V. D. TULZAPURKAR J.

1. The question raised for our determination in this appeal is whether, on the facts and in the circumstances of the case, the amount of Rs. 3 lakhs transferred by the deceased to his three grandnephews in equal shares was includible in the estate of the deceased that passed on his death Substantially, the answer thereto depends upon whether section 10 of the Estate Duty Act, 1953, is attracted to the case or not The facts giving rise to the question may briefly be stated. The deceased, Sri Bankatlal Lahoti, was a partner in the firm of M/s. Dayaram Surajmal, which carried on business as bankers. With a view to give Rs. 1 lakh each to his three minor grandnephews (three grandsons of his deceased brother), the deceased, on October 4, 1952, issued a cheque for Rs. 3 lakhs in favour of the firm; this amount was debited in the account of the deceased in the firm and credited in the accounts of the three minors in equal proportion. The said sum thus transferred to the three nephews continued to stand in their respective accounts in the books of the firm till its dissolution on July 4, 1960, whereafter some assets were allotted to each one of them in lieu of the amounts standing to their credit. The deceased died on February 21, 1956.

2. After the death of the deceased, his widow, Smt. Godavari Bai, as the accountable person, filed an account of the deceaseds estate declaring the value thereof at Rs. 2, 60, 702. This did not include the sum of Rs. 3 lakhs transferred by the deceased to the three grandnephews on October 4, 1952. The assessee contended that these transfers were not gifts but amounted to transfer of actionable claims made in conformity with section 130 of the Transfer of Property Act by effecting entries in the books of account. Alternatively, it was contended that the transfer amounted to a novation which did not require an instrument signed by the transferor. The Deputy Controller negatived both the contentions the first on the ground that there was no valid transfer of actionable claims because it was not effected by an instrument in writing signed by the transferor as required by section 130 of the Transfer of Property Act while the alternative contention on the ground that the transaction did not amount to novation inasmuch as there was no substitution of one debt for another. In this view of the matter, the Deputy Controller held that the sum of Rs. 3 lakhs was includible in the estate of the deceased that passed on his death. In the appeal preferred by the assessee, the self-same contentions were urged on her behalf before the Appellate Controller of Estate Duty while the Deputy Controller justified the assessment on the additional ground that the sum of Rs. 3 lakhs was also includible in the estate of the deceased that passed on his death under section 10 of the Estate Duty Act, 1953. The Appellate Controller rejected the assessees contentions and accepted those of the Deputy Controller and confirmed the inclusion of the amount in the estate of the deceased. In the further appeal preferred to the Appellate Tribunal, since it was admitted on behalf of the assessee that apart from the cheque issued by the deceased in favour of M/s. Dayaram Surajmal and the entries made in the books of that firm debiting the deceaseds account and crediting the accounts of the donees, there was no other document to evidence the transfer, the Tribunal presumed that the transfer was effected as a result of oral instructions which must have been given by the deceased to the firm. Counsel for the assessee, however, urged that notwithstanding the absence of an instrument in writing signed by the deceased, the transfer was valid under section 130 of the Transfer of Property Act and in that behalf reliance was placed on Ramaswamy Chettiar v. K. S. M. Manicham Chettiar, AIR 1938 Mad 236 and Seetharama Ayyar v. Narayanaswami Pillai [1918] 47 IC 749, but the Tribunal did not accept the contention and held that a plain reading of section 130 showed that the transfer of an actionable claim became complete and effectual only upon the execution of an instrument in writing signed by the transferor or by his duly authorised agent; that the cheque issued by the deceased in favour of the firm only authorised the firm to pay to itself the sum of Rs. 3 lakhs from out of the amount lying to the credit of the deceased, but it did not by itself authorise the firm to transfer this amount to anyone else and that such a transfer could be authorised by a separate letter of instructions from the deceased but no such instrument was obtained and the oral instructions given could not take the place of such an instrument in writing and, therefore, the transfer of Rs. 3 lakhs made in favour of the donees was not in accordance with the requirements of section 130. The alternative contention that the transfer was in the nature of a novation was also rejected on the ground that the donees were not indebted to the firm nor was the deceased indebted to the donees and, therefore, the entries made in the account books of the firm could not be understood as a substitution of one debtor in the place of another. The Tribunal also held that this amount of Rs. 3 lakhs was includible in the estate of the deceased under section 10 of the Estate Duty Act, even if it were assumed that the transfer became complete and effective on the date of the transfer inasmuch as on the facts it could not be said that the donees retained possession and enjoyment of the gifted amounts to the entire exclusion of the donor or of any benefit to him and that this position continued to exist till the death of the deceasedAt the instance of the assessee, the Tribunal referred the following question of law to the High Court for its opinion:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the amount of Rs. 3 lakhs transferred by the deceased to his grandnephews was includible in the estate of the deceased that passed on his death"

