Transfer by bank credit is a valid gift; donor not liable for interest credited to beneficiaries after the transfer.

Transfers effected by instructing a banker to debit the donor's account and credit third parties operate as valid gifts once the banker accepts and makes the entries and the beneficiaries operate their accounts; formal delivery or the bank's cash position are not prerequisites. Alternative characterisations as assignment of a chose in action or novation were unnecessary. Consequentially, interest credited to the beneficiaries after those transfers is attributable to them and not assessable to the donor; the reference under the income-tax question is answered in favour of the donor.

---

---

Issues: (i) Whether the entries made on November 8, 1953 in the books of M/s. Lalbhai Dalpatbhai constituted a valid gift, or an assignment of a chose in action or a novation of contract by the assessee? (ii) Whether on the facts and circumstances the assessee was liable to be assessed on the interest amounts credited to the accounts of Sudhirbhai and Pratimaben in the books of M/s. Lalbhai Dalpatbhai?

Issue (i): Whether the bank entries and related transactions effected on November 8, 1953 operated as a valid gift (or alternatively an assignment of a chose in action or novation) from the assessee to his son and daughter.

Analysis: The facts show that (a) the assessee made entries in his books on November 17, 1952 evidencing gifts of Rs. 5,00,000 and Rs. 2,00,000; (b) on November 8, 1953 the assessee instructed his bankers to debit his account and credit the accounts of his son and daughter with the specified sums (including interest); (c) the bankers carried out the instructions, vouchers were signed, and the beneficiaries operated their accounts; and (d) the transactions were bona fide and effected for maintenance purposes. The Transfer of Property Act's formalities for delivery of movable possession do not displace ordinary banking practice whereby a constituent may effect transfer by instructing his banker to credit a third party and the banker, by accepting and entering the credit, becomes liable to the third party. Whether the banker had sufficient cash or whether the constituent's account was overdrawn are matters of accounting between banker and constituent and do not negate the effectiveness of the transfer to the beneficiaries once the bank accepted and made the entries and the beneficiaries operated their accounts. The Tribunal's reliance on possession formalities and on the bank's cash position is not determinative of the legal effectiveness of the gift in the context of bank credits.

Conclusion: The entries and transactions of November 8, 1953 constituted a valid gift in favour of the son and daughter; alternative characterisations as assignment of a chose in action or novation are unnecessary for the disposition of this case. This conclusion is in favour of the assessee.

Issue (ii): Whether the assessee was liable to assessment on the interest amounts credited to the accounts of the son and daughter by the bankers for the relevant year.

Analysis: Given the conclusion that the amounts were validly gifted to the beneficiaries, the interest credited to their accounts by the bankers formed part of the beneficiaries' income. The interest credited in the bankers' books arose after the gifts and was attributable to the recipients' accounts; the assessee no longer retained beneficial entitlement to those sums once the gifts were effected.

Conclusion: The assessee is not liable to be assessed on the interest amounts credited to the accounts of the son and daughter. This conclusion is in favour of the assessee.

Final Conclusion: The legal effect of the decision is that the transfers effected by bank entries are recognised as valid gifts and the resulting interest credited to the beneficiaries is not assessable to the donor; the reference under section 66(1) of the Income-tax Act is answered accordingly.

Ratio Decidendi: A donor may validly effect a gift by instructing his banker to debit his account and credit a third party, and where the banker accepts and makes the entries and the beneficiaries operate their accounts, the transfer is effective in law; formal delivery or the bank's cash position are not prerequisites to such a gift.

---