Supreme Court of India
CONTROLLER OF ESTATE DUTY, A.P., HYDERABADversusSMT. GODAVARI BAI
- Citation
- 1986 INSC 20
- Decided
- 18 February 1986
- Disposal
- Dismissed
- Bench
- V D TULZAPURKAR
Holding
The transaction was a gratuitous transfer of an actionable claim shorn of partnership rights, falling within Munro’s case, so s.10 of the Estate Duty Act does not apply and the amount is not includable in the estate.
Summary
The deceased partner of a banking firm issued a cheque of Rs.3 lakhs to the firm, which was credited to the accounts of his three minor grand‑nephews. After his death, the widow (assesse) omitted this amount from the estate valuation, arguing that it was a gratuitous transfer of an actionable claim governed by s.137 of the Transfer of Property Act and therefore not subject to estate duty. The Deputy and Appellate Controllers held the sum was includable under s.10 of the Estate Duty Act, 1953, a view affirmed by the Appellate Tribunal. The High Court, however, treated the transaction as a valid gift of an actionable claim, held that the donor retained only partnership rights (not the gifted property), and concluded that s.10 did not apply. The Supreme Court affirmed the High Court, applying the Munro principle that a gift shorn of certain rights is excluded from the donor’s estate, and dismissed the revenue’s appeal.
Issues considered
- Whether the Rs.3 lakhs transferred to the minor grand‑nephews is includable in the deceased’s estate under s.10 of the Estate Duty Act, 1953.
- Whether the transfer constitutes a valid gift of an actionable claim governed by s.137 of the Transfer of Property Act, rendering s.10 inapplicable.
- Whether the transfer complied with the instrument requirement of s.130 of the Transfer of Property Act.
- Whether the donor retained possession or enjoyment of the gifted property, thereby attracting s.10.
Legislation cited
- Estate Duty Act, 1953s. 10
- Transfer of Property Acts. 130, s. 137
Subjects
Estate DutyGiftActionable ClaimTransfer of Property ActSection 10Section 130Section 137PartnershipMinor BeneficiariesDeath Duty
Judgment
348
A
aJNTROLIER OF ESTATE DUTY, A.P., HYDERABAD
v.
SMT. GODAVARI BAI
FEBRUARY 18, 1986
B [V,D. TULZAPURKAR, SABYASACHI MUKHARJI & RANGANATH MISRA, JJ.]
Estate Duty Act 1953, s.10 - Ingredients of - Property
taken under any gift - Whether part of estate of deceased
donor passing on his death - Dependent upon what was subject
matter of gift and whether gift of absolute nature or subject
c to certain rights.
The respondent's husband was a partner in a firm carry-
ing on business as bankers. He issued a cheque for Rs.3,00,000
in favour of the firm on 4th October, 1952 with 3 view to give
Rs. 1,00,000 to each of his three minor grand nephews. This
D amount was debited to his account in the firm and credited in
the accounts of the three minors in equal proportion. He died
on 21st February 1956. The said sum continued to stand in the
respective accounts of the three minors in the books of the
firm till its dissolution on 4th July, 1960 whereafter some
assets were allotted to each one of them in lieu of the
E amounts standing to their credit.
The respondent, as the accountable person, filed an
account declaring the value of the asses see' s estate without
including the aforesaid sum of Rs. 3,00,000 transferred by the
deceased to his three grand nephews. The respondent-assessee .i _
F contended before the Deputy Controller (i) that these trans-
fers were not gifts but amounted to transfer of actionable J
claims made in conformity with s. 130 of the transfer of
Property Act by effecting entries in the books of account; and
(2) that the transfer amounted to a novation which did not
require an instrument signed by the transferor. The Deputy
G
Controller negatived both the contentions and held that the
sum of Rs. 3 lakhs was includible in the estate of the
deceased that passed on his death. The Appellate Controller
confirmed the aforesaid order in appeal. In the further appeal
preferred by the respondent, the Appellate Tribunal, held (i)~
that the plain reading of section 130 showed. that the transfer
H
CONTROLLER ESTATE DUTY v. GODAVARI BAI 349
A
of an actionable claim became complete and effective only upon
ir the execution of an instrument in writing signed by the
transferor or by his duly authorised agent; (ii) that the
cheque issued by the deceased in favour of the firm only
authorised the firm to pay to itself the sum of Rs. 3 lakhs
from out of the amount lying at the credit of the deceased but B
it did not by itself authorise the firm to transfer this
amount to anyone else and that such a transfer could be autho-
rised by a separate letter of instructions from the deceased
but no such. instrument obtained and the oral instructions
given could not take the place of such an instrument in
writing and, therefore the transfer of Rs. 3 lakhs done in
favour of the donees was not in accordance with the require- c
ments of section 130; (iii) that the amount of Rs.3 lakhs was
also includible in the estate of the deceased under section 10
of the Estate Duty Act even if it were assumed that the
transfer became complete and effective on the date of the
transfer inasmuch ~s on the facts, it could not be said that
the donees retained possession and enjoyment of the gifted D
....., amounts to the entire exclusion of the donor or of any benefit
r< to him and that this ' position continued to exist till the
death of the decea~ed.
