134-NLR-NLR-V-39-RAJARATNAM-v.-THE-COMMISSIONER-OF-STAMPS.pdf

482
Rajaratncm v. the Commissioner of Stamps.
Under section 21 (4) of Ordinance No. 7 of 1840, there was no onus onappellants to prove writing. Pate v. Pate1 can be distinguished fromthis case because that was an action between two partners. The existenceof a partnership can be established by oral evidence as held in Idroosv. Sheriff *. Section 21 (4) consists of two parts ; first part applies only toa case where a partner seeks to enforce a contract of partnership asagainst another partner.
In this case, the only question is whether there was a contract ofpartnership. No relief is sought for on the terms of the contract. Theprovisions of Ordinance No. 7 of 1840 are only^of evidentiary value. Theagreements referred to there are not declared null and void merely byreason of absence of writing. It is only where the basis of a suit is partner-ship that proof of writing is necessary.—Vide Pate v. Pate
The existence of a partnership was clearly established. The onus wason the Grown, therefore, to prove that there was no partnership. Seesection 109 of Evidence Ordinance De Silva v. De Silva”.
A taxing officer should not look at the forms of transactions, but at thesubstance of them. See Lord Tomlin’s dictum in Munro v. Commissionerof Stamp Duties *.
The Commissioner of Income Tax had already accepted the positionthat' there was a partnership. This decision must operate as res judicata.The parties and the subject-matter were the same, parties being theexecutor and the Crown. Income tax authority is a Court. Crown is inthe same position as a private' party, although represented by differentpersons—Spencer Bcnver on Res Judicata, pp. 128, 129; Hoy stead et a l. v.Commissioner of Taxation “.
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 thebusiness 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 bene-ficial interest of the whole of the estate did not pass, even though it canbe held that the legal interest passed.
J.E. M. Obeyesekere, C.C., for the Commissioner of Stamps.—Thequestion in this case is really what share of the partnership property isliable to Estate Duty. The burden of establishing that only orie-sixthshare 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 * ? 3
It will not apply in all cases.
Crown’s claim to tax the whole of the partnership property as belongingto the deceased can be put on an alternative basis. Assuming that theappellant’s suggestion can be accepted that the partnership dates fromMarch, 1929, and that.a gift resulted from it, Crown’s position is that itwas a gift which could be caught up by section 8 (2) of the Estate DutiesOrdinance, No. 8 of 1919. It was a gift with a reservation by contractor otherwise ”. The evidence is clear that the father had some beneficial
' > (1915) IS N. L. R. 289.* (1934) 150 L. T. 145.
(1925) 27 N. L. R. 231.* (1926) A. C. 155.
(1935) IS Cey. L. Rtc. 36.* (1934) 150 L. T. 145.
SOERTSZ J.—Rajaratnam v. The Commissioner of Stamps.
483
interest. See Attorney-General v. Worrall Crossman et at. v. The Queen*Earl Grey v. The Attorney-General1', Attorney-General v. Johnson %Hanson on Death Duties (1931 ed.), p. 84.
Alternatively, the evidence is that the deceased had by a notarialdocument (A 4) declared that he was a partner with his two sons. Thisdocument was made within four months of the father’s death. If a giftcan be presumed from it, it w^Il come under section 8 (1)' (c) of the EstateDuties Ordinance.
• In any event, even if there was a partnership, agreement in writing isnecessary. The whole basis of a partnership is the written agreement—Pafte v. Pate ‘.
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 theIncome Tax Ordinance. So far as Estate Duty is concerned, there is adifferent Ordinance. Income Tax Assessor is a party quite independentof the Commissioner of Stamps. They are two different persons repre-senting the Crown in different. capacities—Leggott v. The Great NorthernRailway Company"; Manton v. Cantwell''; Spencer Bower on Res Judicata,
p. 128.
As to applicability of section 109 of the. Evidence Ordinance, there wasno 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 fatherand the two sons had acted as partners. Section 109 of Evidence Ordi-nance would therefore apply.
