Estate duty valuation excludes donee-created accretions, but gifted house property remained taxable where the donor continued enjoyment.
House property standing in the wife's name was includible in the estate under section 10 of the Estate Duty Act because the donor continued to reside in and enjoy the property with the donee; the statutory exclusion applies only when the donee assumes bona fide possession and enjoyment to the entire exclusion of the donor, and both conditions are cumulative. For property settled within the statutory period, the deemed-to-pass fiction extends only to the property comprised in the settlement, valued as at the date of death; later accretions, augmentations, and profits created by the donees from their own funds, skill, or efforts are not includible in the principal value of the estate.
Issues: (i) Whether house property standing in the wife's name, but enjoyed by the donor with his family, was includible in the estate under section 10 of the Estate Duty Act, 1953. (ii) Whether, for property settled within two years of death, augmentations and profits generated by the donees after the settlement could be included in the principal value of the estate, or whether only the property as settled could be taken with valuation as at the date of death.
Issue (i): Whether house property standing in the wife's name, but enjoyed by the donor with his family, was includible in the estate under section 10 of the Estate Duty Act, 1953.
Analysis: Section 10 applies where the donee does not immediately assume bona fide possession and enjoyment of the gifted property to the entire exclusion of the donor. On the facts, the donor continued to reside in the house with the donee after the gift. The controlling construction of section 10, as previously settled, is that the two conditions in the section are cumulative and must both be satisfied to exclude the property from estate duty.
Conclusion: The house property was rightly included in the estate and the answer was against the assessee.
Issue (ii): Whether, for property settled within two years of death, augmentations and profits generated by the donees after the settlement could be included in the principal value of the estate, or whether only the property as settled could be taken with valuation as at the date of death.
Analysis: Property under a disposition made within the statutory period is deemed to pass on death, but what is deemed to pass is the property taken under the disposition itself. The Court held that the statutory fiction does not extend to later accretions created by the donees from their own funds, skill, and efforts. The estate duty valuation must be made as at the date of death, but only in respect of the property comprised in the settlement, not subsequent additions made by the donees.
Conclusion: The augmentations and profits brought in by the donees were not includible, and the issue was decided in favour of the assessee.
Final Conclusion: The reference was answered partly against the assessee on the residence-in-gifted-house question and partly in the assessee's favour on the valuation of settled business property, while the remaining goodwill questions were not answered.
Ratio Decidendi: For estate duty, the statutory fiction of property "deemed to pass" extends only to the property actually taken under the gift or settlement; it does not include later accretions or profits generated by the donees, though valuation is made as at the death of the donor.
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