S. Ranganathan, J.
(1) All these references under the Income-tax Act raise the same question. They relate to the assessments of the firm known as Indian Glass Agency for the assessment years 1971-72 to 1974-75, the relevant previous years being the financial years 1970-71 to 1973-74. As we. shall point out later, the facts relating to the first of these years and the others are slightly different and we may, to start with, take the facts set out by the Tribunal in relation to the assessment year 1971-72.
(2) The assessed firm had four partners : Jai Gopal, (and his three sons) Satish Kumar, Sushil Kumar and Santosh Kumar. On 14-5-1970, Jai Gopal purported to make a gift to Deepankar, the minor son of Sushil Kumar. It is stated that the gift was made by Jai Gopal giving necessary instructions to the firm and the firm giving effect to the transaction by debiting the account of Jai Gopal and crediting an account started for Deepankar with the said amount, Sushil Kumar accepting the gift on behalf of the minor.
(3) For the assessment year 1971-72 the assessed firm claimed as a deduction a sum of Rs. 1,587 credited to the account of Deepankar in respect of the sum of Rs. 15,000 said to have been gifted to him by his grand father. The Income-tax officer disallowed the deduction claimed by the assessed on the very short ground that, on the date of the alleged gift, the cash balance with the firm was only Rs. 3,187 and bench there could have been no valid gift of Rs. 15,000 by Jai Gopal in favor of Deepankar.
(4) The assessed preferred an appeal to the appellate Assistant Commissioner contending that it was not correct to say that there was not enough cash with the assessed firm on the date of the gift. It was claimed that the cash balance in the books and the bank account taken together exceeded Rs. 1,00,000. It was, thereforee, submitted that the interest claimed by the assessed should have been allowed and in this regard reliance was placed on the decision of the Supreme Court in Ramaratnam's case : 91ITR1(SC) . The Appellate Assistant Commisioner, however, did not accept this contention and confirmed the disallowance made by the Income-tax Officer.
(5) The assessed preferred an appeal to the Appellate Tribunal. It was urged that, on 14-5-1970,the assessed firm had, in addition to the cash balance of Rs. 3,197, bank balance, in three different banks, of Rs. 50,521, Rs. 41,806 and Rs. 1,000 respectively. It was also stated that the assessed had two accounts with the firm, one a capital account and the other a personal and drawing account. In the personal account there was a credit balance of Rs. 68,388 and it was this account that was debited with the sum of Rs. 15,000. In the capital account, there was a balance of Rs. 1,15,000 in favor of Jai Gopal. [On these facts the assessed tried to distinguish the decision of this Court in New India Colour Co. v. Cit : 80ITR206(Delhi) (1) that was relied upon for the department and contended that a valid gift had been affected by Jai Gopal in favor of Deepankar on 14-5-1970.J The Tribunal, however, did not account this contention. It observed :
'Either the bank entries were made from the capital account or the personal drawing account, this fact is not important for our consideration. What is important is as to how the gift was made. The gift was made merely by book entries. The Delhi High Court in : 80ITR206(Delhi) (Supra) found as follows : 'The gifts could not be considered to have been completed by any symbolic delivery and the transaction was no better than that of mere book entries.'
The gift transaction in the case of the. assessed is no better than that of a mere book entry. Following the rule laid down by the Delhi High Court, we hold that the gift made by the donor Shri Jai Gopal Rastogi in favor of the minor grand-son is not valid and thereforee the assessed is not entitled to get any deduction of the interest.'
(6) The decision of the Tribunal having gone against the assessed, it applied to the Tribunal for a reference to this Court and the Tribunal has referred the following questions in pursuance of this Court's directions under Section 256(2):
'1. Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the gift made by the Donor Shri Jai Gupal Rastogi in favor of his minor grand-son was not a valid gift and the assessed was not entitled to get any deduction of the interest paid to the donee
2.Whether the Tribunal correctly applied the ratio of the judgment in the case of New India Colour Company reported in 80 I.T.R. page 206 on the facts and in the circumstances of the assessed's case ?'
