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Naunihal Thakar Dass Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 6 of 1965
Judge
Reported in[1970]77ITR332(P& H)
ActsIncome Tax Act, 1922 - Sections 10(2) and 66(1); Transfer of Property Act - Sections 123
AppellantNaunihal Thakar Dass
RespondentCommissioner of Income-tax
Appellant Advocate Bhagirath Dass,; B.K. Jhingan and; S.K. Hirajee, Adv
Respondent Advocate D.N. Awasthy and; B.S. Gupta, Advs.
Cases Referred(S.C.) and Chimanbhai Lalbhai v. Commissioner of Income
Excerpt:
.....referred will depend. 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. all thathad happened was that mere credit and debit entries were made and therewas no evidence like that in the present case that the gift had been actedupon. it is not necessary to go into those cases because, in our opinion, they are clearly distinguishable on facts. the only question that was agitated in those..........the gift, it is not open to this court to go behind that finding and then hold, that there was a valid gift; (2) that, in any event, on the facts mentioned in the statement of the case, and which have been enumerated above, it cannot be held that there was a valid gift. 6. in our opinion, the matter really stands concluded by the decision of this court in balimal nawal kishore v. commissioner o] income-tax, [1966] 62 i.t.r. 669, 670, 671 (punj.)., where on somewhat similar circumstances, this court took the view that from the mere fact that there were no cash balances, it could not be held that the gift would be invalid. the most significant fact is that there is no attack by the department that the gift was a sham transaction. the only ground, on which the tribunal proceeded to hold.....
Judgment:

D.K. Mahajan, J.

1. The Income-tax Appellate Tribunal, Delhi Bench 'B', has referred the following question of law for our opinion under Section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act):

'Whether the assessee is entitled to the claim of Rs. 977 as interest paid in the year 1960-61 and Rs. 1,148 in the assessment year 1961-62 in the circumstances narrated above ?'

2. The circumstances that have been narrated by the Tribunal may now be stated : Naunihal and his two sons, Parshotam Singh and Iqbal Singh, constituted a registered firm. Naunihal had sufficient credit balance in his capital account and he issued instructions that the following sums be transferred to his daughter and daughters-in-law. Smt. Kamal Kumari is the daughter and Smt. Simla Devi and Smt. Tripta Devi are daughters-in-law, the former being the wife of Parshotam Singh and the latter being the wife of Iqbal Singh. A sum of Rs. 9,500 was gifted to Smt. Kamal Kumari and Rs. 4,500 each to the two daughters-in-law. The method adopted was that these amounts were debited in the books of account of the registeredfirm and were credited in the names of these three ladies. On these credit balances in the assessment year 1960-61 and the assessment year 1961-62, the following amounts were paid as interest respectively to each of the three ladies :

Name

Assessmentyear 1960-61

Assessmentyear 1961-62

Rs.

Rs.

Miss Kamal Kumari,

579

613

Smt. BimlaDevi

227

255

Smt. Tripta Devi171

280

Total:977 1,148

3. During the course of the assessment proceedings for these two relevant assessment years, the assessee claimed that the aforesaid payments of interest were admissible deductions in the case of the registered firm. These sums were not allowed as deductions from the income of the assessee by the Income-tax Officer, on the ground that the gifts were not valid. The principal reason that prevailed with the Income-tax Officer was that the firm had neither sufficient cash balance nor bank balance on the date of the alleged gifts to cover the amounts gifted. The order of the Income-tax Officer, on appeal, was affirmed by the Appellate Assistant Commissioner. The Tribunal, on further appeal, affirmed the decision of the Appellate Assistant Commissioner principally on the ground that the book transfers were of no consequence, inasmuch as the firm was not a firm of bankers. The assessee was dissatisfied with the order of the Tribunal regarding these two assessment years and applied under Section 66(1) of the Act for reference of the question of law, arising from the order of the Tribunal, for opinion of this court. The Tribunal allowed this application ; and that is how the matter has been placed before us.

