason only that it was riot, as
from the date of the gift, exclusively
retained as aforesaid, if, by means of the
surrender of the reserved benefit or
otherwise, it is subsequently enjoyed to the
entire exclusion of the donor or of any
benefit to him for at least two years before
the death.
Provided further that a house or part thereof
taken under any gift made to the spouse, son,
daughter, brother or sister, shall not be
deemed to pass on the donor’s death by reason
only of the residence therein of the donor
except where a right of residence therein is
reserved or secured. directly or indirectly to
the donor under the relevant disposition or
under any collateral disposition."
691
it may be mentioned. that the period "two years" in sub-
section (1) of section 9 and the first proviso to section 10
was substituted for "one year" by the Finance Act, 1966 (Act
13 of 1966). The second proviso to section 10 was inserted
by the Finance Act, 1965 (Act 10 of 1965).
The amendment brought about by the Finance Act, 1965 by
inserting second proviso to section 10, as observed by this
Court in the case of George Da Costa v. Controller of Estate
Duty Mysore(1), was not retrospective. The said section
would consequently have to be construed for the purpose of
this case which relates to, the estate, of the deceased who
died on April 6, 1957, as it stood before the amendment.
The intention of the legislature in enacting section 10 of
the Act was to exclude from liability to estate duty certain
categories of gifts. ,A gift of immovable property under
section 10 will, however, be dutiable unless the donee
assumes immediate exclusive and bona fide possession and
enjoyment of the subject-matter of the gift, and there is no
beneficial interest reserved to the donor by contract or
otherwise. The section must be grammatically construed as
follows : "Property taken under any gift, whenever made, of
which property bona fide possession and enjoyment shall not
have been assumed by the donee immediately upon the gift,
and of which property bona fide possession and enjoyment
shall not have been thenceforward retained by the donee to
the entire exclusion of the donor from such possession and
enjoyment, or of any benefit to him, by contract or
otherwise". 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 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 (see
George Da Costa v. Controller of Estate Duty Mysore, supra).
The second part of the section, as observed in the above
mentioned case, has two limbs : the deceased must be
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entirely excluded, (i) from the, property and (ii) from any
benefit by contract or otherwise. The word "otherwise"
should be construed ejusdem generis and should be,
interpreted to mean some kind of legal obligation or some
transaction enforceable at law or in equity which though not
in the form of a contract, may confer a benefit on the
donor. The words "by contract or otherwise" in the second
limb of the section do not control the words "to the entire
exclusion of the donor" in the first limb. In order to
attract this section, it is consequently not necessary that
the possession of the donor of the gifted property must be
referable to some contractual or other arrangement
enforceable at 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, it cannot be said that be was "entirely excluded
(1) [1967] 63 I.T.R. 497.
692
from possession and enjoyment" within the meaning of the
first limb of the section and, therefore, the property will
be deemed to pass on the death of the donor and will be
subject to levy of estate duty.
The object underlying a provision like section 10 of the Act
was explained by Issacs J. in the case of John Lang & Ors.
v. Thomas Prout Webb(1) decided by the High Court of
Australia in 1912 in the following words :
"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 tent with the gift. The prima
facie view is made by the twelve months before
the donors death is for the purpose of duty
regarded as not made. The other is conduct
which at 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 parties to the
transaction choose to act so as to be in
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 court in that case was concerned with the construction
of section 11 of the Administration and Probate Act, 1903
which reads as under
"Every conveyance or assignment gift delivery
or transfer of any estate real or personal and
whether made before or after the commencement
of this Act, Purporting to operate as an
immediate gift inter vivos whether by way of
transfer delivery declaration of trust or
otherwise shall-
(a) if made within twelve months immediately
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preceding the death of the person so dying; or
(b) if made at any time relating to any
property of which property bona fide
possession and enjoyment shall not have been
assumed by the donee immediately upon the gift
and thenceforward retained to the entire
exclusion of the donor or of any benefit to
him by contract or otherwise
(1) 3 C.L.R. 593.
693
be deemed to have, been, made the property to
which the same relates chargeable with the
payment of the duty payable under the
Administration and Probate Acts as though part
of the estate of the donor."
