R.L. Gulati, J. - (1.) THE Income-tax Appellate Tribunal, Allahabad, has submitted this reference under Section 64(1) of the Estate Duty Act, 1953 (hereinafter referred to as " the Act "), for the opinion of this court on the following question of law : " Whether, on the facts and in the circumstances of the case, the sum of Rs. 35,000 was liable to estate duty as the property of the deceased under Section 10 of the Estate Duty Act, 1953 ?"
(2.) WHEN this reference came up before a Division Bench of this court, it noticed that there was a conflict between the decisions of two Division Benches of this court in Behari Lal Matanhelia v. Controller of Estate Duty, 1972 86 ITR 346. and Controller of Estate Duty v. Ramesh Chand Gupta, 1973 92 ITR 307 All.. The case was accordingly referred to a Full Bench and that is how it has now come up before us. Under Section 5 of the Act, a tax called estate duty is levied upon the estate of a deceased, which passes on his death. Section 10 of that Act creates a fiction, as a result of which property gifted by the deceased before his death is " deemed to pass " on his death in certain circumstances. That provision, as it stood at the material time, provided : " 10. 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 : Provided that the property shall not be deemed to pass by reason only that it was not, as from the date of the gift, exclusively retained as aforesaid, if, by means of the surrender of the reserved benefit or otherwise, it is subsequently enjoyed to the entire exclusion of the donor or of any benefit to him for at least two years before the death. . . ." The question in the instant case is as to whether Section 10 applies to the facts of the present case.
(3.) THE deceased person in the instant case is one Smt. Sita Bai. She was a partner in a firm of the name and style of M/s. Nekumal Pawan Dass, She had a four anna share in the firm. On different dates she made gifts of the aggregate value of Rs. 40,000 to her daughter-in-law, Smt. Hira Bai. THE gifts were made by transfer entries in the books of accounts of the firm by debiting the amounts to her account and crediting them to the account of the donee Smt. Hira Bai. THE Assistant Controller of Estate Duty found that out of the aggregate sum of Rs. 40,000, a sum of Rs. 5,000 was gifted within one year of the donor's death and hence it was liable to be ignored in the computation of the value of the estate of the deceased, as provided in Section 9 of the Act. As regards the balance of Rs. 35,000, he found that the same was not withdrawn by the donee immediately after the gifts were made. It was, however, withdrawn after a lapse of some time on different occasions between November, 1962, to February, 1963. From a copy of her accounts, which has been annexed to the statement of the case as annexure "C", it appears that in the year 1962-63, she transferred in her account with the firm a sura of Rs. 33,680'78 from another concern called N. P. Oil Industries and deposited a sum of Rs. 5,000 in cash. Thus, a sum of Rs. 35,000 which she had withdrawn earlier was once again brought back in the partnership firm as deposits in her name. Those deposits remained with the firm until the donor's death. THE firm, however, continued to pay interest to the donee on these deposits. On these facts the Assistant Controller of Estate Duty held that Section 10 was applicable and the sum of Rs. 35,000 was liable to be included in the estate of the deceased liable to estate duty for the following reasons: "Since this amount was deposited with the firm and the firm had invested it in its business, it is quite clear that the firm was getting some income from the utilization of this amount and since the deceased was also a partner in this firm, a share of income of the firm from the utilisation of this gifted amount was coming to the deceased also. Hence, it is absolutely clear that the deceased was not entirely excluded from the enjoyment of the benefits of this amount." This finding was affirmed on appeal by the Zonal Appellate Controller of Estate Duty, Delhi, but on second appeal, the Income-tax Appellate Tribunal took a different view and held that the sum of Rs. 35,000 was not liable to be included in the estate of the deceased. The Commissioner of Income-tax is aggrieved and at his instance this reference has been made,;