Translate
Text Highlighter

Bookmark

PDF

Share

Report a problem
AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
  • R.L Gulati
  • H.N Seth, JJ.
Acts
Are you a practicing lawyer?
Enhance your digital presence and reach by creating a Casemine profile.
Upload pleading to use the new AI search
Click here to upload
Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
  • R.L Gulati
  • H.N Seth, JJ.
Acts
See more information ...
Smart Summary

Structured Summary of the Court's Opinion

Factual and Procedural Background

The Income-tax Appellate Tribunal, Delhi Bench, made a reference under Section 64(1) of the Estate Duty Act at the instance of the Controller of Estate Duty, U.P. The underlying matter concerned estate duty assessment on the estate of Sri Gaindamal, who died on 14 October 1964.

The deceased, a partner in the firm Messrs. Gaindamal Sukhbir Singh, made gifts from his personal funds, deposited in the firm, aggregating Rs. 65,000 to his grandsons on various dates. Rs. 25,000 of that total was gifted within two years of the date of death. The accountable person did not include the whole Rs. 65,000 in the estate duty return.

The Assistant Controller held that the total gift was liable to be included as property deemed to pass on the donor's death under Section 10 of the Estate Duty Act because donees subsequently deposited the gifted amounts with the firm in which the deceased was a partner; he also estimated interest of Rs. 12,000 payable by the firm to the donees and included it. This produced an addition of Rs. 77,000.

On appeal, the Controller and Appellate Controller adjusted the figures: the Appellate Controller accepted inclusion of Rs. 25,000 (gift within two years) but upheld addition of Rs. 10,000 treated as invalid gift made by book entries, and retained interest appertaining to that Rs. 10,000 (Rs. 3,000). In short, the Appellate Controller included Rs. 60,000 plus Rs. 3,000 interest in the estate.

In second appeal, the accountable person objected to inclusion of three items: (1) Rs. 25,000 gifted in cash and deposited by the donees with the firm in which the deceased was a partner; (2) Rs. 10,000 said to have been gifted by book entries; and (3) interest of Rs. 3,000 on that Rs. 10,000. The Appellate Tribunal, however, treated the disputed sum as composed of Rs. 30,000 (cash deposited) and Rs. 5,000 (book-entry gift) due to an apparent misapprehension of figures.

The Appellate Tribunal excluded Rs. 30,000 from the estate under Section 10, but held Rs. 5,000 (book entries) and interest thereon (Rs. 1,500) were rightly included. At the Controller's instance the Tribunal's decision on the Rs. 30,000 exclusion was referred to this court in the following question: whether the Tribunal was right in holding Rs. 30,000 represented gifts not includible in the estate under Section 10 of the Estate Duty Act, 1953.

Legal Issues Presented

  1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 30,000 represented gifts made by the deceased and was not includible in the estate of the deceased under Section 10 of the Estate Duty Act, 1953.
  2. Whether a donee who, after receiving a cash gift, deposits the gift with a firm in which the donor is a partner, is deemed to have retained possession and enjoyment of the gift to the entire exclusion of the donor (i.e., the correct application of the two-part test embodied in Section 10).

Arguments of the Parties

Accountable Person's (Appellant's) Arguments

  • Objected to inclusion in the estate of Rs. 25,000 (cash gifted and deposited with the firm), Rs. 10,000 (alleged book-entry gift), and interest of Rs. 3,000 on that Rs. 10,000.
  • Implicit contention before the Tribunal: once the donees had possession and subsequently deposited the cash with the firm, that constituted valid exclusion of the donor from possession/enjoyment and thus Section 10 did not apply to the Rs. 30,000.

Revenue / Controller of Estate Duty's Arguments

  • Contended that subsequent deposits of the gifted amounts with the firm in which the deceased was a partner meant that the donor had not entirely excluded himself from possession and enjoyment of the gifted amounts.
  • Asserted that at least some or all of the disputed amounts should be deemed to pass on death under Section 10 and included in the estate; relied on the authorities concerning the application of Section 10.

