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Issues: Whether section 10 of the Estate Duty Act, 1953 applied to a gift of money made by the donor to his sons, where the gifted amount was immediately invested as capital in a partnership firm in which the donor was also a partner.
Analysis: Section 10 applies where the donee does not bona fide assume and retain possession and enjoyment of the gifted property to the entire exclusion of the donor. The controlling question is whether, after the gift, the donor remained in any real sense in possession or enjoyment of the property or derived a benefit from it. Money gifted to the sons was not retained as an independent asset by them; it was brought into the partnership as capital. Under the Partnership Act, property contributed as capital becomes partnership property, and no partner can claim exclusive ownership or possession over it during the subsistence of the firm. The donor, as a partner, had dominion and benefit in the capital employed in the business. The situation was treated as closer to the principle governing partnership assets in Chick than to cases where the gift was of a limited interest or where the donor's benefit was wholly referable to a prior independent arrangement.
Conclusion: Section 10 of the Estate Duty Act, 1953 was applicable, and the gifted amount was not retained by the donees to the entire exclusion of the donor.
Final Conclusion: The reference was answered in favour of the revenue by holding that the gifted amount formed part of the estate for duty purposes.
Ratio Decidendi: Where gifted money is immediately converted into partnership capital in a firm in which the donor is also a partner, the donees do not retain bona fide possession and enjoyment of the gift to the entire exclusion of the donor for purposes of section 10 of the Estate Duty Act, 1953.
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