# CONTROLLER OF ESTATE DUTY, MADRAS v. PARV ATill AMMAL November 11;1974

- **Citation:** [1975] 2 S.C.R. 685
- **Court:** Supreme Court of India
- **Decided:** 1975
- **Bench:** H. R. Khanna, A. C. Gupta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/controller-of-estate-duty-madras-v-parv-atill-ammal-november-11-1974-6213
- **Pages:** 17

## Headnote

Estate Duty Act (34 of 1953) s. 10-Scope of.
A gift of immovable property under s. 10 of the Estate Duty Act, 1953, will
be dutiable unless the donee assumes immediate exclusive and bona fide possession and enjoyment of the subj'ect-matter of the gift, and there is no beneficial.
mterest reserved to the donor by contract or otherwise, that is, ( 1) the donee must
hav~ bona fide assume~ possession and. enjoyment of the propef!Y which is the
subiect matter of the gift to the exclusion of the donor, 1mmed1ately 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. The two conditions are uncumulative and unless each of these conditions is satisfied the property would be liable to estate duty. The second part of
the sectipn has two limbs, namely, that the deceased must be entirely excluded
(a) from the property, and_ (b) from any benefit by contract or otherwise. The
word 'otherwise' should be construed ejusdem generis and should be interpreted
to mean some kind of legal obligation or some transaction enforceable at law or
in equity which, though not in the form of contract may confer a benefit on the
donor. The ·Words 'by contract or otherwise' .however, do not control the words
'to the entire exclusion of the donor'. In order to attract the section, consequently, it is not necessary that the possession of the donor of·the gifted propCrt.y must
be referable to some contractual or other arrangement enforceable at law or in
equity. Even if the donor is content to rely upon the mere filial affection 'of his
sons with a view to enable him to continue to reside in the house, wllere the sub~
ject matter of gift is a house, it cannot be said that he was 'entirely excluded from
pcssession and enjoyment' within the meaning of the first limb of the section and,
therefore, the property will be deemed to pass on the death 10 the donor and. will
be subject to levy of e->tate duty.
[691C-692A]
In the present case, the deceased owned two ·buildings and some agricultural
I and.
He was carrying on the business of boarding and lodging in one of. the
buildings. In March, 1955, he executed a document, described as a partition deed,
whereby he gave possession of that building to his sons and retained for himself
the other house and agricultural land. In June, 1955 he entered into an agreement with his sons by which they leased to their father their house, wherein, as
before, he continued to carry on his business of boarding and lodging. The rent
fixed however was not paid in cash but only entries in books were made. The
deceased died on April 6, 1~57. The Assistant Controller under the Act held
that the house in which the busitia&& was carried on was liable to be taken into
account for asse<sing the estate 11t1iy and included it in the estate of the deceased.
On appeal to the Board of Direct Tax1<5 it was· held that the document Of March
1955 was not a partition deed; that the house was gified by the deceased to hlS
sons; that the deceased continued to be in undisputed possession of the building,
that the donor (deceased) had not been excluded from the enjoyment ·and possession of the property; and that therefore, estate duty was payable in respect of
that property under s. 10. On reference to the .High Court on the question whether on the facts and in the circumstances of the case the entire value of the building or any portion of its value was liable to be included In. the .estate of the de-
<;eased as property deemed to have passed on his death, the High Court proceecled
on the assumption that the document was a gift deed, that p<>saesdon and enioy-
.ment of the building were not retmned by the. sor.s of the deceaaed, 1llld held that
therefore it followed that only tht value of tht right to pouemon and en/O,ment
in the hands of the deceased, as a lessee, that would pass on bis.death and would
attract duty.
·
686
SUPRE

## Text

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CONTROLLER OF ESTATE DUTY, MADRAS
v.
PARV ATill AMMAL
November 11;1974
[H. R. KHANNA, A. C. GUPTA, JJ.]
Estate Duty Act (34 of 1953) s. 10-Scope of.
A gift of immovable property under s. 10 of the Estate Duty Act, 1953, will
be dutiable unless the donee assumes immediate exclusive and bona fide possession and enjoyment of the subj'ect-matter of the gift, and there is no beneficial.
mterest reserved to the donor by contract or otherwise, that is, ( 1) the donee must
hav~ bona fide assume~ possession and. enjoyment of the propef!Y which is the
subiect matter of the gift to the exclusion of the donor, 1mmed1ately 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. The two conditions are uncumulative and unless each of these conditions is satisfied the property would be liable to estate duty. The second part of
the sectipn has two limbs, namely, that the deceased must be entirely excluded
(a) from the property, and_ (b) from any benefit by contract or otherwise. The
word 'otherwise' should be construed ejusdem generis and should be interpreted
to mean some kind of legal obligation or some transaction enforceable at law or
in equity which, though not in the form of contract may confer a benefit on the
donor. The ·Words 'by contract or otherwise' .however, do not control the words
'to the entire exclusion of the donor'. In order to attract the section, consequently, it is not necessary that the possession of the donor of·the gifted propCrt.y must
be referable to some contractual or other arrangement enforceable at law or in
equity. Even if the donor is content to rely upon the mere filial affection 'of his
sons with a view to enable him to continue to reside in the house, wllere the sub~
ject matter of gift is a house, it cannot be said that he was 'entirely excluded from
pcssession and enjoyment' within the meaning of the first limb of the section and,
therefore, the property will be deemed to pass on the death 10 the donor and. will
be subject to levy of e->tate duty.