I
The High Court in a reference at the instance of the
assessee, set asid¢ the order of the Tribunal on the grounds E
(i) that it was a I gratuitous transfer of an actionable claim
and the inter-position of a cheque issued by the deceased in
favour of the firm ' made all the difference inasmuch as the
transfer of an actionable claim represented by a negotiable
instrument like a cheque was governed by section 137 in
preference to section 130 of the Transfer of Property Act and F
) that the cheque together with the oral instructions (which
~ even the Tribunal presumed were given by the deceased) would
constitute the firm a trustee or an agent holding the moneys
for the benefit of the minors and, as such, the transfer to
minors was valid, complete and effectual; (ii) that the donor
had been completely excluded from the subject-matter of the G
gift and, as such, section 10 was not applicable.
Dismissing the appeal,
""'i.e HEU>: 1. The transaction in question clearly fell within
the ratio of the decision in Munro's case and the High Court H
350 SUPREME COURT REPORTS [1986] l S.C.R.
A
was right in coming to the conclusion that to such a transaction
section 10 was inapplicable, [362 F-G] ~
2.(i) Section 10 of the Estate Duty Act, 1953 prescribes
two conditions, namely, : (1) that the don~e 1111St bona fide
have assumed possession and enjoyment of the property which is
B the subject""1118tter of the gift to the exclusion of the donor
imllediately upon the gift; and (2) that the donee llllSt have
retained such possession and enjoyment of the property to the
entire exclusion of the donor or of any benefit to him by ,,..
contract or otherwise. Both these conditions are cU11R1lative.
Unless each of the conditions is satisfied, the property would
c be liable to estate duty under section 10 of the Act. [357~;
358 A]
2.(ii) The second part of s. 10 has two limbs: the
deceased D11St be entirely excluded (i) from the property; and
(ii) from any benefit by contract or otherwise and that the
D word "otherwise" should be construed ejusdem generis and ,....
should be interpreted to mean some kind of legal obligation or
some transaction enforceable in law or in equity which, though ~
not in the form of a contract, may confer a benefit on the
donor. [358 B-<:]
3.(i) The question whether gifted property should be
regarded as a part of the estate of the deceased donor passing
on his death for the purpose of s. 10 of the Act would depend
upon as to what precisely is the subject matter of the gift
and whether the gift is of absolute nature or whether it is
subject to certain rights. If the gift is made without any
F reservation or qualification, that is to say, where the gift
carries fullest right known to law of exclusive possession and
enjoyment, any subsequent enjoyment of the benefit of that -~
property by way of possession or otherwise by the donor would
bring the gift within the purview of s. 10; but where the gift
is subject to some reservation or qualification, that is to
G say, if the subject matter of the gift is property shorn of
certain rights and the possession or enjoyment of some benefit
in that property by the donor is referable to those rights
i.e. rights shorn of which the property is gifted, then in
that case the subject matter of the gift will not be deemed to
pass on the death of the deceased donor. In other words, lf.r
H the .deceased donor limits the interest he is parting with and
CONTROLLER ESTATE DUTY v. GO DAVARI BAI 351
A
possesses or enjoys some benefit in the property not on
account of the interest parted with but because of the
• •
interest still. retained by him, the interest parted with will
not be deemed to be a part of the estate of the deceased-donor
passing on his death for the purpose of 8. 10 of the Act. It
is these aspects which mark the distinction between the two B
leading cases, namely Qrlclt'a case and Mlmro's case. The
decision in chicks' s case falls within the first category
while Munro's case falls within the other category. (358 E-il;
359 A-Bl
In the instant case, the donees were never admitted to
the benefits of the partnership firm. The Tribunal as well as c
the High Court found as a fact that when the cheque was issued
oral instructions 1111St be presumed to have been given by the
deceased to the firm for crediting the three accounts of the
three minors without which the firm could not make such credit
entries. Therefore, the transaction in question amounted to a
gratuitous transfer of an actionable claim to which s. 137 in D
preference to s. 130 of the Transfer of Property Act applied
and there was a valid gift thereof to the minor dooees.
