Case: Controller Of Estate Duty, Madras Vs. C. R. Ramachandra Gounder

property after getting possession from the firm to some other person totally unconnected with the donor. Such an unreasonable requirement the law does not postulate. The possession which the donor can give is the legal possession which the circumstances and the nature of the property would admit. This he has given. The benefit the donor had as a member of the partnership, was not a benefit referable in any way to the gift but is unconnected therewith. The Privy Council in Munro v. Commr. of Stamp Duties, 1934 AC 61 was dealing with a case of a similar nature. The donor in that case by six registered transfers in the form prescribed, transferred by way of gift all his right, title and interest in portions of his land to each of his four sons and to trustees for each of his two daughters and their children. The four sons and the two daughters were, prior to this transfer on a verbal agreement with the donor, treated as partners of the business carried on by him as grazier of the land owned by him. The evidence showed that the transfers were taken subject to the partnership agreement and on the understanding that any partner could withdraw and work his land separately. On an analogous provision of the law, the Privy Council thought it unnecessary to determine the precise nature of the right of the partnership at the time of the transfers because it was either a tenacy during the term of the partnership or a licence coupled with an interest. Lord Tomlin, giving his opinion, observed at p. 67, that "the benefit which the donor had as a member of the partnership in the right to which the gift was subject was not in their Lordships opinion a benefit referable in any way to the gift". This decision was referred to and distinguished in Clifford John Chick v. Commr. of Stamp Duties, (1959) 37 ITR (ED) 89 (PC) and though it was considered to have no application to the case at point, Viscount Simonds observed at p. 97 : "It must often be a matter of fine distinction what is the subject-matter of gift. If, as in Munros case, 1934 AC 61 the gift is of a property shorn of certain of the rights which appertain to complete ownership, the donor cannot, merely because he remains in possession and enjoyment of those rights, be said within the meaning of the section not to be excluded from possession and enjoyment of that which he has given." In the Commr. of Stamp Duties of New South Wales v. Perpetual Trustee Co. Ltd. 1943 AC 425, the Privy Council further elaborated the concept of the nature of possession required to be given to the donee as not to attract the analogous provisions of the Commonwealth Act. Lord Russell of Killowen observed at p. 440 :"The linking of possession with enjoyment as a composite object which has to be assumed by the donee indicates that the possession and enjoyment contemplated is beneficial possession and enjoyment by the object of the donors bounty..................because the son was (through the medium of the trustees) immediately put in such bona fide beneficial possession and enjoyment of the property comprised in the gift as the nature of the gift and the circumstances permitted. Did he assume it, and thenceforth retain it to the entire exclusion of the donor ? The answer, their Lordships think, must be in the affirmative, and for two reasons: (1) the settlor had no enjoyment and possession and enjoyment as he had from the fact that the legal ownership of the shares vested in him and his co-trustees as joint tenants, was had by him solely on behalf of the donee. In his capacity as donor he was entirely excluded from possession and enjoyment of what he had given to his son Did the donee retain possession and enjoyment to the entire exclusion of any benefit to the settlor of whatever kind or in any way whatsoever ? Clearly yes."The views expressed by the Privy Council are in complete accord with our views already expressed. This was also the view held in Controller of Estate Duty, Mysore v. S. Aswathanarayana Setty, (1969) 72 ITR 29 (Mys), where a Bench of the Mysore High Court considered both the cases of Clifford John Chick and of Munro above referred to. In that case, on June 30, 1954, the deceased transferred to his two sons Rs. 57,594 being half of the share standing to his credit as on that date in the books of a firm in which he was a partner and from July 1, 1954, the sons were also taken as partners in the firm. On the death of the deceased on November 16, 1957, the Assistant Controller held that the amount transferred to the sons must be deemed to pass as per the provisions of S. 10 of the Estate Duty Act, which decision was confirmed by the Appellate Controller. The Tribunal, however, held that the sum which subsequently was rectified to be Rs. 73,695 was not so includible. One of us (Hegde, J., as he then was), speaking for the Bench, observed at p. 32 :"On the facts of the case, it cannot be said that, after the gifts, the donees did not retain the property gifted to the entire exclusion of the donor or that the donor had any benefit either by contract or otherwise in the property gifted. That in order that the property could deem to pass and estate duty could be leviable in such cases, the benefit of the donor must be a benefit referable to his own property. The view, that if it is once found that the deceased had some benefit in the property, that in itself was sufficient to bring the case within the ambit of section 10 irrespective of the question whether that benefit was referable or not referable to the gift, in our opinion, is erroneous."

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]5. There is no doubt on the facts of this case, the first two conditions are satisfied because there is an unequivocal transfer of the property and also of the money, in the one case by a settlement deed, and in the other by crediting the amount of Rs. 20,000/- in each of the sons account with the firm which thenceforward became liable to the sons for the payment of the said amount and the interest at 7 1/2 % per annum thereon. In these circumstances, the Revenue has failed to establish that the donees had not retained possession and enjoyment of the property or the amount and that the deceased was not entirely excluded from the possession and enjoyment thereof. The last limb of the condition relating to any benefit to the donor by contract or otherwise is inapplicable in this case. The donor on the date when he gifted the property to his sons which was leased out to the firm, had two rights, namely, of ownership in the property and the right to terminate the tenancy and obtain possession thereof. There is no dispute that the ownership has been transferred subject to the tenancy at will granted to the firm, to the donors two sons because the firm from thenceforward had attorned to the donees as their tenant by crediting the rent of Rs. 300/- to the respective accounts in equal moiety. The donor could, therefore, only transfer possession of the property which the nature of that property was capable of, which in this case is subject to the tenancy.He could do nothing else to transfer the possession in any other manner unless he was required to effectuate the gift for the purpose of S. 10 of the Act by getting the firm to vacate the premises and handing over possession of the same to the donees leaving the donees thereafter to lease it out to theviews expressed by the Privy Council are in complete accord with our views already expressed. This was also the view held in Controller of Estate Duty, Mysore v. S. Aswathanarayana Setty, (1969) 72 ITR 29 (Mys), where a Bench of the Mysore High Court considered both the cases of Clifford John Chick and of Munro above referred to. In that case, on June 30, 1954, the deceased transferred to his two sons Rs. 57,594 being half of the share standing to his credit as on that date in the books of a firm in which he was a partner and from July 1, 1954, the sons were also taken as partners in the firm. On the death of the deceased on November 16, 1957, the Assistant Controller held that the amount transferred to the sons must be deemed to pass as per the provisions of S. 10 of the Estate Duty Act, which decision was confirmed by the Appellate Controller. The Tribunal, however, held that the sum which subsequently was rectified to be Rs. 73,695 was not so includible. One of us (Hegde, J., as he then was), speaking for the Bench, observed at p. 32the facts of the case, it cannot be said that, after the gifts, the donees did not retain the property gifted to the entire exclusion of the donor or that the donor had any benefit either by contract or otherwise in the property gifted. That in order that the property could deem to pass and estate duty could be leviable in such cases, the benefit of the donor must be a benefit referable to his own property. The view, that if it is once found that the deceased had some benefit in the property, that in itself was sufficient to bring the case within the ambit of section 10 irrespective of the question whether that benefit was referable or not referable to the gift, in our opinion, is erroneous."