CONTROLLER OF ESTATE DUTY Vs. S M M SUBRAMANIAN CHETTIAR

JUDGEMENT

(1.) THIS reference arises out of the estate duty proceedings consequent on the death of one S. M. M. Muthukaruppan Chettiar on October 19, 1961. He was a partner in a firm of money-lenders in Malaya called "Messrs. S. M. M. Firm". He made gifts during his lifetime as follows :Date of Original Amount out Name of donee Relation- Date ofgift of the gifted ship evidencingproperty incl- the transa-uded u/s. 10 ction.(1) (2) (3) (4) (5)6-.4-1938 Malayan Dollar Valliammal Achi Married 7-4-19552, 059 Daughter12-4-1950 7, 405 Sornawalli Achi do. 7-4-195513-4-1954 3, 000 S. M. M. DharmaKannaku (Trust Charity 29-3-1955Accountant) Grandson10-6-1954 15, 000 Krishnan do. 7-4-1955do. 15, 000 Ramanathan do. do.do. 15, 000 Venkatachalam do. do.do. 15, 000 Sornathan do. do.6-2-1939 17, 587 S. M. M. Subramanian Son 7-4-195510-6-1954 6, 250 Chettiar96, 301It is not clear as to when the deceased Muthukaruppan Chettiar became a partner in S. M. M. Firm. From the table given above it would be seen that one of the gifts is on April 6, 1938, another on February 6, 1939, a third one on April 12, 1950, and a fourth one on April 13, 1954. The firm was reconstituted with effect from 10th June, 1954. On that date his son joined the firm as a partner. Prior to the son joining the firm the deceased had 12 1/2 % share in the firm. As a result of the son joining the firm, his share was reduced to 6 1/4 per cent. and the son got 6 1/4 per cent in the firm. On that day four sums of 15, 000 Malayan dollars were gifted to the four grandsons, as mentioned above, and another sum of 6, 250 dollars was gifted to his son, who became a partner.With reference to Valliammal Achi, who is the married daughter, and the gift in whose favour is referred to as item No. 1 in the above table, the position was as follows :On 17th December, 1937, a house was purchased in No. 33, Jalan Deva Road, Sungaipattani, Malaya, for $ 4, 941.

(2.) THE relevant consideration was debited to her account in the books of S. M. M. Firm, Sungaipattani, Malaya. She received as gift on 6th April, 1938, a sum of 7, 000 dollars as a result of which her account stood with a credit balance of $ 2, 059. It is this amount which has been included in the assessment. It may be mentioned here that on 7th April, 1955, the deceased executed a deed of declaration saying that he gifted to her on several dates certain sums which had accumulated to $ 21, 971.94 with interest, etc., and that she and her heirs were the absolute and free owners of the said sums. THE deceased declared that he had no interest whatsoever in the said sum. All the other transactions fall into the same pattern, i.e. entries in books followed by the deed evidencing the transactions as shown in column (5) above.To the gifted amounts, as lying in deposit with the aforesaid firm, were added interest and other receipts from time to time and there were also drawings for various purposes by the respective donees. We are concerned here with the gifted amounts totalling $ 96, 301.On the above facts, the Assistant Controller of Estate Duty considered the applicability of section 10 of the Estate Duty Act. He took a sum of $ 1, 03, 708 as the amount with respect to which section 10 was considered applicable. After referring to the gifts, he held that the donees invested the monies either wholly or in part in the firm of Messrs. S. M. M. Firm, Sungaipattani, Malaya, in which the deceased was a partner till his death so that the investments by the donees, to the extent they had originated from the gifts referred to above, fell within the mischief of section 10 of the Estate Duty Act. He referred in this connection to the decision of the Privy Council in Clifford John Chick v. Commissioner of Stamp Duties.THE Appellate Controller reduced the addition to $ 96, 301 as set out in the table given earlier here. He confirmed the applicability of section 10 to the extent of the said amount. On further appeal, the Appellate Tribunal held as follows :".... by reason of the donor being a partner in the firm in which the amounts gifted by him to the donees are deposited or invested, it cannot be said that the possession and enjoyment of the property taken under gift was not retained to the entire exclusion of the donor... the enjoyment contemplated under section 10 of the Estate Duty Act, 1953, is enjoyment of the rights of the donees, and the enjoyment of the money after it was deposited is different from the enjoyment by the firm of the rights of the donees. As far as the donees are concerned, they did not share any of their right - right to income, right to assign, right to pledge - with the deceased partner of the firm. Moreover, a partner in the firm cannot be said to be the owner of any specific share in any partnership property and in that view he can neither transfer nor be the transferee of such specific share in the property. THE deceased had no right or interest in and, therefore, could not be said to have enjoyed the deposit made by the donees in a firm in which he was a partner.In coming to this conclusion it cited several decisions and observed that the matter had been dealt with by them in another order dated 31st October, 1967.

(3.) THIS sum was the total of two sums, viz., Rs. 60, 000 and Rs. 25, 000. As regards the gifts covered by the sum of Rs. 60, 000 it was found that the deceased gifted Rs. 15, 000 each to his four sons on 1st April, 1955. They were first invested in a proprietary concern and later withdrawn and invested in a firm in which the deceased was a partner. As the sum of Rs. 60, 000 was gifted in cash by the deceased and as it was subsequently invested in a firm in which the deceased was a partner, this court held that section 10 was applicable to it. As regards the sum of Rs. 25, 000 the contention before the High Court was that the gifts were effected by making credit entries in favour of the assessee in the partnership accounts by making debit entries against the deceased partner. The further contention, with reference to the said sum, was that it was a gift "shorn of the rights of the partnership to use the same". Alternatively, it was contended that it should be treated as transfer of "actionable claim". It was pointed out in the judgment that if the gift was made only by book entries in the firm's accounts, then, in view of the decision of the Supreme Court in Ramachandra Gounder's case and under the principle laid down in Munro's case, the gift had to be taken as shorn of the rights of the partnership to use the monies, in which case section 10 could not stand attracted but if it was a case of gift of case, then section 10 would apply. The Tribunal was directed to determine the factual question as regards the sum of Rs. 25, 000 in consequential proceedings to be taken under section 64(6) of the Estate Duty Act.We may also point out that the Gujarat High Court in Sakarlal Chunila v. Controller of Estate Duty had also to consider the scope of the applicability of section 10 and have considered it in the light of the decision of the Supreme Court in Ramachandra Gounder's case. With reference to the sum credited to donees by book entries, the Gujarat High Court applied the decision of Ramachandra Gounder's case and held that section 10 did not apply. With reference to the cases where the amounts were gifted outright by the deceased in favour of the donees who actually received the amounts gifted and thereafter deposited the amounts with the firm in which the deceased was a partner, it was found that the subject-matter of the gift was a sum of money which was given without reservation or qualification, and that, therefore, the gift was not liable to be taken as "shorn of the rights of the partnership."The above discussion would go to show that we have to first ascertain the subject-matter of the gift. We have to see whether it was merely an existing balance in the shape of an actionable claim in which event the provisions of the Transfer of Property Act should have been adhered to.