In that case a testarix was the owner in fee of land in her
actual possession and enjoyment, which she worked as a
single property. More than twelve months before her death
she gave to her three sons blocks of this land each of which
was surrounded by other land of the testarix. The gift was
made by conveyances of so much of the land as was under the
general law, and by transfers of so much of it as was under
the Transfer of Land Acts. On the same day upon which the
conveyance and transfers were executed, each of the sons
executed a lease for five years of the land given to him to
the testarix at fair and reasonable rent. After the gifts
the lands given continued to be in the actual physical
occupation of the testarix and to be, worked by her with her
other land in the same way as before the gifts. The
testarix died before expiration of the leases. It was held
that the land so given was chargeable with the payment of
the duty payable under the Administration and Probate Acts
as though part of the estate of the testarix. Issacs J. in
this context observed
"The lease, however, gave to the donor
possession and enjoyment of the land itself,
which is a simple negation of exclusion, and
brings the case within the statutory
liability. It was argued that as the rent was
full value, the lessee’s possession and
occupation were not a benefit. The argument
is unimportant because the lease, at
whatsoever rent, prevents the entire exclusion
of the donor.,,
The Above reasoning of Issacs J. was approved by the
Judicial Committee in the case of Clifford John Chick & Anr.
v. commissioner of Stamp Duties(1) wherein the judicial
Committee dealt with a case under section 102 of the New
South Wales Stamp Duties Act, 192056. The aforesaid section
Provided that "for the purposes of the assessment and
payment of death duty but subject as hereinafter provided
the estate of a deceased person shall be deemed to include
and consist of the following classes of Property : . . . .
(2) (d) Any property comprised in any gift made by the
deceased at any time, whether before or after the passing of
this Act of which bona fide, possession and enjoyment has
not been assumed by the donee immediately upon the gift and
thenceforth retained to the entire exclusion of the deceased
or of any benefit to him of whatsoever kind or in any way
whatsoever whether enforceable at law or in equity or not
and whenever the deceased died.,, In that case a father
transferred in 1934 by way of gift to one of his sons
pastoral property. The gift was made without reservation or
qualification or condition. In 1935. some 17 months after
the gift, the father, the donee son and another son entered
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into an agreement to carry on in partner-,hit) the business
of graziers and stock dealers. The agreement Provided,
inter alia, that the father
(1) [1958] A. C. 435.
694
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 live stocks and plant then
owned by the respective partners; that the business should
be conducted on the respective holdings of the partners and
such holdings should be used for the purposes of the
partnership only; that all lands held by any of the partners
on the date of the agreement should be conducted on the
respective holdings of the partners and 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 a property, that of the donee son
being that which had father in 1934. Each partner brought
into and plant, and their three properties were depasturing
of the partnership stock. This to the death of the father
in 1952. It was property given to the son in 1934 was. to
the value of the father’s estate for the purposes of death
duty. While it was not disputed that the son had assumed
bona fide possession and enjoyment of the property im-
mediately upon the gift to the entire exclusion of the
father, it was found that he had not thenceforth retained it
to the father’s entire exclusion, for under the partnership
agreement the partners and each of them were in possession
and enjoyment of the property so long as the partnership
subsisted. The Judicial Committee had 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 "eluded, the
eye need look no further to see whether his non-exclusion
has been advantageous or otherwise to the donee. In the
opinion of the Judicial Committee, it was irrelevant that,
the father gave full consideration for his rights as a
member of the partnership to possession and enjoyment of the
property that he had given to his son. Sir Garfield Barwick
(as he then was), who was the counsel for the appellant in
that case, pointed out that on the, respondent’s
construction, if a father gave a house to his son, and later
the son turned it into a hospital, and the father, having
been taken ill, went into it as a paying patient, liability
to duty would arise although it may be the only hospital in
the area. The case, however, in view of the language of the
statute was decided in favour of the Commissioner of Stamp
Duties, who was the respondent in the, case. The following
six points emerge from Chick’s case:
(1) The deceased was not in fact excluded
from the property, but as a partner enjoyed
rights over it.
(2) There was an initial outright gift of
the property-not of the property shorn of
certain rights.
(3) It was immaterial that the partnership
agreement was later than the gift, since the
Section required that possession and enjoyment
should "thenceforth" be retained to the
exclusion of the donor.
