Estate duty exclusion under gifted trusts fails when donor retains benefit through deposits with a sole proprietary business.

Section 10 of the Estate Duty Act, 1953 applies only where the donee bona fide assumes possession and enjoyment of gifted property and thereafter retains it to the entire exclusion of the donor and any benefit to the donor. The note states that this requirement is cumulative and, on the facts, was not met because trust monies were deposited with the donor's sole proprietary business and used by him in that business against interest. In a sole proprietorship, the donor and the business beneficiary are the same person, so the donor continued to enjoy the benefit of the gifted funds until repayment. The gifted sums were therefore treated as includible in the estate.

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Issues: Whether section 10 of the Estate Duty Act, 1953 applied to sums gifted under trusts where the trustees deposited the amounts with the donor's sole proprietary business and the donor retained use of the money.

Analysis: Section 10 applies only if the donee assumes bona fide possession and enjoyment of the gifted property immediately and thereafter retains it to the entire exclusion of the donor and of any benefit to the donor by contract or otherwise. The earlier construction of the provision treated these conditions as cumulative. On the facts, although the gifts under the trusts were valid and the donees were treated as having assumed possession and enjoyment initially, the gifted amounts were placed with the donor's proprietary concern and were used by him in his business against payment of interest. In a sole proprietorship, the donor and the person enjoying the benefit of the deposited funds are one and the same, unlike a partnership situation. The donor therefore continued to enjoy the benefit of the gifted property until the deposits were returned, so the statutory requirement of entire exclusion was not satisfied.

Conclusion: Section 10 applied, and the gifted sums were includible in the estate. The reference was answered against the accountable persons and in favour of the department.

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