Controller Of Estate Duty v. Harry Leslie — 1971 DIGILAW 346 (KER)

JUDGMENT T.S. Krishnamoorthy Iyer, J. 1. This is a reference by the Income Tax Appellate Tribunal, Cochin Bench, under S.64 (1) of the Estate Duty Act at the instance of the Controller of Estate Duty, Kerala. The following question has been referred: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in law in holding that S.10 of the Estate Duty Act is not attracted in respect of the shares of the sons of the deceased?" In his application for reference the Controller of Estate Duty required the following question also to be referred: "Whether, on the facts and in the circumstances of the case, the Tribunal had sufficient material to hold that the value of the arecanut plantation has to be deleted from the principal value of the Estate?" The Income Tax Appellate Tribunal, refused to refer the above question as in its view it is not a question of law. 2. Counsel for the Revenue has filed C.M.P. 10381 of 1971 requesting this Court to raise the above mentioned question also as it involves a question of law arising out of the order of the Tribunal and answer the same along with the question referred by the Tribunal. Since counsel for the accountable person has serious objection to the course suggested by the Revenue we shall deal with the petition is due course. 3. The reference relates to the estate duly is respect of the estate left behind by A.W. Leslie who died on 29 9 1960. He was the absolute owner of two tea estates by name Shendurani and Linwood. By the deed of gift dated 20th July, 1954, annexure 'A' he gifted l/10th share in the above estates to each of his eight sons retaining 2/10 share for himself. The shares allotted to the sons and retained by the donor have not been divided by metes and bounds. The operative portion in annexure 'A' reads as follows: "The disponer covenants with the disponees that they are put in possession of their respective shares from this day and are hereby authorised to secure mutation of the properties in their joint names as coowners (tenants in common) with the disponer of their respective shares. The operative portion in annexure 'A' reads as follows: "The disponer covenants with the disponees that they are put in possession of their respective shares from this day and are hereby authorised to secure mutation of the properties in their joint names as coowners (tenants in common) with the disponer of their respective shares. Until actual division of the properties by metes and bounds the disponer as owner of two tenth share and the disponees as owners of one tenth share each will enjoy the properties as coowners (tenants in common) and be absolutely entitled to their respective shares and the profits arising therefrom." On the next day that is on the 21st of July, 1954 a partnership was formed between A.W. Leslie and his eight sons. The preamble to this deed reads as follows: "Whereas the parties above described are coowners of Shendurani and Linwood Estates in Anchel Pakuthy, Pathanapuram Taluk and whereas they have agreed to become partners for carrying on the business of production, manufacture and sale of tea in the said two estates, Now This Deed witnesseth that they do form a partnership on the terms and conditions hereinafter described." The capital of the partnership of Rs. 50,000/- was contributed by the father and sons in proportion to their shares in the estates that is 2/10 by the father and 1/10 by each of the sons. The profit or loss was to be shared in the same proportion. The partners were given the power to nominate one or more of them as managing partner or partners. The first managing partner was to be the father A.W. Leslie. It is admitted that Edward Leslie one of the sons of A.W. Leslie died and his 1/10th Share in the two estates and in the partnership devolved on A.W. Leslie by succession. 4. The Deputy Controller as well as the Appellate Controller took the view that by the application of S.10 of the Estate Duty Act, the value of 7/10 shares in the two estates belonging to the sons has to be included in the estate of the deceased. 5. 4. The Deputy Controller as well as the Appellate Controller took the view that by the application of S.10 of the Estate Duty Act, the value of 7/10 shares in the two estates belonging to the sons has to be included in the estate of the deceased. 