Case Note & Summary
The appeal arose from a reference under Section 10 of the Estate Duty Act, 1953, concerning the estate of Ramaiah Gounder, who died on May 5, 1957. The deceased had been a partner in a firm, N. Desai Gounder & Co., which occupied his property as a tenant at will. In August 1953, he executed a deed of settlement transferring the property to two of his sons, Lingish and Krishnan, absolutely and irrevocably. The firm continued to occupy the property and paid rent of Rs 300 per month by crediting each son's account in equal shares. On March 30, 1953, the deceased requested the firm by letter to transfer five sums of Rs 20,000 each, with effect from April 1, 1953, to the credit of his five sons in the firm's books. The sons did not withdraw these amounts, which remained invested in the firm, and they received interest at 7 1/2% per annum. The deceased continued as a partner until the firm was dissolved on April 13, 1957. The Assistant Controller of Estate Duty included both the gifted property and the sum of Rs 1 lakh in the principal value of the estate of the deceased, holding that the donees had not been in possession and enjoyment of the subject matter of the gifts to the entire exclusion of the donor within the meaning of Section 10. The Appellate Controller confirmed the inclusion. On further appeal, the Tribunal disagreed and excluded both items, holding that the firm occupied the property as tenant, not as owner, and that the father could not be said to have enjoyed the benefit of the gifted money as a partner. The High Court on reference agreed with the Tribunal. The Revenue appealed by certificate to the Supreme Court. The Supreme Court framed two questions: whether the house property and the sum of Rs 1 lakh were liable to estate duty as property deemed to pass under Section 10. The court examined the scope of Section 10, which requires that the donee must bona fide have assumed possession and enjoyment of the property to the exclusion of the donor immediately upon the gift and must have retained such possession and enjoyment to the entire exclusion of the donor or of any benefit to him by contract or otherwise. The court held that both conditions were satisfied. The transfer of the property was absolute and irrevocable, and the donees received rent and interest, which constituted possession and enjoyment. The donor's benefit as a partner in the firm occupying the property was unconnected with the gift and not a benefit by contract or otherwise referable to the gift. The word 'otherwise' was construed ejusdem generis to mean some kind of legal obligation or transaction enforceable at law or in equity, which did not include the incidental benefit of partnership. The court followed George Da Costa v. Controller of Estate Duty, Mysore, and approved Controller of Estate Duty, Mysore v. S. Aswathanarayana Setty. The appeal was dismissed, and the property and the sum of Rs 1 lakh were held not to be includible in the estate of the deceased.
Headnote
A) Estate Duty - Gift - Conditions for Inclusion Under Section 10 - Estate Duty Act, 1953, Section 10 - Section 10 requires that the donee must bona fide have assumed possession and enjoyment of the gifted property to the exclusion of the donor immediately upon the gift and must have retained such possession and enjoyment to the entire exclusion of the donor or of any benefit to him by contract or otherwise; unless both conditions are satisfied, the property is liable to estate duty - The court held that for the house property gifted to two sons and the sum of Rs 1 lakh gifted to five sons, the donees had bona fide assumed and retained possession and enjoyment to the entire exclusion of the donor, as the transfer was absolute and the donees received rent and interest respectively - Held that the property and the sum of Rs 1 lakh were not includible in the estate of the deceased (Pages 557 F-H, 558A-C). B) Estate Duty - Benefit to Donor - Partnership Interest - Estate Duty Act, 1953, Section 10 - The second limb of Section 10 requiring entire exclusion of donor from any benefit by contract or otherwise is not attracted where the donor's benefit as a partner in a firm occupying the gifted property is unconnected with the gift - The court reasoned that the donor, as a partner in the firm, had a benefit that was not referable in any way to the gift but was unconnected therewith, and the word 'otherwise' must be construed ejusdem generis to mean some kind of legal obligation or transaction enforceable at law or in equity - Held that the donor was not excluded from possession and enjoyment merely because the firm of which he was a partner continued as tenant, and the gifted property and money were not deemed to pass (Pages 558C-A, 81A-B).
Issue of Consideration
Whether house property gifted to two sons and sum of Rs 1 lakh gifted to five sons were liable to estate duty as property deemed to pass on death under Section 10 of Estate Duty Act, 1953
Final Decision
The appeal was dismissed. The Supreme Court held that neither the house property gifted to the two sons nor the sum of Rs 1 lakh gifted to the five sons could be included in the estate of the deceased. The donees had bona fide assumed and retained possession and enjoyment of the gifted property to the entire exclusion of the donor. The donor's benefit as a partner in the firm occupying the property was unconnected with the gift and not a benefit by contract or otherwise. Both items were not liable to estate duty under Section 10 of the Estate Duty Act, 1953.
Law Points
- Section 10 Estate Duty Act requires bona fide possession and enjoyment by donee immediately upon gift to exclusion of donor and retention thereof to entire exclusion of donor or any benefit by contract or otherwise
- 'otherwise' construed ejusdem generis
- benefit to donor as partner in firm occupying gifted property unconnected with gift not exclusion
- gift of money credited to donees' accounts in firm constitutes possession and enjoyment
- property not includible in estate