Moreover, the amount of Rs. 3 lakhs did not go out of the firm
but on being transferred from the account of the deceased to
the accounts of the minor donees continued to remain with the
firm for being used for the firm's business; in fact the E
partnership continued to have the benefit thereof even after
the death of the donor till the firm was dissolved. Obviously,
the substance of the transaction was that the gift was of an
actionable claim of the value of Rs. 3 lakhs out of the
donor's right, title and interest as a whole in the firm and
as such was shorn of certain rights in favour of the partner- · F
ship and therefore, the possession or enjoyment of the benefit
retained by the donor as a partner of the firm DUSt be
regarded as referable to partnership rights and had nothing to
do with the gifted property. (361 G-11; 362 A-Fl
Mlmro v. eo-isaioni!r of Sl:Blllp Duties, (19341 A.C. 61; G
C.R. llauchandra Gounder's case, 88 I. T.R. 448; N.L
llmoaratbimaa case, 91 I.T.R. !Controller of Estate Duty v. LV.
Vialllnmatban. & Ors., 105 I;T.R. 653 & Controller of Estate
Duty v. Klllllava, 120 I.T.R. 456 applied.
Qlic:ks v. Colllllissioner of Sl:Blllp Duties of New South H
• Wales, 37 I.T.R. (E.D.) 89; George Ila Costa v. Controller of
352 SUPREME COURT REPORTS [1986] l s.c.R.
A
latate Dacy, !lpore, 63 I.T.R. 497; Controller of Estate Dacy, ,r
Wra y. k . Panati Amal 97 I.T.R. 621; Shsntaben S.
'lapwdfe •· Coatroller of l!atate Daty, Gujarat, 73 I.T.R. 171 &
Controller of l!atate Daty, Gujarat •· Qumdravadan .Amatlal
lbatt, 73 I.T.R. 416 distinguished.
B CIVIL APPELLATE JURISDICTION: Civil Appeal No. 79 (NT)
1974.
From the Judgment and Order dated 29.2.1972 of the
Madras High Court in Tax Case No. 209 of 1966.
c S.C. Manchanda and Miss A. Subhashini for the Appellant.
T.A. Ramachandran and Mrs. Janki Ramachandran for the
Respondent.
The Judgment of the Court was delivered by
D
TULZAPllRKAR, J. The question raised for our determina-
tion in this appeal is whether on the facts and in the circum- ~
stances of the case the aoount of Rs.3 lakhs transferred by
the deceased to his three grand nephews in equal shares was
includible in the estate of the deceased that passed on his
E death? Substantially the answer thereto depends upon whether
sec.10 of the Estate Duty Act, 1953 is attracted to the case
or not.
The facts giving rise to the question may briefly be
stated. The deceased, Sri Bankatlal Lahoti was a partner in
F the firm of M/s Dayaram Surajmal, which carried on business as 1
a Bankers. With a view to give Rs.l lakh each to his three
minor grand nephews (three grand sons of his deceased brother) i
the deceased on 4th October 1952 issued a cheque for Rs.3
lakhs in favour of the firm; this amount was debited in the
account of the deceased in the firm and credited in the
G accounts of the three minors in equal proportion. '!be said sum
thus transferred to the three nephews continued to stand in
their respective accounts in the books of the firm till its
dissolution on 4th July 1960, whereafter some assets were
allotted to each one of them in lieu of the amounts standing
to their credit. The deceased died on 21st February 1956. ,..r
H
After the death of the deceased, his widow Smt. Godavari
Bai as the accountable person filed an account of the
CONTROLLER ESTATE DUTY v. GODAVARI BAI [TULZAPURKAR, J.] 353
A
assessee's est<>-te declaring the value thereof at Rs.2,60, 702.