3. On a consideration of the entire material on record, the High Court took the view that the entries made in the books of the firm by debiting the account of the deceased by the sum of Rs. 3 lakhs and crediting the said amount in equal proportion in the three accounts of the donees (grandnephews) might or might not constitute a valid gift of money but proceeding on the basis that it was a gratuitous transfer of an actionable claim, the interposition of a cheque issued by the deceased in favour of the firm made all the difference inasmuch as the transfer of an actionable claim represented by a negotiable instrument like a cheque was governed by section 137 in preference to section 130 of the Transfer of Property Act and that the cheque together with the oral instructions (which even the Tribunal presumed were given by the deceased) would constitute the firm, trustee or an agent holding the moneys for the benefit of the minors and as such the transfer to the minors was valid, complete and effectual. After coming to this conclusion, the High Court proceeded to consider the question whether to this transaction of gift of an actionable claim, section 10 of the Act was applicable or not and relying upon the decision in the leading case of Munro v. Commissioner of Stamp Duties [1934] AC 61 as well as its two earlier decisions in CED v. C. R. Ramachandra Gounder [1969] 73 ITR 166 (Mad) [LQ/MadHC/1968/390] and CED v. N. R. Ramarathnam [1969] 74 ITR 432 (Mad) [LQ/MadHC/1969/99] , the High Court held that the donor had been completely excluded from the subject-matter of the gift and as such section 10 was not applicable. In other words, differing from the view taken by the Tribunal, the High Court held that the transaction involved in the case was gratuitous transfer of an actionable claim and that there was in law valid, complete and effectual gift thereof in favour of the three minor grandnephews and since section I 0 was not attracted, the sum of Rs. 3 lakhs was not includible in the value of the estate of the deceased that passed on his death. It, therefore, answered the question in the negative and in favour of the assessee. The Revenue has come up in appealCounsel for the Revenue did not assail the High Courts conclusion in regard to there being a valid gift of the actionable claim in favour of the minors resulting from the issuance of the cheque accompanied by oral instructions and followed by the making of the requisite debit and credit entries in the firms books but vehemently criticised the view that section 10 was inapplicable to this transaction of gift. He urged that possession and enjoyment of the subject-matter of the gift was neither assumed by the donees nor retained by them to the entire exclusion of the donor inasmuch as the donor as a partner of the firm had control over the said sum of Rs. 3 lakhs which continued to lie with the firm for being used as the firms property and this possession continued to obtain till the death of the deceased and in fact till the dissolution and as such section 10 was clearly attracted. Strong reliance was placed by counsel for the Revenue on the ratio of the Privy Council decision in Clifford John Chick v. Commissioner of Stamp Duties of New South Wales [1959] 37 ITR (ED) 89, which was followed by this court in George Da Costa v. CED [1967] 63 ITR 497 (SC) and CED v. Parvati Ammal [1974] 97 ITR 621 (SC) as also two decisions of the Gujarat High Court in Shantaben S. Kapadia v. CED [1969] 73 ITR 171 (Guj) [LQ/GujHC/1968/139] and in CED v. Chandravadan Amratlal Bhatt [1969] 73 ITR 416 (Guj) [LQ/GujHC/1968/151] . On the other hand, counsel for the assessee supported the view of the High Court by placing reliance on the decision in Munros case [1934] AC 61 (PC) which had been followed by this court in C. R. Ramachandra Gounders case [1973] 88 ITR 448 (SC), N. R. Ramarathnams case [1973] 91 ITR I (SC), CED v. R. V. Viswanathan [1976] 105 ITR 653 (SC) and CED v. Kamlavati [1979] 120 ITR 456 (SC)Having regard to the rival contentions urged before us, it is clear that the answer to the question raised in this appeal depends upon a proper analysis of section 10 of the Act and whether the instant case falls within the doctrine enunciated in Munros case [1934] AC 61 ; [1934] 2 EDC 462 (PC) or within the ratio of Chicks case [1959] 37 ITR (ED) 89 (PC). Relevant portion of section 10 of the Act runs thus:

" Property taken under any gift, whenever made, shall be deemed to pass on the donors death to the extent that bona fide possession and enjoyment of it was not immediately assumed by the donee and thenceforward retained to the entire exclusion of the donor or of any benefit to him by contract or otherwise..."

4. The object underlying a provision like section 10 of the Act was explained by Issacs J. in the case of John Lang v. Thomas Prout Webb [1912] 13 CLR 503 decided by the High Court of Australia in the following words

" The owner of property desiring to make a gift of it to another may do so in any manner known to the law. Apparent gifts may be genuine or colourable, and experience has shown that frequently the process of ascertaining their genuineness is attended with delay, expense and uncertainty-all of which are extremely embarrassing from a public revenue standpoint

With a view to avoiding this inconvenience, the legislature has fixed two standards, both of them consistent with actual genuineness, but prima facie indicating a colourable attempt to escape probate duty. One is the standard of time. A gift, however, real and bona fide, if made within twelve months before the donors death is for the purpose of duty regarded as not made. The other is conduct which at first sight and in the absence of explanation is inconsistent with the gift. The prima facie view is made by the legislature conclusive. If the parties to the transaction choose to act so as to be in apparent conflict with its purport, they are to be held to their conductThe validity of the transaction itself is left untouched, because it concerns themselves alone. But they are not to embarrass the public treasury by equivocal acts."

5. The conditions specified in section 10 will have to be understood by keeping in view the aforesaid object with which the section has been enacted. In George Da Costs v. Controller of Estate Duty [1967] 63 ITR 497 (SC), this court has analysed the conditions, on the fulfilment of which the section gets attracted, thus (p. 501)

" The crux of the section lies in two parts : (1) the donee must bona fide have assumed possession and enjoyment of the property, which is the subject-matter of the gift, to the exclusion of the donor, immediately upon the gift; and (2) the donee must have retained such possession and enjoyment of the property to the entire exclusion of the donor or of any benefit to him, by contract or otherwise. As a matter of construction we are of the opinion that both these conditions are cumulative. Unless each of these conditions is satisfied, the property would be liable to estate duty under section 10 of the Act."

6. The second part of the section, as observed in the aforesaid decision, has two limbs: that the deceased must be entirely excluded (i) from the property, and (ii) from any benefit by contract or otherwise and that the word " otherwise " should be construed ejusdem generis and should be interpreted to mean some kind of legal obligation or some transaction enforceable in law or in equity which, though not in the form of a contract, may confer a benefit on the donor

7. Therefore, the question that arises for our determination in this appeal is whether the aforementioned two cumulative conditions requisite for attracting section 10 are satisfied in this case or not Whether immediately upon the gift the donees had bona fide assumed possession and enjoyment of the property, which was the subject-matter of the gift, to the exclusion of the donor and whether they had retained such possession and enjoyment thereof to the entire exclusion of the donor or of any benefit to him by contract or otherwiseThe question whether gifted property should be regarded as a part of the estate of the deceased-donor passing on his death for the purpose of section 10 of the Act would depend upon as to what precisely is the subject-matter of the gift and whether the gift is of absolute nature or whether it is subject to certain rights. If the gift is made without any reservation or qualification, that is to say, where the gift carries the fullest right known to law of exclusive possession and enjoyment, any subsequent enjoyment of the benefit of that property by way of possession or otherwise by the donor would bring the gift within the purview of section 10; but where the gift is subject to some reservation or qualification, that is to say, if the subject-matter of the gift is property shorn of certain rights and the possession or enjoyment of some benefit in that property by the donor is referable to those rights, i e., rights shorn of which the property is gifted, then in that case the subject-matter of the gift will not be deemed to pass on the death of the deceased-donor. In other words, if the deceased-donor limits the interest he is parting with and possesses or enjoys some benefit in the property not on account of the interest parted with but because of the interest still retained by him, the interest parted with will not be deemed to be a part of the estate of the deceased-donor passing on his death for the purpose of section 10 of the Act. It is these aspects which mark the distinction between the two leading cases, namely, Chicks case [1959] 37 ITR (ED) 89 (PC) and Munros case (1934] AC 61. As we shall indicate presently, Chicks case falls within the first category while Munros case falls within the other category

