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Issues Involved:
1. Validity of the gift entries in the account books. 2. Entitlement to claim a deduction of the interest credited under Section 10(2)(iii) of the Income-tax Act. Detailed Analysis: 1. Validity of the Gift Entries in the Account Books: The primary issue addressed was whether the debit entry of Rs. 1 lakh made to Kishan Chand's account and the credit entries of Rs. 60,000 and Rs. 40,000 made to the accounts of Shri Maya Ram and Shrimati Jasodha Bai, respectively, operated as valid gifts despite there being only a cash balance of Rs. 603 in the firm's account books. The court noted that the gifts were effected by delivery rather than by a registered instrument. According to Section 123 of the Transfer of Property Act, delivery of movable property can be made in the same way as goods sold, as per Section 33 of the Sale of Goods Act, 1930. The assessee argued that the delivery was effected by making book entries in the respective accounts of the donor and donees, following the donor's instructions. The court examined whether the entries in the books constituted valid delivery and acceptance of the gifts. It was noted that the donees had current accounts with the firm and operated them from time to time. The statement of the case did not explicitly mention the acceptance of the gifts by the donees, but it was inferred from the withdrawal of substantial amounts by Shrimati Jasodha Bai for constructing a house. The court referred to previous judgments, including Chambers v. Chambers, Muthappa Chettiar v. Commissioner of Income-tax, and Hanmantram Ramnath v. Commissioner of Income-tax, which held that mere book entries without actual delivery or setting apart of the property did not constitute valid gifts. However, in the present case, the court found that the firm, being a banking concern, could have had sufficient resources to meet its liabilities despite the low cash balance on the date of the gifts. The court cited Chimanbhai Lalbhai v. Commissioner of Income-tax, where it was held that the validity of gifts should not be judged solely based on the cash balance of a banking firm. Thus, the court concluded that the debit and credit entries could operate as valid gifts, even with a cash balance of Rs. 603, as the firm's capacity to make payments should not be inferred solely from the cash balance. 2. Entitlement to Claim a Deduction of the Interest Credited under Section 10(2)(iii) of the Income-tax Act: Since the court answered the first question in the affirmative, it did not need to address the second question regarding the entitlement to claim a deduction of the interest credited to the accounts of the donees under Section 10(2)(iii) of the Income-tax Act. Conclusion: The court held that the debit entry of Rs. 1 lakh and the corresponding credit entries of Rs. 60,000 and Rs. 40,000 could operate as valid gifts despite the low cash balance in the firm's account books. Consequently, the second question regarding the deduction of interest was not addressed. The reference was answered accordingly, with no order as to costs.
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