5. But the Appellate Tribunal relying on the decision of the Madras High Court in Controller of Estate Duty v Estate of Janab S. Ibrahim Rowther 1966 (60) ITR 269 held that S.10 of the Estate Duty Act, 1953 has no application to the facts of the case and deleted the inclusion of the value of 7/10 shares given to the sons as part of the estate of the deceased. The question for consideration is whether in view of the terms of the gift annexure 'A' and the partnership deed annexure "B" S.10 of the Estate Duty Act, 1953 is attracted. S.10 of the Estate Duty Act, 1953 reads as follows: "Gifts whenever made where donor not entirely excluded Property taken under any gift, whenever made, shall be deemed to pass on the donor's death to the extent that I 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. Provided further that a house or part thereof taken under any gift made to the spouse, son, daughter, brother or sister, shall not be deemed to pass on the donor's death by reason only of the residence therein of the donor except where a right of residence therein is reserved or secured directly or indirectly to the donor under the relevant disposition or under any collateral disposition." There cannot be any doubt regarding the interpretation of the above Section because of the decision of the Supreme Court in George Da Costa v Controller of Estate Duty 1967 (63) ITR 497 . We have therefore to examine: (1) Whether the transfer of property to the donee was duly complete: (2) Had bona fide possession and enjoyment of the property gifted been assumed by the donee immediately after the gift. (3) Had bona fide possession and enjoyment been thenceforward retained by the donee to the entire exclusion of the donor and to the entire exclusion of any benefit to him by contract or otherwise. S.10 can only apply to a property which is the subject matter of the gift and not to one which is outside it. 6. Before we proceed further we shall examine what is the subject matter of the gift evidenced by annexure 'A'. The subject matter of the gift is only the two estates after carving out 2/10 undivided share in favour of the donor with a right of enjoyment in his favour along with his 8 sons as tenants in common. In other words, the subject matter of the gift are the two estates shorn of the rights reserved under the gift in favour of A.W. Leslie. The gift is a gift of a tenancy in common and the nature of the gift itself is such that it carries With it the right mutually to enjoy the whole property along with the donor who has retained 2/10 interest in the two estates. If this is kept in view, we find no difficulty in answering the question referred to us. 7. In Controller of E. D. v. Estate of Janab S. Ibrahim Rowther followed by the Tribunal the deceased had made a gift of 7/8th share in some of his properties in favour of his children retaining the remaining 1/8th share to himself. There was no division of the properties comprised in the gift deed between the donor and his children by metes and bounds. The rent that was being received in respect of the part of the premises was being shared by the donor and his children in the ratio of 1:7. In considering the applicability of S.10 of the Estate Duty Act, 1953 to the facts the Madras High Court observed: "Once it is clear, as we mentioned earlier, that the section is exclusively confined to the subject matter of the gift, that should clear any confusion or difficulty in the way of its application to such set of facts. In considering the applicability of S.10 of the Estate Duty Act, 1953 to the facts the Madras High Court observed: "Once it is clear, as we mentioned earlier, that the section is exclusively confined to the subject matter of the gift, that should clear any confusion or difficulty in the way of its application to such set of facts. Notwithstanding the fact that the donor and the donee are in possession and enjoyment of the entirety of the property as coowners, the application of the section will have to be determined by asking whether the donor, so far as the subject matter of the gift is concerned in such a case, has had any benefit from out of or in respect of it. If the answer is in the negative, the section will have no application. The test for application of the section in such a case will not be whether the donor as a coowner was in possession of the entirety of the property, for, where property is owned in tenancy in common, each is in law deemed to be in possession of the whole." The above observations certainly support the assessee. 