CONTROLLER OF ESTATE DUTY, KERELA versus M/S. R. V. VISHWANATHAN & ORS.

Citation: [1977] 1 S.C.R. 649 · Decided: 21-09-1976 · Supreme Court of India · Bench: HANS RAJ KHANNA · Disposal: Dismissed
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Judgment (excerpt)

• 
G49 
CONTROLLER OF ESTATE DUTY, KERALA 
A 
V. 
M/S. R. V. VISHWANATHAN & ORS. 
Sevtember 21, 1976 
LH. R. KHANNA, N. L. UNTWALIA AND JASWANT SINGH, JJ.] 
B 
Estate Duty Act (34 of 1953), s. 10-Gift of property witen deemed to be 
;part of lite estate of tite deceased-donor. 
The deceased, with a view to convert his proprietary business into partner-
ship business with his four major sons, transferred a sum of Rs. 15,000/- from 
his personal account to the credit of each of them. Five days later the partner-
ship deed was executed, treating the sums transferred by the deceased to each 
of his four sons as their share capital in the partnership. A day later, the two 
minor sons of the deceased were also admitted to the benefit of the partnership. 
On the same day, the decease.d transferred a sum of Rs. 45,000/- from his per-
sonal account to each of these two minor sons 
and an agreement was 
also 
executed on that day. 
That agreement recited that the capital of the partner-
ship would be Rs. 3,15,000 made up by the contribution of Rs. 45,000 by the 
.deceased and each of his six sons and that the share of the deceased and his six 
sons in profits would be I/7th each. 
In the estate duty proceedings that followed the death of the deceased, the 
Assistant Controller of Estate Duty applied the provisions of s. 10 of t~e Estate 
Duty Act, 1953, and included in the estate of the deceased 
the 
capital of 
Rs. 2,70,000 which was the value of the shares of the six sons in the business. 
The Tribunal however held that what, the deceased gifted to his sons was only 
.a share in the business and not a gift of cash and that therefore, the sum of 
Rs. 2,70,000 could not be included in estate of the deceased. On reference the 
High Court confirmed the decision of the Tribunal. 
Jn apreal to this' Court, it was contended on behalf of the Revenue that there 
was an absolute gift of Rs. 45,000/- by the deceased in favour of each of his 
sons and ais that amount was, subsequent to the gift, utilised for the purpose of 
.business of which the deceased-donor was at first proprietor and then a p;;rtner, 
the case was covered by s. 10. 
Dismissing the appeal, 
HELD : (I) Property, which is the subject matter of gift, would not be 
deemed to be a part of the estate of the deceased, under s. JO, if each of the 
two following conditions is satisfied, namely, (a) the donee has bonafide assumed 
possession and enjoyment of the property, to the exclusion of the donor, imme-
diately upon the gift, and (b) the donee has retained such possession and enjoy-
ment of the property to the entire exclusion of the donor or of any benefit to 
him, by contract or otherwise. The two conditions are cumulative. The second 
part has two limbs : the deceased must be entirely exduded, (i) from the pro-
perty and, (ii) 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 a contract, may confer a benefit on the donor. 
But the words 'by contra·~t 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. There-
fore, property gifted will deem to pass on the death of the donor and be subject 
to estate duty, even if the possession of the donor of the gifted property is not 
referable to· some contractual or other arrangement enforceable in law or in 
equity but only to mere filial affection of his sons, [654 A-D] 
(2) (a) Whether gifted property should be held to be a part of the estate 
of the deceased-donor passing on his death for the purpose of s. 10, would 
c 
D 
E 
f 
G 
H 
A 
B 
c 
D 
E 
F 
G 
H 
650 
SUPREME COURT REPORTS 
[1977] 1 S.C.R. 
depend upon t_he fact as t_o what precisely was the subject matter of the gift and 
V.:hether the gift. was of an absolute nature or whether it was subject to certain 
nght~.. If the g_1ft of property be made without reservation or qualification or 
cond1t_10n, that 1~, where th~ gift carries the fullest right known to the law of 
exclusive possess10n and en1oyment, any subsequent enjoyment of the benefit 
of that property by the donor, in the nature of possession or otherwise would 
according to s. 10, attract the levy of the estate duty on the death of the'. donor. 
[655 D-E] 
George.da Cos/{I v. Controller of Estate Duty 63 ITR 497 and Controller
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