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Issues: Whether Rs. 75,000 contributed by the donee as capital in a partnership firm out of the gifted amount was liable to be deemed to pass on the donor's death under section 10 of the Estate Duty Act, 1953.
Analysis: Section 10 requires that the donee must immediately assume bona fide possession and enjoyment of the gifted property and must thereafter retain it to the entire exclusion of the donor or of any benefit to him by contract or otherwise. The decisive question is whether the donor was entirely excluded from the subject-matter of the gift. Where the donee brings the gifted amount into a partnership in which the donor remains a partner, the contribution ceases to be the donee's exclusive property and becomes partnership property and a trading asset of the firm. In that situation, the donor retains possession and derives benefit through the partnership, and the transaction is closer to the principle applied in the Privy Council decision on an outright gift followed by partnership enjoyment than to cases involving property already burdened by pre-existing partnership rights.
Conclusion: The sum of Rs. 75,000 was rightly treated as property deemed to pass on the donor's death under section 10, and the question was answered in favour of the Revenue.
Ratio Decidendi: Where gifted money is contributed by the donee as partnership capital in a firm in which the donor remains a partner, and the donor is not entirely excluded from possession and benefit of that amount thereafter, section 10 of the Estate Duty Act, 1953 applies and the amount is deemed to pass on death.
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