8. The Judicial Committee in Commissioner for Stamp Duties of New South Wales v Perpetual Trustee Co. Ltd. (1943) AC 425 had to interpret S.102(2)(d) of the New South Wales Stamp Duties Act, 1920 couched in terms similar to S.10 of the Estate Duty Act, 1953. The Judicial Committee after a review of the case law and after examining the decision of the House of Lords in Earl Grey v The Attorney General (1900) A.C.R. which dealt with an identical provision in the English Statute observed thus at pages 445 and 446: "The learned judges who decided In re Cochrane, 1906 (2) IR 200, all thought that Grey (Earl) v Attorney General, (1910) AC 124, was clearly distinguishable, and their Lordships agree that it was. There is nothing laid down as law in that case which conflicts with the view that the entire exclusion of the donor from possession and enjoyment which is contemplated by S.11, sub-s.1, of the Act of 1889 is entire exclusion from possession and enjoyment of the beneficial interest in property which has been given by the gift, and that possession and enjoyment by the donor of some beneficial interest therein which he has not included in the gift is not inconsistent with the entire exclusion from possession and enjoyment which the sub-section requires." In St. Aubyn v Attorney General (1952) AC 156 the House of Lords had to examine the scope and ambit of a similar provision in the English Statute. Lord Simonds observed at pages 25 and 26: "Whatever the words, which have appeared in a series of Acts, might have meant to your Lordships if the matter were res integra, it cannot in face of the decision in Attorney General v Worrall, (1895) 1 Q.B. 99, be denied that it is possible for possession and enjoyment of property not to be retained by the donee to the entire exclusion of the donor or of any benefit to him by contract or otherwise, though the donor himself no longer has any sort of interest in it. But the words, and particularly the word 'exclusion', are singularly inapt to cover a benefit which does not arise by way of reservation out of that which is given, and I am not disposed to travel further than I am constrained by authority along a line of interpretation which appears to me difficult, to justify." The learned Law Lord then proceeded to observe thus at page 29: "I venture to think that much of the argument that was addressed to the House in this case and much of the confusion that has arisen in the past on this admittedly difficult branch of the law have been due to the failure to bear in mind that that of which enjoyment is to be assumed and retained and from which there is to be exclusion of the donor and any benefit to him by contract or otherwise is that which is truly given, a proposition which is obvious enough in the case of two separate estates but more difficult to follow and apply where trusts are declared of a single property which are not completely exhaustive in favour of donee. It should at least be clear from the judgment of Lord Russell of Killowen that by retaining something which he has never given a donor does not bring himself within the mischief of the section. I venture to repeat in other words that I have already said when dealing with S.43 alone, for its underlying principle is not altered by an alliance with S.56. In the simplest analysis, if a A gives to B all his estates in Wiltshire except Blackacre, he does not except Blackacre out of what he has given: he just does not give Blackacre. And if it can be regarded as a 'benefit' to him that he does not give but keeps Blackacre, it is a benefit which is in no relevant sense (to use the language of Lord Tomlin) 'referable" or (to use that of Lord Russell of Killowen) 'attributable' to the gift that he made of the rest of the Wiltshire estate." The next case to Which We would like to refer in Norman Clyde Oakes v Commissioner of Stamp Duties of New South Wales. 1954 (26) ITR E.D. 1. This case was concerned with a similar provision in the New South Wales Stamp Duties Act, 1920-1940. 1954 (26) ITR E.D. 1. This case was concerned with a similar provision in the New South Wales Stamp Duties Act, 1920-1940. The facts are almost identical to the case before us. The donor executed a deed of poll by which he created an equal interest in favour of his four children along with himself as tenants in common in a grazing property which belonged to him. In dealing ' with this matter their Lordships of the Judicial Committee observed at page 18: "If a donor reserves to himself a beneficial interest in property and only gives to the donees such beneficial interests as remain after his own reserved interest has been satisfied, it is now well established that such reservation of a beneficial interest does not involve any benefit to the donor within the meaning of the section." The principles stated in the decisions cited by us do establish that what is intended by S.10 of the Estate Duty Act, 1953 is only to exclude the donor from the possession of any of the rights in favour of the donee created by the gift or from enjoying any benefit in the subject matter of the gift. There is no provision in the Estate Duty Act standing in the way of donating an undivided interest in a property belonging to the donor in favour of his donees. The question is whether when a right is gifted the said right has been interfered with by the donee as stated in the two limbs in the second