Case: Controller Of Estate Duty, Madras Vs. Parvathi Ammal

this is furnished by the case of Rash Mohan Chatterjee v. Controller of Estate Duty, West [Bengal, (1964) 52 ITR (ED) 1 = (AIR 1964 Cal 160 ). In that case 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 stirpes. 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.23. 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 deceased as a lessee of Mayavaram Lodge runs, in our opinion, counter to the main 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 donors 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 noting 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, (1964) 52 ITR (ED) 1 = (AIR 1964 Cal 160 ) (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 (1967) 63 ITR 497 = (AIR 1967 SO 849) (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 had 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 deceaseds death under Section 10 of the Estate Duty Act, 1953. The Board found that, though the deceased had 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 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 namelender 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.24. 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 11, 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 self-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.

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

Explanation:
1[ds]15. 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 donors 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.The present case, in our opinion, clearly falls within the purview of the dictum laid down by the High Court of Australia m 13 CLR 503 (Aus) (supra) and of the Judicial Committee in the case of John Chick, 1958 AC 435 (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 all the rights and that the gift was not subject to any claim or 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 on 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 (1973, 88 ITR 448   = (AIR 1973 SC 1170   = 1973 Tax LR 841) (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 Gounders case was thus covered by the principle laid down in Munros case 1934 AC 61. The question of invoking that 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 theis, 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 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. 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 orfrom the case of Rash Mohan Chatterjee, (1964) 52 ITR (ED) 1 = (AIR 1964 Cal 160  ) (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 (1967) 63 ITR 497   = (AIR 1967 SO 849) (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 had 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 deceaseds death under Section 10 ofthe Estate Duty Act, 1953. The Board found that, though the deceased had 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 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 namelender 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.24. 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 11, 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 self-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.