In the course of the proceedings for the assessment years 1972-73 and 1973-74 the assessed firm claimed, in addition to the interest paid to Deepankar, other sums of interest paid to Smt. Manju Rastogi, Smt. Beena Rastogi and Miss Anjula on the ground that the partners of the firm had made gifts to these persons. This was done by debiting their current accounts with the firm and crediting such amounts to the accounts of the donees in the books of the firm. For purposes of convenience, the details of these gifts may be tabulated as under : SI. Date of Name of Donor Name of Donee & Amount No. Gift Relationship Rs. 1. 14-5-70 Sh. Jai Gopal Rastogi Master Deepankar 15,000 Klimar (Minor Grandson) 2. 15-9-71 Sb. Jai Gopal Rastogi Smt. Beena Rastogi 10,000 (Daughter-in-law) 3. 15-9-71 Sh. Jai Gopal Rastogi Smt. Manju Rastogi 10,000 (Daughter-in-law) 4. 15-9-71 Sh. Satish Kumar MissAanjula 5,000 Rastogi (Sister) 5. 15-9-71 Sh. Sushil Kumar Miss Anjula (Sister) 5,000 Rastogi 6. 15-9-71 Sh. Santosh Kumar Miss Anjula (Sister) 5,000 Re Rastogi. 50,000
(7) The interest claimed by the assesses on these amounts came to Rs. 6,000 in each of the accounting years relevant for the assessment years 1972-73 and 1973-74. These amounts were disallowed by the Income-tax Officer for the same reasons as had been given in the earlier assessment year. When the matter went up in appeal to the Appellate Assistant Commissioner, he upheld the disallowance following the order of the Tribunal in the earlier assessment year. On further appeal by the assessed to the Tribunal it was; again held, following the order of the Tribunal for the assessment year 1971-72, that the interest had been rightly disallowed. The same was the position also in respect of 'the assessment year 1974-75.
(8) Dissatisfied with the orders of the Tribunal for all these years the assessed applied for a reference in I.T.Rs. Nos. 319 & 320179. The Tribunal referred the following two questions :
'1. Whether, on the facts and in the circumstances of the cases, the Tribunal was right in holding, that the gifts made by the partners of the assessed firm in favor of their relating (relatives) were not valid gifts and the assessed was not entitled (to get any deduction for the interest paid to the) donees
2.Whether the Tribunal correctly applied the ratio of the decision in the case of New India Colour Co. reported in 80 I.T.R. 206 on the facts and in the circumstances of the case ?' (Words in brickets ours).
For the assessment year 1974-75 the questions referred are as follows :
'1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the gifts made by the partners, Shri Jai Gopal Rastogi, Shri Satish Kumar Rastogi, Shri Santosh Kumar Rastogi and Shri Sushil Kumar Rastogi to different persons amounting to Rs. 50,000 were not valid gifts and the assessed firm was not entitled to get any deduction of the interest paid to the donees
2.Whether the Tribunal correctly applied the ratio of the judgment in the case of the New India Colour Co. reported in : 80ITR206(Delhi) on the facts and in the circumstances of the assessed's case ?'
(9) It will thus be seen that the deduction for interest claimed by the assessed has been disallowed by the Tribunal in all the years following its decision in the appeal for the assessment year 1971-72. In that order, the Tribunal had not accepted the asessee's attempt to distinguish the decision of this Court in the case of New India Colour Co. v. Commissioner of Income Tax : 80ITR206(Delhi) on the two grounds (a) that the firm had enough cash and bank balances and (b) that the gift had been made by making entries in the personal and drawing account of the donor which had sufficient credit balances on the date of the gift.
(10) We are of opinion that the Tribunal has misconstrued the true scope of the decision of this Court in the case of New India Colour Co. (Supra).
