1970 (1) TMI 11 - HC - Wealth-tax

Assessee purported to transfer a sum from his account to the account of his son, the donee - gifts were accepted by the donees, and the firm had accepted the transaction - transfer was effected by debiting the assessee s personal account in the books of the HUF by the sum and crediting the same amount in the personal account of his son - held that, assessee had made a valid gift

Issues Involved:
1. Validity of the gift of Rs. 50,000 made by the assessee to his son.
2. Inclusion of the gifted amount in the net wealth of the assessee for wealth-tax assessment.

Issue-wise Detailed Analysis:

1. Validity of the Gift of Rs. 50,000:

The primary issue revolves around whether the transfer of Rs. 50,000 from the assessee to his son constituted a valid gift under the Income-tax Act, 1922. The assessee, as the karta of a Hindu undivided family, transferred Rs. 50,000 from his account to his son, Keshav Kumar Swarup, by debiting his personal account and crediting his son's account. This transfer was supported by a letter dated November 20, 1956, where the assessee declared his intention to gift the amount to his son.

The Wealth-tax Officer initially rejected the claim on the grounds that the gift was not valid and was made to escape wealth-tax. This decision was upheld by the Appellate Assistant Commissioner and later by the Tribunal. The Tribunal's decision was based on the precedent set by the Privy Council in Chambers v. Chambers and the Madras High Court in E. M. V. Muthappa Chettiar v. Commissioner of Income-tax, which held that mere book entries do not constitute a valid gift.

However, the High Court examined several cases to determine the validity of the gift. In Commissioner of Income-tax v. New Digvijaysinhji Tin Factory, the Bombay High Court held that book entries, followed by a declaration and acceptance of the gift by the donees, constituted a valid gift. The High Court found this case analogous to the present case, noting that the assessee had sufficient funds to make the gift and that the gift was accepted by the donee.

The High Court also referred to Juggilal Kamlapat v. Commissioner of Income-tax, where it was held that a trust could be validly created even if the donor did not have ready cash, as long as the intention and declaration were clear. The court distinguished the present case from Commissioner of Income-tax v. Smt. Shyamo Bibi, where the gift was invalid due to insufficient funds and lack of delivery of possession.

2. Inclusion of the Gifted Amount in Net Wealth:

The second issue was whether the gifted amount should be included in the assessee's net wealth for wealth-tax purposes. The Wealth-tax Officer included the Rs. 50,000 in the assessee's net wealth, arguing that the gift was not genuine and was made to avoid wealth-tax. This decision was upheld by the Appellate Assistant Commissioner and the Tribunal.

The High Court, however, found that the gift was genuine and valid. It distinguished the present case from Chambers v. Chambers, where the Privy Council held that a valid trust was not created due to lack of appropriation of funds and control retained by the donor. The High Court noted that in the present case, the assessee had sufficient funds and had relinquished control over the gifted amount.

The High Court also distinguished the case from Paliram Mathuradas v. Commissioner of Income-tax, where a gift of an actionable claim was invalid due to lack of a written instrument. In the present case, the gift was supported by a contemporaneous written declaration (annexure "A"), satisfying the requirements of section 130(1) of the Transfer of Property Act, 1882.

The High Court further distinguished the case from Virji Devshi v. Commissioner of Income-tax, where the gift was doubted due to inconsistencies in the declaration and account entries. In the present case, the gift was made to an adult son with a pre-existing account, and there was no doubt about the bona fides of the transaction.

Conclusion:

The High Court concluded that the gift of Rs. 50,000 made by the assessee to his son was valid and should not be included in the assessee's net wealth for wealth-tax purposes. The question referred to the court was answered in the affirmative, and the assessee was awarded costs of Rs. 200.

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