part of S.10 of the Estate Duty Act, 1953. Annexure 'A' shows that the deceased gifted 8/10 shares subject to the right of the donor over 2/10 shares in the two estates and subject to his right to enjoy the property as a tenant in common with his sons. It was not a gift of 8/10 shares by metes and bounds. The enjoyment by the father is only as a tenant in common of his 2/10 shares which right is not referable to the gift or collateral to it. The possession and enjoyment of the father as a tenant in common is not in any way incompatible with his exclusion of possession from 8/10 shares gifted by him within the meaning of the Section. The possession and enjoyment of the father as a tenant in common is not in any way incompatible with his exclusion of possession from 8/10 shares gifted by him within the meaning of the Section. The Tribunal also has found thus: "It is an admitted fact that the donees assumed bona fide possession and enjoyment of the gifted property. We also find that the donees retained such possession and enjoyment to the entire exclusion of the deceased and that they also retained such possession and enjoyment to the entire exclusion of any benefit to the deceased." 9. It is thus clear that the donees assumed bona fide possession and enjoyment of the subject matter of the gift immediately thereafter and hence thenceforward retained the same to the exclusion of the donor. 10. The next submission on behalf of the Revenue was that on account of annexure 'B' the second limb of the second part of S.10 has not been satisfied. We cannot agree. As a result of the partnership no material benefit was retained by the deceased in the shares gifted to the sons. The fact that the deceased was made the managing partner is not sufficient to constitute a 'benefit' within the meaning of S.10 of the Estate Duty Act, 1953. No remuneration was given to him under the terms of the partnership. It has not also been proved that any remuneration was in fact paid to the father as managing partner. The terms of the partnership provide for his getting only or being liable for 2/10 shares in the profit or loss of the partnership. We are therefore satisfied that there was no retention of benefit by the deceased over the interest gifted on account of the partnership deed annexure 'B'. We are thus satisfied that S.10 has been complied with in respect of the subject matter of the gift. 11. We shall now examine the prayer in C. M. P. 10381 of 1971 to answer the Second question which the Income Tax Appellate Tribunal refused to refer. The petition was opposed by the assessee on the ground that the remedy of the Controller of Estate Duty is only under S.64(3) of the Estate Duty Act and not by means of a petition in this reference and that too after the period of time. The petition was opposed by the assessee on the ground that the remedy of the Controller of Estate Duty is only under S.64(3) of the Estate Duty Act and not by means of a petition in this reference and that too after the period of time. S.64(3) of the Estate Duty Act, 1953 reads: "If, on an application made under sub-s.(1), the Appellate Tribunal, (a) refuses to state a case on the ground that no question of law arises; (b) rejects it on the ground that it is time barred: the applicant may, within three months from the date on which he is served with a notice of refusal or rejection, as the case may be, apply to the High Court, and the High Court may, if it is not satisfied with the correctness of the decision of the Appellate Tribunal to state the case to the High Court, and on receipt of such requisition the Appellate Tribunal shall state the case." (The proviso to the Section is not necessary). It is thus clear when the Appellate Tribunal therefore refused to state a case in respect of question No. 2 the remedy of the Controller of Estate Duty is only under S.64(3) of the Estate Duty Act, 1953. 12. But counsel on behalf of the Revenue submitted relying on the decisions in N. V. Khandvala v Commissioner of Income Tax (1946) 14 I.T.R. 635. approved in Lakshmiratan Cotton Mills Co. Ltd v Commissioner of Income Tax that a civil miscellaneous petition in this reference is sufficient. 