(11) It is settled law that a registered deed is necessary to effect a gift of immovable property and that even in respect of movable property, there should be an identification of the property and a delivery thereof to the donee who should accept the same. A gift cannot be said to have been made merely because the owner of a business makes entries in his books of account without allocation of funds corresponding to such entries. This is well entitled and is borne out by several decisions among which are E. M. V. Muthappa Chettiar v. Commissioner of Income Tax : 13ITR311(Mad) (2), Commissioner of Income Tax v. Smt. Shyama Bibi : 59ITR1(All) (3) and Sukhlal Sheco Narain v. Cwt (4). In such cases. There should be something more than more book entries to show that' a gift has been made. One such circumstances, for example, would be the admission of the donees into a partnership with the donor consequent on the gift, about which there is sufficient evidence: P.A.C. Ratnaswamy Nadar & Sons v. Cit : 46ITR1148(Mad) (5) and A.M. Abdul Rahman Rowther & Co. v. Commissioner of Income Tax : 56ITR556(Mad) (6).
(12) But there is a substantial difference between a case where such entries are made in the books of account belonging to the assesses himself and a case where the gift is evidenced by entries in the books of account of a third party such as a Hindu Undivided Family, a firm or a company. It will be appreciated that in this type of cases it would not always be realistic or practical to insist upon a withdrawal of cash in specie and delivery of the same to the donee by the donor particularly where the monies are intended to be redeposited with the firm by the donee. To give a concrete instance, where a firm has Rs. 1,00,000 in its cash chest and a partner thereof, who is entitled to draw monies from the firm,, wishes to make a gift of Rs. 15,000 to his son, there is no purpose in insisting that the partner should formally withdraw Rs. 15,000 from the cash chest, deliver it to the son, and then ask the son to deliver it back again to the cash chet of the firm. It has, thereforee, been held, in cases involving transaction with the commercial concerns like H.U.F. carrying on a business or a firm or a company, that it is not necessary for the donor to actually withdraw monies and deliver the same to the donee. There is no difficulty in giving of act to this principle where the family, firm or a company has enough funds and the partner or member making the gift sufficient credit balance in his favor in the books of the said entity. In such cases it is easy to draw an inference that valid gifts of money are effected by such book entries (see : Commissioner of Income Tax v. Ashok Glass Works, : 103ITR379(Cal) ) (7).
(13) The question that next arises is whether it is always necessary for the validity of the gift that the family, firm or company should have sufficient cash on hand on the material date or that the donor should have sufficient credit balance in his account with such concern. It has been held in a large number of cases that a gift of money is perfectly valid if proper entries are made in account books notwithstanding that there is no transfer of possession, that the donor does not have sufficient balance in his account and that even the firm does not have sufficient cash balance on the material rate. (See: Chimanbhai Lalbhai v. Cit, : 34ITR259(Bom) (8), K. P. Brothers v. Cit, (9), E. S. Hajee Abdul Kareem and Son v. Cit, : 50ITR396(Mad) (10), Bhhu Ram Jawaharlal v. Cit, : 82ITR772(All) (II), Gopal Jalan v. Cit, : 86ITR317(All) (12), Phool Chand Gajanand v. Cit, : 89ITR148(All) (13), and Jhaverbhai Patel v. Cit, : 103ITR728(Patna) (14), Srinath Das v. Income-tax Appellate Tribunal, Delhi Bench 'B', : 109ITR315(All) (15), Cgt v. Tarachand Meghraj, : 109ITR775(Cal) (16), and Smt. S. Puniyamma v. Cgt, : 117ITR47(KAR) ) (17). What is necessary in all these cases is to examine whether, having regard to the circumstances of the case, what has been done is a natural method of transfer or whether any circumstances exist which indicate that there is nothing more than mere book entries. Thus where, in addition to book entries, there is evidence to show that the gifts of money have been accepted by the donees or that the firm, family or company accepted the transaction by effecting necessary book entries and that these entries have been further implemented by the donees being permitted to draw upon the accounts to which monies have been credited the Validity of the gifts will be upheld : This is what happened in Commissioner of Income Tax v. New Digvijaysinhji Tin Factory : 36ITR72(Bom) (18). Similarly in the case of Balimal Nawal Kishore v. Commissioner of Income Tax (19), the donor had made book entries in a firm of which he was the partner. The amount of gift was covered by sufficient credit balance in his account and though the cash and bank balance of the firm fell for short of the amount of gift, the firm had unutilised overdraft limit to a much more substantial extent. It was also found that the donees had withdrawn the amounts in the subsequent years and the gift was upheld. The above decision was followed in the case of Naunihal Thakar Dass v. Commissioner of Income Tax (20).