This did not include the sum of Rs.3 lakhs transferred by the
deceased to the three grand nephews on 4th October 1952. The
assessee contended that these transfers were not gifts but
amounted to transfer of actionable claims made in conformity
with s.130 of the Transfer of Property Act by effecting B
entries in the books of account. Alternatively it was
contended that the transfer amounted to a novation which did
not require an instrument signed by the transferor. The Deputy
Controller negatived both the contentions; the first on the
ground that there was no valid transfer of actionable claims
because it was not effected by an instrument in writing signed
by the transferor as required by s.130 of the Transfer of c
Property Act while the alternative contention on the ground
that the transaction did not amount·to a novation inasmuch as
there was no substitution of one debt for another. In this
view of the matter the Deputy Controller held that the sum of
Rs. 3 lakhs was includible in the estate of the deceased that
passed on his death. In the appeal preferred by the assessee D
the self same contentions were urged on her behalf before the
Appellate Controller of Estate Duty while the Deputy
• Controller justified the assessment on the additional ground
that the sum of Rs.3 lakhs was also includible in the Estate
of the deceased that passed on his death under s.10 of the
Estate Duty Act 1953. The Appellate Controller rejected the E
assessee's contentions and accepted those of the Deputy
Controller and confirmed the inclusion of the amount in the
estate of the deceased. In the further appeal preferred to the
Appellate Tribunal since it was admitted on behalf of the
assessee that apart from the cheque issued by the deceased in
favour of M/s Dayaram Surajmal and the entries made in the F
books of that firm debiting the deceased's account and credit-
ing the accounts of the donees there was no other document to
evidence the transfer the Tribunal presumed that the tansfer
was effected as a result of oral instructions which must have
been given by the deceased to the fim. Co1insel for the
assessee, however, urged that notwithstanding the absence of G
an instruirent in writing signed by the assessee the transfer
was valid under s.130 of the Transfer of Property Act and in
that behalf reliance was placed on Ramaswamy Cbettiar and Ors.
v. K.S.M. Manicltam Clettiar and Ors., A.I.R. 1938 Madras 236
and Seetbar8ma Ayyar and Aor.v. Narayanaswaa:l Pillai and Aor.
47 Indian Cases 749 but the Tribunal did not accept the H
354 SUPREME COURT REPORTS (19861 l s.c.a.
A
contention and held that the plain reading of s.130 showed
that the tranafer of an actionable claim became complete and .j-
effectual only upon the execution of an instrument in writing
signed by the tranaferor or by his duly authorised agent;
that the cheque issued by the deceased in favour of the firm
only authorised the firm to pay to itself ·the sum of Rs. 3
B lakhs from out of the B!DOunt lying at the credit of the
deceased but it did not by itself authorise the firm to
transfer this B!DOUnt to anyone else and that such a tranaf er
could be authorised by a separate letter of instructions from
the deceased but no such instrument obtained and the oral 'x-
instructions given could not take the place of such an
c instrument in writing and therefore the transfer of Rs.3 lskhs
done in favour of the donees was not in accordance with the
requirements of section 130. The alternative contention that
the tranafer was in the nature of a novation was also rejected
on the ground that the donees were not indebted to the firm
nor was the deceased indebted to the donees and therefore, the
D entries made in the account books of the firm could not be
understood as a substitution of one debtor in the place of
another. The Tribunal also held that this amount of Rs.3 lskhs
was includible in the estate of the deceased under s.10 of the
Estate Duty Act even if it were assumed that the transfer
became complete and effective on the date of the transfer
E inasn»Jch as on the facts it could not be said that the donees
retained possession and enjoyment of the gifted amounts to the
e'ltire exclusion of the donor or of any benefit to him and
that this position continued to exist till the death of the
deceased.
F At the instance of ·the assessee the Tribunal referred
the following question of law to the High Court for its ~
opinion:
"Whether on the facts and in the circumstances of
the case, the Appellate Tribunal was right in law
G in holding that the amount of Rs.3 lal<hs transferr-
ed by the assessee to his grand nephews was inclu-
dible in the estate of the deceased that passed on
his death."
