Estate duty treatment of profit-sharing transfers: married daughters qualify as relatives, and gifted business profits were includible in the estate.

Married daughters were treated as "children" within the inclusive definition of "relative" under the Estate Duty Act, because the term is not confined by marital status. A transfer of sums to the daughters, together with a partnership deed giving them a 50% share in business profits while the deceased retained ownership of the underlying assets, was regarded as a disposition in the nature of a gift and a deemed gift in favour of relatives. The profits credited to the daughters up to the date of death were therefore treated as the measure of the benefit flowing from that gifted interest and were includible in the estate.

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Issues: (i) Whether married daughters fall within the expression "children" for the purpose of the definition of "relative" under section 27(7)(i) of the Estate Duty Act, 1953; (ii) Whether the transfer of sums to the daughters and the assignment of a 50% share in the profits of the proprietary business through the partnership deed amounted to a disposition or gift attracting sections 9 and 27 of the Estate Duty Act, 1953; (iii) Whether the profits credited to the daughters up to the date of death constituted property passing on the death of the deceased and were liable to be included in the estate.

Issue (i): Whether married daughters fall within the expression "children" for the purpose of the definition of "relative" under section 27(7)(i) of the Estate Duty Act, 1953.

Analysis: The expression "children" in section 27(7) is used in an inclusive and comprehensive sense. The statutory expansion of the term to include illegitimate and adopted children shows that it is not confined to any particular marital status. A daughter does not cease to be a child because of marriage, and the definition of "relative" therefore extends to married daughters.

Conclusion: The issue is answered in the affirmative and against the assessee.

Issue (ii): Whether the transfer of sums to the daughters and the assignment of a 50% share in the profits of the proprietary business through the partnership deed amounted to a disposition or gift attracting sections 9 and 27 of the Estate Duty Act, 1953.

Analysis: The transfer of Rs. 10,000 each to the daughters was a disposition in the nature of a gift, and because it was in favour of relatives it was deemed to be a gift under section 27(1). The subsequent partnership arrangement did not alter the position. The deceased remained the sole owner of the business assets, the daughters were not bound to contribute capital, and the deed extinguished the deceased's exclusive right to the whole of the profits to the extent of 50%. On its plain meaning and also by force of the extended definition of "disposition" in section 2(15), the arrangement amounted to a gift of a share in profits, attracting section 9.

Conclusion: The issue is answered in the affirmative and against the assessee.

Issue (iii): Whether the profits credited to the daughters up to the date of death constituted property passing on the death of the deceased and were liable to be included in the estate.

Analysis: Once the transfer of the profit-bearing interest was treated as a gift or deemed gift under sections 9 and 27, the benefits arising from that disposition formed part of the property covered by the estate duty charge. The Tribunal's approach of taking only the profits accrued up to the date of death was accepted as a lenient valuation of the transferred interest. The credited profits represented the measure of the benefit derived from the gifted share in the business and were therefore includible in the estate.

Conclusion: The issue is answered in the affirmative and against the assessee.

Final Conclusion: The reference was answered wholly in favour of the Revenue, and the inclusion of the transferred amounts and the profit share in the principal value of the estate was upheld.

Ratio Decidendi: A transfer by a deceased of a profit-bearing interest in a business in favour of relatives, without full consideration and while retaining ownership of the underlying assets, is a disposition treated as a gift under section 27 and a deemed passing of property under section 9 of the Estate Duty Act, 1953.

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