[691C-692A]
In the present case, the deceased owned two ·buildings and some agricultural
I and.
He was carrying on the business of boarding and lodging in one of. the
buildings. In March, 1955, he executed a document, described as a partition deed,
whereby he gave possession of that building to his sons and retained for himself
the other house and agricultural land. In June, 1955 he entered into an agreement with his sons by which they leased to their father their house, wherein, as
before, he continued to carry on his business of boarding and lodging. The rent
fixed however was not paid in cash but only entries in books were made. The
deceased died on April 6, 1~57. The Assistant Controller under the Act held
that the house in which the busitia&& was carried on was liable to be taken into
account for asse<sing the estate 11t1iy and included it in the estate of the deceased.
On appeal to the Board of Direct Tax1<5 it was· held that the document Of March
1955 was not a partition deed; that the house was gified by the deceased to hlS
sons; that the deceased continued to be in undisputed possession of the building,
that the donor (deceased) had not been excluded from the enjoyment ·and possession of the property; and that therefore, estate duty was payable in respect of
that property under s. 10. On reference to the .High Court on the question whether on the facts and in the circumstances of the case the entire value of the building or any portion of its value was liable to be included In. the .estate of the de-
<;eased as property deemed to have passed on his death, the High Court proceecled
on the assumption that the document was a gift deed, that p<>saesdon and enioy-
.ment of the building were not retmned by the. sor.s of the deceaaed, 1llld held that
therefore it followed that only tht value of tht right to pouemon and en/O,ment
in the hands of the deceased, as a lessee, that would pass on bis.death and would
attract duty.
·
686
SUPREME COURT REPORTS
(1975] 2 S.C.R.
In appeal to this Court,
A
HELD : The entire value of the property was liable to be included in the
estate of the deceased as property deemed to have passed on his death. [70!F]
(I) Secti<?n 10 would have to be construed for the purpose of this case as it
stood before its amendment by the Finance Act, 1965, that is, without the second
proviso. [691B-CJ
(2) If a gift comprises the full ownership of the property not shorn of any
right including '!eJ:!llncy right in favour of third parties, immediate bona fide
B.
physical possession and enjoyment of the gifted property must ordinarily be
assumed by the donee and retained thereafter to the exclusion of the donor in
order to prevent the incidence of estate duty.
In case, however, the
subi\:ctmatter. of the gift is property shorn of certain rights in the property, the residue
of the rig!Hs in the property would be the subject-matter of gift._ and, in such
an event it may not sometimes in the veiy nature of things, be possible for the
dDnee to assume physical possession and enjoyment of the property. In such
c\ases. the possessiQn and enjoyment of the gifted property which
may
be
(
assumed by the donee would only be such as is possible under the circumstances.
[6970-F].
In the present case, the property which was the subject matter of the gift was
the entire building with all the rights. The gift was not subject to any claim or
re~rvation. The donees had assumed pmses·;ion and enjoyment of the entirety
of the gifted property, but such possession and enjoyment of the building was not,
subsequent to the gift, retained by the donees 'to the entire exclusion of the donor
or of any benefit to him by the contract or otherwise'.
[696H-697B]
J)
Controller of Estate Duty Madras, v. C. R. Ramacha11dra Gotmder [1973] 88
I. T. R. 448, distinguished.
John La11g & Ors. v. Thomas Prout Webb, 13 C.L.R. 503, Clifford lolz11 Chick
& A11r. v. Commissioner of Stamp Duties [1958] A.C. 435; B. R. Munro & Ors. v.
Commissioner of Stamp Duties [1934] A.C. 61; Commissioner for Stamp Duties
of New South: Wales v. Perpetual :Trustees Company Ltd. (1943] A. C. 425; St.
Aubyn & Ors. v. Attorney-General [1952] A.C. 15; and Co111ro/ler of Estate Du~v
v. R. Kanakasabai & Ors. [1973] 89 ITR .251 refen-ed to.
