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TMI Blog1965 (3) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... randson. On December 22, 1953, certain entries were made in the books maintained by the assessee whereby this sum of ₹ 1 lakh was debited to her personal account and a corresponding credit was given to a newly opened account in the name of Om Nath Kapoor. On December 22, 1953, the following memorandum was recorded: "On this December 22, 1953, the undersigned Shyamo Bibi for consideration of her natural love and affection for her only grandson, Om Nath Kapoor, son of Amar Nath Kapoor, gave by way of mouth and expressed herself to give the said Om Nath the sum of ₹ 1,00,000 for the latter's own use and benefit absolutely and at the same time delivered the said sum to the saw Om Nath by transfer to his credit and placed him in possession and control of the same and that the said Om Nath at the same time accepts the gift of the said 1 lakh and entered into possession and control of the same." This has been signed by both the assessee and Om Nath Kapoor and is on ₹ 1-8-0 stamp paper. The opening credit balance in the personal account of the assessee was ₹ 2,50,152.70. After debiting the above sum of ₹ 1 lakh and other adjustments for profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm of Krishna Gopal Om Nath and the change in the constitution of that firm from July 5, 1954, whereby Om Nath had become a partner herein. He held that there was no delivery of money as contemplated under section 123 of the Transfer of Property Act. In the end he confirmed the action of the Income-tax Officer. His order is annexure "B" and forms part of the case. 6. On a further appeal, the Tribunal held that the view taken by the Appellate Assistant Commissioner was incorrect and, relying upon the decision of Chimanbhai Lalbhai v. Commissioner of Income-tax [1958] 34 I.T.R. 259, it held that the gift of money which is movable property could be effected by necessary adjustment in the account books and that the gift was complete as soon as the entries debiting the appellant with ₹ 1 lakh and crediting the account of the donee had been made. In the result it allowed the deduction of ₹ 150. Its order is annexure "C" and forms part of the case. 7. The following question of law arises: "Whether the entry made by the assessee in her books on December 22, 1953, transferring ₹ 1 lakh from her account to the account of her grandson, Om Nath, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke a gift of ₹ 1 lakh to Om Nath. Om Nath was a major then. She did not execute any registered document of gift but prepared a memorandum on a stamped paper stating that she orally and on account of natural love and affection had given ₹ 1 lakh to Om Nath and delivered the amount to him by the transfer entries made in her personal accounts and placed him in possession and control of the amount and that he had accepted the gift and entered into possession and control of the money. The memorandum was signed by Om Nath and the assessee. On December 31, 1953, her account books showed a credit balance of ₹ 2,18,000 in her favour; while ₹ 1 lakh were deducted there were additions on account of income from other sources. This was the state of affairs in the calendar year ending on December 31, 1953, which was the previous year relating to the assessment year 1954-55 with which we are concerned in this reference. Up to July 4, 1954, the firm, Kishore Gopal Om Nath consisted of two partners, the assessee and Putli Bibi. On July 5, 1954, her account books showed a credit balance of ₹ 1,03,188 in favour of Om Nath; this consisted of ₹ 1 lakh said to have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of ₹ 150 even if there had been a gift of ₹ 1,00,000; he had not held either that she had not actually paid ₹ 150 as interest or that even if she had paid it the amount was not deductible from her income either under section 10(2)(iii) or under section 10(2)(xv) of the Income-tax Act. The question whether she had paid the money as interest on capital borrowed for her business or to defray business expenditure had not been gone into by him at all. His order was maintained by the Appellate Assistant Commissioner; he held that there had been no delivery of ₹ 1,00,000 by the assessee to Om Nath and that, consequently, there had been no gift within the meaning of section 123 of the Transfer of Property Act. From these findings he had concluded that the deduction of ₹ 150 had been rightly disallowed. Before him also the question whether the deduction was allowable under section 10(2) or not had not been raised. The Tribunal disagreed with the view taken by the Income-tax Officer and the Appellate Assistant Commissioner, and held that a gift of money can be made by transfer entries in account books and that in the instant case the gift was completed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ast the simplest and also normal method of giving the money would have been to issue a cheque. It would have been a serious question why instead of delivering possession over the money by means of a cheque she thought of delivering possession over it simply by making transfer entries in her own account books. I have no doubt that in this case the question whether she had a bank balance of ₹ 1,00,000 at least or not simply does not arise and that we have to answer the question without regard to any bank balance. In this reference we are concerned with only one question, it being whether there was a valid gift by the assessee of ₹ 1,00,000 to Om Nath on December 22, 1953, or not. We are not concerned with the question whether a valid gift came into existence later, i.e., after December 22, 1953, or even after December 31, 1953. What happened on July 5, 1954, is irrelevant for considering whether in the previous year ending on December 31, 1953, there was a valid gift or not. The amount of ₹ 150 was credited as interest because of the gift; so the gift must have been in existence before the interest was credited. It is not the case of the assessee that something hap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orised by Om Nath to receive the money on his behalf; consequently, by her detaining possession of the money even if she had in her possession ₹ 1,00,000 it could not be said that the money was put in possession of her as authorized to hold it on Om Nath's behalf. Section 123 of the Transfer of Property Act lays down the law governing all gifts made for whatever purpose and it is to be applied whenever the question arises whether there was a gift or not. Regardless of whether the question arises in a suit by a donee to recover possession or in a suit to defend his title or in an income-tax assessment proceeding, it has to be answered with