RAJARATNAM v. THE COMMISSIONER OF STAMPS

• Jurisdiction: Sri Lanka
• Date: 18 March 1938
• Type of Document: New Law Report

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1938 Present : Soertsz J. and de Kretser A.J.

RAJARATNAM v. THE COMMISSIONER OF STAMPS.

192-D. C. Jaffna, 58.

Estate duty-Business carried on under vilasam-Admission of sons into partnership-No agreement in writing-Validity-Registration, of business-Death of father-Claim by sons of a gift of one-third share of partnership-Proof of gift-Ordinance No. 7 of 1840, s. 21 (4)-Estate Duty Ordinance, No.,8 of 1919, s. 8 (1) (c).

A person, who carried on business under the vilasam S. V., decided in 1929 to admit his two sons into partnership and registered the business under the business name S. V. The business was described as a partner ship, the partners being the father and the two sons. No written agreement of partnership was entered into. Although regular accounts were kept, there was no separate account of the capital of each partner nor was the distribution of profits and loss shown as against each partner.

In October, 1933, a document was executed declaring that they had been partners in the business. On the death of the father in December, 1933, it was claimed on behalf of the sons that S. V. had gifted a one-third share of the partnership to each of them and that these shares should be excluded from the property of the partnership passing on the death of S. V. for purposes of estate duty.

Held, that the partnership could not be established in the absence of a written agreement.

Pate v. Pate (18 N. L. R. 289) and Idroos v. Sheriff (27 N. L. R. 231) followed.

Held further, that there had been a gift by the father of a one-third share of the business to each of the sons and that bona fide possession and enjoyment of those shares had been assumed by the sons immediately upon the gifts being made and thenceforward retained to the entire exclusion of the father of any benefit to him by contract or otherwise, within the meaning of section 8 (1) (c) of the Estate Duty Ordinance.

The presumption created by section 109 of the Evidence Ordinance operates only when the existence of a partnership has been proved according to law.

THIS was an appeal from an order of the District Judge of Jaffna on an appeal taken to him under section 22 (3) of the Estate Duty Ordinance.

The facts are given in the headnote.

The only question argued in appeal concerned the extent of the share that passed in the business carried on under the business name of S. V. and registered in the name of the deceased S. V. and the two appellants as partners.

H. V. Perera, K.C. (with him N. Nadaraja and N. Kumarasingham), for the appellants.-A partnership need not always be proved by an agreement in writing. For tax purposes, if there is a partnership in fact, there is liability. There is ample evidence in this case of a, partnership from March 2, 1929. A partnership can well exist without a formal agreement in writing.

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Under section 21 (4) of Ordinance No. 7 of 1840, there was no onus on appellants to prove writing. Pate v. Pate [1] can be distinguished from this case because that was an action between two partners. The existence of a partnership can be established by oral evidence as held in Idroos v. Sheriff [2(1925)27N.L.R.231.] Section 21 (4) consists of two parts ; first part applies only to a case where a partner seeks to enforce a contract of partnership as against another partner.

In this case, the only question is whether there was a contract of partnership. No relief is sought for on the terms of the contract. The provisions of Ordinance No. 7 of 1840 are only of evidentiary value. The agreements referred to there are not declared null and void merely by reason of absence of writing. It is only where the basis of a suit is partnership that proof of writing is necessary.-Vide Pate v. Pate [1(1915)18 N.L.R. 289. ]

The existence of a partnership was clearly established. The onus was on the Crown, therefore, to prove that there was no partnership. See section 109 of Evidence Ordinance De Silva v. De Silva [3{1935) 15Cey.L.Rec.36.].

A taxing officer should not look at the forms of transactions, but at the substance of them. See Lord Tomlin's dictum in Munro v. Commissioner of Stamp Duties [4 (1934) 150 L.T.145.].

The Commissioner of Income Tax had already accepted the position that there was a partnership. This decision must operate as res judicata. The parties and the subject-matter were the same, parties being the executor and the Crown. Income tax authority is a Court. Crown is in the same position as a private party, although represented by different persons-Spencer Bower on Res Judicata, pp. 128, 129; Hoystead et al. v. Commissioner of Taxation [ 5 (1926) A. C. 155.].

Even if there was no partnership, there was certainly a co-ownership Document A 4 is conclusive evidence that there was a gift of a third of the business to each of the two sons in March, 1929. Only a one-third share, therefore, belonged to the deceased. The distinction between a partner-ship and a co-ownership is of very little practical importance. The beneficial interest of the whole of the estate did not pass, even though it can be held that the legal interest passed.