(3) &ction 10 does contain the. words 'to the extent' which are not found in
the corresponding section of the New South Wales Act. The words 'to the extent'
connote that if the donee does not assume immediate boria fide possession ar:d
enjoyment of a part or fraction of the gifted property and th.enceforward retain
it to the entire exclusion of the donor or of any benefit to him by contract or
otherwise, it shall be that part or fraction of the gifted property which shall be
deemed to pass on the death of the donor. [699F·G]
In the present case, it was the ownership of the entire property which constituted the bundle of rights and the view urged on behalf of the· respondent and
accepted by the High Court that the estate duty was payable only in respect of
the value of the right to possession and enjoyment in the hands of the dei:eased
as a lessee of the building runs counte'r to the plain language of the section.
[7000-E]
George Da Costa v. Controller of Estate Dut~ Mysore [1967] 63 ITR 49'T
followed.
Rash Mohan Chatterjee &: Ors. v. Co11trol/er of Estate Duty West
Be11g~)
[!964] 52 ITR 1 (Estate Duty Part), referred to.
( 4) The basis on which the High Court and Board of Direct Taxes proceeclcd makes it unnecessary to remand the case for finding whether the deed of March
1955, constituted a deed of partition. [701D·E]
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Civn. APPELLATE JURISDICUON : Civil Appeal No. 1395 of 1970.
Appeal from the Judgment and Order dated the 4th March 196~>
H
of the Madras High Court in Tax Case No. 215 of 196S and Refer·
red No. 109 of.1965.
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CONTROLLER ESTATE DUTY v. PARVATHI (Khanna,/.)
687
B. B. Ahuja and S. P. Nayyar, for the appellant.
S. Swaminathan and S. Gop{lf.akrislman, for the respondent.
The Judgment of the Court was delivered by
KHANNA, J.-This appeal by the Control of E_state Duty on certificate is against the judgment of the Madras High Court whereby
that court answered · the following question referred to it under section 64(1) of the Estate Duty Act, 1953 (Act 34 of 1953) (hereinafter referred to as the Act) partly in favour ef the assessee and
partly in favour of the revenue :
"Whether,. on the facts and in the circumstances of the
case, the entire value of the property known as "Mayavaram
Lodge" or any portion of its value is liable to be included
in the principal value of the Estate of the deceased as pro·
· perty deemed to have passed on his death?"
The matter arises out of the estate duty case of Shri R. Venkateswara Iyer who died on April 6, 1957. The respondent, Smt. Parvathi
Ammal who is the widow of the deceased and is an accountable person
in the case, filed· statement relating to the estate of the
deceased
before the Assistant Controller of Estate Duty. The Assistant Controller determined the principal valne of the estate to be Rs. 2,50,374.
In computing the principal .. value the Assistant Controller took
into account a sum of Rs. 1,50,000 on account of the value of property known as "Mayavaram Lodge".
The Assistant Controller found that till March 11, 1955 the deeeased, who was 11 self-made man, owned .two buildings, including
Mayavaram Lodge, besides some agricultural land.
The deceased
was carrying on the business of boarding and lodging in Mayavaram
Lodge.
He had also a small chit business.
On March 11, 1955
the deceased executed. a document described as a partition
deed,
whereby he gave "Mayavaram Lodge" to his five sons in equal shares
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and retained for himself the other house and agricultural land. On
June 25, 1955 the deceased entered into an agreement with his sons
by which they leased to the deceased Mayavaram Lodge wherein
as before he continued to carry on his boarding and lodging business.
In the profit and loss account a sum of Rs. 15,000 was mentioned •
for payment of rent of Mayavaram Lodge.
Later on, the deceased
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gave the boarding house on sub-lease to a third party.
The respondent claimed that Mayavaram Lodge should be excluded from the estate duty assessment of the deceased on the gro:und
that the said property was transferred on March 11, 1955 more than
two years before his death.
It was urged that the fact that the sons
let out the building to the deceased should not be taken to be a
special benefit derived by the deceased. The respondent also pointed
out that Mayavaram Lodge was taken on lease long after the original
transfer and the lease and the transfer could not be treated as associated transactions. Plea was also taken that the document of March
11, 1955 constituted deed of partjtion of joint family properties.
13-L319Sup.CT/75
688
SUPREME COURT REPORTS
[1975] 2 s.c.R.
The Assistant Controller rejected these contentions.
He found
that the property referred to in the deed dated March 11, 1955 w~
the sel~acqu.ired property of the deceased and that there was no evidence to show that the deceased treated it as joint family proP4:rty.
He accordingly held that the deed, though described as a partition
deed should be treated as a settlement. Although the
se1tlement
was found to have been made by the deceased more than two years
before his death the fact that the deceased took back the property
from his sons ;horfly thereafter to continue his business
therein
showed, in the opinion of the Assistant Controll7r, that the decei~
got a direct benefit in the property.