On a consideration of the entire material on record the High.-_;--
H Court took the view that the entries made in the books of the r ·
firm by debiting the account of the deceased in the sum of
CONTROLLER ESTATE DUTY v. OODAVARI BAI [TULZAPURKAR, J.] 355
A
-i- Rs .3 lakhs and crediting the said amount in equal proportion
in the three accounts of the donees (grand nephews) might or
might not constitute a valid gift of money but proceeding on
the basis that it was gratuitous transfer of _an actionable
claim the interposition of a cheque issued by the deceased in
favour of the firm made all the differene inas1111ch as the B
transfer of an actionable claim represented by a negotiable
instrument like a cheque was governed by s.137 in preference
to s .130 of the Transfer of ·Property Act and that the cheque
together with the· oral instructions (which even t)le Tribunal
presumed were given by the deceased) would constitute the
firm, a trustee or an agent holding the moneys for the benefit
of the minors and as such the transfer to the minors was c
valid, complete and effectual. After coming to this conclusion
the High Court proceeded to consider the question whether to
this transaction of gift of an actionable claim s.10 of the
Act was applicable or not and relying upon the decision in the
leading case of lblro v. Ccmdss:loner _of S~ Duties, 1934
A.C. 61 as well as its two earlier decisions in Controller of D
---.. !state Duty v. C.R. Rawrhanclt'& Gounder, 73 I.T.R. 166 and
Controller of 1!atate Duty v. N.R. llamaratbanam, 74 I.T.R. 432
the High Court held that the donor had been completely exclud-
ed from the subject matter of the gift and as such s.10 was
not applicable. In other words differing from the view taken
by the Tribunal, the High Court held that the transaction E
involved in the case was. a gratuitous transfer of an action-
able claim and that there was in law a valid. complete and
effectual gift thereof in favour of the three minor grand
nephews and since s.10 was not attracted the sum of Rs.3 lakhs
was not includible in the value of the estate of the deceased
that passed on his death. It, therefore, answered the question F
in the negative in favour of the assessee. The Revenue has
come up in appeal.
Counsel for the Revenue did not assail the High Court
conclusion in regard to their being a valid gift of the
actionable claim in favour of the minors resulting from the G
issuance of the cheque accompanied by oral instructions and
followed by the making of the requisite debit and credit
entries in the firm's books but vehemently criticised the view
that s.10 was inapplicable to this transaction of gift. He
~--,urged that possession and enjoyment of the subject matter of
the gift was neither assumed by the donees nor retained by H
•j
356 SUPREME COURT REPORTS [1986] 1 s.c.R.
A
them to the entire exclusion of the donor inas111Jcb as the
donor as a partner of the firm had control over the said sum
of Rs.3 lakhs which continued to lie with the firm for being
used as the firm's property and this position continued to
obtain till the death of the deceased and in fact till the
dissolution and as such s.10 was clearly attracted. Strong
B reliance was placed by counsel for the revenue on the ratio of
the Privy Council decision in Qrlcks v. Comdss:l.ooer of Staap
Duties of New South Wales, 37 I.T.R. E.D. 89 which was
followed by this Court in George Da Costa v. Controller of
Estate Duty, Mysore, 63 I.T.R. 497 and Controller of !'state
Duty, Madras v. SD:. Parvati Atmal, 97 I.T.R. 621 as also two
decisions of the Gujarat High Court in a Shantaben s. Kapadia
v. Controller of Estate Duty, Gujarat:, 73 I.T.R. 171 and in
Controller of !'state Duty, Gujarat v. Clumdravadan Aaratlal
Bhatt, 73 I.T.R. 416. On the other hand counsel for the
assessee supported the view of the High Court by placing
reliance on the decision in Hunro's case (supra} which has
D
been followed ,by this Court in C.R. Ramachandra Gounder's, 88
I.T.R. 448 N.R. Ramarathanaa's case 91 l,T,R. 1 Controller of
Estate Duty v. R.V. Vishwanathan & Ors., 105 !, T.R. 653 and
Controller of Estate duty v. ICamlavati, 120 I.T.R, 456.
