Madhya Pradesh High Court
Controller Of Estate Duty vs Parmanand Bhai Patel on 27 July, 1998
Equivalent citations: [2000]241ITR244(MP)
Author: A. K. Mathur
Bench: A.K. Mathur, Dipak Misra
JUDGMENT A. K. Mathur, C.J.
1. This is a reference at the instance of the Revenue against the order passed by the Tribunal under Section 64(1) of the Estate Duty Act, 1953. This court by order dated November 9, 1987, passed in M.C.C. No. 4 of 1984 called for a reference from the Tribunal on the following question of law :
"On the facts and in the circumstances of the case, what would be the interest of the deceased Smt. Ujjambai Patel at the time of her death in the partnership of the firm Mohanlal Hargovind Das, according to the interpretation of the deed of partnership and declarations made in regard to the gold bonds ?"
2. Accordingly, the Tribunal has referred the matter to this court on the aforesaid question of law.
3. The brief facts giving rise to this reference are that the late Smt. Ujjambai Patel estate holder died on April 30, 1971. At the time of her death, she was a partner in the partnership firm, Mohanlal Hargovind Das, having a l/8th share therein. As regards the property that passed on the death, the Assistant Controller of Estate Duty made an assessment on April 5, 1977, determining the principal value at Rs. 34,84,144. The firm had three partners, namely, the deceased Smt. Ujjambai, Shrawan Kumar and Siddharth. In computing the principal value, the Assistant Controller included the value of 9/16th share of the goodwill in the said firm though the deceased had a l/8th share. The Assistant Controller's reason for including 9/16ths share in the said firm's goodwill was that the deceased had in November, 1965, gifted her seven annas share in the firm in favour of Siddharth Kumar, who was then a minor, and that by reason of the deeming provisions contained in Sections 9 and 10, the said seven annas share was also to be deemed to pass on the death of the deceased. The Assistant Controller had also turned down the accountable person's plea that when Shri Parmanand went out of the partnership on retirement in October, 1963, the surviving members of the firm had agreed to pay to Shri Parmanand Rs. 50,000 per annum by way of remuneration for use of his 1/2 share of the goodwill of the firm and that the deceased's share in the goodwill was not even l/8th as appearing in the partnership deed dated February 3, 1970, but only l/16th. In appeal, the Appellate Controller, accepted the accountable person's contentions that the seven annas share gifted away by the deceased in 1965 could not be deemed to pass on the death of the deceased and that the deceased's share in the goodwill of the firm was only l/16th because of the terms agreed upon at the time of retirement of hri Parmanand Bhai. Likewise, the Assistant Controller also turned down the accountable person's claim that the value of the gold bonds to the extent of Rs. 1,18,000 was not includible in the computation of principal value. In this connection, the stand was that by declarations dated Novem ber 6, 1967, and February 28, 1969, the deceased had given away 5 kgs. eaeh of gold bonds in favour of Jodhsana Devi and Shobha Devi, respectively, and that the deceased was not the owner of the said asset on the date of her death though both the said gifts purported to have been made more than two years prior to April 30, 1971, but the Assistant Controller took the view that the gifts were not complete and the same were to become complete only on the date of maturity of the National Defence Gold Bonds, 1980. The Assistant Controller determined the value of 10 kgs. of gold at Rs. 1,14,000 and held that Rs. 4,000 was the interest earned by the deceased from the said dates of gifts till the date of her death, i.e., Rs. 1,18,000 came to be included in the computation of the principal value. The contention of the accountable person was, therefore, rejected.
4. On appeal, the Controller of Estate Duty reversed the finding of the Assistant Controller holding that the deceased had, done whatever was possible to complete the gifts and she had already made two declarations before the magistrate confirming gifts of gold bonds. It was also declared that the interest received by the deceased would also be paid to the donees. Aggrieved by this order, the matter was taken up by the Revenue in appeal before the Tribunal and the Tribunal affirmed it.