4. Before proceeding to deal with the various cases that have been cited at the Bar by the learned counsel for the assessee as well as by the learned counsel for the department, it will be proper to boldly state the facts that have been found and on which necessarily the answer to the question referred will depend. The facts found are :

(1) that Naunihal had sufficient credit balance in his capital account;

(2) that the respective amounts, that were gifted, were debited to his account and credited to the accounts of the three ladies;

(3) that the respective interest due on these amounts was paid to the three ladies, in the relevant account years.

5. The contention of the learned counsel for the assessee is that, on these facts, the irresistable conclusion is that there was a completed gift, inasmuch as the gift was made and it was accepted by the donee, particularly when the donee received interest thereon, which could only be received if the gift of the corpus had been accepted, whereas on the side of the department, two contentions have been advanced, namely :

(1) that, in view of the finding of fact by the Tribunal, that there is no acceptance of the gift, it is not open to this court to go behind that finding and then hold, that there was a valid gift;

(2) that, in any event, on the facts mentioned in the statement of the case, and which have been enumerated above, it cannot be held that there was a valid gift.

6. In our opinion, the matter really stands concluded by the decision of this court in Balimal Nawal Kishore v. Commissioner o] Income-tax, [1966] 62 I.T.R. 669, 670, 671 (Punj.)., where on somewhat similar circumstances, this court took the view that from the mere fact that there were no cash balances, it could not be held that the gift would be invalid. The most significant fact is that there is no attack by the department that the gift was a sham transaction. The only ground, on which the Tribunal proceeded to hold that the gift was not valid was that there were no cash balances and that there was neither any proof of acceptance of these gifts by the donees. I was a party to the decision in Balimal Nawal Kishore's case; and the judgment in this case was rendered by Falshaw C.J. The facts of this case were :

'There were five partners in the firm, Nawal Kishore, his three sons, Jagan Nath, Deoki Nandan and 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 Rs. 60.000 out of an amount of some Rs. 81,000 standing to his credit in his capital account with the firm, in favour of 13 donees, the gift being Rs. 3.750 in the case of each of the four sons of partners, Jagan Nath, Atma Ram and Lal Chand and Rs. 15,000 in the case of Krishna 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 5th of December, 1956, the cash balance shown in the books of the firm was Rs. 3,665 and the bank balance was Rs. 4,299, but at the same time, the unutilised drawing power of the firm on its bank was Rs. 1,27,088.

In its assessment the firm claimed to deduct the sums paid as interest to the donees for the relevant period, but this was disallowed by the Income-tax Officer, the Appellate Assistant Commissioner and finally by the Appellate Tribunal which held that the gift was not valid because it did not comply with the provisions of Section 123 of the Transfer of Property Act on the grounds that there was neither physical nor symbolic delivery and the cash available to the firm on the date of the gift was insufficient to satisfy the gift of Rs. 60,000.'

7. The question of law that was referred by the Tribunal in the aforesaid case was as follows:

'Whether, there was a valid gift of Rs. 60,000 on December 5, 1956, by merely transferring Rs. 60,000 from the capital account of L. Nawal Kishore to the account of donees as mentioned in paragraph 3(c) above, so that the interest of the various accounts comprises a proper deduction under Section 10(2)(iii) of the Income-tax Act ?'

8. This question of law was answered by this court in favour of the assessee and against the Tribunal. A large number of decisions were considered by this court in coming to the ultimate conclusion and it is not necessary to reconsider them because, in our opinion, this case really covers the present controversy. After considering a large number of cases, the learned Chief Justice, in the concluding portion of the decision, observed: 'The principles deducible from a study of these decisions appear to be that the validity of a gift made by way of debit and credit entries in the account books of a firm of which the donor is a partner must depend entirely on whether, in the circumstances, this is a natural method of transfer, and it is certainly not necessary for the donor to withdraw sums in cash from the firm to be reinvested by the donee or donees in the firm. Once the bona fides of the gift or gifts is accepted, there remains little or no difficulty in accepting the validity in ordinary circumstances.'

