DIVAN, J. - (1.) IN this reference under S. 64(1) of the ED Act (hereinafter referred to as the Act), the following questions have been referred to us by the Tribunal: " (1) Whether, on the facts and in the circumstances of this case, the gifts of Rs. 10,000 each to the three sons purported to have been made on 20th Oct., 1946, were valid in law ? (2) Whether, even if the gifts of Rs. 10,000 each were valid, the same would be hit by the provisions of S. 10 of the ED Act ? (3) Whether, on the facts and in the circumstances of the case, the provisions of S. 10 would apply to the gift of the sum of Rs. 24,000 ? (4) Whether the accumulated interest on the sum of Rs. 30,000 could be included in the computation of the principal value of the estate ?"
(2.) THE facts giving rise to this reference are as follows : This reference is in connection with the estate of Amritlal alias Bhailalbhai, who died on 21st Feb., 1962. The deceased was a partner along with two other persons, Revashanker and Nandlal, in a partnership firm which carried on business in the firm name and style of M/s Revashanker Balashanker. Each of the three partners had an equal share in the profits of the firm. In S. Y. 2002, the deceased had to his credit in the books of the partnership firm a sum of Rs. 54,858. On 22nd Oct., 1946, the account of the deceased was debited with the sum of Rs. 30,000 and each of his three minor sons, Jayantilal, Chandravadan and Navinchandra, was credited with a sum of Rs. 10,000. Accounts were opened in the names of the three minor sons and each of the three accounts was credited with a sum of Rs. 10,000 and the entries clearly show that the amount of Rs. 10,000 was given by the deceased to the son in whose name the account stood. Thereafter, the accounts of the three sons were continued in the partnership books. On 1st Jan., 1958, the account of the deceased with the partnership firm was debited with a sum of Rs. 24,000. By this time, the two sons, Chandravadan and Jayantilal, had attained majority and, according to the narration in the entries in the books of the firm, out of this sum of Rs. 24,000 debited to the account of the deceased, a sum of Rs. 12,000 was paid in cash to Chandravadan, and a similar amount of Rs. 12,000 was paid in cash to Jayantilal. It has been found by the Tribunal that Chandravadan and Jayantilal each deposited the sum of Rs. 12,000 received by him in his own account with the State Bank of India. Jayantilal deposited the amount on 31st Jan., 1958, and Chandravadan did so on 15th Jan., 1958. Later on Chandravadan drew a cheque for Rs. 11,000 on his account with the State Bank of India for the sum of Rs. 11,000 and deposited that sum with the firm of Revashanker Balashanker, that is the partnership firm in which the deceased was a partner. Subsequently, a sum of Rs. 1,000 was brought in by Chandravadan and the entire sum of Rs. 12,000 was thus credited in the account of Chandravadan though not immediately after the gift was made in 1958. In the same manner Jayantilal withdrew a sum of Rs. 10,000 from the State Bank of India by a cheque and deposited the said amount with the partnership firm on or about Maha Sud 10, S. Y. 2014. Later on, Jayantilal brought in the sum of Rs. 1,500 in his account with the partnership firm on Jeth Sud 1, S. Y. 2017, and ultimately a sum of Rs. 500 was brought in by Jayantilal on 14th May, 1962, i.e., in S.Y. 2018. Thus, by the time the deceased died, the entire amounts of Rs. 12,000 each that had been gifted to Chandravadan and Jayantilal in January, 1958, were brought back by them and were credited in their respective accounts. It has been found by the Tribunal that interest on the amounts standing to the credit of the three sons in their respective accounts were not being charged prior to S. Y. 2014, but after that year interest was being credited in their respective accounts; and the interest which the partnership firm was paying to these three sons was claimed and allowed as a deduction in the income tax assessment proceedings of the partnership firm.
(3.) ON these facts, the Assistant Controller held that the alleged gifts of Rs. 30,000 in the first instance and of Rs. 24,000 subsequently made by the deceased to his sons were invalid and in the alternative he held that, in any event, bona fide possession and enjoyment of the amounts has not been immediately assumed by the donees. Since these amounts were retained in the firm, wherein the deceased was a partner, the provisions of S. 10 of the Act would apply. In the result, he brought to charge the sum of Rs. 58,166, i.e., principal amount of Rs. 54,000 and interest on that amount. The accountable person thereafter preferred an appeal to the Appellate Controller and he held that the sum of Rs. 30,000 could not be said to have been gifted by the deceased and hence the sum of Rs. 30,000 together with interest referable to the same was includible in the principle value of the estate of the deceased. As regards the amount of Rs. 24,000, the Appellate Controller held that, though the gifts were genuine, the principle laid down by the Privy Council in Clifford John Chick vs. CIT of Stamp Duties (1959) 37 ITR (ED) 89 applied and hence he included the sum of Rs. 54,000 in the principal value of the estate of the deceased. He held that the interest referable to the sum of Rs. 24,000 should be ignored inasmuch as S. 10 of the Act would not be applicable to the subsequent accretion to the amounts gifted. Thereafter, there was an appeal to the Tribunal and the Tribunal held that the gifts of Rs. 30,000 and Rs. 24,000 were valid gifts. The Tribunal also held that S. 10 of the Act would not be applicable and the provisions of S. 10 were not attracted in this case. In the alternative, the Tribunal held that the interest referable to the sum of Rs. 30,000 could not be included in any event in the principal value of the estate passing on the death of the deceased and it also held that, according to the Department's own case, the interest in respect of the sum of Rs. 24,000 was not to be included in the principal value of the estate. Thereafter, at the instance of the Controller, the Tribunal has referred the abovementioned four questions to us.;