Appellate Tribunal's Reasoning (as reported)

  • The Tribunal held that once the donees deposited the gifted sums with the firm, the firm used those deposits as funds belonging to the firm and not to the donees; the donees in effect received only an actionable claim and the money ceased to belong to them.
  • Therefore the Tribunal reasoned Section 10 was not applicable to the Rs. 30,000 deposited with the firm; it distinguished precedents dealing with gifts of immovable property as inapplicable to the present facts.
  • The Tribunal found the Rs. 5,000 (by book entries) invalid as a gift and included it and interest in the estate, relying on a precedent (Commissioner of Income-tax v. Shyamo Bibi) for that proposition.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Commissioner of Income-tax v. Shyamo Bibi Authority cited by the Appellate Tribunal for invalidating certain gifts made by book-entry (i.e., formal entries without effective transfer). The Tribunal relied on this decision to hold that a gift of Rs. 5,000 by transfer entries in the books of the firm was invalid and thus includible in the estate; the court accepted that the book-entry gift was invalid as the Tribunal applied that ruling.
George Da Costa v. Controller of Estate Duty, [1967] 63 I.T.R. 497; [1967] 1 S.C.R. 1004 (S.C.) Explication of Section 10: (1) donee must bona fide assume possession and enjoyment immediately and to the exclusion of the donor; and (2) donee must retain such possession and enjoyment to the entire exclusion of the donor or any benefit to him by contract or otherwise (both conditions are cumulative). The court relied on this Supreme Court statement as the correct articulation of Section 10's two-part test and applied it to the facts: it treated the first requirement as satisfied (donees initially assumed possession) but found the second requirement not satisfied because the donor derived benefit via the firm.
Abdul Alim v. Controller of Estate Duty, E.D.R. No. 96 of 1966, [1972] 86 I.T.R. 355 (All.) Held that where minors gifted cash were admitted to the benefits of a firm (and money was brought in as capital), the donees did not retain control to the exclusion of the donor and the amount was includible under Section 10; contribution as capital is not materially different from depositing for business use. The court held that the ratio of Abdul Alim applied to the present case: voluntary deposit of gifted cash with the firm (used for business) meant the donees did not retain possession and enjoyment to the entire exclusion of the donor, so the Rs. 30,000 must be deemed to pass on death under Section 10.

Court's Reasoning and Analysis

The court's analysis proceeded from a textual and purposive reading of Section 10 of the Estate Duty Act, 1953, applying the two-part test as articulated in George Da Costa:

  1. First Part — Immediate Assumption of Possession and Enjoyment: The court accepted that, on the Tribunal's findings, the donees had bona fide assumed possession and enjoyment of the Rs. 30,000 immediately upon receipt (cash gifts delivered to the donees). Thus the first limb of Section 10 was satisfied for that sum.
  2. Second Part — Retention to the Entire Exclusion of the Donor or Any Benefit to Him: The court focused on whether, after obtaining possession, the donees retained the subject-matter to the entire exclusion of the donor or of any benefit to him by contract or otherwise. It observed that when the donees deposited the gifted amounts with the firm, the firm — and hence the donor as a partner — acquired possession and control over those funds.
  3. Application of Abdul Alim: The court relied on its earlier decision in Abdul Alim, where gifted cash introduced as firm capital meant the donees did not retain the gift to the exclusion of the donor. The court reasoned that depositing cash with the firm for business use is materially indistinguishable from contributing it as capital; in both cases the donor (as partner) benefits and control is not exclusively with the donee.
  4. Rejection of the Tribunal's 'Actionable Claim' Argument: The Tribunal had argued that a deposit converts the donee's entitlement into an actionable claim and that the money ceased to belong to the donee, meaning Section 10 should not apply. The court rejected this reasoning: Section 10 targets situations where the donee does not retain possession/exclusion or where the donor benefits under a contract or otherwise. Whether the donee retains legal title or merely an actionable claim is not the determinative test; what matters is whether the donor continues to enjoy benefit or dominion over the gifted property.
  5. Effect of Payment of Interest: The court noted that payment of interest on deposited amounts did not alter the conclusion. Payment of interest did not negate the fact that the donor derived benefit from the gifted property under a contract (by virtue of being a partner and using the funds in the firm's business).
  6. Conclusion from the Analysis: Because the second limb of Section 10 was not satisfied — the donees did not retain possession and enjoyment to the entire exclusion of the donor, and the donor derived benefit via the firm — the Rs. 30,000 must be deemed to pass on the donor's death under Section 10 and be includible in the estate.