695
(4) It was also immaterial that the
partnership was "an independent commercial
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transactions and that the donor gave full
consideration for his rights. If a donor
gives a donee a freehold and the donee gives
the donor a lease, even at a full rent, the
donor is not excluded from the property.
(5) The question whether the partnership
agreement was " related" or "referable" to the
gift did not arise : the question is relevant
only to the second limb of the clause.
(6) It was immaterial that the donee could
make no better use of the property. "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. If be has not been so excluded,
the eye need look no further to see whether
this nonexclusion has been advantageous or
otherwise to the donee."
(see p. 276 of Dymond’s Death Duties, 14th
Ed.)
So far as point No. (4) is concerned, the law was
subsequently amended by section 35(2) of the Finance Act,
1959. Under that clause, the donor’s actual occupation of
the land, enjoyment of an incorporeal right over the land or
possession of the chattels is to be disregarded if for full
consideration, e.g., if he paid a full rent to the donee or
occupied it under a lease for which he gave full value.
There is one other principle and that relates to gift of
property shorn of certain rights belonging to the
partnership in which the donor is a partner. In such a case
the benefit remaining in the donor is referable to the
partnership agreement and not to the gift. This principle
can be illustrated by reference to two cases, one decided
by the Judicial Committee in 1933 and the other by this
Court in 1973. The Judicial Committee’s decision is in the
case of H. R. Munro & ors. v. Commissioner of Stamp
Duties,(1) while that of this Court is in the case of
Controller of Estate Duty Madras v. C. R. RamaChandra
Gounder. (2)
In the case of H. R. Munro 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 that thereafter the business should be carried on
by him and them as partners under a partnership at will.
The business was to be managed solely by M and each partner
was to receive a specified share of the profits. In 1913, M
transferred by way of gift by means of six registered deeds
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
(t) [1934] A. C. 61.
(2) [1973] 88 I.T.R. 448.
696
their children. The transfers were taken subject to the
partnership agreement, and on the understanding that any
partner could withdraw and work his land separately. In
1919 M and his children entered into a formal partnership
agreement, which provided that during the lifetime 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 on the ground that they were gifts dutiable under
section 102 of the New South Wales Stamp Duties Act, 1920.
It was held that property comprised in the transfers was the
land separated from the rights therein belonging to the
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partnership and was excluded by the terms of section 102,
sub-section 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. In the case of
Ramachandra Gounder the deceased who was a partner in a firm
owned a house property let to the firm as tenant-at-will.
In August, 1953, he executed a deed of settlement under
which he transferred the property let to the firm to his two
sons absolutely and irrevocably and, thereafter, the firm
paid the rent to the donees by crediting the amount in their
accounts in equal shares. The deceased further directed the
firm to transfer from his account a sum of Rs. 20,000 to the
credit of each of his five sons in the firm’s books with
effect from April 1, 1953 and he also informed them of this
transfer. An amount of Rs. 20,000 was credited in each of
the sons’ accounts with the firm. The sons did not withdraw
any amount from their accounts in the firm and the amounts
remained invested with the firm for which interest at 7-1/2
per cent was paid to them. The deceased continued to be a
partner of the firm till April 13, 1957, when the firm was
dissolved and thereafter he died on May 5, 1957. The
question was whether the value of the house property and the
sum of Rs. one lakh could be included in the principal value
of the estate of the deceased as property deemed to pass
under section 10 of the Estate Duty Act, 1953. This Court
held that neither the house property nor the sum of Rs. one
lakh could be deemed to pass under section 10. The first
two conditions of the section were ’Satisfied because there
was an unequivocal transfer of the property by a settlement
deed and of the sum of Rs. one lakh by crediting the amount
in each of the sons’ accounts with the firm which
Thenceforward became liable to the sons for payment of that
amount and the interest thereon. The possession which the
donor could give was the legal possession with the
circumstances and the nature of the property would admit and
this the donor had given. The benefit the donor had as a
member of the partnership was not a benefit referable in any
way to the gift but was unconnected therewith.