(14) On the other hand, the circumstances may clearly indicate that no real gift had been made or intended. Thus in the case of S. P. Jain v. Commissioner of Income Tax : 51ITR6(Patna) (21), a share dealer credited a sum of Rs. 3,00,000 to the account of a charitable institution by debt to his personal account. In a subsequent year he debited Rs. 3,00,000 to the charitable institution being the value of certain shares transferred to if. There was no evidence regarding the acceptance of the gift by the donee, the charitable institution. In these circumstances it was held that the mere credit entry in the account of the institution did not create a debt in favor of he institution. So also, in the case of Virji Devshi v. Commissioner of Income Tax : 65ITR291(Bom) (22) an amount of Rs. 3,00,000 was debited to the account of the father and a corresponding amount credited to the account of his minor son in the same firm. Later, the assessed made a declaration before a Presidency Magisrate that he had made a gift and that the other partner of the firm was to act as a trustee and guardian of the minor in respect of the amount gifted. There was no evidence that this unilateral declaration was made known to the other partner and there was also no evidence of the acceptance of the gift by or on behalf of the donee or of the gift having been acted upon. In these circumstances it was held that there was no valid gift. Again in Cwt v. Gulab Rai Govind Prasad : 85ITR308(All) (23) though there were book entries transferring funds from the account of the Karta to that of his minor son, it was found that there was no acceptance of the gift, no cash balance on the date of the transfer, no payment of interest to the donees and, in addition, the gifted amount and the property purchased there from were utilised for the business of the H.U.F. In these circumstances, it was held that there was no valid gift.
(15) A review of these cases indicates that it is possible for a partner to effectuate a gift by instructing a firm, family or company which he has an account to give effect to the gift by debiting his account and crediting an account in the name of the donee. But in such cases it is not sufficient that there should be merely book entries : the circumstances attending upon the transaction must be such as to make it clear that there were sufficient funds at the disposal of the donor by reason of which he could make at the gift by means of such book entries. The firm may have sufficient cash balance or it may have sufficient provision for overdraft on the bank on the basic of which it could honour the instructions given by the assessed. It is also not necessary that the partner should have sufficient credit balance to enable him to make the gifts, so long as there is no ground to doubt the bona fides of the firm in choosing to allow on overdraft facility in the donor and the partnership deed contains no prohibition.
(16) The decision of this Court in the case of New India Colour Co. does not run counter to these principles. In that case, A and his son B were two partners of the assessed firm having 12 annas' and 4 annas' share therein. In January 31, 1956, the cash balance of the firm was Rs. 3,429 and A's capital account in the firm stood at Rs. 1,03,963. On that date, A wrote a letter to the firm requesting it to debit Rs. 69,000 to his account and to credit the same in different proportions to his sons and daughter slating that he had made gifts of those amounts to the respective persons. The latter was also signed by the donees in token of the acceptance of the gifts. The assessed firm carried out the directions of A and made the entries. The question arose whether the interest credited to the accounts of the alleged donees were allowable deductions in computing the profits of the firm. The Tribunal held that since A, as partner, was not free to withdraw his capital from the firm at any time he desire no delivery of the amounts of the gift could have been made and that the gifts were not valid. The conclusion of the Tribunal was upheld by this Court. At page 209, the Court referred to the decision of the Bombay High Court in the case of Chimanbhai Lalbhai v. Commissioner of Income Tax : 34ITR259(Bom) and pointed out that it was a case of a banking concern and that the book entries had been given effect to by allowing overdraft facilities to the donors. The decisions of the Punjab High Court in the case of Balimal Nawal Kishore v. Commissioner of Income Tax 1966 52 itr 669 and in the case of Naunihal Thakar Dass v. Commissioner of Income Tax were also distinguished. The observations of Falshaw C. J. in the former case, viz.,
'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.'