'
Having regard to the rival contentions urged before us it
is clear that the answer to the question raised in this appeal
depends upon a proper analysis of s.10 of the Act and whether
the instant case falls within the doctrine enunciated in
Munro's case (supra) or within the ratio of <hicks' case
(supra}? Relevant portion of s.10 of the Act runs thus
F
"Property taken under any gift, whenever made,
shall be deemed to pass on the donor's death to the
extent that bona fide possession and enjoyment of
it was not immediately assumed by the donee and
thenceforward retained to the entire exclusion of
the donor or of any benefit to him by contract or
G
otherwise ••••• 11
The object under lying a provision like s.10 of the Act was
explained by Issacs J. in the case of John Lang v. 1bollas
Prout Webb, 1912 13 C.L.R. 503 decided by the High Court of 1 r
Australia in the following words :
H
CONTROLLER ESTATE DUTY v. GODAVARI BAI [TULZAPURKAR, J,] 357
A
"The owner of property desiring to make a gift of
it to another may do so in any manner known to the
law. Apparent gifts may be genuine or colourable,
and experience has shown that frequently the
process of ascertaining their genuineness is
attended with delay, expense and uncertainty - all B
of which are extremely embarrassing from a public
revenue standpoint.
With a view to avoiding this inconvenience, the
legislature has fixed two standards, both of them
consistent with actual genuineness, but prima facie
indicating a colourable attempt to escape probate c
duty. One is the standard of time. A gift, however,
real and bona fide, if made within twelve ioonths
before the donor's death is for the purpose of dutv
regarded as not made. The other is conduct whict;
first sight and in the absence of explanation is
inconsistent with the gift. The prima facie view is D
made by the legislature conclusive. If the p ·ies
to the transaction choose to act so as to bf in
apparent conflict with its purport, they are t_o be
held to their conduct.
The validity of the transaction itself is left E
untouched, because it concerns themselves alone.
But they are not to embarrass the public treasury
by equivocal acts."
The conditions specified in s.10 will have to be under-
} stood by keeping in view the aforesaid object with which the F
· · section has been enacted. In George Da Costa v. Controller of
I Estate Duty, Mysore (supra) this Court has analysed the condi-
tions on the fulfilment of which the section gets attracted,
thus:
"The crux of the section lies iri two parts; (1) the G
donee nrust bona fide have assumed possession and
enjoyment of the property, which is the subject
matter of the gift, to the exclusion of the donor,
immediately upon the gift and (2) the donee must
have retained such possession and enjoyment of the
property to the entire exclusion of the donor or of H
358 SUPREME COURT REPORTS [1986] 1 S.C.R.
A
any benefit to him by contract or otherwise. As a
matter of construction we are of opinion that both
these conditions are ctllllllative. Unless each of
these conditions is satisfied, the property would
be liable to estate dutv under s.10 of the Act."
B The second part of the section, as observed in the afore-
said' decision, has two limbs the deceased llllSt be entirely
excluded (i) from the property, and (ii) from any benefit by
contract or otherwise and that the word 'otherwise should be
construed ejusdem generis and should be interpreted to mean
some' kind of legal obligation or some transaction enforceable
c in law or in equity which, though not in the form of a
contract, may confer a benefit on the donor.
Therefore, the question that arises for our determination
in this appeal is whether the aforementioned two cumulative
conditions requisite for attracting s.10 are satisfied in this
D case or not? Whether immediately upon the gift the donees had
bona fide assumed possession and enjoyment of the property,
which was the subject matter of the gift, to the exclusion of >.
the donor and whether they h&! retained such possession and
enjoyment thereof to the entire exclusion of the donor or of
any benefit to him by contract or otherwise?
E
The question whe'ther gifted property should be regarded
as a part of the estate of the deceased donor passing on his
death for the purpose of s.10 of the Act would depend upon as
to what precisely is the ·subject matter of the gift and
whether the gift is of absolute nature or whether it is
F subject to certain rights. If the gift is made without any
4 ~
reservation or qualification, that is to say, where the gift
carries fullest right known to law of exclusive possession and 1
enjoyment, any subsequent enjoyment of the benefit of that
property by way of possession or otherwise by the donor would
bring the gift within the purview of s.10; but where the gift
G is subject to some reservation or qualification, that is to
say, if the subject matter of the gift is property shorn of
certain rights and the possession or enjoyment of some benefit
in that property by the donor is referable those rights i.e.
rights shorn of which the propei:ty is gifted, then in that
case the subject matter of the gift will not be deemed to pass.,~
H on the death of the deceased donor. In other words if the '
CONTROLLER ESTATE DUTY v. GODAVARI BAI [TULZAPURKAR, J.] 359
A
deceased donor limits the interest he is parting with and
possesses or enjoys some benefit in the property not on
account of the interest parted with but because of the
interest still retained by him, the interest parted with will
not be deemed to be a part of the estate of the deceased donor
passing on his death for the purpose of s.10 of the Act. It is B
these aspects which mark the.distinction between the two lead-
ing cases, namely Cbiclt's case and "1nro's case (supra). As we
shall indicate presently Chick's case falls within the first
')
-~ category while Munro's case falls within the other category.
