1. At the instance of the accounting party, Behari Lal Matanhelia, the Central Board of Direct Taxes has referred the following question for the opinion of this court, under Section 64(1) of the Estate Duty Act:

"Whether, on the facts and in the circumstances of the case, the balance of Rs. 48,513 remaining at the date of death of the deceased out of the amount credited to the wife's account by debiting the account of the deceased in the books of Messrs. Sheo Prasad Kanhaiyalall, Bahraich, in which the deceased was a partner, was correctly included in the estate of the deceased as property passing or deemed to pass on his death ?"

2. One Sri Kanhaiyalall Matanhelia died on 21st July, 1957. Beharilal Matanhelia, as the accountable person, filed a statement before the Assistant Controller, Estate Duty, Varanasi, declaring the total value of the properties passing or deemed to pass on the death of Kanhaiyalall as Rs. 1,72,670. After considering the material produced before him, the Assistant Controller determined the principal value of the estate passing or deemed to pass on the death of Kanhaiyalall as Rs. 3,00,141 and calculated the duty payable thereon. In computing the principal value of the estate passing on the death of Kanhaiyalall, the Assistant Controller included a sum of Rs. 48,513 being the credit balance standing in the account of Smt. Bridhika Devi (wife of the deceased) in the books of the firm, Messrs. Sheo Prasad Kanhaiyalall, Bahraich, in which the deceased was a partner.

3. On behalf of the accountable person it was claimed that this sum of Rs. 48,513 came out of a sum of Rs. 51,000 gifted by the deceased to his wife on 30th December, 1951, more than two years before his death. This gift was effected by adjustment in the books of the firm in which the deceased was a partner by making debit and credit entries in the account of the deceased and his wife. The Assistant Controller found that there was no evidence to show that the alleged gift was accepted by the wife. He held that in the absence of any evidence transfer of the amount by book entries only could not constitute a valid and completed gift and, therefore, the amount standing to the credit of the wife on the death of Kanhaiyalall had to be included in his estate as property passing on his death. The Assistant Controller further found that the amount said to have been gifted remained invested with the firm without payment of any interest. The deceased was a controlling partner in the firm. In the circumstances, it cannot be said that after making the gift the deceased entirely excluded himself from any benefit therefrom. In the result, the Assistant Controller held that, even assuming that there was a gift, the amount of Rs. 48,513 had to be added to, the estate of the deceased passing on his death under Section 10 of the Act. He also found that having regard to the provisions of Section 46(1) of the Act, no deduction could be claimed for the amount as a debt due from the deceased inasmuch as the consideration of the debt consisted of property derived from the deceased himself.

4. In appeal, the Board held that mere transfer entries in the account books of the firm were not sufficient to make a valid gift. It also observed that it was immaterial whether the transaction in question amounted to a valid gift for, even if it were, these sums would be includible in the estate of the deceased in view of Section 10 of the Estate Duty Act. The money remained credited with the firm where the deceased was a partner and no interest was being paid to the donee. In the circumstances, it could not be said that the deceased had entirely excluded himself from the gifted property or that the donee had taken possession of the property to the entire exclusion of the deceased or of any benefit to him. It, accordingly, held that the amount of Rs. 48,513 was correctly added to the total value of the property passing on the death of the deceased.

5. At the instance of the accountable person the Board has now referred the aforementioned question for the opinion of this court.

6. On behalf of the department the validity of the gift was challenged only on the ground that it could not be made by effecting transfer entries in the account books of the firm and that there was no evidence to show that the same had been accepted by the donee. We will proceed to consider the arguments raised in respect of the aforementioned infirmities and take it that no other legal infirmity attaches to the gift.

7. The view taken by the Central Board of Direct Taxes that no valid gift can be effected by making transfer entries in the books of account is clearly not sustainable. In the case of Gopal Raj Swarup v. Commissioner of Wealth-tax, [1970] 77 I.T.R. 912 (All.) a sum of Rs. 50,000 was said to have been gifted by a karta of a Hindu undivided family to his son. This transfer was effected by debiting the donor's personal account in the books of the Hindu undivided family and crediting the same in the personal account of the donee. On the date on which the gift was said to have been made there was a substantial credit balance in the account of the donor exceeding the amount gifted. This court came to the conclusion that a valid gift of the value of Rs. 50,000 had been effected.