In construing a taxing Act, the presumption is that the Legislature hasgranted precisely the tax mentioned in’, the Statute, and no more—Attorney-General v. Seccombe
As regards the gift, the p.nus was on the Crown to prove that, under thegift, there was a benefit reserved for the donor. There was no evidenceto show that the deceased had drawn more than one-third of the profitsin the business. The decisions cited by the respondent regarding giftswith 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 takento him under section 22 (3) of that Ordinance. The learned Judge upheldthe assessment made by the Commissioner of Stamps on two or threematters in dispute between him and the appellants, and found for theappellants on the third point. There is no cross-appeal by the Com-missioner from the finding against him, and so far as the appellants areconcerned their appeal was hot pressed in regard to the decision given onthe liability of the exiecutor to pay interest on the estate duty from theexpiration of one year from the date of the death of the deceased. The
1 11895) 1 Q. B. 99.» {1915) 8 N. L. R. 289 at pp. 29.1292.
(1886) 18 Q. B. D. 256.• (1876) 1 <}. B. D. 599.
(1900) A. 0.124.7 (1920) A. O. 781, atp. 788.
(1903) 1 K. B. 617.• (1911) 2 K B. 688. '
484
SOERTSZ J.—Rajaratnam v. The Commissioner of Stamps.
one and only question debated on the appeal before us concerned theextent of the share that passed in the business in paddy, tiles, teak andother articles carried on .under the business name S. V. and registeredas from March 2, 1929, in the name of the deceased and the two appellantsas partners.
The case for the appellants is that only a one-sixth passed on the basisthat this business must be regarded as “ tediatetam ” and, therefore,belonged equally to the deceased and his wife, and that on his death, onlya one-third of his half passed because the business belonged to the threeof them. The Commissioner of Stamps, on the other hand, contends thatthe whole business was carried on by the deceased, and that the appellantsdid nothing more than assist him, and that on that footing when a halfshare is excluded for the wife of the deceased, the whole of the other halfmust be deemed to have passed at his death.
The appellants based their claim on the ground that from March, 1929,a partnership had subsisted between them and their father ; alternatively,on the ground that by virtue of what occurred in March, 1929, when thebusiness was registered in the names of the three of them, there was atleast, a gift .of a ohe-third of the father’s share to each of them, and thatthey took bona fide possession and enjoyment of it immediately andthenceforward retained it to the exclusion of the donor. They also set.up a plea of res judicata, relying on the decision of the Board of Reviewwhen this question arose between them and the Income Tax Commissioner.Now, with regard to this 'question of partnership, the point is whether theappellants can rely on it in the absence of such an agreement as is requiredby section 21 (4) of Ordinance No. 7 of 1840. The plea put forward onbehalf of the appellants sounds like a voice from beyond the grave inwhich Pate v. Pate1, buried the earlier decisions of this Court on themeaning of that section. The opinion of the Judicial Committee of thePrivy Council delivered by Lord Sumner was that the words for “ estab-lishing a partnership ” meant “ establishing by proof coram judicethat they constituted “ a binding rule of evidence in Courts of law ; andwhenever issue was joined on the question of partnership or no partner-ship, an iagreement in writing duly signed was necessary to establish it“ whether the partnership alleged to be agreed is or, was, or is to beMr. Perera’s contention that the proviso to section 21 (4) is merelyillustrative, and that the section applies to cases in which partners aresuing one another to enforce an agreement of partnership, and not to aCase like the present cannot, I fear, be sustained in view of the opinionclearly expressed by the Board that the proviso is strictly “ exceptive ”and that the words for establishing a partnership refer to proof of apartnership generally. In this case admittedly, there is no writtenagreement, unless documents A 2, A 3, and A 4 can be said to constitutesuch an agreement. But here again authority confronts us. This Court,held, if I may say so; quite rightly, that documents such as these provethat the parties were carrying on business in partnership and nothingmore. They do not prove what section 21 (4) requires, namely, that theagreement for carrying on the business in partnership was in writing
(Idroos v. Sheriff1}. Consequently the position that results from the
1 18 N. L. R.S89.'*27 N.I..R.231.
485
SOERTSZ J.—Rajaratnam v. The Commissioner of Stamps.
evidence in this case is that there was a business conducted by theseparties which cannot, however, be adduced to a Court of law as a partner-ship “ of force or avail ” because a rule of evidence stands in the way andprevents it from being so adduced.