In Chick's case the question arose under s.102 of the New
South Wales Stamp Duties Act, 1920-56 which was similar to C
s.10 of our Act and the facts were these: I;, 1934 a father
transferred by way of gift to one of his sons a pastoral
property, the gift having been made without reservation or
qualification or condition. In 1935, some 17 months after the
gift, the father, donee-son and another son entered into an
agreement tO carry on in partnership the business of graziers D
and stock dealers. The agreellM'!nt provided, inter alia that the
.... father should be the manager of the business and that his
decision should be final and conclusive in connection with all
matters relating to its .conduct that the capital of the
business should consist of the livestock and plant then O"!'ed
by the respective partners that the business should be E
conducted on the respective hol<lings of the partner and such
holdings should be used for the purposes of the partnership
only that all lands held by any of the partners at the date of
the agreement should remain the sole property of such partner
-. and should not on any consideration be taken into account as
or deemed to be an asset of the partnership and any such
partner should have the sole and free right to deal with it as
he' might think fit. Each of the three partners owned property,
F
that of the donee-son being that which had been gifted to h'm
by his father in 1934, and each partner brought into partner-
ship livestock and plant, and their three properties were
thenceforth used for the depasturing of the partnership stock G
and this arrangement continued up to the death of the father
in 1952. The Privy Council held that the value of the property
given to the son in 1934 was to be included in computing the
value of the father's estate for the purpose of death duty.
While it was not disputed that the son had assUll'ed bona fide
possession and enjoYllM'!nt of the property immediately upon the H
360 SUPREME COURT REPORTS [19861 1 s.c.R.
A
gift to the entire exclusion of the father he had riot, on the ;.-
facts, thenceforth retained it to the father entire exclusion,
for under the partnership agreement and what ever force and
effect might be given to .that part of it which gave a partner
the sole and free right to deal with his own property, the
partners and each of them were in possession and enjoyment of
B the property so long as the partnership subsisted. The
Judicial Committee observed that where the question was
whether the donor had been entirely excluded from the subject
matter of the gift, that was the single fact to be determined, ~~
and, if he had not been so excluded the eye need look no
further to see whether his non-exclusion had been advantageous
c or otherwise to the donee. In its opinion it was irrelevant
that the father gave (if he did give) full consideration for
his right as a member of the partnership to possession and
enjoyment of the property that he had given to his son. Inter
alia two or three points emerge clearly from the decision that
need to be emphasised: (a) there was ~nitially an outright
D gift of the. property - not of the property shorn of any ,_..-
rights, (b) the deceased donor was not in fact excluded from
the property, but as a partner enjoyed rights over it and (c)
that it was immaterial that the donor gave full consideration
for enjoying his rights over the property as a partner. It was
these aspects that brought the gifted property within t:he
E mischief of the taxing statute. The other decisions of this
Court on which Counsel for the revenue has relied are clearly
cases falling within this category and. hence the ratio of
chick's case was correctly applied in each of them.