8. In Chicks case [1959] 37 ITR (ED) 89 (PC), the question arose under section 102 of the New South Wales Stamp Duties Act, 1920-56, which was similar to section 10 of our Act and the facts were these 1 In 1934, father transferred by way of gift to one of his sons a pastoral property, the gift having been made without reservation or qualification or condition. In 1935, some 17 months after the gift, the father, donee son and another son entered into an agreement to carry on in partnership the business of graziers and stock dealers. The agreement provided, inter alia, that the father should be the manager of the business and that his decision should be final and conclusive in connection with all matters relating to its conduct; that the capital of the business should consist of the livestock and plant then owned by the respective partners; that the business should be conducted on the respective holdings of the partners and such holdings should be used for the purposes of the partnership only; that all lands held by any of the partners at the date of the agreement should remain the sole property of such partner and should not on any consideration be taken into account as or deemed to be an asset of the partnership, and any such partner should have the sole and free right to deal with it as he might think fit. Each of the three partners owned property, that of the donee son being that which had been gifted to him by his father in 1934, and each partner brought into partnership livestock and plant, and their three properties were thenceforth used for the depasturing of the partnership stock and this arrangement continued up to the death of the father in 1952. The Privy Council held that the value of the property given to the son in 1934 was to be included in computing the value of the fathers estate for the purpose of death duty. While it was not disputed that the son had assumed bona fide possession and enjoyment of the property immediately upon the gift to the entire exclusion of the father he had not, on the facts, thenceforth retained it to the fathers entire exclusion, for under the partnership agreement, and whatever force and effect might be given to that part of it which gave a partner the sole and free right to deal with his own property, the partners and each of them were in possession and enjoyment of the property so long as the partnership subsisted. The judicial Committee observed that where the question was whether the donor had been entirely excluded from the subject-matter of the gift, that was the single fact to be determined, and, if he had not been so excluded, the eye need look no further to see whether his non-exclusion had been advantageous or otherwise to the donee. In its opinion, it was irrelevant that the father gave (if he did give) full consideration for his right as a member of the partnership to possession and enjoyment of the property that he had given to his son. Inter alia, two or three points emerge clearly from the decision that need to be emphasised: (a) there was initially an outright gift of the property-not of the property shorn of any rights, (b) the deceased-donor was not, in fact, excluded from the property, but as a partner enjoyed rights over it, and (c) that it was immaterial that the donor gave full consideration for enjoying his rights over the property as a partner. It was these aspects that brought the gifted property within the mischief of the taxing statute. The other decisions of this court on which counsel for the Revenue has relied are clearly cases falling within this category and hence the ratio of Chicks case [1959] 37 ITR (ED) 89 (PC) was correctly applied in each of themOn the other hand in Munros case [1934] AC 61 (PC), the facts were these: M, who was the owner of 35, 000 acres of land in New South Wales on which he carried on the business of a grazier, verbally agreed with his six children in 1909 that thereafter the business should be carried on by him and them as partners under a partnership at will and the business was to be managed solely by M, and each partner was to receive a specified share of profits. In 1913, by six registered transfers, M transferred by way of gift all his right, title and interest in the portions of his land to each of his four sons and to trustees for each of his two daughters and their children. The evidence showed that the transfers were taken subject to the partnership agreement and on an understanding that any partner could withdraw and work his land separately. In 1919, M and his children entered into a formal partnership agreement which provided that during the lifetime of M, no partner should withdraw from the partnership. On the death of M in 1929, the land transferred in 1913 was included in assessing his estate to death duties under the Stamp Duties Act, 1920-1931 (N.S.W.), on the ground that they were gifts dutiable under section 102(2a) of that Act. The Privy Council held that the property comprised