012-NLR-NLR-V-57-P.-H.-S.-FERNANDO-Appellant-and-THE-ATTONEY-GENERAL-Respondent.pdf
Present: Gratiaen, J., and Pulle, J.P. H. S. FERNANDO, Appellant., and THE ATTORNEY-GENERAL,Respondent
<S'. G. 313—D. C. Colombo, 77 jT (Special)
Estate Duty Ordinance (Cap. JS7)—Section 0 (d)—“ Property passing on death”—Transfer of properly by A to C—Consideration furnished by 11—Death of D—“ Disposition purporting to operate as gift inter vivos
A contracted with B to sell to B or to B's nominee or nominees the entiretyof o property fora consideration of Us. 505,000. B thereafter called upon A toconvey tho property* to himself and to certain members of his family (includingC) in certain agreed shares. Accordingly A transferred an undivided one-fifth- share to C in exchange for tho consideration of fts. 101,000 which was furnishedby B. Within three years of the date of tho execution of tho conveyance Bdied. The value of the share at the time of B’s death was higher thanit had been at the time of tho transfer.-
Held, that tho conveyance executed by A in favour of C was a dispositionby B by way of gift within the meaning of section 6 (d) of the Estate DutyOrdinance and that tho subject-matter of tho gift was the share which Creceived and not the sum of l?s. 101,000 provided hy B as purchase prico.
1 60 A’. E. 2G5 ; 40 C. L. II". 10.
Appeal from a judgment of the District Court, Colombo.
//. J Perera. Q.C., with X. J/. de Silva, for the petitioner-appellant.
1'. Tenncl.oon, Crown Counsel, for the respondent.
Cur. adv. vult.
March 10, 1 9-35. Gratxaex, J.—
This is an appeal under Section 43 of the Estate Duty Ordinanceagainst a decision of the Distiiet Court of Colombo upholding an assess-ment of estate duty in respect of the estate of the appellant’s father,Peter Solomon Fernando {hereinafter called the “ deceased ”). Thedispute relates to the effect of a conveyance PI dated 28th April 1944whereby, hr exchange for consideration admittedly furnished by thedeceased out of his own funds, the Lunawa (Ceylon) Tea and RubberEstates Limited transferred an undivided 1/5 share of Arampola Estateto the appellant. The deceased died on 8th July 1940, that is to say,within three years of the date of execution of PI. The learned trialJudge upheld the contention of the Croun that the appellant’s 1/5 shareof Aramjiola Estate constituted “ property taken under a disposition■made by {the deceased) purporting to operate as an immediate gift intervivos whether by way of transfer, delivery, declaration of trust orotherwise ” within the meaning of Section G (d) of the Ordinance. Herejected the argument that only the consideration of Rs. 101,000 pro-vided by the deceased (but not the property itself) constituted a dis-position by way of gift within the meaning of Section 6 (d). The practicalimportance of the dispute lies in the fact that the value of ArampolaEstate at the date of the deceased’s death was higher than it had beenat the time of the transfer.
There is no controversy as to the circumstances in which the appellantbecame the owner of a share in Arampola Estate on 28th April 1944.An earlier notarial agreement R1 had been entered into between thedeceased and the Lunawa (Ceylon) Tea and Rubber Estates CompanyLimited whereby the deceased agreed to purchase, and the Companyto sell, the entire property for a consideration of Rs. 505,000. Thetransaction was to be conypleted on or before 30th April 1944, and, onthe deceased paying the agreed purchase price and complying with certainother conditions, the Company was to execute a conveyance “ in favourof the purchaser or his nominee or nominees.
The conveyance PI dated 2Sth April 1944, v as executed in implemen-tation of this earlier agreement. PI recites that the deceased " hadcalled upon the Company in terms of (RIJ'to transfer and convey thesaid Arampola Estate ” to himself and to certain other members of his
family (including t-lie appellant) in certain agreed shares. With regardto the 1 /q share conveyed to the appellant the deceased had out of hisown fluids entrusted the proportionate consideration to the attestingnotary for payment to the Company.
It is now our duty to give a “ juristic interpretation ” to this simpletransaction. ' That the father intended his son to receive a “ disposition ”by way of gift is clear enough. But what precisely was the subject mat terof the gift—was it the money, or was it the share in Arampola Instatewhich the Company conveyed to him in exchange for the payment ofthe money provided by the deceased ?
