1976 Supreme(SC) 357

SUPREME COURT OF INDIA
H.R. KHANNA, N.L. UNTWALIA AND JASWANT SINGH, JJ.
The Controller of Estate Duty, Kerala, Appellant
Versus
M/s. R. V. Vishwanathan and others, Respondents.
Civil Appeal No. 1576 of 1971,
D/- 21-9-1976.
Advocates appeared
Mr. R. M. Mehta, Sr. Advocate, (M/s. P.L. Juneja and R.N. Sachthey, Advocates with him), for Appellant; Mr. K.S. Ramamurthi, Sr. Advocate and Mr. S. Balakrishnan, Advocate with him, for Respondents.

Headnote:

Finance Act, 1965 - Section 10 - Estate Duty Act - Section 64 (1) - Transfer of a share in business - Possession and enjoyment of property - Whether on facts and in circumstances of the case Appellate Tribunal was right in holding that the sum is not includible in the estate of the deceased under Section 10 of Estate Duty Act - Whether by way of transfer delivery declaration of trust settlement upon persons in succession or otherwise which shall not have been bona fide made two years or more before death of deceased shall be deemed to pass on death - Whether gifted property should be held to be a part of estate of deceased donor passing on his death for purpose of Section 10 of Act is not always free from difficulty - Whether gift was of an absolute nature or whether it was subject to certain rights - Matter relates to the estate who died on November - Accountable persons are the six sons of the deceased - Deceased was the proprietor of two business concerns one dealing in yarn and carrying on money-lending business under the name and style and the other dealing in piece-goods under the name and style - With a view to convert the business of the aforesaid two concerns into partnership business with his four major sons deceased transferred a sum of Rupees from his personal account to credit of each of his four adult sons on September - On September a partnership deed was executed by deceased and his four adult sons constituting a partnership firm under the name and style - Transferred by deceased to each of his four sons were treated as their share capital in the partnership business - A day later on September two minor sons of the deceased were also admitted to the benefit of the said partnership - Agreement dated September was executed in this connection and in that agreement deceased acted as guardian of his minor sons - Deceased also transferred on September from his personal account in the firm to each of his two minor sons who were admitted to benefits of partnership - One of the minor sons attained majority on December and he was taken as a regular partner by agreement dated March - Other son continued to be a minor till the date of the death of the deceased - Share of the deceased and each of his six sons, including the minor son was one-seventh in the profits of partnership till date of death of the deceased – Held, Agreement which was entered into following day by the deceased and his four adult sons relating to admission of the two minor sons of the deceased to the benefits of partnership expressly recited that had been transferred by the deceased from his personal account to credit of each of the minor sons - It was also stated that the capital of the partnership would be made up by contribution of Rupees by deceased and each of his six sons and that share of deceased and his six sons in profits would be one-seventh each - Transfer by book entries in favor of each of the four adult sons on September and in favor of each of the minor sons on September execution of the partnership deed on September and of the other agreement on September in court opinion were all parts of one integrated transaction object of which was to bring about transfer of six-seventh share of the deceased in his business in favor of his sons so that he and his sons might have each one-seventh share in the business - Tribunal has expressly recorded a finding that what the deceased gifted to his sons was only a share in business - Tribunal also expressed its full agreement with the following observations made by Assistant Controller - Thus gift cannot be construed as a gift of cash but it only represented a gift of a share in the business - By virtue of this gift sons had necessarily to become partners - Subject-matter of the gift is the investment in business and such investment was compulsory or in other words gift was for specific purpose of admission into business as partners and for no other purpose - In light of finding that deceased transferred six-seventh share in business in favor of sons and retained only one-seventh share no question can possibly arise for inclusion of said six-seventh share or of the amount in estate of the deceased - Transfer by deceased in favor of his sons was not in cash but was by means of book entries - Transfer of that amount was a part of the scheme, as stated above, to transfer six-seventh share in the business in favor of sons - There was no absolute transfer of Rupees in favor of sons but transfer was made subject to condition that the sons would use it as capital not for any benefit of the deceased donor but for each of them becoming entitled to one-seventh share in the business - No benefit of any kind was enjoyed by way of possession or otherwise by deceased under gift or the subject-matter of gift - Appeal dismissed