1984 (12) TMI 23 - HC - Income Tax

Court rules amount in deceased's wife's name must be included in estate for duty assessment

The court ruled against the accountable person, holding that the amount of Rs. 30,875 must be included in the deceased's estate for estate duty ... Estate Duty, Property Passing On Death Issues Involved:1. Exclusion of Rs. 30,875 from the deceased's estate under the Estate Duty Act.2. Validity of the Tribunal's reasoning for treating the amount as a gift.3. Application of Section 10 of the Estate Duty Act to the alleged gift.Issue 1: Exclusion of Rs. 30,875 from the deceased's estate under the Estate Duty ActThe central question referred to the court was whether the Tribunal was right in excluding Rs. 30,875 standing in the name of the deceased's wife from the total estate of the deceased under the Estate Duty Act. The accountable person claimed this amount as a debt due from the deceased to his wife, arguing that it had been credited in her favor in the deceased's books of account since the assessment year 1950-51. However, the Assistant Controller of Estate Duty disallowed this claim, noting that the interest on this amount was taxed in the hands of the deceased and that there was no evidence that the wife had an independent source for this amount.Issue 2: Validity of the Tribunal's reasoning for treating the amount as a giftThe Tribunal allowed the exclusion of the amount, reasoning that the long-standing entries in the deceased's account books indicated an intention to treat the money as belonging to his wife, thus considering it a gift. The Tribunal stated, 'In our opinion, such long-standing amount covering more than 15 years in the deceased's account books in the name of his wife leaves little doubt that the deceased had wanted that this money should be considered as that of his wife and, therefore, irrespective of the fact whether the same initially in fact belonged to her, the same was at least gifted by him to her.'However, the High Court found this reasoning flawed. The court noted that the Tribunal did not accept the contention that the amount initially belonged to the wife but rather treated it as a gift. The court highlighted two impediments: (1) the interest on the amount was consistently added to the deceased's total income in income-tax assessments without objection, and (2) no material evidence was presented to show that the amount belonged to the wife. The court emphasized that mere entries in the account books did not constitute a valid gift.Issue 3: Application of Section 10 of the Estate Duty Act to the alleged giftThe court scrutinized the Tribunal's failure to consider Section 10 of the Estate Duty Act, which requires that the donee must have bona fide assumed possession and enjoyment of the property immediately upon the gift and retained it to the entire exclusion of the donor. The court noted that the amount remained in the deceased's account books, and the interest was taxed as his income, indicating that the wife did not assume possession and enjoyment of the amount. The court cited case law supporting the view that mere entries in account books do not complete a gift without delivery of possession. The court concluded that the essential conditions of Section 10 were not met, and thus the amount should be included in the deceased's estate for estate duty purposes.Conclusion:The court answered the reference in the negative, in favor of the Revenue and against the accountable person, holding that the amount of Rs. 30,875 must be considered to pass on the death of the deceased with his estate and is includible in his estate for purposes of estate duty assessment.