But we were pressed with section 109 of the Evidence Ordinance.That section enacts that “when the question is whether persons or
partnersand it has been shown that they have been acting
as such, the burden of proving that they do not stand to each other in“ that relationship ….” is on the person who jaffirms it ".
Mr. Perera submits, that apart from the oral evidence in the case, thedocuments A 2, A 3, and A 4 show that the appellants and the deceasedhas been acting as partners, and that, therefore, the burden is on theCommissioner of Stamps to show that they were'not partners or hadceased to stand in that relationship. Now this section of the EvidenceAct is in substance a re-enactment of section 2? of the Partnership Actof 1890, which says: 27 <2) “A continuance of the business by thepartners or such of them as habitually acted therein during the term,without any settlement or liquidation of the partnership affairs, ispresumed to be a continuance of the partnership ”. Ordinance No. 22 of1866 introduced the English law of partnership into Ceylon, and providedthat in regard to that matter “the law to be administered shall be thesame as would be administered in England, in the like case, at the corre-sponding period ”. In view of this provision the same argument wasaddressed to the Judges in the case of Raman Chetty v. Vyraven Chattyx,although on that occasion there does not appear to have been any referencemade to section 109 of our Evidence Act, Ennis J. met it by stating that“ in view of the decision of the Privy Council in Pate v. Pate, I am ofopinion that this contention is not good. The Privy Council, held thatthe Ordinance No. 22 of 1866 “in no way enlarged or diminished” theprior Ordinance No. 7 of 1840. The Ordinance No. 7 of 1840 providedthat no agreement should be of force or avail in law for establishing apartnership, where the capital exceeds one hundred pounds, unless inwriting and signed by the parties to be bound. The Privy Council inter-preted this provision as an “evidentiary” one and section 27 of thePartnership Act or section 109 of the Evidence Act “would if followedenlarge this provision by allowing a presumption in place of documentaryproof ”. I would adopt this view and hold that section 109 of the EvidenceAct when examined in the light of section 21 of the Ordinance No. 7of 1840 means that the presumption created thereby operates only whenthe existence of a partnership has been duly proved, that is to say, whenit has been proved according to law. It ocourred to me at one stage of theargument that perhaps as between the taxing authority and the subjectliability on a question of this kind should be examined without theembarrassment occasioned by technical rules of evidence in order that thereal position might be ascertained. But then it was at once obvious thatif ultimately the question comes before a Judicial Tribunal, it is involved •in the rules of procedure and of evidence by which Courts are required toguide themselves. The inevitable, although artificial, result therefore isthat a partnership appear to have subsisted between these parties, but
486SOERTSZ J.—Rajaratnajn v. The Commissioner of Stamps.
that the appellants are unable to establish it according to law. In thispredicament, the appellants sought adroitly to turn the tables on theCommissioner of Stamps by contending that there was nothing to showthat the capital of this partnership exceeded £100 at the time it came intobeing, for it is only partnerships of that magnitude that require to beattested by a written agreement. But the answer to that is, I think, two-fold. Firstly although there is no definite evidence to that effect,although it is not stated in so many words, all the facts and circumstancesdisclosed in the course of this case inevitably lead us to the conclusionthat this capital was over one hundred pounds. Section 3 of the EvidenceAct says that “ a fact is said to be proved when, after considering thematters before it, the Court either believes it to exist, or considers itsexistence so probable, that a prudent man ought, under the circumstancesof the particular case, to act upon the supposition that it exists ”. Apply-ing that principle I have no difficulty in this case in saying that the capitalwas over one hundred pounds. Secondly, it seems to me that this is aninstance for the application of section 106 of the Evidence Act whichsays that,t( when any fact is specially within the knowledge of any person,the byrden of proving that fact is upon him ”. If, therefore, the matterrested entirely on this question of a partnership it would appear that ahalf share of the business must be deemed to have passed for the purposeof Estate Duty.
