[1940] EACA 28

## ORIGINAL CIVIL

### BEFORE SIR JOSEPH SHERIDAN, C. J.

# IN THE MATTER OF THE ESTATE DUTY (CONSOLIDATION) ORDINANCE, 1926

# THE ESTATE DUTY COMMISSIONERS, Plaintiffs

$v$ .

1. ABDUL RASUL MERALI, 2. MOHAMED HUSSEIN MERALI, Executors of the Estate of Merali Devji. deceased, Defendants

#### Civil Case No. 37 of 1939

Estate Duty—Gift—Entry in business books—Estate Duty (Consolidation) Ordinance, 1926, section $12(1)(b)$ .

In 1919 Merali Devji credited to his seven sons, whose ages then ranged from 24 to 4 years, certain sums in his business books. From 1920 to 1923 he carried on business in partnership with these seven sons under the name of Devji Kanji & Sons. This partnership was duly registered. In 1923 the firm of Devji Kanji & Sons was dissolved, but the four eldest sons of Merali Devji started a business of their own under the name of Kassamali Merali & Brothers. This partnership also was duly registered. The assets of Merali Devji, together with the credits which stood in the names of his three youngest sons, were transferred from the books of Devji Kanji & Sons to the books of the new firm. Another son, Akberali, had been born to Merali Devji in 1921 and in the year 1925 Kassamali Merali & Brothers credited Akberali in their books with a sum approximately equivalent to the sums credited to his three immediate elder brothers. According to the books this was done at the request of Merali Devji. In the year 1926 the firm of Kassamali Merali & Brothers was dissolved and Merali Devji started trading again in his own name, without any registration under the Registration of Business Names Ordinance. On the commencement of this business the credits standing in the names of the four youngest sons were transferred from the books of Kassamali Merali & Brothers to the books of the new business. From 1926 up to the death of Merali Devji in 1937 the accounts of the four youngest sons in the business books were credited or debited yearly with a share of the profits or losses respectively.

The trustees of the will of Merali Devji, in their affidavit submitted to the Assistant Estate Duty Commissioner, showed the sums credited to the four youngest sons as debts owing by the deceased. The Estate Duty Commissioners, after due inquiry, recorded a finding that the sums in question could not properly be deducted from the property passing on the death of the deceased and were, therefore, liable to estate duty. This finding was communicated to the trustees. The amount of estate duty was re-assessed and as the duty was not paid within thirty days from the date of such re-assessment the Estate Duty Commissioners moved the Court for an order for payment of the estate duty.

**Held** (9-3-40).—That having regard to section $12(1)(b)$ of the Estate Duty (Consolidation)<br>Ordinance, 1926, the finding of the Estate Duty Commissioners must be upheld, since the alleged gifts were not perfected by transfer of property or declaration of trust.

Gould v. Commissioners of Stamp Duties (1934 A. C. 69) followed.

Phillips Crown Counsel for the Plaintiffs.