13. In N. V. Khandvala v Commissioner of Income Tax the Bombay High Court on an application by the assessee under S.66(2) of the Indian Income Tax Act, 1922 directed the Tribunal to state a case but left the framing of the questions to the Tribunal as it was the practice of the Bombay High Court. The Tribunal prepared a statement of the case and referred one question of law. The assessee filed a petition praying for an order directing the Tribunal to frame more questions of law for the opinion of the High Court. The objection in that case was only to the stage at which the application should be made in the High Court by the party. The assessee filed a petition praying for an order directing the Tribunal to frame more questions of law for the opinion of the High Court. The objection in that case was only to the stage at which the application should be made in the High Court by the party. In dealing with that question the Bombay High Court observed thus: "Having read in detail S.66 of the Indian Income Tax Act, it appears to us that the objection of the Commissioner is proper. It is not right to allow parties to runs to Court and invite it to ask the Tribunal to send a further statement of facts, 01 to submit a question of law, before the Court has an opportunity to consider the case actually submitted by the Tribunal for its consideration. It seems to us that the most convenient way to deal with the situation is this. When a statement of case, with the question of law framed by the Tribunal, is filed in Court for disposal, if a party is aggrieved and wants to contend that certain further facts ought to be stated, or certain questions of law should be raised, he can make an application by way of notice of motion. That should be heard along with the case stated by the Tribunal for the Court's opinion. At that time the Court will consider whether the statement of case is complete for the question of law raised by the Tribunal. The Court can also consider whether on the case stated by the Tribunal the proper question is raised or not. That is the proper time for an aggrieved party to bring to the notice of the Court that certain further and other facts are necessary to be stated or certain, further or other questions of law arise and should be brought for decision by the Court." 14. In Lakshmiratan Cotton Mills Co. Ltd. v Commissioner of Income Tax 1969 (73) IT 634 the question arose whether a court can under S.66(4) of the Indian Income Tax Act, 1922 call for an additional statement on questions not referred under S.66(1) or 66(2) of the Indian Income Tax Act, 1922. In Lakshmiratan Cotton Mills Co. Ltd. v Commissioner of Income Tax 1969 (73) IT 634 the question arose whether a court can under S.66(4) of the Indian Income Tax Act, 1922 call for an additional statement on questions not referred under S.66(1) or 66(2) of the Indian Income Tax Act, 1922. Their Lordships following the decision of the Bombay High Court held: "The power under S.66(4) may be exercised when the High Court is not satisfied that the statements in a case referred are sufficient to determine the question referred thereby; it cannot be exercised for calling for another statement on questions not referred by the Tribunal. The procedure followed by the High Court in calling for, in exercise of the power under S.66(4), an additional statement of the case on questions which were not incorporated in the applications under S.66(1) and (2) was, in our judgment, irregular." 15. Counsel for the assessee relied on the decision of the Supreme Court in Kamlapat Motilal v Commr. of Income tax 1962 (45) ITR 266. to support his plea that the petition is not maintainable. There the assessee moved the Tribunal for referring three questions of law, which according to the assessee arose out of the Tribunal's order. The Tribunal referred only one question and refused to refer the two remaining questions on the ground that they did not involve any question of law. At the time when the reference came for hearing on the question referred, the assessee made an application to the High Court under S.66(4) and (5) which was dismissed. In dealing with this matter their Lordships observed thus at page 270. "It is obvious tilt sub-s.(4) of S.66 cannot do service for sub-s.(2) thereof. If the assessee was dissatisfied with the order of the Tribunal refusing to state a case on certain questions the clear duty of the assessee was to move the High Court under sub-s.(2) of S.66 within the time allowed by law. The assessee in the present case did not take any such action and he wanted to evade the consequences of his failure to take action under sub-s.(2) by resorting to a petition under sub-s.(4). This the assessee was not entitled to do." 16. The above decision in our view should conclude this matter. We, therefore, dismiss the civil miscellaneous petition. 17. This the assessee was not entitled to do." 16. The above decision in our view should conclude this matter. We, therefore, dismiss the civil miscellaneous petition. 17. In the result, we answer the question referred in the affirmative, that is, in favour of the accountable person and against the Department. We make no order as to costs. 18. A copy of this judgment will be forwarded to the Income Tax Appellate Tribunal, Cochin Bench, under the Seal of this Court and over the signature of the Registrar.