Holding and Implications

Holding: The court answered the referred question in the negative and decided in favour of the revenue. Concretely, the court held that the Tribunal was not right in holding that the sum of Rs. 30,000 (described in the record as Rs. 25,000 in some passages) was not includible in the estate under Section 10 of the Estate Duty Act, 1953. The Tribunal's exclusion of that sum was reversed.

Direct consequences and immediate effect:

  • The Rs. 30,000 that the Tribunal had excluded is to be treated as property deemed to pass on the donor's death under Section 10 and therefore includible in the value of the estate for estate duty assessment.
  • The Controller of Estate Duty is entitled to costs of this reference, assessed at Rs. 200.

Broader precedent or policy note: The opinion applies established principles (as set out in George Da Costa and Abdul Alim) concerning the two-part test of Section 10. The decision's effect described above is the direct practical consequence for the parties; the opinion does not elaborate broader policy changes beyond applying those precedents.

Show full summary ...

    Controller Of Estate Duty, U.P v. Ramesh Chand Gupta.

    1. The Income-tax Appellate Tribunal, Delhi Bench, has made this reference under Section 64(1) of the Estate Duty Act at the instance of the Controller of Estate Duty, U.P.

    2. The case relates to the estate duty assessment in respect of the property of Sri Gaindamal who died on 14th October, 1964.

    3. The deceased was a partner in a firm, Messrs. Gaindamal Sukhbir Singh. From out of his personal funds, deposited in the firm, he made a gift of an amount aggregating Rs. 65,000 to his grandsons on various dates. Out of this amount a sum of Rs. 25,000 was gifted within two years of 14th October, 1964, the date on which Gaindamal died. Whole of Rs. 65,000 was not included in the estate duty return filed by the accountable person.

    4. The Assistant Controller of Estate Duty found that subsequent to the gift, the donees deposited the amount gifted to them with the firm, Gaindamal Sukhbir Singh, in which Gaindamal was also partner. The total amount of gift was, therefore, liable to be included in the estate left by the deceased as property deemed to pass on his death under Section 10 of the Estate Duty Act. He further estimated that the firm must have paid a sum of Rs. 12,000 to the donees by way of interest on the amount deposited by them. According to him, this sum was also an amount which should be deemed to pass on Gaindamal's death. In the result he added a sum of Rs. 77,000 in the value of the property deemed to pass on Gaindamal's death.

    5. In appeal before the Controller of Estate Duty, the accountable person did not dispute the addition of Rs. 25,000 (the amount gifted by Gaindamal within two years of his death) in the value of the property passing or deemed to pass on the death of Gaindamal. He, however, disputed the addition of Rs. 40,000, balance of the gifted amount, and interest amounting to Rs. 12,000 in the value of the property left by the deceased. The Controller found that from out of the amount of Rs. 40,000 a sum of Rs. 10,000 had been gifted by making book entries which was not valid and upheld its addition. Gift of remaining sum of Rs. 30,000 was made by the deceased by delivering cash to the respective donees. However, the donees deposited this amount with the firm, Gaindamal Sukhbir Singh, but subsequently withdrew a sum of Rs. 5,000 more than two years before Gaindamal's death. Under Section 10 of the Estate Duty Act, only an amount of Rs. 25,000 could be the property deemed to pass on the death of Gaindamal. Consequent to this finding, the Appellate Controller retained the interest which appertained to Rs. 10,000 (the amount in respect of which the gift was held to be invalid) amounting to Rs. 3,000 in the estate of the deceased. In short the Appellate Controller upheld the inclusion of the gift amounting to Rs. 60,000 (Rs. 25,000 gift made within two years of Gaindamal's death, Rs. 10,000 invalid gift and Rs, 25,000 property deemed to pass on donor's death) and interest amounting to Rs. 3,000 in the estate of the deceased.