J. E. M. Obeyesekere, C.C., for the Commissioner of Stamps.-The question in this case is really what share of the partnership property is liable to Estate Duty. The burden of establishing that only one-sixth share and not the whole property is liable, is on the appellants.

[SOERTSZ J.-What is your reply to Lord Tomlin's dictum in Munro v. Commissioner of Stamp Duties [ 6 (1934) 15OL.T.145.] ? ]

It will not apply in all cases.

Crown's claim to tax the whole of the partnership property as belonging to the deceased can be put on an alternative basis. Assuming that the appellant's suggestion can be accepted that the partnership dates from March, 1929, and that a gift resulted from it, Crown's position is that it was a gift which could be caught up by section 8 (2) of the Estate Duties Ordinance, No. 8 of 1919. It was a gift with a reservation " by contract or otherwise ". The evidence is clear that the father had some beneficial

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interest. See Attorney-General v. Worrall [1 (1895) 1Q.B. 99.], Crossman et al. v. The Queen [2 (1886) 18 Q. B. D. 256.] Earl Grey v. The Attorney-General [3 (1900) A. C. 124.], Attorney-General v. Johnson [4(1903) 1 K. B. 617.], Hanson on Death Duties (1931 ed.), p. 84.

Alternatively, the evidence is that the deceased had by a notarial document (A 4) declared that he was a partner with his two sons. This document was made within four months of the father's death. If a gift can be presumed from it, it will come under section 8 (1) (c) of the Estate Duties Ordinance.

In any event, even if there was a partnership, agreement in writing is necessary. The whole basis of a partnership is the written agreement- Palte v. Pate [ 5(1915) 8 N. L. R. 289 at pp. 291 & 292.].

The decision of the Board of Review cannot operate as res judicata- Income Tax Ordinance, No. 2 of 1932, sections 64, 69, 73 (3), and 75. The decision is final only for the purposes of assessment made under the Income Tax Ordinance. So far as Estate Duty is concerned, there is a different Ordinance. Income Tax Assessor is a party quite independent of the Commissioner of Stamps. They are two different persons repre-senting the Crown in different capacities-Leggott v. The Great Northern Railway Company [ 6 (1876) 1 Q. B. D. 599.]; Manton v.Cantwell [ 7 (1920) A. C. 781, at p. 788.]; Spencer Bower on Res Judicata, p. 128.

As to applicability of section 109 of the.Evidence Ordinance, there was no legal proof in this case that a partnership had at all existed.

H. V. Perera, K.C., in reply.-The evidence does show that the father and the two sons had acted as partners. Section 109 of Evidence Ordinance would therefore apply.

In construing a taxing Act, the presumption is that the Legislature has granted precisely the tax mentioned in. the Statute, and no more- Attorney-General v. Seccombe [ 8(1911) 2 K.B.688.].

As regards the gift, the onus was on the Crown to prove that, under the gift, there was a benefit reserved for the donor. There was no evidence to show that the deceased had drawn more than one-third of the profits in the business. The decisions cited by the respondent regarding gifts with reservations can be interpreted in appellant's favour.

Cur. adv. vult.

March 18, 1938. SOERTSZ J.- ;

This appeal is brought under section 33 of the Estate Duties Ordinance, against an order made by the District Judge of Jaffna on an appeal taken to him under section 22 (3) of that Ordinance. The learned Judge upheld the assessment made by the Commissioner of Stamps on two or three matters in dispute between him and the appellants, and found for the appellants on the third point. There is no cross-appeal by the Commissioner from the finding against him, and so far as the appellants are concerned their appeal was not pressed in regard to the decision given on the liability of the executor to pay interest on the estate duty from the expiration of one year from the date of the death of the deceased. The

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one and only question debated on the appeal before us concerned the extent of the share that passed in the business in paddy, tiles, teak and other articles carried on under the business name S. V. and registered as from March 2, 1929, in the name of the deceased and the two appellants as partners.

The case for the appellants is that only a one-sixth passed on the basis that this business must be regarded as " tediatetam" and, therefore, belonged equally to the deceased and his wife, and that on his death, only a one-third of his half passed because the business belonged to the three of them. The Commissioner of Stamps, on the other hand, contends that the whole business was carried on by the deceased, and that the appellants did nothing more than...