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

These questions arose on the facts set out in the statement of the case which are: one Ramaiah Gounder was a partner in the firm called M. Desai Gounder and Co., Coimbatore. He owned property which the firm was occupying as tenant-at-will. In August 1953, he executed a deed of settlement under which he transferred the property leased out to the firm to his two sons Lingiah and Krishnan, absolutely and irrevocably. After this transfer, the firm continued to be in occupation of the premises paying rent thereof at Rs. 300/- p.m. to the two donees by crediting each of their accounts in the account books of the firm in equal shares. It may be mentioned that Ramaiah the father continued to be a partner of the firm even after the transfer till April 13, 1957, when the firm was dissolved. He had also an account with the firm Desai Gounder and Co., and on March 30, 1953, he requested the firm by a letter to transfer from his account five sums of Rs. 20,000/- each with effect from April 1, 1953 to the credit of his five sons in the firms books. He also wrote to the five sons informing them of the transfer. Though the sons did not withdraw any amount from their accounts in the firm, the amounts continued to be invested in the firm for which interest at 7 1/2 % per annum was paid to them.2. On the death of Ramaiah Gounder on May 5, 1957, the Assistant Controller of Estate Duty, included in the estate of the deceased, the property leased out to the firm which was transferred to his two sons. According to him, possession and enjoyment of the subject-matter of the gift had not been assumed by the donees nor had they retained possession thereof to the entire exclusion of the donor, inasmuch as the partnership in which the donor was a partner with other parties continued to be in possession and enjoyment of the gifted property as tenants at will of the donees with respect to the gift of Rs. 1 lakh to the five sons of the deceased, the Assistant Controller held that the donees had not been in possession and enjoyment of the subject-matter of the gift to the entire exclusion of the donor within the meaning of S. 10 of the Estate Duty Act. He, therefore, included this sum of Rs. 1 lakh in principal value of the estate of the deceased.3. The accountable persons appealed to the Appellate Controller who confirmed the said inclusion. The Tribunal on a further appeal, however, disagreed with the findings of the Assistant Controller and the Appellate Controller. It held that the firm, of which the deceased was a partner, occupied the property but that such interest was not as owner of the property, and therefore, the gift had been made without the donor retaining any interest, as such it could not be included in the estate of the deceased under S. 10 of the Estate Duty Act. It further held that the sum of Rs. 1 lakh gifted to the sons was given by the sons to the firm which had benefit of the money and that the father could not be said to have enjoyed the benefit of the money as partner of the firm. In this view, the Tribunal excluded the sum of Rupees 1 lakh from the estate of the deceased. The High Court agreed with these findings.

Court's reasoning:
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."