1. This is a reference on a case stated under s. 256(1) of the I.T. Act, 1961. The question referred to us for our determination are as follows :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal validly gifted a sum of Rs. 51,000 to his son, Kantilal ?
(2) Whether, on the facts and in the circumstances of the case, the interest relatable to the aforesaid sum of Rs. 51,000 could be included in the total income of the assessee ?'
2. Although the Tribunal has set out the facts at considered length and with somewhat lesser charity than usual in the statement of the case, the relevant facts are very short, as it is common ground that the only question which really arises is whether a valid gift can be made by a mere transfer entry in the books of account of partnership. We, therefore, propose to set out the facts very briefly.
3. A property known as 'Suambhu Kutir' was purchased by three person, including the assessee's son, Kantilal. Kantilal paid his share of the purchase price, being of Rs. 9,000 after withdrawing the said amount from his account with the firm of M/s. K. M. Suchak and Company. The assessee did not include the income in respect of its property in his returns for the relevant assessment years, namely, the assessment years 1965-66 to 1969-70, as, according to him, it was his son, Kantilal, who was the owner of the one-third share of the said property. The ITO, however, included the one-third share of the income of the said property in the assessee's hands in the said assessment years on the basis that it was the assessee who had purchased the one-third share in the said property benami, in the name of his son, Kantilal. As the sum of Rs. 9,000 paid by withdrawing the same from his account with M/s. K. M. Suchak and Company, the dispute was as to whether it was really Kantilal or the assessee to whom the amount standing to the credit of the account in Kantilal's name in M/s. K. M. Suchak and Company really belonged. It appears that the assessee gifted Rs. 51,000 on November 3, 1956, to his minor son, Kantilal, by debiting the said amount to his own account in M/s. Keshavji Mavji and Company, of which the assessee was a partner, and by crediting the same to the account of the firm of M/s. Jayantilal Navnitlal and Company. At that time Kantilal was a minor admitted to the benefits of partnership in the firm of M/s. Jayantilal Navnitlal and Company. M/s. Jayantilal Navnitlal and company debited Rs. 51,000 to the account of Keshavji Mavji and Company and credited it to the account of Kantilal, and M/s. Keshavji Mavji and company credited Rs. 51,000 in its books of account to the account of M/s. Jayantilal Navnitlal and Company. Interest was credited to the account of Kantilal year after year in the books of account of M/s. Jayantilal Navnitlal and Company. The firm M/s. Jayantilal Navnitlal and Company was dissolved on October 30, 1959, and a new firm was formed in the name and style of M/s. K. M. Suchak and Company. By this time Kantilal had attained majority, and the partners of M/s. K. M. Suchak and company were one Gordhandas Keshavji in the books of M/s. Jayantilal Navnitlal and Company was transferred to his account in the firm of M/s. K. M. Suchak and Company. Interest of Rs. 3,895.31 was credited to this account in the previous year. the question, therefore, was whether the said amount of Rs. 51,000 had been validly gifted by the assessee to is son, Kantilal, in or about November, 1956, by making the entire as set out above.
4. It has been held in a number of cases that there can be a valid gift effected by making entries in the books of account, if there is evidence to show that the gift was made by the donor and accepted by the donee and was acted upon by both of them. If any authority were needed in support of the said proposition, we would refer to CIT v. Popatlal Mulji : 108ITR4(Bom) , being the judgment of the Division Bench of this court, which is binding upon us. In the present case it is clear that the gift of Rs. 51,000 was made by the assessee to his son, Kantilal, by debiting the said amount to his account in M/s. Keshavji Mavji and Company and crediting the said amount to the account of his son, Kantilal, in M/s. Jayantilal Navnitlal and Company as aforesaid. There is enough material to show that this gift was acted upon because the said amount had been transferred to the credit of Kantilal in the firm of M/s. K. M. Suchak and company when the firm of M/s. Jayantilal Navnitlal and company was dissolved and the firm M/s. K. M. Suchak and Company was constituted. There is no finding to the effect that even after the aforesaid gift was made, the assessee controlled the said amount of Rs. 51,000 of had anything to do with it. In view of this, it must be held that the assessee validly made a gift of the said amount to his son, Kantilal.
5. In the result, the questions referred to us are answered as follows :
Question No. 1 : In the affirmative.
Question No. 2 : In the negative.
6. It is clarified that both the questions are answered in favour of the assessee. The Commissioner to pay the costs of the reference.