9. The only other decision, which need be noticed and which was notnoticed in the aforesaid case, is the one reported as Virji Devshi v. Commissioner of Income-tax, [1967] 65 I.T.R. 291, 300, 301 (Bom.).. In this case, the question arose, whether the giftmade by the assessee in favour of his minor son was a valid gift. All thathad happened was that mere credit and debit entries were made and therewas no evidence like that in the present case that the gift had been actedupon. In fact, it was further found that on the day the gift was made, theassessee did not even have total credits to the tune of the amount gifted inhis capital account. In fact, the amount gifted still continued to be invested in the business in the same manner as before and there was no evidence on record from which the acceptance of the gift either by the son or the guardian could be inferred. It may be mentioned that there would be no question of acceptance by a minor. Therefore, what had to be seen was the acceptance of the gift by the guardian of the minor. Thus, it is clear that in this case, the entire matter rested on book entries; and if, in the present case also, the matter had rested only on book entries and instead of interest being paid, the interest had been credited in the books, possibly the contention of the learned counsel for the department would have some force. What distinguishes the Virji Devshi's case from the present case is that here the interest was paid to the donee which would itself indicate that the donee took interest because he accepted the gift of the corpus; otherwise there was no question of accepting interest if the gift of the corpus had not been accepted by the donee. There are certain observations dealing with the gift of the movable property in Virji Devshi's case and it will be profitable to reproduce them:

'Mr. Mehta has referred to us some decisions in support of his submissions that the requirements of a valid gift can be held to be established on the facts and circumstances of the case even in the absence of actual and physical giving over by the donor to the donee and the acceptance of the same by the latter. The cases referred to by him are : Chimanbhai Lalbhai v. Commissioner of Income-tax, [1958] 34 I.T.R. 259 (Bom.), Commissioner of Income-tax v. New Digvijayasinhji Tin Factory, [1959] 36 I.T.R. 72 (Bom.)., K. P. Brothers v. Commissioner of Income-tax, [1961) 42 I.T.R. 650 (Raj.) and E.S. Hajee Abdul Kareem and Son v. Commissioner of Income-tax, [1963] 50 I.T.R. 396 (Mad.).. All these cases related to the question of delivery of the movables and it has been held that, in the circumstances of the case, there was enough compliance with the requirement of delivery necessary for effecting the transfer of the property by way of a gift. It is not necessary to go into those cases because, in our opinion, they are clearly distinguishable on facts. In each of those cases, there was ample evidence of a gift having been made and even acted upon. The only question that was agitated in those cases was whether the gifts must fail for non-compliance of the actual delivery of the movables. In the case before us, there is no evidence of the gift having been made or its having been acted upon.'

10. On the admitted facts, the conclusion is irresistible that there was acceptance of the gift.

11. The only other question, that remains to be resolved, is the objection of the learned counsel for the department based on the decisions inCommissioner of Income-tax v. Greaves Cotton and Co. Ltd., [1968] 68 I.T.R. 200 (S.C.) and Chimanbhai Lalbhai v. Commissioner of Income-tax to the effect that in view of the finding of the Tribunal, that there was no acceptance of the gift, this court is not entitled to hold that there was a valid gift. If this contention had been correct, the Tribunal would not have referred the matter for our opinion, because then no question of law would have arisen. The very fact that the matter has been referred for our opinion, shows that the Tribunal proceeded on the basis that the payment of interest did not amount to acceptance. In any event, the question whether, on the admitted facts, there is a valid gift, is a question of law; and it is on that basis, it appears, that the Tribunal has referred the question for our opinion. We must, therefore, hold that the cases relied upon by the learned counsel for the department do not preclude this court from answering the question referred. For the reasons recorded above, we answer the question in the affirmative, that is, in favour of the assessee. There will be no order as to costs.

Sandhawalia, J.

12. I agree.


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