On the other hand in Munro's case the facts were these M,
F who was the owner of 35,000 acres of land in New South Wales • -
on which he carried on the business of a grazier, verbally
agreed with his six children in 1909 that thereafter the ..,
business should be carried on by him and them as partners
under a partnership at will and the business was to be managed
solely by M and each partner was to receive a specified share
G of profits. In 1913, by six registered transfers M transferred
by way of gift all his right title and interest in the
portions of his land to each of his four sons and to trustees
for each of his two daughters and their children. The evidence
showed that the transfers were taken subject to the partner-
ship agreement and on understanding that any partner could•
H withdraw and work his land separately. In 1919 M and. his
CONTROLLER ESTATE DUTY v. GODAVARI BAI (TULZAPURKAR, J.] 361
A
children entered into a formal partnership agreement, which
provided that during the life time of M no partner should
withdraw from the partnership. On the death of M in 1929 the
land transferred in 1913 was included in assessing his estate
to death duties under the Stamp Duties Act, 1920-1931
(N.W.W.), on the ground that they were gifts dutiable under B
s.102(2a) of that Act. The Privy Council held that the proper-
ty comprised in the transfers was the land separated from the
, rights therein belonging to the partnership and was excluded
by the terms of s.102, sub-s 2(a), from being dutiable,
becauae the donees had assumed and' retained possession tjtere-
of, and any benefit remaining in the donor was referable to
the partnership agreement of 1909 and not to the gifts. It was c
urged that the transfer deeds did not mention the rights of
the partnership and therefore under s.42 of the Real Property
Act, 1900 (N.S.W~) the transfer~ gave a title free from those
rights but the Judicial Committee negatived the contention on
the ground that substance of the transactions and not the
forms employed had to be ascertained and so ascertained the D
substance showed that the transfers were shorn of rights in
favour of the partnership and the benefit remaining in the
donor was referable to such rights of the partnership subject
to Which the gifts had been made. Thus this decision clearly
enunciates the principle that if the subject matter of the
gift is property shorn of certain rights and if the possession E
or enjayment of some benefit in that property by the donor is
referable . to those rights, i.e. rights shorn of which the
property is gifted then the subject matter of the gift will
not be deemed to pass on the death of the deceased donor. The
ratio of this decision has been follOW'ed and applied by this
Court in 189A(:handra Gounder's case, N.L Ramarath••'s case, F
B..V. Vishlraoatban's case and Xaml.avsti's case (supra).
Having regard to the undisputed facts and facts found by
the High Court it seems to ua clear that the instant case
falls within the principle enunciated in ~·s case.
Admittedly the deceased donor was a partner in the banking G
firm of M/s Dayaram Surajmal, whereas the minor donees were
never admitted to the benefits of the partnership firm. Ao
extract of account filed by the assessee before the High Court
brought out the procedure follOW'ed for effecting the transac-
tion in question the deceased had his account comprising his
capital contribution and advances made by him to the firm; he H
362 SUPREME COURT REPORTS [1986] 1 s.c.R.
A
drew a cheque for Rs.3 lakhs against his account with the firm
which was made out in the name of the firm as a result whereof
the firm could pay itself but the account of the deceased was
debited with the· sum of Rs.3 lakhs and on the same day si1111l-
taneously three accounts of the minor donees with the said
firm were credited with the sum of Rs .1 lakh each. The
II Tribunal as well as the High Court found as a fact that when
the cheque was issued oral instructions 1111st be presumed to
have been given by the deceased to the firm for crediting the
three accounts of the three minors without which the firm
could'not make such credit entries. From these facts the High
Court rightly inferred that "in effect the cheque was issued
c in favour of the firm• but for the benefit of the minors" and
that "in such a situation the firm shall be treated as a
trustee or an agent holding the money for the benefit of the
minors." Clearly, in this view of the matter, the transaction
in question amounted to a gratuitous transfer of an actionable
claim to which s.137 in preference to s.130 of the Transfer of
D Property Act applied and there was a valid gift thereof to the
minor donees. Further undisputed facts were that the amount of
Rs.3 lakhs did not go out of the firm but on being transferred
from the account of the deceal!ed to the accounts of the minor
donees continued to remain with the firm for being used for
the firm's business; in fact the partnership continued to have
E the benefit thereof even after the death of the donor till the
firm was dissolved. Obviously the substance of the transaction
was that the gift was of an actionable claim of the value of
Rs.3 lakhs out of the donor's right, title and interest as a
whole 'in the fit'm and as such was shorn of certain rights in
favour of the partnership and therefore, the possession or
F enjoyment of the benefit retained by the donor as a partner of
the firm OlllSt be regarded as referable to partnership rights
and had nothing to with the gifted property. In our view the
transaction in question, therefore, clearly fell within the
ratio of the decision in llllaro'a case and the High Court was
right in coming to the conclusion that to such transaction
G s.10 was inapplicable.
We would like to point out that the facts of the instant
case are almost similar to the facts that obtained in
Controller of Estate Duty v. Jai Gopal llehra, a companion
matter that was decided and disposed of by this Court by a
H co111DOn judgment in Xamlavati 'a case (supra) where it was held
CONTROLLER ESTATE DUTY v. GODAVARI BAI [TULZAPURJ<AR, J,] 363
A
that the transaction of gift was one to which s.10 was in-
applicable.
In the result the appeal is dismissed with no order as to
costs.
B
-- M.L.A. Appeal dismissed.
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