were endorsed. It was pointed out that, in that case, though there was not enough cash balance in the firm, the firm had unutilised drawing power to the extent of Rs. 1,27,088. So far as the case of Naunihal Thakar Dass v. Commissioner of Income Tax was concerned it was pointed out that it had only followed Balimal Nawal Kishore's case but it was observed that in that case the nature of the rights of a partner during the subsistence of the partnership with respect to the capital account of the partnership was not taken into consideration. As regards the case before it, the Court found (a) that the firm had neither enough cash balance nor any unutilised drawing power on a bank such as would have enabled the parties, if they had wished to realise cash to the extent of the amount of the gifts, to give it to the donees; and (b) that the account, from which gifts were purported to have been made, was the capital account of the donor with the firm which had ceased to be his exclusive property as pointed out by the Supreme Court in the case of Addanki Narayanappa and another v. Bhaskara Krishnappa (dead) and thereafter his heirs and others : 3SCR400
(17) On a careful consideration of the facts and observations above referred to we think that if the contentions made out by the assessed before the Tribunal were correct, the decision in the case of New India Colour Co. did not stand in the way of the Tribunal accepting the validity of the gift on an examination of all the surrounding circumstances of the case. The Tribunal, it appears to us, precluded itself from considering the contentions urged on behalf of the assessed because it interpreted the decision of this Court in the case above cited as laying down a general rule that a gift could not be effected by means of book entries in a firm of which the donor is a partner. It has, thereforee, failed to give any finding about the correctness of the assessed's plea regarding the amounts available with the firm, the nature of the account in which entries were made and the extent of credit balance therein. Since the relevant facts have not been examined from this angle, we have no other option but to answer the question in such a way as to leave it open to the Tribunal to consider the facts of the case and come to its own conclusion in the light of our above discussion of the principle applicable in such cases.
(18) Before, however, giving out answer to the question referred we have to refer to one more aspect that was brought to our notice. Learned counsel for the department invited our attention to the decision of the Bombay High Court in the case of Baliram Mathuradas v. Commissioner of Income Tax : 59ITR278(Bom) (25). In that case, the assessed was a partner in a firm consisting of himself and his sons. He retired from the firm and on 22-10-1949 there was a credit of Rs. 1,39,000 In his favor in his account with the firm. That account was debited with the sum of Rs. 50,000 and the accounts of his two grandsons credited with the sum of Rs. 25,000 each, one of the grandsons being a major and the other, a minor. Interest was credited to the accounts of the grandsons and the question arose as to whether the Income-tax Officer was justified in treating the interest credited to the accounts of the grandsons as the interest earned by the assessed on the ground that there had been no valid or genuine gifts made by the assessed to his grandsons. The Income-tax Officer and the Appellate Assistant Commissioner held that more entries in the account books were not sufficient evidence for a valid gift and that, in any event, the amount due by the partnership to the assessed was a debt and thereforee an actionable claim which could not be validly transferred without executing a proper document as required by Section 130 of the Transfer of Property Act. On appeal, the Appellate Tribunal was not satisfied with the genuiness of the gift and was of opinion that the entries in the books had not been made in the regular course of the business and had no evidentiary value. That apart, the Tribunal also agreed with the Appellate Assistant Commissioner that the assesse could have transferred the debt due to him from that firm only by means of an instrument in writing and as there was no such document, no valid transfer has been effected. Both these findings of the Tribunal were upheld by the High Court on reference. Apart from sustaining the Tribunal's conclusion that the gift was not genuine, the Court also observed that the amount owed by the partnership to the assessed was a debt and was thereforee an actionable claim was correct and that consequently, it could have been transferred only by means of a deed in writing as required by Section 130 of the Transfer of Property Act.
(19) Relying upon the above decision, Mr. Wadhara contends that, in the present case also. since there was no document in writing executed by the partners who claimed to have made the gifts, the gifts were not valid and the claims were rightly rejected. Learned counsel for the assessed met this argument by pointing out that the amount in question in the case before the Bombay High Court was an amount due by a firm to a partner at the time of his retirement from the firm. He referred to the decision of the Madras High Court in C.E.O v. S. M. M. Subramanian. Chettiar 1978 99 Itr 400 (26) to point out a distinction between such a case and a case where there is a current account between a partner and a subsisting firm in which he is a partner. Learned counsel also contended that even assuming that the argument is correct, the department could not succeed in the present case because, according to him, there was such a document in existence. He stated that the gifts had been effected by means of letters written by the donors to the firm under their signatures requesting it to make entries and that the acceptance of the donees had also been indicated in writing.