8. The statement of the case shows that on 30th of December, 1951, a sum of Rs. 51,000 was transferred from the account of the deceased to that of his wife. The wife operated upon this account and on 1st January, 1954, she withdrew a sum of Rs. 2,487 leaving a balance of Rs. 48,513. This fact clearly indicates that the wife accepted the gift and treated the sum of Rs. 51,000 gifted to her as her own. In the circumstances, it is obvious that the amount of Rs. 48,513 standing to the credit of Smt. Bridhika Devi was the balance of the sum of Rs. 51,000 gifted by the deceased to her on 30th December, 1951, more than two years before his death.

9. The only question that survives for consideration is whether in view of the provisions of Section 10 of the Estate Duty Act the amount gifted by the deceased to his wife will be deemed to pass on his death. Relevant portion of Section 10 of the Estate Duty Act reads as follows :

"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 otherwise :....."

10. It is contended that inasmuch as even after the making of the gift the cash gifted remained in the firm and was used by the donor in connection with the business of the firm, the donee did not immediately assume its possession and enjoyment to the entire exclusion of the donor and, therefore, this sum will be deemed to pass on the donor's death as provided in Section 10 of the Act.

11. The scope of Section 10 of the Estate Duty Act was considered by the Supreme Court in the case of George Da Costa v. Controller of Estate Duty, [1967] 63 I.T.R. 497; [1967] 1 S.C.R. 1004 (S.C.). In this case the deceased had made a gift of a house in favour of his son. It was found that even after making the gift the donor continued to reside in the house as the head of the family and to look after its affairs till his death. It was held by the Supreme Court that the value of the house had been correctly included in the estate of the deceased as a property deemed to pass on his death under Section 10 of the Estate Duty Act. The Supreme Court analysed the provisions of section 10 of the Act and observed that the crux of the Section lay in two parts : (1) the donee must 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 any benefit to him by contract or otherwise. It held that both these conditions are cumulative and unless each of the two conditions is satisfied, the property would be liable to be included in the estate of the deceased for purposes of payment of estate duty under Section 10 of the Act. So far as the second condition was concerned it was observed that it had two limbs : the deceased must be entirely excluded (1) from the property, and (2) from any benefit by contract or otherwise. The expression "contract or otherwise" is to be construed ejusdem generis. So construed, the words "or otherwise" must be interpreted to mean some kind of legal obligation though not in the form of a contract. So far as the first limb (part) of the Section is concerned, before a gift can be excluded from consideration it has to be found that immediately on the making of the gift the donor must have entirely excluded himself from possession and enjoyment of property. The words "by contract or otherwise" in the second limb (part) of the Section do not control the words "to the entire exclusion of the donor" in the first limb (part) of the Section. In other words, in order to attract the first part of the section, it is not necessary that possession by the donor of the gifted property must be referable to some contract or other obligation enforceable in law or equity.

12. We have to find whether in this case the donee bona fide assumed possession of the subject-matter of the gift to the exclusion of the donor, immediately upon the making of the gift, and, whether the donee retained such possession and enjoyment of the property to the entire exclusion of the donor or of any other benefit to him by contract or otherwise.

13. Learned counsel for the accountable person relied upon the decision of the Mysore High Court in the case of Controller of Estate Duty v. Aswatha-narayana Setty, [1969] 72 I.T.R. 29 (Mys.). In this case the deceased had transferred to his two sons his half-share standing to his credit in the books of the firm in which he was a partner. This transfer was effected by making debit and credit entries in the accounts of the donor and the donee maintained in the books of the firm. Subsequent to the gift, the sons were also taken as partners in the firm. On behalf of the Controller of Estate Duty it was claimed that the amount gifted by the deceased will be deemed to pass on his death as per provisions of Section 10 of the Estate Duty Act inasmuch as the amount gifted was not retained by the sons to the entire exclusion of the deceased. The learned judges observed that in that case the property gifted was shares in an existing firm. The firm in question continued to be in existence even after the gift till the death of the deceased. It was not denied that ever since the gift the profits accruing from the shares gifted to the two sons of the donor were being paid to the donees. All the partners of the firm including the deceased were in the management of the firm as partners. In these circumstances, the possession which the donees could have taken in pursuance of the gift mentioned earlier was only legal possession. It was not possible for any one of the partners to take physical possession of any assets of the firm. The property gifted was in the management of the donee. On these .facts it could not be said that after the gifts the donee did not retain the property gifted, to the entire exclusion of the donor or that the donor had any benefit either by contract or otherwise in the property gifted. In the result it was held that the property gifted could not be deemed to pass on the death of the deceased under Section 10 of the Act.