in the transfers was the land separated from the rights therein belonging to the partnership and was excluded by the terms of section 102, sub-section 2(a), from being dutiable, because the donees had assumed and retained possession thereof, and any benefit remaining in the donor was referable to the partnership agreement of 1909 and not to the gifts. It was urged that the transfer deeds did not mention the rights of the partnership and, therefore, under section 42 of the Real Property Act, 1900 (N.S.W.), the transfers gave a title free from those rights but the judicial Committee negatived the contention on the ground that the substance of the transactions and not the forms employed had to be ascertained and so ascertained, the substance showed that the transfers were shorn of rights in favour of the partnership and the benefit remaining in the donor was referable to such rights of the partnership subject to which the gifts had been made. Thus, this decision clearly enunciates the principle that if the subject-matter of the gift is property shorn of certain rights and if the possession or enjoyment of some benefit in that property by the donor is referable to those rights, i.e., rights shorn of which the property is gifted, then the subject-matter of the gift will not be deemed to pass on the death of the deceased-donor. The ratio of this decision has been followed and applied by this court in Ramachandra Gounders case [1973] 88 ITR 448 (SC), N. R. Ramarathnams case [1973] 91 ITR 1 (SC) [LQ/SC/1973/63] , R. V. Viswanathans case [1976] 105 ITR 653 (SC) and Kamlavatis case [1979] 120 ITR 456 (SC)Having regard to the undisputed facts and facts found by the High Court, it seems to us clear that the instant case falls within the principle enunciated in Munros case [1934] AC 61 (PC). Admittedly, the deceased-donor was partner in the banking firm of M/s. Dayaram Surajmal, wherein the minor donees were never admitted to the benefits of the partnership firm. An extract of account filed by the assessee before the High Court brought out the procedure followed for effecting the transaction in question : the deceased had his account comprising his capital contribution and advances made by him to the firm; he drew a cheque for Rs. 3 lakhs against his account with the firm which was made out in the name of the firm as a result whereof the firm could pay itself ; but the account of the deceased was debited with the sum of Rs. 3 lakhs and on the same day simultaneously three accounts of the minor donees with the said firm were credited with the sum of Rs. lakh each. The Tribunal as well as the High Court found as a fact that when the cheque was issued, oral instructions must be presumed to have been given by the deceased to the firm for crediting the three accounts of the three minors without which the firm could not make such credit entries. From these facts, the High Court rightly inferred that in effect the cheque was issued in favour of the firm, but for the benefit of the minors " and that " in such a situation the firm shall be treated as a trustee or an agent holding the money for the benefit of the minors ". Clearly, in this view of the matter, the transaction in question amounted to a gratuitous transfer of an actionable claim to which section 137 in preference to section 130 of the Transfer of Property Act applied and there was a valid gift thereof to the minor donees. Farther, the undisputed facts were that the amount of Rs. 3 lakhs did not go out of the firm but on being transferred from the account of the deceased to the accounts of the minor donees continued to remain with the firm for being used for the firms business; in fact, the partnership continued to have the benefit thereof even after the death of the donor till the firm was dissolved. Obviously, the substance of the transaction was that the gift was of an actionable claim of the value of Rs. 3 lakhs out of the donors right, title and interest as a whole in the firm and as such was shorn of certain rights in favour of the partnership and, therefore, the possession or enjoyment of the benefit retained by the donor as a partner of the firm must be regarded as referable to the partnership rights and had nothing to do with the gifted property. In our view, the transaction in question, therefore, clearly fell within the ratio of the decision in Munros case [1934] AC 61 and the High Court was right in coming to the conclusion that to such a transaction, section 10 was inapplicableWe would like to point out that the facts of the instant case are almost similar to the facts that obtained in CED v. Jai Gopal Mehra [1979] 120 ITR 456 (SC), a companion matter that was decided and disposed of by this court by a common judgment in Kamlavatis case [1979] 120 ITR 456 (SC), where it was held that the transaction of gift was one to which section 10 was inapplicable

9. In the result, the appeal is dismissed with no order as to costs

10. Appeal dismissed.