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

2. 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 statement relating to the estate of the deceased before the Assistant Controller of Estate Duty. The Assistant Controller 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."3. 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.4. 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,5. 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 son 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 accordingly 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.6. 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 l1, 1955 was a partition deed. In the alternative, it was urged on behalf of the respondent that even if the deed of March l1, l955 was a deed of settlement and not one of 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 1l, 1955 more than two years prior to the death of the deceased, was registered only on June 29, l955. 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 m 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 Board found that the deceased continued to be in undisputed possession of Mayavaram 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.7. The High Court held that theof allotment to the sons by the deed of March 1l, l955 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. 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 V. S. Mani v. Controller of Estate Duty, Madras, (1986) 60 ITR 810 = (AIR 1966 Mad 429  ) 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 asLodge 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, these wasof 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 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 retained to the exclusion of the deceased. Since we have held that only to the extent of thementioned, 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.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 thewe have indicated."

Reasoning:
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.