5. Coming to the question of goodwill of the firm, the Assistant Controller took the view that the entire value of the goodwill of the firm, Mohan Lal Hargovind Das, was at Rs. 46 lakhs. In support of this conclusion that, the seven annas share which stood gifted by the deceased in favour of the minor admitted to the benefits of partnership, also passed at the death of the deceased. But the Controller relying upon the provisions of Sections 9 and 10 of the Estate Duty Act held otherwise. The appellate authority reversed the finding holding that the case does not fall either under Section 9 or Section 10 of the Act. On an appeal by the Revenue before the Tribunal, the Tribunal also affirmed the finding of the appellate authority. The Revenue contended that the nine annas share in favour of the minor did not become complete at the time of gift dated November 25, 1965, but it became complete only when the said Siddharth Kumar attained majority on February 2, 1970, and that as the last said date fell within the period of two years from the death dated April 30, 1971, and Section 9 became attracted. This contention of the Revenue was negatived by the Tribunal and it was held that the deceased had already gifted her share under the goodwill on November 25, 1965, and that became complete on that date irrespective of the fact that it was to be materialised on attaining majority by the minor. In this connection, reference was also made to Section 30(2) of the Partnership Act, 1932, wherein it is laid down that a minor admitted to the benefits of the partnership acquires an interest in the firm just like other adult partners and the minor also gets the share of profits during the continuance of the firm. Reference was also made to Clause 3 in the declaration dated November 24, 1965, which clearly stipulates that the minor will have the option of becoming a full partner in the firm or to go out of the partnership on attaining the age of majority and he would be entitled to a 3 1/2 annas share in his own right besides sharing to the same extent in the share of Parmanand Bhai Patel, but he did not choose to resign as a partner. The Tribunal held that though clause 3 of the declaration dated November 24, 1965, does not in any manner detract from the completeness of the gift made by the deceased in favour of Siddharth Kumar irrespective of the fact that the gift had become complete the moment the deceased had so made in favour of Siddharth Kumar; and, as such, the contention of the Revenue was also negatived.
6. It was next contended whether the 50 per cent of the share of the goodwill of the firm was belonging to Shri Parmanand Bhai when the deceased died and in this regard also the appellate authority reversed the finding of the Assistant Controller and took the view that in view of Clause 3 of the partnership deed, Shri Parmanand Bhai had 50 per cent, interest in the firm. Clause 3 of the partnership deed reiterates the condition regarding continuation of Shri Parmanand Bhai as owner of 50 per cent, of the goodwill. Therefore, when Siddharth Kumar attained majority, still another partnership deed dated February 3, 1970, was executed and the second and the third recitals of the said deed and clause 3 of the deed again confirmed the position about Parmanand Bhai's continued ownership of 1/2 share of the firm's goodwill. Thus, the view taken by the appellate authority was affirmed by the Tribunal that the deceased's share in the firm's goodwill was only to the extent of l/16th though her share in the firm's profits was l/8th only. Therefore, this contention of the Revenue also failed.
7. Shri Tankha, learned counsel for the Revenue, has strenuously urged before us that Section 9 of the Act is squarely attracted in the present case. From the examination of the matter, it appears that the gifts of gold bonds were complete on the very date they were made, i.e., November 25, 1965, and their completion did not stand postponed to the date when the said minor was to attain majority.
8. The gift deed was executed way back on November 24, 1965, i.e., beyond the period of two years. Section 9 only says that if the gift has been made within two years, then this benefit can be denied. Section 9 of the Act has been interpreted by the Supreme Court in the case of CED v. Kantilal Trikamlal [1976] 105 ITR 92, wherein it has been observed as under
"So far as dispositions made within two years of the death of the deceased are concerned, there is no question of mala fides or bona fides. All such transactions are caught within the coils of Section 5 read with Sections 9 and 27. The requirement of 'bona fides' has nothing to do with dispositions within two years and has much to do with those beyond two years. The marginal obscurity in Section 9 is due perhaps to compressed draftsmanship."
9. However, in the present case, there is no question of lack of bona fides involved. Once the gift had been made way back in 1965, the maturity of the bonds or attaining of the majority by the donee has no relevance because the gift is complete the moment it is made. "Gift" has been defined in Section 2(xii) of the Gift-tax Act, 1958, which reads as under :
" 'gift' means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth, and includes the transfer or conversion of any property referred to in Section 4, deemed to be a gift under ,that Section."
10. Therefore, once a transfer had been made voluntarily by the late Smt. Ujjambai in favour of the minor, Siddharth, that gift had been completed and attaining of his majority has no relevance. Likewise for the gift of gold bonds, its maturity has also no relevance. The gift is complete the moment there is a transfer of movable or immovable property voluntarily without consideration of money. In this view of the matter, the view taken by the Tribunal appears to be justified and hence the reference is answered in favour of the assessee and against the Revenue.