The Assistant Con!toller
m
this context referred to the fact that there was not much mterval of
time betwee1 the settlement and lease and that the payment of rent
was not in c: sh but by book entries. The Assistant ControJer accordingly held th 1t Mayavaram Lodge was liable to be taken into account
for
assessin~ the estate duty. He accordingly included a sum of
Rs. 1,50,000 on that account.
The resp mdent preferred an appeal to the Board of Direct Taxes
against the oder of the Assistant Controller. The only ground which
was pressed before the Board related to the inclusion of the value
of Mayavara n Lodge.
It was urged on behalf of the respondent
that the prop :rty owned by the deceased became the joint family property and th2 t the deed of March 11, 1955 was a partition deed. In
the altemativ :, it was urged on behalf of the respondent that eyen
if the deed d March. 11, 1955 was a deed of settlement and not of
partition, the value of Mayavaram Lodge ought not to have br-en
included inru much as the deceased had tra!ijiferred his right, title
and interest n the above property more than two years prior to his
death.
The 3oard found that the deed, though executed on March
11, 1955 me re than twq years prior to the death of the deceased,
was registere< only on June 29, 1955. According to the Board, the
gift of Maya"aram Lodge became effective only on June 29. 1955
viz.! the date of registration.
As that date fell within the. statutorY
period of tw< years before the death of the deceased, the Assistant
Controller wa ; held to be justified in view of section 9 of the Act
in including he value of Mayavaram Lodge in the prinCipal value
of the estate of the deceased..
In the alternative. the oBard found
that the dece< sed continued to be in undisputed possession of Mayavaram Lodge.
It was held that the donor had not been excluded
from the enjc yment and possession of the property and.
therefore,
estate duty w; s payable in respect of that property under section XO
of the Act. ' 'he Board rejected the contention that the document
-of March 11, 1955 constituted partition deed. The appeal of the
respondent w~ ; accordingly dismissed. On being moved by the respondent the B iard referred the question reproduced above to the High
Court.
The High :::ourt held that the subject matter of allotment to the
sons by .the d ed of .March 11, 1955 was the entirety of Mayavaram
Lod_ge with al. the rights that could possibly go into it and that the
allotment was not subject to any claim to or right in that property.
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CONJ'.ROLLER ESTATE DUTY v. PARVATHI (Khanna, J.)
689
It was also held that on
the execution of the deed the sons had
assumed possession and enjoyment of the entirety of the house. The
High Court then referred to its earlier decision in V. S. Mani v.
Controller of Estate Duty(') wherein it had held that to the extent
to which the donor retains an interest in the entirety of the property
given away by him as gift, there will be pro tanto liability to estate
duty.
It ·was further observed by the High Court as under :
"Mayavaram Lodge was certainly a bundle of rights of
which possession and enjoyment formed a part which as we
have observed, were not subsequently to their assumption
retained by the sons of the deceased. To that extent, there
was non-exclusion of thei deceased. So far as the ownership
of the property is concerned, there can be no question that
the donees exclusively retained it. It follows that it is only
the value of the right to possession and enjoyment in the
hands of the deceased as a lessee that would pass on his
death and would attract duty. For the Revenue it is urged
that the entire premises being in the occupation and en.ioyment of the deceased until his death, its entire value would
pass. We are unable to accsde to this view because it does
not take note of the value of the other rights of the donees
including the onwership of the property, which they retained to the exclusion of the deceased.
Since we have held
that only to the extent of the non-exclusion mentioned· the
proportionate property referable to it would pass, it would
be necessary for the Revenue to apportion its value taking
all the facts into account and revise the assessment.
That is sufficient to dispose of the reference. In view
of this, we do not think it necessary to deal with the o•her
point as fo whether the transaction of
March 11, 1955,
amounted to a gift. We have proceeded on the basis that
it was a gift.
The question is answered partly in favour of the Revenue and partly in favour of the assessee. This is because~
on the view we have expressed, the Revenue cannot charge
estate duty on the entire value of the property, while at the
same time the accountable person cannot . ~ape duty to
the extent of the non-exclusion we have indicated."
In appeal before us Mr. Ahuja· on behalf of the appellant has
assailed the judgment and reasoning of the High Court and has
'On.tended that as subsequent to the deed of March 11, 1955, which
as observed by the High Court would have to be assumed to be a·
deed of gift, the donor took the gifted property on lease, the · donees
cannot be said to have retairaed possession of that property "to the
entire exclusion of the donor ·or of any benefit to him bv contract
or otherwise".
As against that Mr. Swaminathan on behalf of the
respondent has canvassed for the correctness of the view taken by
the High Court.
(i){t966] 60'T.T. R. 810.
690
SUPREME COURT REPORTS
(1975] 2 s.c.R.
Before dea ing with the contention of the parties, we may refer
to the relevan1 provisions of the Act.
