IMPORTANT POINT
Rigour with which Section 10 of the Estate Duty Act was applied, has been mellowed down and certain amount of leniency has been shown in favour of the accountable persons.

Headnote:Estate Duty Act, 1953-Section 10-Two cash gifts of Rs. 40,000 to two daughters-Gift was accepted and was unconditional-A week later donee requested that a partnership be formed and the amounts gifted be retained and utilised as share capital of donees-Gifted amounts were not liable to be included in the principal value of the estate of the deceased donor.
Held : It is clear that when the gift was made and accepted, it was unconditional. A week later the donees requested that a partnership be formed and the amounts gifted be retained and utilised as share capital of the donees in the partnership firm to be formed. In the light of the letters written by the donees, as noticed above, we are of the view that there is nothing to suggest that parting with the enjoyment or benefit by the donee, or permitting the donor to share them out of the bundle of rights gifted in the property is referable to the gift. We agree with the contention of the learned counsel for the appellant that the facts are more or less identical with the facts in Viswanathan s case, 1977(1) SCC 90 and the ratio laid down therein which has been consistently applied by this Court subsequently will apply to the facts of this case. (Para 8)

JUDGMENT

Venkataswami, J.-In this appeal by a certificate granted by the High Court of Madras under Section 65 of the Estate Duty Act, 1953 (hereinafter referred to as "the Act"), the vexed question of applicability or otherwise of Section 10 of the Act arises for decision of this Court.

2. One Murugesa Mudaliar, the deceased, passed away on 15.10.1964. He was carrying on a business under the name and style of Newton & Company a proprietory concern. On 20.7.1962, the deceased made two cash gifts of Rs. 40,000/- each to his two daughters, namely, Smt. Rajeswari and Gnaanambigai by debiting his capital account and crediting their accounts in his personal business book. On 20.7.62, both the donees wrote letters to the deceased accepting the gifts and thanking their father. Again on 27.7.62 each donee by separate letters thanking once again for the gifts requested the deceased to retain the same in the business and admit them as partners. Accordingly, a partnership was formed with effect from 1.8.1962 in which the donees and also the donor were the partners. As noticed, the deceased passed away on 15.10.1964. A question arose, inter alia, whether on the facts and in the circumstances of the case, the gifts of Rs. 80,000/- in all made by the deceased to his two daughters by debiting his capital account and crediting the accounts of the donees in his personal business book could not be included in the principal value of the estate of the deceased under Section 10 of the Estate Duty Act.

3. The Assistant Controller of Estate Duty overruling the objection of the accountable persons concluded that since the gifted amounts were not taken possession of and enjoyed by the donees to the entire exclusion of the donor, the gifted amounts were liable to be included in the principal value of the estate of the deceased under Section 10 of the Act. On appeal, the Appellate Controller confirmed the assessment. The accountable persons appealed to the Income Tax Appellate Tribunal ( Tribunal for short) and the Tribunal found that the gifts in question did not fall within the ambit of Section 10 of the Act and consequently they were not liable to estate duty. The Tribunal found as follows :

"These sequence of events clearly go to establish :-

(1) The two sums transferred by book entries were still available for purpose of the business carried on by the deceased.

(2) Under Section 122 of the Transfer of Property Act, the gift must be accepted by the donee and an offer without acceptance of the donee cannot complete the gift. While accepting the gift, the donees have stipulated for retention of the gifted amounts in the business of the deceased and admit them as partners. It, therefore, follows that the transfer of gifts were complete with the condition or understanding that the gifted amounts for the capital account of the donees and continue to be available for purposes of the business carried on by the deceased.

(3) On making the gifts, the donees? assumed such possession and enjoyment of the subject matter of the gift as it was capable of at that time and that was also retained to the exclusion of the donor.

(4) If the donor had some sort of control over the gifted amounts, it was not because of any reservation made by him while making the gifts, but the gift itself was made subject to the condition of understanding that the gifted amounts would be available for the continued use of the business carried on by the deceased".

4. The Revenue aggrieved by the decision of the Tribunal moved the High Court by way of reference. Before the High Court, on behalf of the accountable persons, a decision of the Court in Controller of Estate Duty, Kerala v. R.V. Viswanathan & Others1, was relied upon. However, the High Court distinguished that decision and ruled that on the facts of the case, Section 10 of the Act is attracted and consequently answered the question referred to it in favour of the

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1996 Supreme(SC) 1481

IMPORTANT POINTRigour with which Section 10 of the Estate Duty Act was applied, has been mellowed down and certain amount of leniency has been shown in favour of the accountable persons.

Cases Referred (2)

IMPORTANT POINT
Rigour with which Section 10 of the Estate Duty Act was applied, has been mellowed down and certain amount of leniency has been shown in favour of the accountable persons.