, But, as I have already observed, there were other grounds on which itwas claimed that only a sixth passed. There was the alternative claimthat when -in March, 1929, the deceased admitted his two sons into thebusiness on an equal footing with himself as evidenced by A 4, there was,in effect a gift of a third of the business to each of his sons, and that thatgift satisfied the condition necessary to ensure that their shares did notpass on his death. Counsel for the Commissioner of Stamps, however,strongly questioned these propositions. He maintained in the first placethat there were no gifts made by the deceased or that, if these transactionsamounted to gifts, that they were gifts which were caught up by section8 (1) of the Ordinance because bona fide possession and enjoyment of thesubject-matter of the gifts was not immediately assumed by the doneesand thenceforward, retained to the exclusion of the donor or of anybenefit to him by contract or otherwise ”. -The finding of fact on thispoint was recorded by the District Judge in these words : “ there can beno doubt that the deceased wanted to gift to the two sons a one-thirdshare of the business, but the date when the gift was to take effect wasnot fixed ”. I am unable to agree with the latter part of this finding.The District Judge appears to have reached it because ‘'no properaccounts were kept even after 1929 ”. He probably means no separateaccounts were kept to show their individual dealings. I will deal withthe matter presently, but I wish to say at once that in my view, the factthat there were no such accounts does not in the circumstances of thiscase, negative an immediate gift. The District Judge appears also tohave been influenced by the fact that “ there was no effective transfer ofany share of the business to the two sons ”. If by this he means thatthere was no document, then although the absence of a document such asis required-by section 21 (4) of Ordinance No. 7 of 1840 affects the question
SOERTSZ J.—Rajaratnam v. The Commissioner of Stamps.487
whether there was a partnership or not, it does not affect the question ofa gift, for in view of the nature of the gift set up in this case; a writingwas not necessary for its creation. If the father declared the gift, ordelivered its subject-matter to his sons, there was an effective gift. Theevidence in the case shows that he did both. The rulings in Attorney-General v. Worrall1; Crossman v. The Queen *; In re Clark *; Ld.Adv. v. Wilson*; (the two latter cases have been available to me onlyto the extent of the summaries of them contained on page 84 ofHanson’s Death Duties, 1931 ed.), as I understand them, are clear authorityfor holding that in this case there were gifts of a one-third share to eachof the two sons. The next question is whether bona fide possession andenjoyment of the gifts was taken immediately by the donees and retainedto the entire exclusion of the donor or of any benefit to him by contractor otherwise. Mr. Obeysekere’s contention was that the District Judgehad rightly found that “ on the evidence it is clear that the donees hadnot assumed bona fide possession and enjoyment of all that had beengifted to them and retained it to the entire exclusion of the donor ”. Itis unfortunate that the District Judge does not state his reasons for thisview. But from the trend of the cross-examination of Bajaratnam andfrom Mr. Obeysekere’s argument this contention appears to be based onthe facts (1) that Bajaratnam (that is one of the appellants stated incross-examination that “the regular account books 'do not containseparate accounts showing my account, my brother’s account and myfather’s account. In the ledger and journal there is only- one account,Veeragathipillai & Sons …. Neither the capital of eachpartner nor the distribution of profit and loss is shown against eachpartner ; (2) that he stated “ between 1929 and the date of the death ofmy father, we did not look into accounts to find out how much eachpartner had drawn. Up to the date of my father’s death, my fatherwould have drawn the money he wanted from his own account. Hecould have drawn the balance amount from the common account and givento the other children if he wanted to but he did not do so ”.
In regard to (1) I think it is easy to over-emphasize the fact that theaccounts of this business were not kept in accordiance with approved'methods of Western book-keeping. It is common experience in ourCourts that firms of this kind have different methods of keeping theiraccounts, all of them more or less crude. No doubt labour is often,multiplied by these methods, but it is always possible to ascertain fromthem the position of the partners at any point of time. The evidence ofthe accountant Sambamoothy shows that although drawings by thesethree persons were debited to the general account S. Veeragathypilku &Sons, they were debited in the individual names of the drawers. It is ofgreat significance that when income tax was introduced into this Islandin the year 1932, “ proper account books were kept ”. The accountantsays so ; he adds “ so far as the partnership account was concerned, therewas only one account book. There was no capital account book. The.drawings by the partners went into this common account. All the threecould .easily have drawn the money from the common account. Thecreditors were also entered in the same folio. The profits up to March,
1 (1S9S) 1K. B. 99.3 40 I. N. £,. T.R. 11.
• {18) Q. B.D.SS6.* 21S. C. G. 4th ser. 997.
39/36
488
SOERTSZ J.—Rajaratnam v. The Commissioner of Stamps.