According to section 2 ( 16),
"property pass ag on the death" includes property passing either im.-
med1atel y on t te death or after any interval, either certainly or coD1tin,gently, and :ither originally or by way of substitutive limitation.
Section 5 cont ins the charging provision, and provides that "in th1~
case of every I ~rson dying after the commencement of this Act, tltere
shall, save as l ~reinafter expressly provided, be levied and paid upon
the principal w ,ue ascertained as hereinafter provided, of all property,
settled or not 1ettled, including a<""i ·~-~ra, land ...... which passe1;
on the death c: such person,·~ ,·~ ..:•.uled "estate duty" at the rates
fixed in accord mce with section 35".
According to section 6, property which th1 deceased was at the time of his death CO!llpetent to
dispose of shall be deemed to pass on his death. Sub-section ( 1) of
section 7 of tl e Act provide~ that subject to the provisions of that
section, propert / in which the deceased or any other person had an
interest ceasing on the death of the deceased shall be deemed to pass
OIJ the de.cease1 .'s death to the extent to which a benefit accrues or
arises by the Cl aser Of such interest, including in particular, a Copar-·
cenary interest . n the joint family property of a Hindu family govern-·
ed by the
Mi akshara,
Marumakkattayam or Aliyasantana
law.
According to s ction 9, property taken under a disoosi'ion made by
the deceased p• rporting to operate as an immediate gift imer vivos
whether by wa~ of transfer, delivery, declaration of trust, settlement
upon persons ii succession, or otherwise, which shall not have been
bona fiLle made two years or more before the death of the deceased
shall be deeme1 to pass on the death :
Provided that in the case
of gifts made f >r public charitable purposes the period shall be six
months.
Sectio t 10 of the Act reads as under :
"10. G fts whenever made where donor not
entirely
excluded.- Property taken under any gift, whenever made,
shall be de :med to pass on the donor's death to the extent
that bona . ;ide possession and enjoyment of it was not immediately a ;sumed by the donee and thenceforward retainC<!
to the entir: exclusion of the donor or of any benefit to him
by contrac1 or otherwise :
·
Provide l that the property shall not be deemed to pas~
by reason c nly that it was not, as from the date of the gift,
exclusively rctai·aed as aforesaid, if, by means of the surrender 04' t ;e reserved benefit or otherwise it is subseauently enjoyed 'to the entire exclusion of the' donor or of any
benefit to l im for at least two years before the death.
P~ovide
1 further that a house or part thereof taken under
any gift ma1 e to the spouse, son, daughter, brother or sister,
shall not be deemed to pass on the donor's death by reason
~nly of the residence therein of the donor exceot wliere a
~1gh.t of res dence therein is reserved or secured directly or
l.IldJrectly t< the donor under the relevant disposition or
under any C< llateral disposition."
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CONTROLLER ESTATE DUTY v. PARVATHI (Khanna, J.)
691
It may be mentioned that the l?eriod "tW<? years" in sub-s~ction
( 1 ) of section 9 and the first proviso to section 10 was substituted
for "one year" by the Finance Act, 1966 (Act 13 of 1966). The
second proviso to section 10 was inserted by the Finance Act, 1965
(Act 10 of 1965).
The amendment brought about by the Finance Act, 1965 by inserting second proviso to section 10, as observed by this Court in the cas·~
of George Da Costa v. Controller of Estate Duty, Mysore(:1), was not
retrospective. The said section would consequently have to be construed for the purpose of this case which relates to the estate of the
deceased who died on April 6, 1957, as it stood before the amendment.
The intention of the· legislature in enacting section 10 of the Act
was to exclude from liability to estate duty certain categories of gifts.
rA gift of immovable property under section 10 will, however,
be
dutiable unless the donee assumes immediate. yxclusive and bona fide
possession and enjoyment of the subject-matter of the gift, and there
is no beneficial interest reserved to the donor by contract or otherwise.
The section mus( be grammatically construed as follows : "Property
taken under any gift, whenever made, of which property bona fide
possession and enjoyment shall not have been assumed by the donee
immediately upon the gift, and of which property bona fide possession and enjoyment shall not have been thenceforward retained by
the donee to the entire exclusion of the donor from such possession
and enioyment, or of anv benefit to him, bv contract or otherwise".
The crux of the section lies in two parts : (1) the donee must bona
fide have assumed possession arid enjoyment of the property, which is
the subiect-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 exclu<i0n of the donor or
of any benefit to him, by contract or otherwise. Both these conditions
are cumulative. Unless each of these conditions is sati<fied, the oroperty would be liable to estate duty under section 10 of the Act (see
George Da Costa v. Controller of Estate Duty Mysore, supra).
·
The second part of the section, as observed in the above mentioned C'ase, has two limbs : the deceased must be entirely excluded,
( D from the property and (ii') from any benefit by contract or otherwise.