    6. In second appeal, the accountable person objected to the inclusion of Rs. 25,000, the amount gifted in cash and deposited by the donees with the firm in which the deceased donor was also a partner, Rs. 10,000 the amount said to have been gifted by Gaindamal by making entries in the account books of the firm and the interest on this sum amounting to Rs. 3,000 in the estate of the deceased. It will thus be seen that the propriety of the addition of Rs. 35,000 in the value of properties passing or deemed to pass on the death of Gaindamal, which was questioned before the Appellate Tribunal, was made up of two amounts, viz., a sum of Rs. 25,000 cash said to have been gifted by the deceased to his grandsons who deposited the same with the firm, Gaindamal Sukhbir Singh, and Rs. 10,000 said to have been gifted by Gaindamal by making entries in the books of the firm. Somehow, the Appellate Tribunal has been under an impression that the amount of Rs. 35,000 was made up of Rs. 30,000, the amount said to have been gifted in cash and deposited by the donees with the firm, and Rs. 5,000 gifted by making book entries.

    7. The Appellate Tribunal held that in view of the decision of this court in the case of Commissioner of Income-tax v. Shyamo Bibi, the gift of Rs. 5,000 by making transfer entries in the books of the firm was invalid. This amount and the interest on it amounting to Rs. 1,500 had been rightly included in the estate of the deceased. So far as the sum of Rs. 30,000 was concerned, the revenue sought to justify its inclusion in the value of the estate of the deceased under Section 10 of the Estate Duty Act. It claimed that the deceased donor had not entirely excluded himself from possession and enjoyment of this amount as the same was deposited by the donee with the firm in which the deceased donor was also a partner. In this connection the Appellate Tribunal made the following observation :

    "The question for our consideration is whether the respective donees can be said to have assumed bona fide possession and enjoyment of the gifted amounts immediately and to have retained the same to the entire exclusion of the donor or of any benefit to him by contract or otherwise. The contention of the revenue before us and the reasoning in the orders of the authorities below fails to take notice of the elementary position that once the gifted amounts came to be deposited by the donees with the firm, the latter used these deposits as funds belonging to it and not as funds belonging to the donees. Once a loan is advanced or a deposit is made the money ceases to belong to the depositor or creditor as the case may be who gets in return only an actionable claim and the money belongs to the borrower or the depositee. The creditor or the depositor loses all control and connection, authority and dominion over the money. He cannot object to the use of the money by the borrower or the depositee in any manner he likes. When the borrower or the depositor used such borrowed funds, he uses the funds as his own money and not as a trustee or an agent of the money belonging to some one else. In the present case, moreover, the firm paid interest on the deposits. In these circumstances, the contention of the revenue that the donor continued to enjoy the possession and benefit of the gifted amounts is completely untenable. The rulings cited before us by the revenue relate to gifts of immovable properties which have nothing in common with the case before us. We hold that the section is not applicable in the present case and we exclude Rs. 30,000 out of the disputed amount of Rs. 35,000."

    At the instance of the Controller of Estate Duty, the Appellate Tribunal has now referred the following question for the opinion of this court:

    "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 30,000 represented gifts made by the deceased and was not includible in the estate of the deceased under Section 10 of the Estate Duty Act, 1953 ?"

    Section 10 of the Estate Duty Act, 1953, provides that 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. It is contended that inasmuch as the donees deposited the amount gifted with a firm in which the donor was also a partner the donee did not retain the property gifted to the entire exclusion of the donor. At any rate the donor derived benefit from the property gifted by reason of a contract, in pursuance of which the donees deposited the amount with the firm.

    8. 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.) the Supreme Court has pointed out that the crux of Section 10 of the Estate Duty Act lies 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.

    Both these conditions are cumulative and unless both of them are complied with the, property gifted would be deemed to pass on the death of the deceased and its value would be liable to be included in the value of the estate left by the deceased for estate duty purposes.