The present case, in our opinion, clearly falls within the
purview of the dictum laid down by the High Court of
Australia in the case of John Lang (supra) and of the
Judicial Committee in the case of John Chick (supra). As
already mentioned, the High Court has found that the
property which was the subject-matter of the gift under the
deed of March 11, 1955 was the entirety of Mayavaram Lodge
with
697
all the rights and that the gift was not subject to any
claim on reservation. It has also been found that on the
execution of the aforesaid deed the donees assumed
possession and enjoyment of the entirety of the house. On
June 25, 1955 the donor took the aforesaid house on lease
from the donees. These facts would show that the possession
and enjoyment of Mayavaram Lodge was not subsequent to the
gift retained by the donees "to the entire exclusion of the
donor or of any benefit to him by contract or otherwise".
Mayavaram Lodge as such shall be deemed to pass on the death
of the deceased under section 10 of the Act. The case of
Ramachandra Gounder (supra) upon which great reliance has
been placed by Mr. Swaminathan can hardly be of much
assistance to him because in that case the gifted property
was subject to the tenancy-at-will granted to the firm
Ramachandra Gounder’s case was thus covered by the principle
laid down in Munro’s case. The question of invoking that
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principle does not arise in the present case because the
property which is the subject matter of the gift was the
entirety of Mayavaram Lodge with all the rights and the same
were not subject to any right in favour of a partnership.
The principle to be kept in view in such cases is to examine
the deed of gift and find out as to what is the subject-
matter of the gift. If the gift comprises the full
ownership of the property not shorn of any right including
tenancy right in favour of third parties, in such an event
in order to prevent the incidence of estate duty immediate
bona fide physical possession and enjoyment of the gifted
property must ordinarily be assumed by the donee and
retained thereafter to the exclusion of the donor. In case,
however, the subject-matter of the gift is property shorn of
certain rights, in that case the residue of the rights in
that property would be the subject matter of the gift. In
such an event it may not sometimes in the very nature of
things be possible for the donee to assume physical
possession and enjoyment of the property. In such cases the
possession and enjoyment of the gifted property which may be
assumed by the donee would only be such as is possible under
the circumstances.
We may mention some of the other cases to which reference
has been made by Mr. Swaminathan during the course of
arguments. The case of Commissioner for Stamp Duties of New
South Wales v. Perpetual Trustees Company Ltd.(1) related to
an indenture of settlement made between the settlor and five
trustees, of whom the settlor himself was one. It was
declared in that settlement that the trustees should hold
certain company shares of which the settlor was the owner
and registered- holder, and which were transferred to and
registered in the names of the trustees, in trust, to apply
during the minority of his son the whole or any part of the
income or corpus as the trustees should think fit for the
maintenance, advancement or benefit of the son. The shares
and the accumulations of income were transferred to the son
on his attaining the age of 21 years as his absolute
property. From the date of settlement the settlor never
exercised any voting power in respect of the shares. The
son attained the age of 21 years in 1931, when the assets
comprised in the settlement were transferred
(1) [1943] A. C. 425.
698
to him. On a claim by the revenue authorities that on the
death in 1921 of the settlor the subject of the settlement
had formed part of the settlor’s dutiable estate by virtue
of section 102 of the New South ’Wales Stamp Duties Act, the
Judicial Committee held that the interest of the son under
the settlement in the shares and accumulations of income was
not an absolute vested interest, but was contingent on his
attaining the age of 21 years. It was further held that the
property comprised in the gift was the equitable interest in
the shares, and that bona fide possession and enjoyment of
the property comprised in the gift was assumed by the donee,
viz., the son, immediately upon the gift and thenceforth
retained to the entire exclusion of the deceased or of any
benefit to him. The shares were accordingly held not to
form part of the settlor’s dutiable estate. The above
decision can hardly be of any assistance to the respondent.
Lord Russell of Killowen in the above cited case after
referring to the clauses of the settlement came to the
conclusion that there was no gift of corpus to the son
except in the direction to the trustees to transfer the
shares to him ,on his attaining the age of 21 years. Until
he attained that age, the shares, it was held, were not the
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absolute property of the son and that be had only a
contingent interest therein. He was entitled to the corpus
of the shares if and when he attained the age of 21 years.
The Judicial Committee accordingly affirmed the decision of
the High Court of Australia that the subject-matter of the
gift in favour of the son under the deed of settlement was
only the equitable interest in the ,shares. As against that
the subject-matter of the gift in the present ,case was the
full ownership right in a house without any diminution.