The word "otherwise" should be consfrued ejusdem generis
and should be interpreted to mean some kind of legal obligation or
some transaction enforceable at law or "in equity which though not
in the form of a contract. may confer a benefit on the donor.
The
words "by contract or otherwise" in the second limb of the section
do not control the words "to the entire exclusion of the donor'' in
the first limb. In order to attract this section, it is consequent!v not
necessary that the possession of the donor of the gifted property must
be referable· to some contractual or other arrangement enforceable.
~t law or in equity. Ev·~n if the donor is content to rely upon the
mere filial affection of his sons with a view to enable him to continue
to reside in the house, it cannot be said that he was "entirely excluded
(I) (1967] 63 T.T.R. 497.
692
SUPREME COURT REPORTS
(1975) 2 S.C.R.
from possession and enjoyment" within the meaning of the first limb
of the section and, therefore, the property will be deemed to pass on
the death of the donor and will be subject to levy of estate duty.
The object underlying a provision like section 1 O of the Act was
explained by Issacs J. in the case of John Lang & Ors. v. Thomas
Prout Webb ( 1) decided by the High Court of Australia in 1912 in the
following words :
"The owner of property desiring to make a gift of it to
another may do so in any manner known to the law. Apparent gifts may be genuine, or colourable, and experience
has shown that frequently the process of ascertaining their
genuineness is attended with delay, expense and uncertainty
-all of which are extremely embarrassing from a public
revenue standpoint.
With a view to avoiding this inconvenience, the legislature has fixed two standards, both of them consistent with
actual genuineness, but primtt f acie indicating a colourable
attempt to escape probate duty.
One is the standard
of
tent with the gift. . The prima f acie view is made by the
twelve months before the donor's death is for the purpose
of duty regarded as not made. The other is conduct which
at first sight and in the absence of explanation is inconsistent witn the gift. The prima facie view is made by the
legislature conclusive.
If the
parties to the
transaction
choose to act so as to be in apparent conflict with its purtport, they are to be held to their conduct.
The validity of the transaction itself is left untouched,
because it concerns themselves alone.
But they are not to
embarrass the public treasury by equivocal acts."
The court in that case was co,ncemed with the COl}Struction of section
11 of the Administration and Probate Act, 1903 which
wads
as
·under :
"Every conveyance or assignment gift delivery or transfer of any estate real or personal and whether made ~efore
or after the conmmencement of this Act, purportmg to
operate as an immediate gift inter vivas whether .bY way of
transfer delivery declarntion of trust or otherwtse shall-
( a) if made within twelve months immediately preceding
the death of the person so dying; or
(b) if
made at any time relating to any
property of
whicn property bona fide passession and enjoyment
shall not have been assumed bv the donee immediately upon the gift and thenceforward retained to
the entire exclusion of the donor or of any benefit
to him by contract or otherwise
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13 C.L.R. 593.
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CONTROLLER ESTATE DUTY v. PARVATHI (Khanna,!.)
693
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be deemed to have been made the property to which the
same relates chargeable with the payment of the duty payable
under the Administration and Probate Acts as though part
of the estate of the donor."
B
In that case a testarix was the owner in fee of land in her actual
posse.ssion and enjoyment, which she worked as a single property.
More than twelve months before her death she gave to her three
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sons blocks of this land each of which was surrounded by other land
of the testarix.
The gift was made by conNeyances of so much of
the land as was under the general law, and by transfers of so much
of it as was under the Transfer of Land Acts.
On the same day
upon which the conveyance and transfers were executed, each of the
sons executed a lease. for five years of the land given to him to the
testarix at fair and reasonable rent. After the gifts the lands given
continued to be in the actual physical occupation of the testarix and
to be worked by her with her other land in the same way as before
the gifts. The testarix died before expiration of the leases. It was
lield that the land so given was chargeable with the payment of the
duty payable under the Administration and Probate Acts as though
part of the estate of the testarix. Issacs J. in this context observed :
"The lease, however, gave to the donor possession and
enjoyment of the land itself, which is a simple negation of
exclusion, and brings the case within the statutory liability.
It was argued that as the rent was full value, the lessee's
possession and occupation were not a benefit. The argument is unimportant because the lease, at whatsoever rent,
prevents the entire exclusion of the donor."
