Judgment

HEGDE, J.:- The question of law referred to the High Court for its opinion was "Whether on the facts and in the circumstances of the case, the sum of Rs. 1,29,924 was liable to estate duty as property deemed to pass on the death of the deceased under Section 10 of the Estate Duty Act, 1953?". The High Court answered that question in the negative and in favour of the assessee. Aggrieved by that decision the Department has come up in appeal to this court. The facts of the case as can be gathered from the statement of case submitted by the Tribunal are as follows:

"The deceased Sri N. S. Ramaswami Iyer was a partner in the firm of Messrs. Ennessor and Company. The other partners of the firm consisted of the three sons and the daughter of the deceased. The firm was engaged in money-lending and financing business. The firm was registered under Section 26-A of the Income-tax Act, 1922.

At the end of the accounting year 1952-53, the current account of the deceased showed a credit balance of Rs. 78,098-6-5. On 31-3-1953, the deceased transferred by adjustment entries a sum of Rs. 52,042-7-3 to the accounts of his daughter and three sons. The balance in the account of the deceased was reduced to Rs. 26,055-15-2. Again on 31-3-1956, the account of the deceased in the firm showed a credit balance of Rs. 1,15,304-11-9. On 1-4-1956 the deceased transferred Rs. 77,881-11-8 again by adjustment entries to his daughter and three sons. Thus the two transfers on 31-3-1953 and 1-4-1956 amount to Rs. 1,29,924. The amounts thus transferred by the deceased to his daughter and sons continued to remain in the partnership business subsequent to the transfers till the death of the deceased and were utilised in the firm s money-lending business.

The deceased died on 17-10-1960. The daughter and the three sons of the deceased, as accountable persons, filed an estate duty return showing the principal value of the estate duty as Rs. 2,81,574. In computing the value of the estate of the deceased the accountable persons did not include the amount of Rs. 1,29,924 which had been transferred by the deceased to their accounts. The Assistant Controller of Estate Duty, however, included this amount in the value of the Estate of the deceased on the following grounds

(i) The gifts were made by mere adjustments entries in the books and the partnership did not lose its funds;

(ii) These moneys were used in the money lending and financing business, which earned profits;

(iii) By retaining the amounts to the business, in which he was a partner, the deceased continued to enjoy the benefit of this capital;

(iv) Section 10 of the Estate Duty Act was applicable.

The accountable persons preferred an appeal before the Appellate Controller against the order of the Assistant Controller including the sum of Rupees 1,29,924 in the value of the Estate of the deceased. They contended that it cannot be said that the donees, who were partners in the firm, were not having exclusive possession and beneficial enjoyment of their share in the assets of the partnership merely because the deceased was participating in the management of the business of the partnership. It was, therefore, contended that Section 10 of the Estate Duty Act was inapplicable. The Appellate Controller, however, did not accept these contentions and held that the provisions of Section 10 were attracted. He, therefore, confirmed the order of the Assistant Controller.

1-A. The accountable persons went in further appeal before the Tribunal against the order of the Appellate Controller.

They contended that after the amounts were transferred by the deceased to his daughter and sons, the amounts were in the absolute control and powers of the donees who were partners in the firm and that the mere fact that they thought it wiser to allow the said funds to remain in the partnership business as their own capital would not deprive them of their absolute right, title and interest in the funds. It was further contended that the