CONTROLLER OF ESTATE DUTY versus KAMLAVATI AND SHRI JAI GOPAL MEHRA

Citation: [1980] 1 S.C.R. 527 · Decided: 05-09-1979 · Supreme Court of India · Bench: N.L. UNTWALIA · Disposal: Dismissed
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Judgment (excerpt)

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CONTROLLER OF ESTATE DUTY 
v . 
KAMLAVATI AND SHRI JAI GOPAL MEHRA 
September 5, 1979 
527 
[N. L. UNTWALIA, R. S. PATHAK AND E. S. VENKATARAMIAH, JJ.] 
A 
B 
"4. 
Estate Duty Act, s. 10-Scope of-Deceased gifted n1oney 
to son-Son 
.J 
became partner of the finn in which donor continued to be partner-Gift-
Whether dutiable on the death of father. 
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The deceased was a partner in a partnershtp firm with a half share in it. 
On March 27, 1957 he 
made a gift of Rs. 1,00,000/-
to his 
son 
and 
C 
Rs. 50,000/- to his wife, the respondent. Almost simultaneously his son was 
taken as a partner by giving him half share of the deceased, so that from that 
time onwards there were four partners of whom the deceased and his son. had 
t share each. On the death of the deceased in 1962 his i share was taken by 
his wife and son equally. 
The Reveriu'e Authorities included the sum of Rs. 1,50,000/ in the estate-
D 
of the deceased for the purposes of estate duty. 
On appeal the Tribunal was 
of the view that s. 10 of the Estate Duty Act was not attracted to the gifts. 
The High Court answered the reference in favour of the assess'ee. 
Dismissing the Revenue's appeal 
HELD : The Tribunal as well as th~ High Court \Vas right in holding that 
, no estate duty was payable in respect of the t\VO sums. 
[537B] 
1. When property is gifted' by a donor, possession and enjoyment of which 
is allowed in a partnership firm in \Vhich the donor was a partner, the mere 
fact that the donor was sharing the enjoymeD.t or benefit in the property is not 
sufficient for the applicatian of s. 10 of the Act unless such enjoyment or bene-
fit is clearly referable to the gift. If possession, enjoyment or benefit of the 
donor in the property is consistenti with the facts and cirCumstances of the case, 
other than those .of the factum of gift, th'en it cannot be said that the donee 
had not retained possession and enjoyment of the property to the entire exclu-
sion of the donor, or, to the entire exclusion of the donor in any benefit to 
him by contract or otherwise. It makes no difference whether th'e donee is a 
partner in the firm from before or is taken as such at the time of the gift 
or he becomes a cr'editor of the partnership firm by allowing the firm to make 
use of the gifted property for the purposes of' the partnership. [535G-HJ 
(a) Although in a given case the donee assumes bona fide Possession and 
enjoyment of the property immediately upon the gift to the entire exclusion of 
the donor, if the donee thenceforth does not retain it to the entire exclusion of 
the donor the gift is dutiable. In Chick's case the gift was without reservation 
and qualification and the sons assumed and enjoyed the property to the exclu-
sion of the father. Yet a few yea.rs later when the donor-failier and the donees 
entered into partnership, each partner's property, including the one gifted by 
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528 
SUPREME COURT REPORTS 
[1980] 1 S.C.R. 
the father, was made available as the· capital of the business and property of 
the partnership. Each of the partners was in possession and enjoyment of the 
property and allowed the others to derive benefit out of the property gifted, so 
long as the partnership subsisted. 
The 
gift was, 
therefore, 
dutiable. In 
Munro's case on the other hand the gift was of a property shorn of certain 
of the rights which appertain to complete ownership and after the 
gift the 
donor had remained in 'possession and enjoyment Of those rights which Were 
not the subject matter of the gift. The gift was, therefore, not dutiable. 
[531 E-H) 
(b) Interpreting s. 10 of the Estate Duty Act (before the second proviso 
was <)dded) this Court held in Da Costa's case that the donor-father who stayed 
with his sons in the house till his death after the house was gifted to them, the 
donor had not been entirely excluded from possessio'n and enjoyment of the 
giftc<l property and, therefore, s. 10 was attracted. It was further held that the 
expression "by contract or otherwise" in second limb of the section did not 
control the words. "to the entire exclusion of the donor" in the first limb. 
[533A-B] 
(c) In Gounder's case the donor who was a partner of a firm gifted to his 
two sons house property which was under the occupation of the firm as a tenant 
at will and the firm thereafter paid' rent to the donees. In addition, a. sum of 
Rs. 1 lakh
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