The above reasoning of Issacs J. was approved by the Judicial Committee in the case of Clifford John Chick & Anr. v. Commissioner of
Stamir1 Duties( 1) wherein the judicial Committee dealt with a case
under section 102 of the New South Wales Stamp Duties Act, 192056. The aforesaid section provided that "for the purposes Of the
assessment and payment of death duty but subiect as hereinafter provided the estate of a deceased person shall be deemed to include and
consist of the following classes of property : .... (2) (d) Any pro,
perty comprised in any trlft made by the deceased at anv time, whether
before or after the passing of this Act of which bona fide possession
and enioyment has not been assumed bv the donee immediatelv uT10n
the gift and thencefort'1 retained to the entire exclusion of the dee-eased
or of any benefit to him of whatsoever kind or in any way whatsoever whether enforci!able at law or in equitv or not and whenever the
d~ased died." In that case a. father transferred in 1934 by way of
gift to one of his sons pastoral proDCrty. The l!ift was made without
re.~ervation· or Qualification or condition. In 193~. some 17 months
after the gift, the father, the donee son and another son entered into
an :'ll!l'Ci'Ornent to carrv on· in partners'1io the busine~s of grazlers and
stock dealers: The agreement · provided, inter alia, that the father
(I) (1958] A. C. 435. -
1) 94
SUP.REME COURT REPORTS
[1975] 2 s.c.R.
should be the manager of the business imd that his decision should be
final and conclusive in r.onnection with all matters relating to its conduct; that the capital of the business should consist of the livestocks
and plant then owned by the respective partners; that the buiiiness
should be conducted on the respective holdings of the partners and
such holdings should be used for the purp.oses of the partnership only;
that all lands held by any of the partners on the date of the agr.eement
should be conducted on the respective holdings of the partners and
any consideration be taken into account as or deemed to be an asset
of the partnership, and any such partner should have the sole and
free light to deal with it as he might think fit. Each of the three partners owned a property, that of the donee son being that which had
been given to him by hi.s father in 1934. Each partner brought into
the partnership livestock and plant, and their three properties were
thenceforth used for thi: depasturing of the partnership stock. This
arrangement continued up to the death of the father in 1952. It was
held that the value of the property given to the son in 1934 was to
be included in computing the value of the father's estate for the pur--
poses of d~ath duty.
While it was not disputed that the son had
assumed bona fide possession and enjoyment of the property immediately upon the gift to the entire exclusion of the fa•her, it was
found that he had not thenceforth retained it to the father's entire
exclusion, for under the partnership agreement the partners and each
of them were in possession and enjoyment of the property so long as
the partnership subsisted. The Judicial Committee hold that where
the question is whether the donor has been entirely excluded from the
subject-matter of the gift, that is the single fact to be determined, and,
if he has not been so excluded, the eye need look no further to ~
whether his non-exclusion has been advantageous or otherwise to the
donee. In the opinion of the Judicial Committee, it was irrelevant that
the father gave full consideration for his rights as a member of the
partnership to possession and enjoyment of the property that he had
given to his son. Sir Garfield Barwick (as he then was), who was
the counsel for the appellant in that case, pointed out that on the
respondent's oonstruction, if a father gave a house to his son, and
later the son turned it into a hospital, and the father, havin!! been
taken ill, went into it as a paying patient, liability to duty would arisealthough it may be the only hospital in the area. The case, however
in view of the language of the statute was decided in favour of th~
Commissioner of Stamp Duties, who was the respondent in the case.
The following six points emerge from Chick's case :
(1) The deceased was not in fact excluded from
the
property, but as a partner enjoyed rights over it.
(2) There was an initial outright gift of the property-not
of the property shorn of certain rights.
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(3) It wa~ immaterial that the partnership
agreement
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was later than the ¢ft, since the Section required
that possession and enjoyment should "thenceforth"
be retained to the exclusion of the donor.
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CONTROLLER ESTATE DUTY v. PARVATHI (Khanna, J.)
6 95
( 4) Jt was also immaterial that the partnership was "an
indeP,endent commercial transaction," and that the
donor aave full consideration .for his rights. If a
donor gives a donee a freehold and the donee gives
the donor a lease, even at a full rent, the donor is
not excluded from the property.
(5) The question whether the partnership agreement was
"related" or "referable" to the gift did not arise :
the question is ·relevant only to the second limb of
the clause.
( 6) It was immaterial that the donee could make no
better use of the property .. "Where the question is
whether the donor has been entirely excluded from
the subject matter of the gift that is the single fact
to J>e determined. If he' has not been so excluded,
the eye need look no further to see whether this nonexclusion has been advantageous or otherwise to the
donee."
(see p. 276 of Dymond's Death Duties, 14th Ed.)
So far as point No. ( 4) is concerned,· the law was subsequently
amended by section 35(2) of the Finance Act, 1959. Under that
clause, the donor's actual occupation of the land, enjoyment of an
incorporeal right over the. land or possession of the chattels is to be
disre2arded if for fuU consideration, e.g., if he paid a full rent to the
donee or occupied it under a lease for which he gave full value.
