Estate duty exclusion under gifted money deposits: outright gifts later placed with donor's firm can still attract the charge.

Section 10 of the Estate Duty Act, 1953 turns on whether the gifted property was immediately assumed and thereafter retained by the donee to the donor's entire exclusion. Outright cash gifts later deposited by the donees with the donor's firm were treated as remaining within the mischief of the section, because the donor acquired possession and enjoyment through the firm after the gift. The provision was also construed as applying to the relevant part of the gifted property that fails the exclusion test, rather than only to a notional donor's interest. A proviso-based argument on withdrawals more than two years before death succeeded only to the limited extent found on the facts.

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Issues: (i) Whether amounts gifted outright by the deceased and thereafter deposited by the donees with a firm in which the deceased was a partner were includible in the principal value of the estate under section 10 of the Estate Duty Act, 1953. (ii) Whether, where section 10 applies, the charge is confined only to the donor's interest in the property or extends to the whole of the gifted amount. (iii) Whether withdrawals made by donees more than two years before the donor's death brought the gifts within the first proviso to section 10.

Issue (i): Whether amounts gifted outright by the deceased and thereafter deposited by the donees with a firm in which the deceased was a partner were includible in the principal value of the estate under section 10 of the Estate Duty Act, 1953.

Analysis: Section 10 turns on whether bona fide possession and enjoyment of the gifted property was immediately assumed by the donee and thereafter retained to the entire exclusion of the donor. Where money is gifted outright without reservation or qualification, the subject-matter of the gift is the money itself. If the donees later place that money with a firm in which the donor is a partner, the donor, as partner, becomes entitled to possession and enjoyment of that money through the firm. That post-gift arrangement does not alter the character of the original gift and does not prevent the section from operating.

Conclusion: The amounts gifted outright and thereafter deposited with the firm were includible in the estate under section 10 and the decision was against the assessee on this issue.

Issue (ii): Whether, where section 10 applies, the charge is confined only to the donor's interest in the property or extends to the whole of the gifted amount.

Analysis: The words "to the extent" in section 10 refer to the extent of the property gifted of which possession and enjoyment were not assumed and retained to the donor's exclusion. The section does not permit splitting the gifted property into abstract interests and charging only the donor's participatory interest. If the whole gifted property remains within the mischief of non-exclusion, the whole property passes; if only part is affected, only that part passes. Applying that construction, gifts made to sons by debiting and crediting entries in the firm accounts, where the gifts were subject to the firm's existing right of use, were not wholly exigible. But outright cash gifts later deposited with the firm stood on a different footing and attracted the section in full.

Conclusion: The charge is not limited to the donor's notional interest; it extends to the part of the gifted property that fails the statutory test, and in the present facts the outright gifts deposited with the firm were fully chargeable, while the gifts made subject to the firm's existing rights were not.

Issue (iii): Whether withdrawals made by donees more than two years before the donor's death brought the gifts within the first proviso to section 10.

Analysis: The Tribunal's finding that withdrawals were attributable first to income and only thereafter to capital left no basis to treat the gifted capital as withdrawn beyond the period relevant to the proviso, save to the limited extent specifically found on the facts.

Conclusion: The contention based on the first proviso failed, except for the small amount specifically allowed on the facts.

Final Conclusion: The references were answered by holding that outright gifts later deposited with the donor's firm were generally chargeable under section 10, while gifts made by bookkeeping entries subject to the firm's pre-existing rights were not fully chargeable, resulting in a partial success for each side on the respective references.

Ratio Decidendi: For section 10 of the Estate Duty Act, 1953, the decisive question is whether the gifted property itself, and not merely some associated or retained interest, was retained by the donee to the donor's entire exclusion; where the gift is outright, subsequent deposit of the gifted money with the donor's firm does not defeat the charge, but where the gift is of property subject to a pre-existing right or limitation, that qualification defines the subject-matter of the gift for the purposes of exclusion.

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