M.S. Menon, C.J.
1. This is a reference by the Central Board of Direct Taxes, Now Delhi, under Sub-section (1) of Section 64 of the Estate Duty Act. 1953, as it stood prior to its amendment by the Estate Duty (Amendment) Act, 1958. The question referred reads as follows:
'Whether on the facts and in the circumstances of the case, the amount of Rs. 2,25,000/-was correctly included in the estate of the deceased as property passing or deemed to pass on his death?'
2. One Amir Mohideen Rowther died on the 24th March 1957. It is with his estate that we are concerned in this reference
3. Amir Mohideen Rowther was a member of a partnership consisting of himself and his three sons till his retirement from that partnership on the 25th November 1955. On the 31st December 1954 a sum of Rupees 2,25,000/- was debited in his account with the partnership and a sum of Rs. 75,000/- each was credited in the accounts with the partnership of his three sons: Mohamed Kasim. Sultan Mohammed and Abdul Razack.
4. The question for determination is whether there was a valid gift of the sum of Rs 2,25,000/- by Amir Mohideen Rowther in equal shares to his three sons on the 31st December 1954. If there was such a gift, the gift was more than two years prior to the death of Amir Mohidden Rowther on the 24th March 1957, and Section 9 of the Estate Duty Act. 1953. which provides that dispositions no! made two years or more before the death of the deceased shall be deemed to pass on his death, will have no application to the case before us.
5. The Board has held that the entries made in the accounts of Amir Mohidden Rowther and his three sons with the partnership on the 31st December 1954 represent the transfer of an actionable claim. We are unable to agree.
6. It is true that it is usual among mercantile men and accountants to treat all the accounts of a partnership as accounts of the firm, and to deal with the accounts of individual partners as if they were simply debtors or creditors of the firm. Lindley on Partnership summarises the mode of keeping partnership accounts as follows:
'The property brought into the concern is credited to the stock account of the firm, and is then distributed through the ledger account; and in these ledger accounts the several articles and persons are made debtors to slock for the several items passed into these accounts. Each partner has his own separate account opened with the firm (usually in a private ledger), and is credited with everything he brings into it and is debited with everything he draws out of it. Upon a rest, the net profits are determined, and are divided between the partners in the proper proportions, and the share of each partner is carried to the credit of his own separate account. The partners are creditors of the firm for all its stock, and they are debtors to it for all its deficiencies, when they first bring in their capita], the firm is in the private ledger made debtor to each of them for his proportion of capital. Whenever stock is taken, and a surplus appears, that surplus is divided according to the shares, and is carried to the accounts of the respective partners. If, instead of a surplus, a deficiency appears, the loss is apportioned in the same way.
Each partner being thus treated like an ordinary creditor and debtor, in respect of what he brings in and what he draws out, the balance standing to his credit or to his debit, as the case may be, in the private ledger, shows how his account with the firm stands. Upon payment of that balance by the firm to him, if the balance is in his favour, or by him to the firm, if the balance is against him, his account with the firm is closed and settled' (12th Edition, page 246).
7. A partner, however, is not a debtor to or creditor of his firm in any legal sense of the term. Lindley on Partnership deals with the matter as follows:
'Accountants are quite right in debiting each partner in his account with the firm with the whole of whatever he draws out. and in crediting him with the whole of whatever he brings in. 'But', as observed by Lord Cottenham. 'though these terms 'debtor' and 'creditor' arc so used, and sufficiently explain what is meant by the use of them, nothing can be more inconsistent with the known law of partnership, than to consider the situation of either party as in any degree resembling the situation of those whose appellation has been so borrowed. The supposed creditor has no means of obtaining payment of his debt; and the supposed debtor is liable to no proceedings either at law or in equity--assuming always that no separate, security has been taken or given. The supposed creditor's debt is due from the firm of which he is a partner; and the supposed debtor owes the money to himself in common with his partners.' (12th Edition, Page 427).
8. If the transfer on the 31st December 1954 was not the transfer of an actionable claim, the provisions of Chapter VIII of the Transfer of Property Act, 1882, will not apply and the validity of the gift has to be resolved in the light of Section 129 in Chapter VII of that Act. That Chapter deals with gifts and consists of eight sections, Sections 122 - 129.
9. The Board has staled that there has been no compliance with Section 123 of the Transfer of Property Act, 1882, and that as a result there has been no valid transfer on the 31st December 1954. The statement ignores Section 129 of that Act which provides that nothing in Chapter VII shall be deemed to affect any rule of Muhammad an law.
10. The validity or otherwise of the gift made by Amir Mohideen Rowther has to be tested according to the rules of Muhammadan law and not according to the provisions of the Transfer of Property Act, 1882. According to those rules the three essentials of a valid gift are:
(1) a declaration of gift by the donor,
(2) an acceptance of the gift, express or implied, by or on behalf of the donee, and
(3) a delivery of possession of the subject of the gift--of such possession as it is susceptible of ---- by the donor to the donee. (Mulla on Muhammadan law, 15th Edn. Page 130).
11. It is not contended that the share of Amir Mohideen Rowthcr in the assets of the partnership on the 31st December 1954, the date of the gift, was insufficient to support the gift of Rs. 2,25,000/-. We consider the debit entry in the account of Amir Mohideen Rowther and the credit entries in the accounts of his three sons as a sufficient declaration of gift by the donor, a sufficient acceptance of the gift by the donees and a delivery of such possession as the subject of the gift is susceptible of in a case like this. It has also to be noted that the wealth-tax statements subsequently filed by Amir Mohideen Rowther and his three sons indicate a diminution of the wealth of Amir Mohideen Rowthcr to the extent of Rs. 2,25,000/- and an augmentation of the wealth of his three sons to the extent of the gift received by each of them.
12. Amir Mohideen Rowther was a Sunni Muhammadan of the Hanafi school. As stated by Tyabji.
''under the texis on Ilanafi law, the gift of a musha or undivided part of a thing capable of division is not complete and valid, unless the part of which gift is made is divided off, and separated from the rest, and possession of the separated part given to the donee'
except in certain specified cases. One of the exceptions specified by Tyabji is the gift of a part of a thing 'of such a nature that some kind of benefit or advantage can be derived from it so long as it is undivided, which cannot be derived from it after division'. (Tyabji on Muhammadan law, 3rd Edition, page 398).
13. Mulla in dealing with gifts of undivided shares under the Hanafi law says:
'The term 'mushaa' is derived from Shuyuu, which signifies confusion. An undivided share is called mushaa. because of the confusion that is likely to arise in the enjoyment of the property if a gift were made of an undivided share in the property by one co-sharer to a stranger No such confussion can arise, if the gift is by one co-sharer to another co-sharer The result is that a gift by one of several heirs of his undivided share in property which is capable of division to a stranger is irregular, but a gift of such a share in favour of a co-heir is valid' (Mulla on Muhammadan law. 15th Edition. Page 140) And Tyabji;
'A partner makes a gift of his own share in the partnership stock, capable of division to a partner the Rift is stated to be invalid in the Hidava but it would seem to be valid.' (Tyabji on Muhammadan law, 3rd Edition, page 400)'
No contention was raised before us that the gift with which we arc concerned is bad because il was the gift of a musha and it is unnecessary to consider this aspect of the case any further
14. In these circumstances we must hold that there has been a gift by Amir Mohideen Rowther of Rs. 2,25,000/ in equal shares to his three sons on 31-12-1954, that the said gift is a valid gift under the rules of Muhammadan law and that as a result the question referred has to be answered in the negative, that is, against the Department and in favour of the applicant. Wo do so; but in the circumstances of the case without any order as to costs