(20) We do not wish to enter into this controversy for two reasons. In the first place, the Tribunal has not examined the facts to find out whether there was a document in writing which could be sufficient compliance with Section 130 of the Transfer of Property Act for the good reason that no such argumtent, as has been addressed by Shri Wadhara, was put forward before the Tribunal. In the absence of the relevant facts it is not possible for us to deal with this contention because, if there had been a document as alleged by counsel for the assessed, the discussion on the contention raised by the departmental counsel would be purely academic. Secondly, we think that the question whether the existence of an amount standing to the credit of a partner in the books of a firm can be said to constitute an actionable claim or not may not arise for consideration in the circumstances of this case. In a case of this type where a gift is evidence by book entries, the subject matter of the gift could be one of two things. If the amount which is due from the firm, family or company to the donor is treated as an actionable claim than the book entries could be evidence of a transfer of the actionable claim and if that is the claim which is put forward then it may be necessary that it should be evidenced by a document as envisaged under the Transfer of Property Act. On the other hand, the case of the present assessed, as well as the assesseds in the various decisions to which we have referred, is not that there has been a transfer of an actionable claim but that there is a transfer of money to the extent evidenced by the book entries. The case is that the donor in question has gifted monies to the donees and that it is this gift of movable property in the form of money that is evidenced by the book entries. The argument is that, though there has been no actual withdrawal of monies and delivery of possession thereof to the donee and acceptance of such money by the donee, the position practically tantamounts to that for, having regard to the nature of commercial transactions, the book entries represent a withdrawal of cash to a corresponding extent, delivery thereof to the donee and the latter's deposit thereof with the firm. It is this argument that has been accepted in all the decisions and it has been held that a gift of monies can be taken as having been validity made by means of such book entries provided the other conditions which are indicated earlier are fulfillled. The Madras High Court in the decision relied upon for the assessed, refers at page 400 to a case where entries are made in a partner's current account and observes :
'In the case of a current account, it is a matter of agreement between the partnership and the partners that the partner is free to withdraw the amount. It is not, thereforee, possible to say that it is a mere actionable claim. It is a debt due which was recognised by the partners as payable on demand and its recovery could be enforced against the firm without recourse to a suit for dissolution Karri Venkata Reddi v. Kollu Narasayya (1908-2nd 32 Madras 76) The current account would thus stand out of the category of actionable claim. Any transfer of money from that account would be equivalent to gift of cash, as the donee will be free to dual with it in any manner and at any time he liked.'
In this view of the matter, the contention based on an assignment of an actionable claim will arise for consideration only if the assessed fails in making out before the Tribunal, which will be considering the matter afresh in the light of our discussion, that there have been gifts of money by the several partners to the various donees.
(21) For the above reasons, we answer the questions referred to us in I.T.R. 304179 as follows :
Q.No. 2 : The Tribunal did not correctly apply the ratio of the judgment of this Court in the case of New India Colour Co. : 80ITR206(Delhi) . It ought to have appreciated that a valid gift was possible by means of such book entries and should have examined the extent of cash and bank balances of the assessed and the nature of the account in which the entries were made before coming to a conclusion one way or the other.
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Q.No. 1 : In view of the answer to question No. 2, the Tribunal was not right in holding that the gift made by Jai Gopal in favor of his minor son was not a valid gift and the assessed was not entitled to get any deduction of the interest paid to the donee.
The questions in the other three references are also answered in the same manner. The result of our decision will be to restore to its file the appeals before the Tribunal which it should proceed to dispose of afresh in the light of our above discussion. The references are disposed of accordingly but, in the circumstances, we make no order as to costs. Matters remanded to Tribunal for disposal according to law.