    9. In view of the finding that the gift in respect of Rs. 30,000 was made in cash by delivery of the gifted amounts to the donees and, subsequently, the donees voluntarily deposited the same in the firm, it may be assumed that the donees bona fide assumed possession and enjoyment over the subject-matter of the gift to the exclusion of the donor immediately upon the gift and that the first part of Section 10 did not operate so as to make the gifted property a property which is deemed to pass on the death of the deceased. The question, however, that remains to be considered is whether the donee retained possession and enjoyment of the amount gifted to the entire exclusion of the donor or of any benefit to him by contract or otherwise. As soon as the donees deposited the amount gifted with the firm the firm came into possession of that amount. The donor being a partner in that firm also came to possess and to have control over the amount as any other partner. At any rate the donor as a partner in the firm derived benefit from this deposit which was used for business purposes of the firm. The donor derived this benefit from the gifted property by reason of a contract entered into between the donee and the firm. It is, therefore, clear that the second part of Section 10, namely, that after obtaining bona fide possession over the property gifted the donee did not retain the subject-matter of the gift to the entire exclusion of the donor or of any benefit to him by contract or otherwise, has not been complied within the circumstances, the amount of Rs. 30,000 gifted to the grandsons of Gaindamal will be deemed to pass on Gaindamal's death under Section 10 of the Estate Duty Act.

    10. A similar question arose for consideration by this court in E.D.R. No. 96 of 1966 (Abdul Alim v. Controller of Estate Duty, [1972] 86 I.T.R. 355 (All.), decided on 23rd September, 1971. In that case the deceased gifted a sum of Rs. 44,000 in cash to his minor sons. The minors were admitted to the benefits of a firm in which the deceased donor was also a partner. The money gifted to the minors was brought in as capital of that firm. This court held that in such circumstances it could not be said that the donee retained control over the property gifted to the exclusion of the donor and the amount was liable to be included in the principal value of the estate left by the deceased as property deemed to pass on his death, under Section 10 of the Estate Duty Act. In this respect, a case where the donee contributes the amount gifted to him in cash, as capital of the firm, does not stand on a footing different from a case where they deposit it with the firm for being used for its business purposes. Ratio of the decision in Abdul Alim's case, therefore, fully applies to the facts of the present case and it has to be held that possession and enjoyment of the property was not retained by the donees to the entire exclusion of the donor.

    11. The reasoning of the Appellate Tribunal that Section 10 of the Act did not apply to the facts of this case because the moment the amount gifted was deposited with the firm it ceased to belong to the donee, and instead the donee acquired an actionable claim against the firm, does not appeal to us. Under Section 10 of the Act, the gifted property will be deemed to pass on the donor's death if after the gift the property was not retained by the donee to the entire exclusion of the donor or of any benefit to him under a contract. So long as the donee exercises some dominion over the gifted property or derives any benefit from it under a contract or otherwise, the case will come within the mischief of Section 10 of the Act. The capacity in which dominion over the gifted property is exercised by the donee or the benefit is derived by him is not material. Section 10 does not lay down that before a property can be deemed to pass under that section, it must continue to belong to the donee. In this case, on finding recorded by the Tribunal, there can be no doubt that the donee did not retain possession of the gifted property to the entire exclusion of the donor, and that the donor also derived benefit from the gifted property under a contract. Payment of interest on that amount also does not make any difference to the position that the donee did not retain the property to the entire exclusion of the donor or of any benefit to him.

    12. We are, accordingly, of opinion that the Tribunal was not right in holding that the sum of Rs. 30,000 (Rs. 25,000) representing gifts made by the deceased was not includible in the estate of the deceased under Section 10 of the Estate Duty Act, 1953. The question referred to us is accordingly answered in the negative and in favour of the revenue.

    13. The Controller of Estate Duty is entitled to receive costs of this reference which we assess at Rs. 200.

    Use AI to get other relevant cases.
    Try AI Pro free for 7 days Upgrade to AI Pro

    Comments

    Controller Of Estate Duty, U.P v. Ramesh Chand Gupta.
    (Jul 18, 1972)