SUPREME COURT OF INDIA

Before:- K.S. Hegde, P. Jaganmohan Reddy and R. Khanna, JJ.

Civil Appeal No. 1398 of 1970. D/d. 5.3.1973.

Commissioner of Income Tax and Controller of Estate Duty, Madras (Revenue) - Appellant

Versus

N.R. Ramarathnam and others - Respondents

Estate Duty Act, 1953, Section 10 - Estate Duty - Partnership - Held that the transfers by deceased from his partnership account to the accounts of his sons and daughters, other partners, whether passed on death of deceased - Could not he deemed to have been passed to the donees.

[Paras 1 and 2]

Cases Referred :-

Munro v. Commr. of Stamp Duties, (1934) 2 E. D. C. 462.

Rash Mohan Chatterjee v. Controller of Estate Duty, West Bengal, 52 ITR (E.D.) 1.

Controller of Estate Duty, Madras v. C. R. Ramachandra Gounder, Civil Appeal No. 1391 of 1970 decided on 27-2-1973 : (reported in AIR 1973 Supreme Court 1170).

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 26A 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 possession and control retained by the deceased over the funds gifted to them were not referable to the gifts themselves, but to the partnership which was already in existence prior to the date of the gifts, and that, therefore, Section 10 was not applicable. The accountable persons relied upon the decision in the case of Munro v. Commr. of Stamp Duties, (1934) 2 E. D. C. 462. On the other hand, the contentions of the department were that as the deceased continued to be in effective management of the business of the partnership even after the gift, and as he was thus exercising effective control over the funds of the partnership, including the amounts gifted by him to the donees, the deceased cannot be deemed to have been entirely excluded from the possession and enjoyment of the amounts gifted or from the benefits therefrom. The department relied upon the decision in the case of Clifford John Chick v Commr. of Stamp Duties, (1958) 3E.D.C. 915.

The attention of the Tribunal was also drawn to the decision in the case of Rash Mohan Chatterjee v. Controller of Estate Duty, West Bengal, 52 ITR (E.D.) 1 in which the distinguishing feature between Chick's case and Munro's case was pointed out viz., that where as in Munro's case the subject-matter of the gift was property shorn of the rights, of the pre-existing partnership of Munro and his sons, in Chick's case there was an initial outright gift of the property without its having shorn of any rights. The Tribunal was of the view that the facts of the case under appeal were similar to the facts of Munro's case and dissimilar to the facts of Chick's case and that therefore, the decision in Munro's case governed the instant case. The Tribunal, therefore, held that the amount of Rs. 1,29,924 which was the subject-matter of the gifts did not come within the purview of Section 10 and was, therefore, not property subject to estate duty."

2. The question of law arising for decision is completely covered by our decision in the Controller of Estate Duty, Madras v. C. R. Ramachandra Gounder, Civil Appeal No. 1391 of 1970 decided on 27-2-1973 : (reported in AIR 1973 Supreme Court 1170). Mr. Karkhanis, the learned counsel for the Department sought to satisfy us that that decision requires reconsideration. We have not permitted him to reargue the question of law which has already been concluded by our decision. Following that decision we affirm the decision of the High Court and dismiss the appeal with costs.

Appeal dismissed.