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

the facts of Civil Appeal No. 2527 ofMal, the deceased, with whose estate we are concerned in this appeal was a partner in a partnership firm styled as M/s. Maharajmal Hansraj. Maharajmal had a half share in the partnership. The other two partners, namely, Jialal and Hansraj, had each 1/4th share. On the 27th March, 1957, Maharaj Mal made a gift of Rs. 1, 00, 000 to his son, Lalit Kumar, and of Rs. 50, 000 to his wife, Kamlavati. In the books of the partnership firm the sums of Rs. 1, 50, 000 were debited in the account of Maharaj Mal and credited to the accounts of Lalit Kumar and Kamlavati, Rs. 1, 00, 000 in the name of Lalit Kumar and Rs. 50, 000 in the name of Kamlavati. Almost simultaneously with effect from 28th March, 1957, as per the instrument of partnership dated the 2nd April, 1957, Lalit Kumar was taken as a partner in the firm of M/s. Maharaj Mal Hans Raj by giving him 1/4th share out of the half share of Maharaj Mal. In other words, with effect from the said date there were four partners in the firm, each holding 1/4th shareOn the 17th December, 1957, Hans Raj died and in his place his widow, Smt. Rup Rani, was taken as a partner in the firm getting 1/4th share, the share of her husband. Maharaj Mal died on the 9th January, 1962. On his death, the firm was again reconstituted with Jialal and Rup Rani each retaining 1/4th share, Lalit Kumar getting 3/8ths share, i.e., 1/4th his own share augmented by half of 1/4th share of the deceased, Maharaj Mal. The remaining half of Maharaj Mals share, i.e., 1/8th, was given torevenue authorities relying upon the judgment of the Privy Council in the case of Clifford John Chick v. Commissioner of Stamp Duties [1959] 37 ITR (ED) 89; 3 EDC 915 (PC) as also the judgment of the Calcutta High Court in the case of Rash Mohan Chatterjee v. CED [1964] 52 ITR (ED) 1   held that the said sums of Rs. 1, 50, 000 were includible for the purposes of the estate duty. The accountable person took the matter in further appeal before the Appellate Tribunal, which took the view that the provisions of s. 10 of the Act were not attracted to the two amounts of gifts made by the deceased to his wife and son and, therefore, the accountable persons were not liable to pay any estate duty on them. The Tribunal on being asked by the revenue made a reference to the High Court under s. 64(1) of the Act and referred the following question of law for itsWhether, on the facts and in the circumstances of the case, the provisions of section 10 of the Estate Duty Act did apply to the gifts of Rs. 1, 00, 000 and of Rs. 50, 000 made by the deceased to his son and wife respectively ?a consideration of the various authorities, the High Court has affirmed the view of the Tribunal and hence theDesai heavily relied upon the decision of the Gujarat High Court in the case of Sakarlal Chunilal v. CED [1975] 98 ITR 610.

Reasoning: 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.