A. B. Patel for the Defendants.

JUDGMENT.—In the course of this case which refers to a claim for estate duty after hearing a portion of the evidence Mr. A. B. Patel for the defendants intimated that he could no longer resist the claim for duty as assessed by the Estate Duty Commissioners with regard to some of the items. The first of these items is in respect of the valuation of the godowns. After hearing Mr. King's evidence Mr. Patel intimated that he accepted the figure fixed by the Commissioners; the second item referred to the claim for exemption in the case of Sugrabai Merali, Sh. 4,851/76, and this sum was admitted to be liable to duty; the third item, Sh. 9,041, is on a somewhat different footing. There had been a credit in this amount in the books in the name of Motibai. On her death letters of administration were not taken out and the sum standing in her name was credited to four of her sons. Mr. Patel admitted that duty will have to be paid on this sum—in the estate of Motibai. For the rest of the case it turns on whether in the year 1919 gifts were made to three of the testator's sons in such a manner as to exempt them from duty payable on the testator's estate. There is the case of a fourth son, but as he was not born at the time, I will consider his case separately. I have not found the question free from difficulty but I have come to the conclusion that the case relied on by Mr. Phillips, Gould v. Commissioner of Stamp Duties (1934 A. C. 69), is an authority contrary to the contention of the defendants. The case refers to the construction of a section of a New Zealand Act, but it is practically identical with section $12(1)(b)$ of the local Estate Duty Ordinance (No. 13/26). Mr. Patel sought to distinguish the facts of that case from those of the present, pointing out that the sums in question in the present case are shown in the firm's books whereas in the New Zealand case the sums in question were entered in the settlor's private account kept by his agents. I do not think the distinction is of any importance. What I have to decide is whether the alleged gifts were made in such a manner as to confer exemption under the Ordinance. The material part of section 12 reads: "Estate duty shall subject to the deductions hereinafter mentioned be payable in respect of $\ldots$ (b) Any property . . . . taken under any gift whenever made, if bona fide possession and enjoyment of such property have not been assumed by the donee immediately upon the gift and thenceforward retained to the entire exclusion of the donor, or of any benefit to him by contract or otherwise." Assuming that gifts were made by the testator in 1919 these gifts must have been perfected either by transfer of property or declaration of trust in order to escape liability for duty. The principle is referred to by Sir G. Jessell, M. R., in Richards v Delbridge (18 Eq. 11 at page 14). "A man may transfer his property without valuable consideration in one of two ways; he may either do such acts as amount in law to a conveyance or assignment of the property, and thus completely divest himself of the legal ownership, in which case the person who by these acts acquires the property takes it beneficially, or on trust as the case may be; or the legal owner of the property may, by one or other of the modes recognized as amounting to a valid declaration of trust, constitute himself a trustee, and without an actual transfer of the legal title may so deal with the property as to deprive himself of its beneficial ownership, and declare that he will hold it from that time forward on trust for the other person." Shortly, in this case was there a transfer or was there a transfer to a trustee or was there a declaration of trust by the testator? On the facts of the case the answer to all the three questions must be no. But quite apart from that as the ages of the three sons concerned were respectively 12, 6 and 4 years of age in 1919 I should find it difficult to say that the possession and enjoyment of the property had been assumed by them and thenceforward retained by them to the entire exclusion of the donor. With regard to the fourth son there is an entry on page 1 of Exhibit 3, a book said to have been kept by Kassamali Merali & Brothers, crediting this son Akberali with Sh. 49,000 and debiting the firm of Devji Kanji & Sons with the same amount. This entry is said

by the defendants to have been made out of respect for and at the request of Merali Devji by his four elder sons for the reason as it was said that Akberali's share might be the same as his other three brothers. In the evidence of Nazerali there is a sentence: "Merali Devji went on pilgrimage and told us to credit<br>Akberali with the same share as the others". The conclusion I have come to is that the case of Akberali cannot be distinguished from the other three. I find that just as much as the entries in their names were made in the books in 1919 by the direction of Merali Devji, the entry in 1924 in the books of Kassamali Merali & Brothers was similarly made. With regard to all such entries Merali Devji throughout was the dominant influence; and he, I am satisfied, controlled such matters. It seems to me significant, with regard to these entries, that when the business of Devji Kanji & Sons closes (and in the books of that business there appeared the entries in favour of three of the younger sons) the business of Kassamali Merali & Brothers comes into existence and the entries reappear in the books of that firm with, in 1924, the entry in favour of Akberali. Then in 1926 when Merali Devji once more goes into business in his own name the business of Kassamali Merali & Brothers closes and the entries once more make their appearance in the books of Merali Devji. I find that the testator never parted with the property represented by the entries to which I have referred in such a manner as to exempt such property from estate duty. Mr. Phillips has stressed clause 4 of the will as being in support of his contention and rightly so. The clause reads: "I direct that as to the business now carried on by me at Mombasa under the style and name of 'Merali Dewji' or any other business in which I may be engaged at my death, my Trustees shall sell same as a going concern to my four sons, namely (a) the said Abdul Rasul Merali, (b) Mohamed Hussein Merali, (c) Rajabali Merali and (d) Akberali Merali at a reasonable price and my said four sons shall be entitled to retain the amounts of their shares of inheritance out of the purchase price of the said business and to carry on the business under the name and style of 'Merali Dewji'." The will was executed four months prior to Merali's death. It seems to me that this clause supports the contention that Merali Devji had throughout, and certainly at the time of his death, the control of the property and that the entries in the books merely signified shares which he had earmarked for the four sons referred to. As Abdul Rasul said in his evidence: "With his money in 1926 without our money he could not have been able to carry on a big business" and earlier, "Nobody had the share in their hands". The<br>history of the case and the other evidence oral and documentary lead me to the conclusion that the contention of the Estate Duty Commissioners must be upheld and so I decide. Costs will follow the event. (Counsel have agreed to work out the details of the costs.) The statutory interest at 8 per cent per annum (section 14(4) Estate Duty Ordinance) is allowed as from 30 days from the date of assessment to payment.