Estate duty under section 10 turns on donor exclusion, but later interest on gifted funds falls outside the charge.

Section 10 of the Estate Duty Act applies where the donor is not entirely excluded from possession and enjoyment of the gifted property. On that test, gifts placed at the disposal of a partnership in which the donor continued to have an interest were treated as within section 10, and the timing gap before reintroduction into the firm was immaterial. The section was confined to the actual property gifted, however, so later interest earned on the gifted sum was treated as a separate accretion and outside the estate duty charge under section 10.

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Issues: (i) Whether section 10 of the Estate Duty Act applied to the gifts of Rs. 30,000 and Rs. 24,000 made by the deceased to his sons. (ii) Whether the accumulated interest on the sum of Rs. 30,000 could be included in the principal value of the estate.

Issue (i): Whether section 10 of the Estate Duty Act applied to the gifts of Rs. 30,000 and Rs. 24,000 made by the deceased to his sons.

Analysis: The governing test under section 10 is whether the donor was entirely excluded from possession and enjoyment of the property comprised in the gift. The Court applied the principle that, where the gifted amount is placed at the disposal of a partnership in which the donor continues to have an interest, the donor is not entirely excluded from the subject-matter of the gift. The interval between the making of the gift and the reintroduction of the amounts into the firm was held to be immaterial. On that footing, the gifts fell within the first limb of section 10.

Conclusion: Section 10 applied to both gifts, and the conclusion was against the assessee.

Issue (ii): Whether the accumulated interest on the sum of Rs. 30,000 could be included in the principal value of the estate.

Analysis: Section 10 was treated as operating only on the property which was the actual subject-matter of the gift. The subsequent interest earned on that amount was regarded as an accretion distinct from the gifted property itself and therefore outside the scope of section 10.

Conclusion: The accumulated interest on Rs. 30,000 could not be included in the principal value of the estate, and the conclusion was in favour of the assessee.

Final Conclusion: The reference was answered predominantly in favour of the revenue on the applicability of section 10 to the gifted amounts, but the assessee succeeded on the limited question of excluding accumulated interest on Rs. 30,000 from the estate.

Ratio Decidendi: For section 10 of the Estate Duty Act, the decisive inquiry is whether the donor was entirely excluded from possession and enjoyment of the gifted property; if the gifted property remains available to a partnership in which the donor continues to have an interest, section 10 applies, but it does not extend to subsequent accretions such as later-earned interest.

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