The case of St. Aubyn & Ors. v. Attorney General(1) related
to certain properties held on trusts and their dispositions.
It is not necessary to set out the long chain of facts of
that case; suffice it to say that there is nothing in that
case which runs counter to the view we are taking in the
matter.
In Controller of Estate Duty v. R. Kanakasabai & Ors.(2) the
,deceased executed in June 1951 separate deeds in favour of
his sons, grandsons, daughter and wife, settling properties
thereby severally in favour of the respective beneficiaries
absolutely and with full power of alienation. The deeds in
favour of the sons and grandsons provided for payment of Rs.
1,000 per annum to the settlers while the deed in favour of
the daughter provided for maintenance of the settlor and his
wife during their lifetime. In the deed’ in favour of the
wife the "pressed the hope that she would maintain him
during the lifetime. No charge was, however, created in
respect of the amounts made payable by the sons and
grandsons or in respect of daughter’s liability to maintain
the settlor and his wife. The deceased died on February 5,
1959 and the question which arose for determination was
whether the whole or any part of the properties comprised in
the deeds passed on the death of the deceased under section
10 of the Act. It was held that no interest in the
properties settled was reserved to the deceased during his
lifetime or for any period after the properties were
settled. The deed in favour of the wife merely expressed
(1) [1952] A.C. 15.
(2) (1973) 891.T.R.251.
699
a hope or expectation and no enforceable right was created
thereby. It was further held that in order to attract
section 10 the benefit to the donor by contract or otherwise
must be referable to the property gifted and it was not
sufficient that the donor derived a benefit arising from the
transaction resulting in the gift. As the provisions for
annual payments and maintenance made in the deeds were not
charged on the properties settled, the donor could not be
said to have retained any interest or any benefit either in
the, property settled or in respect of their possession.
Neither the whole nor any part of the properties comprised
in those deeds was consequently liable to be included in
computing the value of the estate, that passed on the death
of the deceased. This case can equally lie of no assistance
to the respondent because the question which arose for
Determination in that case was wholly different from that
which arises in the present case.
Mr. Swaminathan has then pointed out that section 10 of the
Act contains the words "to the extent" which are not there
in the statutory provisions with which the High Court of
Australia and the Judicial Committee were concerned in the
cases of John Lang and Chick respectively. It is urged that
the words "to the extent" indicate that if possession and
enjoyment of the gifted property is not assumed by the donee
and thenceforward retained to the entire exclusion of the
donor, it would be the right of possession and enjoyment of
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the gifted property which shall be taken to pass on the
death of the donor. The learned counsel accordingly
concludes that what is to be taken into account in
determining the principal value of the estate is the value
of the right to possess-ion and enjoyment of the gifted
property and not the value of the property in its entirety.
We are unable to accede to this submission. It is, no doubt
true that the words "to the extent" do not find a mention in
the statutory provisions which were construed in the cases
of John Lang and Chick, but that fact would not materially
affect our conclusion. The words "to the extent" connote
that if the donee does not assume immediate bona fide pos-
session and enjoyment of a part or fraction of the gifted
property and therceforward retain it to the entire exclusion
of the donor or of any benefit to him by contract or
otherwise, it shall be that part or fraction of the gifted
property which shall be deemed to pass on the death of the
donor. Those words thus seek to restrict the liability to
pay estate duty in respect of only the aforesaid part or
fraction of the property. They underline the intention of
the legislature that in the event of the donee not assuming
bona fide possession and ’enjoyment of a part or fraction of
the gifted property and thenceforward retaining it to the
entire exclusion of the donor or of any benefit to him by
contract or otherwise, the estate duty-shall be payable not
in respect of the whole of the gifted property but only in
respect of that part or fraction of the gifted property of
which the donee did not assume bona fide possession and
enjoyment and thenceforward retain to the entire exclusion
of the donor or of any benefit to him by contract or
otherwise. An illustration of this is furnished by the case
of Rash Mohan Chatterjee & Ors. v. Controller of Estate Duty
West Bengal.(1)
(1) (1964) 52 I.T.R. 1 (Estate Duty part).