There can be no doubt that, if the father had placed the money at theabsolute disposal of his son, and the son had, on his own initiative,utilised it to purchase a share of the property direct from the formerowner, the money would have been the subject matter of the gift. Jtis equally clear that, if the father had purchased the property directlyin his oivn name from the Company, and then proceeded to donate ashare of it to his son, the property would have been the subject matterof the gift. But on which side of the dividing line does the presenttransaction stand ?
Section G (d) of the Estate Duty Ordinance has been taken over fromSection 38 (2) of the Customs and. Inland Revenue Act, 1S81 of Englandas amended by two later enactments. Wo have not been able to discoverany decisions of the English Courts which throw any light directly on thepresent problem. ■ Til Hanson on Death Duties (9th cd.) at page SO,however, there is a passage to the following effect :
" A case frequently occurring in practice is that of the purchase of ahouse for the donee. If B contracts to buy a house upon a promiseby A to pay for it, the house is his under the contract. The gift is agift of money, completed only when actually paid. On the. other hand,if A contracts to buy a house and directs the conveyance to be made to B,this is a gift of the house, completed alien the conveyance- is executed, tipto which lime- A remains the owner. ”
The Crown relics strongly on that part of the quotation which is italicised.Mr. Percra points out, however, that in England a person to whom tlieowner of property lias undertaken to sell it immediately becomes,apparently, its equitable ownci—so that in the hypothetical case discussedin the test-book, A has in truth “ disposed ” of the equitable estate to Bby way of gift-. In Ceylon, on the other hand, A would uot enjoy realrights of any kind until the agreement of sale is actually implemented ;he has only a right in personam, so that (Mr. Perera submits) there can beno effective disposition by him of the property itself to the donee. Diasv. Alahakoon 1.■
In my opinion, the particular problem before us calls for a realisticapproach, by analysing the transaction with reference (1) to tho result whichthe deceased intended to achieve (2) to the practical means by which lie
1 (193$) JO -V. L. Ii. 153.
procured its achievement. At the outset, I remind, myself that, whilethe agreement Rl was still in operation, the deceased was the only personin a position to control the destination, of the future title to ArampolaEstate. If he exercised his rights under the agreement, the entireproperty had to be purchased for the agreed price stipulated, as theCompany was under no obligation to sell only a share for a proportionatesum. The appellant, on tho other hand, did not enjoy any contractualright to purchase the proporty or any part of it.
Tho deceased decided to claim, as against tho Company, performanceof the Company’s obligation under Rl. At the same time, he formedan intention to take the steps required to divert a share in the propertyto his son’s ownership. This result could have been achieved in one oftwo ways. The direct solution would have been to purchase the entireproperty from the Company and thereafter to convey a share to theappellant- The alternative solution (which was more economical) wasto achieve the same object indirectly by appointing the appollant his“ nominee- ” under R1 to the extent of a 1 jo share and, having himselfpaid the full consideration stipulated, to call ripon the Company to convey. that share directly to the appellant. Either process was calculated tobring about the same result, namely, that the appellant would becomevested with title which ho did not possess before by reason (1) thedeceased’s generosity and (2) of the exorcise by the deceased of hispower to nominate the transferee in terms of Rl. It seems to mothat tho selection of the indirect method of achieving the desired resultdoes not preclude us from regarding the conveyance executed by theCompany as a “ disposition made by the deceased ” within the meaningof Section 6 (d) of the Ordinance. I would respectfully adopt theobservations made by Stirling J. in Carter v. Carter 1 where he said :
“ The words dispose and disposition (in the Fines and RecoveriesAct) are not technical words, but ordinary English words of widemeaning ; and where not limited by the context, those words aresufficient to extend to all acts by -which a new interest (legal or equitable)in the. property is effectually created.”-.
Similarly, in Parr v. Attorney-General-, Lord Carson observed:
“ In my opinion in all the relevant sections (of the Finance Acts,1891 and 1900) disposition means the same thing—namely, the effective. disposition under which the property passes.”
The significance of the words “ or otherwise ” in Section 6 (d) now becomesapparent. In this context they are not eiusdem generis with theforms of “ disposition ” previously enumerated ; they indicate that adonor may also be regarded as having personally made a dispositionof property by way of gift whenever the property effectually passes to the“donee” by an indirect process which, was controlled at everystage by the “ donor himself. – The purchase price'was not. intendedto pass into the ownership of the appellant, so that it never became his
1 (1396) I Ch: G2 at 67.* (1926) A. C. 239.
to do with as ho wished ; the proiierty, on the other hand, did so pass inaccordance with the deceased’s intentions and hi consequence of .thearrangements which the latter had made to achieve the desired result.
I would dismiss the apjical with cost’s.
Pui.t.e, J.—I agree.
Appeal dismissed.