1984 (2) TMI 87 - HC - Income Tax

Summary

Issues: Validity of gifts made by partners of an assessee firm without gift deeds or stamps. Disallowance of interest on alleged gifts.

In this judgment delivered by the Bombay High Court, the court addressed the issue of the validity of gifts made by partners of an assessee firm without gift deeds or stamps. The Income Tax Officer (ITO) during the assessment year 1963-64 found that partners had made gifts to their spouses and family members by passing entries in the firm's books without executing gift deeds. The ITO deemed these gifts invalid, but the Appellate Authorities disagreed, considering the gifts valid. The Tribunal referred two questions to the High Court regarding the validity of these gifts. The court referred to previous decisions where gifts made by entries in account books were considered valid if there was evidence of the donor's intention and acceptance by the donee. Citing these precedents, the court held that the gifts in question were valid, and the disallowance of interest on the gifts was unjustified. Therefore, the court answered both questions in favor of the assessee.

The court specifically referred to the case of Chimanbhai Lalbhai v. CIT, where a gift was made through entries in account books, and the court held the gift valid even without physical transfer of possession. The court emphasized that evidence of the donor's intention and acceptance by the donee were crucial in determining the validity of such gifts. Another case, CIT v. Popatlal Mulji, further supported the concept that gifts made through entries in account books could be valid if there was evidence of the donor's intention and acceptance by the donee. Based on these precedents, the court concluded that the gifts made by the partners of the assessee firm were valid, and the disallowance of interest on these gifts was unwarranted.

Despite the respondent not being served in this reference, the court proceeded with the hearing as it was conceded that the questions raised were covered by previous decisions of Division Benches of the court. The court's decision was based on the principles established in previous judgments regarding the validity of gifts made through entries in account books. As a result, the court held that the gifts in question were valid, and the disallowance of interest on the gifts was not justified. The court answered both questions in favor of the assessee, highlighting the importance of evidence showing the donor's intention and acceptance by the donee in such cases.