700
In that ease the deceased settled on July 1, 1954 certain
premises in trust for the absolute use and benefit of his
two sons in equal shares during their lives and upon the
death of one or both the sons for the use of the wife or
wives of such son or sons with remainder to the, male
children of the two sons in equal shares per stripes. The
upper portion of the premises was leased to the deceased
himself on a rent of Rs. 150 per month for a term of five
years with effect from the date of settlement. The lease
expired on June 30, 1959 but the, deceased continued to
occupy that part of the premises for a few days thereafter,
until his death on July 11, 1959. The question which arose
for determination was whether and to what extent estate duty
was chargeable in regard to those premises under section 10
of the Act. It was held that the lease gave to the donor
possession and enjoyment of the property itself and the case
fell within the statutory charge under section 10. As,
however, section 10 provided that such property was
chargeable only to the extent that the deceased was not
excluded, estate. duty was payable by the accountable
persons only on that portion of the premises which was in
the occupation of the deceased as a lessee.
The High, Court in the judgment under appeal mentioned that
Mayavaram Lodge was a bundle of rights of which possession
and enjoyment formed a part. We may in this context observe
that it was the ownership of the above property which
constituted the bundle of rights. The view urged on ’behalf
of the respondent and accepted by the High Court that the
estate duty is payable only in respect of the value of the
right to possession and enjoyment in the hand of the
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,deceased as a lessee of Mayavaram Lodge runs, in our
opinion, counter to the plain language of section 10 of the
Act. What the section contemplates is that it would be the
property taken under the gift which shall be deemed to pass
on the donor’s death if the bona fide possession and
enjoyment thereof 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.
There is nothing in the section to indicate that if the
donee does not immediately assume bona fide possession and
enjoyment. of the gifted property and thenceforward retain
it to the entire exclusion of the donor, in such an event
the right only to possession or enjoyment of the property
shall be deemed to pass on the death of the donor. Apart
from the case of Rash Mohan Chatterjee (supra) to which we
have already made a reference, the stand taken on behalf of
the respondent cannot be accepted in the face of the
decision of this Court in the case of George Da Costa
(supra). The deceased in that case had purchased a house in
the joint names of himself and his wife in 1940. They made
a gift of the house to their sons in October 1954. The
document recited that the donees had accepted the gift and
that they bad been put in possession. The deceased died on
September 30, 1959. The Controller included the value of
that house in the principal value of the estate that passed
on the, deceased’s death under section 10 of the Estate Duty
Act, 1953. The Board found that, though the deceased bad
gifted the house for four years before his death, he still
continued to stay in the house till his death as the head of
the
701
family and was also looking after the affairs of the house.
It was further found that the property was purchased
entirely out of the funds of the deceased.-and though the
property stood in the joint names of the deceased and his
wife, the wife was merely a name-lender and the entire
property belonged to the deceased. It was held by this
Court that the value of the property was correctly included
in the estate of the deceased as property deemed to pass on
his death under section 10. If the view propounded on behalf
of the respondent were to be accepted, in that case the
property which passed on the death of the deceased in the
case of George Da Costa could only be the value of the right
to possession. in our opinion, the stand taken on behalf of
the respondent in this respect is clearly untenable.
Lastly, it has been argued on behalf of the respondent that
we should remand the case to find as to whether the deed of
March 1 1, 1955 constituted deed of partition. We are unable
to accede to this submission. The High Court has proceeded
upon the basis that the property in question was gifted by
the deceased in favour of his sons as a result of that deed.
The Board of Direct Taxes found on reference to the
aforesaid deed that all the properties mentioned therein
were the sell-acquired properties of the deceased and there
was nothing in any part of the deed to show an intention on
the part of the deceased to treat them as properties
belonging to the joint family. It was also found that there
was no evidence of any clear intention of the deceased to
waive his separate rights. Accordingly, the Board came to
the conclusion that the said document was not a partition
)deed relating to the joint family property. In the
circumstances, we find no sufficient ground for remanding
the case.
As a result of the above we accept the appeal, discharge the
answer given by the High Court to the question referred to
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it and answer that question in favour of the revenue and
against the accountable person. Our answer is that on the
facts and in the circumstances of the case the entire value
of the property known as "Mayavaram Lodge" is liable to be
included in the principal value of the estate of the
deceased as property deemed to have passed on his death.
The appellant shall be entitled to the costs of the appeal.
V.P.S. Appeal allowed.
702