14. A question, similar to one involved in the case before us, arose before the Madras High Court, in the case of Controller of Estate Duty v. N. R. Ramarathanam, [1969] 74 I.T.R. 432, 437 (Mad.). In this case the deceased was a partner in a firm carrying on money-lending business. He transferred by means of book adjustment in the accounts of the firm certain sums of money to his sons and daughter as and by way of gift without physically handing over the same and continued to be a partner in the firm. On his death, the total value of the gift was included in the estate of the deceased for estate duty purposes under Section 10 of the Estate Duty Act on the ground that as the deceased continued to be a partner in the firm which had use of the monies, he was not completely excluded from the subject-matter of the gifts but had beneficial enjoyment thereof. The Tribunal relied upon the case of H. R. Munro v. Commissioner of Stamp Duties, [1934] A.C. 61 ; 2 E.P..C. 462 (P.C.) and excluded this amount. On a reference at the instance of the Controller of Estate Duty, the Madras High Court observed as follows :

"The nature, extent and manner of enjoyment of the two sums gifted by the father to his sons and daughter were no different in the hands of the donees. At the time of making the gift, having regard to the facts, it has to be taken that the two sums transferred by book entries were still available for the purposes of the business of the firm which means that their user for that purpose would be controlled by the managing partner. In the very nature of things, therefore, the transfer of the two sums by way of gift should be taken subject to the rights of the firm and in the words of the Privy Council in Munro v. Commissioner of Stamp Duties, the two sums were transferred to the donees shorn of the rights which belonged to their partnership. On that view there can be no question that immediately on the making of the gift, the donees assumed such possession and enjoyment of the subject-matter of the gifts as it was capable of at the time and also that they retained that to the exclusion of the donor. If the donor continued to have control over the two sums, that was not because of any reservation in him white making the gift but because the gift itself was made subject to the condition that the funds would be available for the use of the partnership business and, as such, they would be subject also to the control and management by the donor in his capacity as managing partner."

15. In this case the learned judges pointed out that Munro's case, [1934] A.C. 61; 2 E.D.C. 462 (P.C.) was not decided with reference to the limb relating to the reservation of benefit.

The decision in that case had to be understood in conjunction with the conclusion of the Privy Council as to the scope of the subject-matter of the gift itself. This decision emphasises that what has to be considered in each case is to see what precisely is the extent of the subject-matter of the property gifted and then to see whether the donee has bona fide assumed possession and enjoyment of that property in such manner as is possible to the exclusion of the donor and whether the donee has 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.

16. The only criticism levelled by the learned counsel for the revenue against this decision was that in this case the learned judges placed reliance on the ratio of the case of Munro v. Commissioner of Stamp Duties and not on the ratio of the case of Clifford John Chick v. Commissioner of Stamp Duties, [1958] A.C. 435; [1959] 37 I.T.R. (E.D.) 89 ; 3 E.D.C. 915 (P.C.) which decision was specifically approved by the Supreme Court in the case of George Da Costa, [1967] 63 I.T.R. 497; [1967] 1 S.C.R. 1004 (S.C.). As pointed out by the learned judges of the Madras High Court, there is no inconsistency between the law as laid down in Munro's case and that in the case of Clifford John Chick. These cases deal with different aspects of the problem. We are in respectful agreement with the observations made by the learned judges of the Madras High Court according to which, while applying the provisions of Section 10 of the Estate Duty Act, the precise extent and nature of the property gifted has to be found out.