reference to the provisions of section 123 of the Transfer of Property Act. There is no warrant for saying that the law contained in section 123 of the Transfer of Property Act does not apply when an income-tax authority has to decide whether there was a gift or not. Consequently there has to be a delivery, if a gift is not made by a registered document. A question may arise whether a certain act done by the alleged donor amounts to delivery of property to the alleged donee but it cannot be said that delivery is not required at all. Wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a certain act shall be treated as delivery being left aside (because in this case there was no such agreement between the assessee and Om Nath), any act which has the effect of putting the movable in the possession of the donee is delivery. So, the question in the instant case resolves into this: Was Om Nath put in possession of the money on December 22, 1953, by the two acts done by the assessee? I have no hesitation in answering it in the negative. The assessee's own case that she retained possession over the money and, therefore, had to pay interest to Om Nath proves that there was no delivery by her. If she had delivered possession to Om Nath, she would not have found the money in her possession (and use) unless it had been redelivered to her by Om Nath and not only is there no evidence, but also there is no allegation of any such redelivery. The memorandum does not mention any act which Om Nath might have done amounting to redelivery of the money to the assessee, nor do her accounts show that Om Nath, after taking delivery, redelivered it to her whether as a loan or deposit or otherwise. If the assessee retained possession over the money, which fact is admitted, and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the partnership to debit her account, and credit that of Om Nath, with the amount of the money. Simply making transfer entries in own accounts cannot be said to be the most direct and effective method of vesting him with possession, dominion and control. As the account books were in her own possession, dominion and control, so were the entries and simply by making entries in them she did not vest Om Nath with possession, dominion and control over the money. It was open to her to delete or reverse the entries, at any time she liked subsequently. Merely because she made the entries Om Nath did not obtain possession, dominion and control of the money. If she had been carrying on a banking business and had made the entries in her books of account of the business it might have been said that thereby Om Nath obtained possession, dominion and control of the money. We were also referred to 18, Halsbury's Laws of England, "Gifts", paragraph 729. There may be constructive delivery, but only where the movables cannot be actually delivered owing to their bulk. Neither can it be said that there could not be actual delivery of ₹ 1,00,000 in the instant case nor could it be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer the property. This statement was approved of by Leach C.J. and Horwill J. in Ida L. Chambers v. K.H. Chambers(3). There was an intention to make a gift; still the learned judges held that the entries in the books did not complete the gift. They pointed out that if the donor had paid the money by way of interest on the alleged gift there would have been a completed gift. In the instant case also no money had been paid by the assessee to Om Nath in the accounting year. This decision was confirmed by the Privy Council: vide Chambers v. Chambers(4). In E.M.V. Muthappa Chettiar v. Commissioner of Income-tax(5), Leach C.J. and Patanjali Sastri J. said that, as no assets or funds corresponding to the credit entries in the accounts were actually set apart or allocated at any time and the whole funds of the firm were used in the business as before, the credit entries did not operate as valid gift. Similar view was taken by Stone C.J. and Kania J. in Hanmantram Ramnath v. Commissioner of Income-tax(6); they relied upon the decision in the case of Chambers(3). Ramaswami C.J. and Untwalia J. in S.P. Jain v. Commissioner of Income-tax(7) relied upon the cases of Hanmant- ram(6) and Chamber ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreed that "mere book entries could not result in a valid gift" but held that there was a gift because the entries were made with the knowledge and consent of the donees. The firm paid interest to them and allowed them to withdraw the money from time to time. The firm, which was the assessee and in the account books of which the entries were made, had no sufficient cash in hand and it was argued that there could be no delivery of the money to the donees. The learned judges repelled the argument observing that no actual or physical delivery was necessary and that delivery could be symbolical and relied for this view upon the case of Chimanbhai Lalbhai [1958] 34 I.T.R. 259. With great respect I think that the law applied in Chimanbhai Lalbhai** to entries of an overdraft allowed by a banker could not be applied to entries in a non-banking firm. The learned judges, with respect, did not notice the essential distinction between the facts of the two cases. Chagla C.J. had based his judgment on the material facts that an overdraft was allowed by the banker and that the question of overdraft was a matter between him and the donor to whom the overdraft was allowed. It was by app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e question in what year the gift was completed did not arise before the learned judges because they had to deal only with the question of registration of the partnership. They conceded that transfer entries in own accounts may not conclusively establish a gift and treated them as evidence in support of the gift when considered along with other evidence. The only other evidence that could be relied upon in the instant case is the memorandum but I do not think it suffices to prove gift. The observations of Lord Esher M.R. in Cochrane's case(9) throw light on the effect of the memorandum; he said at page 75: "...actual delivery in the case of a 'gift' is more than evidence of the existence of the proposition of law which constitutes a gift, and I have come to the conclusion that it is a part of the proposition itself. It is one of the facts which constitute the proposition that a gift has been made. It is not a piece of evidence to prove the existence of the proposition; it is a necessary part of the proposition, and, as such, is one of the facts to be proved by evidence. The proposition is not--that the one party has agreed or promised to give, and that the other p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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