There is one other principle and that relates to gift of property
shorn of certain rights belonging to the partnership in· which the
donor is a partner. In such a case the benefit remaininl! in the donor
is referable to the partnership agreement and not to the gift. This
principle can be illustrated by reference to two cases, one decided
by the Judicial Committee iri 1933 and the other bv this Court in
1973. The Judicial Committee's· decision is in the case of H. R. Mu11ro ·
& Ors. v. Commissioner of Stamp Duties,'(I) while that of this COurt
is in. the case of Controller of Estate v·uty Madras v. C. R. Rama·
Chandra Gounder.(2)
·
In the case of H. R. Munro M who was the owner ·of 35.000
acres of land in New South Wales on which he carried on the business of a grazier, verbally agreed with his six children that thereafter the business should be carried on by him and them as partners
under a partnership at will. The business was .to be managed solely
by M and each partner was to receive a specified share of the profits.
In 1913. M transferred by way of gift by means of six registered
deeds all his right title and interest in the portions of his lanc) . to each
of his four sons and to trustees for each of his two daughters and
(1) [1934] A. C. 61.
(2) [1973) 88 T.T.R. 448.
696
SUPREME COURT REPORTS
[1975] 2 s.c.F ..
their children. The transfers were taken subject to the partnership
agr~ement, and on the understanding that any partner could withdraw
and work his land separately. In 1919 M and his children entered
into a formal partnership agreement, which provided that during the
lifetime of .M no partner should withdraw from the partnership. On
the death of M in 1929 the land transferred in 1913 was included in
assessing his estate to death duties under the Stamp Duties Act on
the ground t)iat they were gifts dutiabl1! under section 102 of the New
South Wales Stamp Duties Act, 1920. It was held that prop..:rty comprised in the transfers was the land separated from the rights therein belonE:ing to the partnership and was excluded by the terms
of
section 102, sub-section 2 (a) , from being dutiable,
because
the
donees had assumed and retained possession thereof, and any benefit
remaining in the donor was referable to the partnership agreement of
1909 and not to the gifts. In the case of Ramachandra Gounder the
deceased who was a partner in a firm owned a house property let to
the firm as tenant-at-will. In August, 1953, he executed a deed of
settlement under which he transferred the property let to the firm to
his two sons absolutely and irrevocably and, thereafter, the fmn paid
the rent to the donees by crediting the amount in their accounts in
equal shares, The deceased further directed the firm to transfer from
his account a sum of Rs. 20,000 to the credit of each of his
five
sons in the firm's books with effect from April 1, 1953 and he also
informed them of this transfer. An amount of Rs. 20,000 was credited
in each of the sons' accounts with the firm. The sons did not withdraw any amount from their accounts in the firm and the amounts
remained invested with the firm for which interest at 7t per cent was
paid to them. The deceased continued to be a partner of the fimt till
April 13, 1957, when the firm was dis.solved and thereafter he died
on May 5, 1957. The question was whether the value of the house
property and the sum of R1;. one lakh could be included in the principal value of the estate of the deceased as property deemed to pass
under section 10 of the Estate Duty Act, 1953 .. This Court held that
neither the hciusc property nor the sum of Rs. one lakh could be
deemed to pass under section 10. The first two conditions of the
section were satisfied because there was an ··unequivocal transfer of
the property by a settlement deed and of the sum of Rs. one lakh by
creditinit ·the amount in each of the sons' accounts with
the
firm
which thenceforward became liable to the sons for payment of that
amount and the interest thereon. The possession which
the donor
could give was the legal possession which the circumstan<:es and the
nature of th~ property would admit and this the donor had given. The
benefit the donor had as a member of the partnership was not a benefit referable in any way to the gift but was unconnected therewith.
'I he present case, in our opinion, clearly falls within the purview
of the dictum laid down by the High Court of Australia in the case
of John Lang (supra) and of the Judicial Committee in the case
llf
John Chick (supra). As already mentioned, the High Court has found
that the property which was the subject-matter of the gift under the
deed of March 11, 195'5 was the entirety of Mayavaram Lodge with
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CONTROLLER ESTATE DUTY v. PARVATHl (Khanna, !.)
6 97
all the rights and that the gift was not subject to any claim on reservation. It has also been found that on the execution of the aforesaid
deed the donees assumed possession and enjoyment of the entirety o~
the house. On June 25, 1955 the donor took the aforesaid house on
lease from the don.ees. These facts would show that the possession
and' enjoyment of Mayavaram Lodge was not subsequent to the gift
retained by the donees "to the entire exclusion of the donor or of any
ben\:fit to him by' contract or otherwise". Mayavaram Lodge as such
shall be deemed to pass on the death of the deceased under section
10 of the Act. The case of Ramachandra Gounder
(supra)
upon
which great reliance has been placed by Mr. Swaminathan can hardly
be of much assistance to him because in that case the gifted property
was subject to the tenancy-at-will granted to the firm Ramachandra
Gounder's case was thus covered by the principle laid down in
Munro's case.