17. Learned counsel for the revenue relied upon the decision of the Gujarat High Court in the case of Smt. Shantaben S. Kapadia v. Controller of Estate Duty, [1969] 73 I.T.R. 171 (Guj.). In this case the deceased was a partner of a firm. On a particular date his account in the firm was debited by a sum of Rs. 60,000 and the same amount was credited to the account of his brother. The credit continued in the account of the firm till the date of the death of the deceased. The transfer of the amount from the account of the deceased to that of his brother was acknowledged to be a gift. The Assistant Controller included this amount in the estate of the deceased for estate duty purposes holding that even if the transfer entries amounted to a valid gift the provisions of Section 10 of the Estate Duty Act were attracted. On a reference the learned judges of the Gujarat High Court held that the amount of the gift having been kept with the firm in which the deceased was a partner till his death, he was in possession and enjoyment of the property gifted by the deceased resulting in the exclusion of the donor from possession and enjoyment of the property which was gifted, and, hence, the amount of gift was includible in the estate by reason of Section 10 of the Estate Duty Act which was clearly attracted. Similar view was expressed by that court in another case, Controller of Estate Duty v. Chandravadan Amratlal Bhatt, [1969] 73 I.T.R. 416 (Guj.). A view, similar to the one taken by the Gujarat High Court in the aforementioned cases, was taken by the Punjab and Haryana High Court in the case of Controller of Estate Duty v. Ronaq Ram Bakshi Ram Gupta, [1970] 76 I.T.R. 682 (Punj.). A perusal of these decisions shows that the aspect emphasised by the Madras High Court in the case of Controller of Estate Duty v. Ramarathanam, [1969] 74 I.T.R. 432 (Mad.), was not urged before the Gujarat High Court and the Punjab and Haryana High Court.

18. In our opinion, it is necessary to analyse the real nature of the property gifted in this case before considering the question of applicability of Section 10 of the Estate Duty Act. The deceased, who was a partner in the firm, M/s. Sheo Prasad Kanhaiyalall, had a credit balance in the account of the firm. The money standing to the credit of the deceased had been contributed by him for being utilised by the firm. The effect of the credit entry in his name in the books of the firm was merely this that he had a d'aim to receive the amount standing to his credit from the firm. When he gifted a sum of Rs. 51,000 to his wife, Smt. Bridhika Devi by getting his account debited with that amount and getting the account of Smt. Bridhika Devi credited with that sum, the result of the transaction was that by mutual agreement between three of them the claim of the deceased against the .firm to the extent of Rs. 51,000 was satisfied and instead the firm became liable to pay that amount to Smt. Bridhika Devi. Thus the real effect of the gift made by the deceased to Smt Bridhika Devi was that instead of the deceased being entitled to receive the amount from the firm it was Smt. Bridhika Devi who became entitled to receive it from the firm. The sum of Rs. 51,000 was not gifted by the deceased to Smt. Bridhika Devi, in specie. The real nature of the property gifted was the right to recover the sum of Rs. 51,000 from the firm. After the deceased made this gift he did not remain in control or in possession of the right to recover this amount from the firm which became the exclusive right to be enjoyed by the donee. As the sum of Rs. 51,000 was not gifted in specie it cannot be said that the donor was not excluded from the property gifted merely because the donee did not enforce her claim and the donor continued to run the partnership business as from before. The fact that no interest was paid to the donee on the amount standing to her credit is also of no significance and does not alter the real nature of the property gifted. If the real nature of the property gifted was the claim to receive a sum of Rs. 51,000 from the firm, it is obvious that after making the gift the donor did not exercise any control over that claim and he was completely excluded from the enjoyment or possession of that claim. It is no one's case that after the claim was transferred to the donee the donor acquired any benefit to himself by contract or otherwise in respect of the claim to receive the amount of Rs. 51,000 from the firm. In this view of the matter the provisions of section 10 are not applicable to the facts of the present case as the donee 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 she retained such enjoyment of the property gifted to the entire exclusion of the donor or any benefit to him by contract or otherwise. The property covered by the gift, therefore, cannot be deemed to pass on the death of the donor. In view of the aforesaid discussion we find ourselves unable to concur in the view expressed by the Gujarat High Court in the cases of Smt. Shantaben S. Kapadia v. Controller of Estate Duty, [1969] 73 I.T.R. 171 (Guj.) and Controller of Estate Duty v. Chandravadan Amratlal Bhatt, [1969] 73 I.T.R. 416 (Guj.). For the same reason we respectfully disagree with the view of the Punjab and Haryana High Court in the case of Controller of Estate Duty v. Ronaq Ram Bakshi Ram Gupta, [1970] 76 I.T.R. 682 (Punj.).

19. In the result we answer the question referred to us in the negative and in favour of the assessee. The assessee is entitled to his costs which we assess at Rs. 200. Counsel's fee is also assessed at the same figure.