1933, were distributed among the three partners …. A returnwas made for 33-34 on the same basis allocating the profits to each of thethree partners In regard to (2), namely, the statement “ he (i.e., thefather) could have drawn the balance amount from the common accountand given to the other children if he wanted to ”, when regarded by itselfit does appear to militate against the donees having taken bona fidepossession and enjoyment of their shares to the exclusion of the donor,but it must be examined in the light of other statements and of thecircumstances of the case in order to attach to it the weight due to it.The witness after making the statement I have quoted, qualified it atonce by saying “when we had shares in the business, he could not havedrawn the full amount”. Then there is the evidence of D. Duraiswamy,another son of the deceased. He says “ the arrangement between myfather and my two brothers was that they should carry on the business inequal shares. This arrangement was come to in 1929. My father toldme that this business had been registered in pursuance of this arrangementand that he was entitled to one-third share of the business ”. Thisstatement of the deceased is' an admissible statement under section 32 ofthe Evidence Ordinance ; it was a statement against the pecuniary interestof the deceased ; and it gains additional force from the fact that it isagainst the interest of the witness making it. None of the other childrenof the deceased appears to claim any interest in the business from him onthe footing that a half passed. The position might perhaps have beendifferent if the Commissioner of Stamps had shown that the comparativedrawings of the three persons were such that the father had consistentlydrawn the lion’s share and thus negatived a bona fide possession andenjoyment immediately by the donees of their shares. My own view isthat even if the Commissioner had established that fact, it would by nomeans have been conclusive in the circumstances in this case. But hehas not even sought to establish it. In the case of Munro v. Commissionerof Stamp Duties Lord Tomlin in delivering the opinion of the Boardsaid, “ It is not always sufficiently appreciated that it is for the taxingauthority to bring each case within the taxing act ”, and in the case ofAttorney-General v. Seccombe2 Lord Sumner (then Hamilton) J. said“ in construing a taxing Act the presumption is that the Legislature hasgranted precisely that tax to the Crown which it has described, and nomore ”. In the expressive phrase employed by Lord Show of Dumfer-milne in Thomsom v. C. S. D. *, the Act must fit the facts “ like hand andglove ” before it can be enforced against the subject. In the case beforeus, the evidence shows that each of the appellants had drawn large sumsof money out of the business. It seems possible if not probable that ifan' account is taken, they may be found to have drawn during the relevantperiod larger shares than their father. It is therefore impossible in myopinion to say that they did not have bona fide possession and enjoymentof their shares from the date of the gift to the exclusion of the donor. Itis also significant that the money was banked in the names of the twosons. Nothing in the nature of a benefit accruing to the donor out ofthese shares has been shown to have been brought about- “ by contract orotherwise ”. For these reasons I would hold that only a sixth and not a1 {1934) ISO Law Times 145.2 (1911) 2 K. B. 686.
3 f1929) A. P. 460, atp. 155.
Chithrapoopalapillai v. Chinniah.
489
half passed on the death of the deceased for the purpose of Estate Duty.In this connection it is noteworthy that it was not the case for the Com-missioner of Stamps that what occurred in 1929 when the business wasregistered in the name of all three was a sham or a blind. At any ratethe District Judge did not s.o find. He says: “ In 1929 the deceasedappears to have decided to make his two sons partners in the business.There can be no doubt about his intention but no partnership deed wasexecuted”. As Lord Tomlin pointed out in Murtro v. Commissioner ofStamp Duties (supra) “ it is the substance of the transactions which mustbe ascertained, and if when so ascertained the substance does not fallwithin the words of the statute it cannot be brought within them merelybecause the forms employed did not give true effect to the substanceIn view of the conclusion which I have reached on this point it is notnecessary for me to address myself to the interesting question of resjudicata discussed before us. I would allow the appeal with costs hereand below. The result is that estate duty will be paid so far as thematters that were taken on appeal before the District Judge and concernedon the basis (1) that land No. 1 on deed No. 18,251 is not liable to duty,(2) that a one-sixth and not a one-half of the business must be deemed tohave passed on the death of the deceased, (3) that the executor is liableto pay interest as charged by the Commissioner of Stamps on the estateduty.
De Kretser A.J.—I agree.
Appeal allowed.