9911796707
TMI Blog1966 (1) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... Lal Chand, and also Atma Ram, who was apparently the natural son of Nawal Kishore, but was the adopted son of one Raje Lal. Nawal Kishore died on the 14th of December, 1956, but 9 days before he died, on the 5th of December, 1956, he made an entry in his own hand in the account books of the firm to the effect that he was making a gift of ₹ 60,000.00 out of an amount of some ₹ 81,000.00 standing to his credit in his capital account with the firm, in favour of 13 donees, the gift being ₹ 3,750.00 in the case of each of the four sons of partners, Jagan Nath, Atma Ram and Lal Chand and ₹ 15,000.00 in the case of Krishan Kumar, the only son of the partner, Deoki Nandan. These sums were credited on the same day, the 5th of December, 1956, in the accounts of the donees in the firm's books and at the close of the financial year each was credited with the interest on the gifted sum due up to that date as well as in the following year during which, according to the copies of the accounts of the donees filed and made part of the case, some of the donees actually withdrew sums of money from the amounts standing to their credit. It may also be mentioned that on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gift or trust, since in that case the gifts were accepted by the donees, and the firm accepted the transaction, paid interest on the amounts of the gift and allowed the donees to withdraw moneys, there was ample material to satisfy the legal requirements of a completed and valid gift, that delivery could be symbolical and actual physical delivery was not essential and, therefore, the fact that there was not sufficient cash in hand when the gifts were made did not affect the validity of the gifts and that, therefore, the interest paid by the firm to the donee was an allowable deduction under section 10(2)(iii) of the Income-tax Act. This case has again been cited before us and although the facts are not altogether on all fours with those of the present case, since there were independent documents executed regarding the gifts, it may be of some assistance on the question whether there can be a valid gift when the amount of the gift exceeds the actual cash in the hands of the firm at the time. On this point reliance was also placed on the case of Chimanbhai Lalbhai v. Commissioner of Income-tax [1958] 34 I.T.R. 259. In that case the assessee had made a gift of ₹ 5,00,000.00 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .) and repeated by him in E.M.V. Muthappa Chettiar v. Commissioner of Income-tax [1945] 13 I.T.R. 311 to the effect that mere credit entries in books of account without allocation of specific assets or funds corresponding to such entries cannot operate as valid gifts or trust of the sums credited. The matter arose in the first of these cases in a suit instituted by certain persons for the removal of the defendants from the position of trustees of a temple on grounds of misfeasance and mismanagement, and the question arose whether certain entries made by the defendants in their own account books debiting themselves and crediting the temple with certain sums amounted to a dedication or a gift or a trust, and it was held that they did not amount to any of these things. The circumstances were very different from those of the present case, as they also were in the income-tax case in which the question of the interpretation of a will of the father of the assessee arose. Bequests of ₹ 25,000.00 each had been made to the sister and daughter of the assessee to be utilised for their marriage and similar purposes, but the amounts were left under the control and supervision of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax v. Smt. Shyamo Bibi [1966] 59 I.T.R. 1 ; [1965] 2 I.T.J. 450. In that case the facts are summed up in the headnote as follows: "The assessee deriving income from property and share income as partner in a firm (which is not a banking firm) on 22nd December, 1953, made entries in her personal account books, crediting her grandson and debiting her account with a sum of ₹ 1,00,000.00 professing to make a gift of that sum accompanied by a stamped memorandum signed by both and reciting that the assessee orally and on account of natural love and affection had given ₹ 1,00,000.00 to her grandson 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. On that date, though her personal accounts showed a book balance of ₹ 2,00,000.00, the cash balance was only about ₹ 15.00. On 5th July, 1954, her personal account showed the gifted amount with interest and on the same day the assessee transferred her liability to her grandson to the firm and the firm at her instructions credited the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly." It would certainly appear to be a permissible inference from this passage that if the assessee had made the transfer through the accounts of the firm it might have been held to be a valid gift. On behalf of the assessee some decisions have been cited which appear to have more bearing in the present case. In A.M. Abdul Rahaman Rowther & Co. v. Commissioner of Income-tax [1965] 56 I.T.R. 556, the assessee who was the sole proprietor of a business purported to make certain gifts to two married daughters of his by incorporating certain entries in his accounts by which he debited himself to the extent of ₹ 50,000.00 and credited his two daughters with ₹ 25,000.00 each. Subsequently, a partnership deed was executed with the assessee and his two daughters as partners. The profits of the business were distributed in accordance with the terms of the partnership. The income-tax authorities, however, refused registration to the firm on the ground that the gifts were not valid and the partnership was not genuine. On these facts Srinivasan and Venkatadri JJ. held that the gifts were valid and the firm was genuine and entitled to registration and they observed that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bhai Lalbhai's case [1958] 34 I.T.R. 259, 264 in the following words: "The fallacy underlying the whole of the judgment of the Tribunal, with respect, is that it has taken into consideration aspects which may have been relevant if they wanted to decide whether the gift was a bona fide gift and whether the transaction was in reality effected. But having come to the conclusion that the transaction was genuine and the gift was bona fide, all these considerations which seem to have weighed with the Tribunal have nothing whatever to do with the question as to whether the gift was a valid gift in law." In P.A.C. Ratnaswamy Nadar & Sons v. Commissioner of Income-tax [1962] 46 I.T.R. 1148 there was again a gift by a father in favour of his children in the accounts of the firm of which he was the sole proprietor followed later by the creation of a partnership in which the children were made partners. It was held that the entries in the account books could be relied on as affording cogent evidence of the gift and, though the entries as such might not conclusively establish a real and effective gift, it was evidence in support of the gift and the subsequent acts and conduct o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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