Case: Controller Of Estate Duty Vs. Kamlavati And Shri Jai Gopal Mehra

other facts and circumstances of the case, other than those of the factum of gift, then it cannot be said that the donee had not retained the possession and enjoyment of the property to the entire exclusion of the donor, or, to the entire exclusion of the donor in any benefit to him by contract or otherwise. It makes no difference whether the donee is a partner in the firm from before or is taken as such at the time of the gift or he becomes a creditor of the partnership firm by allowing it to make use of the gifted property for the purposes of the partnership. It should be remembered as pointed out by Lindley on Partnership, twelfth edn., at page 178:" If a firm borrows money so as to be itself liable for it to the lender, the capital of the firm is no more increased than is the capital of an ordinary individual increased by his getting into debt. "8. Although as pointed out at page 357 " the capital of a partnership is not therefore the same as its property " even treating it as the partnership property, the partnership does not belong to a co-partner in the sense of his being a co-owner. The partnership firm is not a legal entity in the sense of having a legal personality of its own different from that of the partners. But no partner can claim a share in the partnership property according to his share in the partnership. A creditor of the partnership is entitled to get back the whole of his property on dissolution of the firm or otherwise, while a partner is entitled to get a share in the net assets of the property realized on the winding up of the partnership9. Mr. Desai heavily relied upon the decision of the Gujarat High Court in the case of Sakarlal Chunilal v. CED [1975] 98 ITR 610. A distinction was drawn after distinguishing the decision of this court in Gounders case [1973] 88 ITR 448 between the gifts of Rs. 2, 00, 000, each in favour of the two donees, and the gifts of the sum of Rs. 1, 20, 000 and the sum of Rs. 1, 99, 500 gifted to the other donees on the ground that the former was not an absolute gift but was subject to the right of the partnership firm while the latter assumed the character of first there being an absolute gift and thereafter parting with a portion of the enjoyment and benefit in the gifted property in favour of the donor by investing the money in the partnership. In the enunciation of the principle of law there is no appreciable, as there could not be any, difference between what was said in Gounders case by this court and what has been said by the learned Chief Justice in the Gujarat case ([1975] 98 ITR 610 ). But in the application of the principle to the facts of the two aggregate sums of money, it was possible to take a different view. In relation to the gifts of Rs. 1, 20, 000 it was possible to take a view that it was a part and parcel of the same transaction, namely, the receipt of the money by the donees by gift and their investing the same in the partnership firm. So was it possible in regard to the sum of Rs. 1, 99, 500. However, a different view was taken by the High Court. But in the instant case it is clear that the ratio of the decisions of this court referred to above is squarely applicable and the Tribunal as well as the High Court was right in holding that no estate duty could be charged in respect of the two sums of money, viz., Rs. 1, 00, 000 and Rs. 50, 000Similarly in the application of the ratio some difference of opinion will appear to have been expressed by the High Courts in the case of CED v. Chaman Lal Bery [1977] 106 ITR 865 (All) , CED v. S. V. Kapadia [1977] 108 ITR 1008 (Cal), CED v. S. A. Rahman Beevi [1978] 111 ITR 422 (Mad) and CED v. V. S. Suryanarayanan [1978] 114 ITR 599 (Mad). It is not necessary for us to enter into the fine distinction drawn by the High Courts in each of the cases referred to above. But we want to emphasise that the principles of law laid down by this court in several decisions which we have reviewed in this judgment with some further clarification and elucidation should be carefully and broadly applied to the facts of each case without doing too much of dichotomy and hair splitting of facts so as not to easily apply or not to apply the provision of law contained in s. 10 of the Act10. The facts of Civil Appeal 2528 of 1972 are that in April or May, 1958, Jaishi Ram, the deceased, made gifts of Rs. 20, 000 each in favour of his son, Jagdish Chand, and his four daughters-in-law. The donees invested the entire sum of Rs. 1, 00, 000 gifted to them in the firm in which Jaishi Ram was a partner. Jaishi Ram died on October 23, 1961. It appears these donees were not partners in the firm nor were they taken as such after the gifts were made in their favour. Yet, applying the same principle of law, the Tribunal as well as the High Court has held that the accountable person is not liable to pay estate duty on the sum of Rs. 1, 00, 000. Here the donees remained creditors and the sums gifted were already being utilised by the firm. The same remained being utilised. Squarely Munros ratio [1934] AC 61 ; 2 EDC 462 (PC) is applicable. In our opinion, this case is on a stronger footing than that of Civil Appeal 2527, as was rightly conceded by Mr. S. T. Desai also.

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

Explanation:
0[ds]To avoid the conflict in the application of the ratio of the various Supreme Court cases as seems to have been done by some of the High Courts, we would like to clarify and elucidate some of the aspects and facets of the matter a bit further. When a property is gifted by a donor the possession and enjoyment of which is allowed to a partnership firm in which the donor is a partner, then the mere fact of the donor sharing the enjoyment or the benefit in the property is not sufficient for the application of s. 10 of the Act until and unless such enjoyment or benefit is clearly referable to the gift, i.e , to the parting with such enjoyment or benefit by the donee or permitting the donor to share them out of the bundle of rights gifted in the property. If the possession, enjoyment or benefit of the donor in the property is consistent with the other facts and circumstances of the case, other than those of the factum of gift, then it cannot be said that the donee had not retained the possession and enjoyment of the property to the entire exclusion of the donor, or, to the entire exclusion of the donor in any benefit to him by contract or otherwise. It makes no difference whether the donee is a partner in the firm from before or is taken as such at the time of the gift or he becomes a creditor of the partnership firm by allowing it to make use of the gifted property for the purposes of thein the instant case it is clear that the ratio of the decisions of this court referred to above is squarely applicable and the Tribunal as well as the High Court was right in holding that no estate duty could be charged in respect of the two sums of money, viz., Rs. 1, 00, 000 and Rs. 50,is not necessary for us to enter into the fine distinction drawn by the High Courts in each of the cases referred to above. But we want to emphasise that the principles of law laid down by this court in several decisions which we have reviewed in this judgment with some further clarification and elucidation should be carefully and broadly applied to the facts of each case without doing too much of dichotomy and hair splitting of facts so as not to easily apply or not to apply the provision of law contained in s. 10 of thefacts of Civil Appeal 2528 of 1972 are that in April or May, 1958, Jaishi Ram, the deceased, made gifts of Rs. 20, 000 each in favour of his son, Jagdish Chand, and his four daughters-in-law. The donees invested the entire sum of Rs. 1, 00, 000 gifted to them in the firm in which Jaishi Ram was a partner. Jaishi Ram died on October 23, 1961. It appears these donees were not partners in the firm nor were they taken as such after the gifts were made in their favour. Yet, applying the same principle of law, the Tribunal as well as the High Court has held that the accountable person is not liable to pay estate duty on the sum of Rs. 1, 00, 000. Here the donees remained creditors and the sums gifted were already being utilised by the firm. The same remained being utilised. Squarely Munros ratio [1934] AC 61 ; 2 EDC 462 (PC) is applicable. In our opinion, this case is on a stronger footing than that of Civil Appeal 2527, as was rightly conceded by Mr. S. T. Desai also.