Valid gift through banking entries excludes later interest from the transferor's taxable income

A genuine transfer effected through accepted banking entries can amount to a valid gift without physical delivery of cash, where the instructions are acted upon and the beneficiaries operate on the credited sums. The absence of cash in the banker's hands at the moment of entry did not defeat the legal effectiveness of the transfer, and the banker's joint family character was irrelevant. Once the amounts stood transferred to the son and daughter, the interest credited on those sums belonged to them and not to the transferor, so it was not assessable in the assessee's hands.

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Issues: (i) Whether the entries made in the books of the assessee's banker constituted a valid gift, an assignment of a chose in action, or a novation of contract. (ii) Whether the assessee was liable to be assessed on the interest credited to the accounts of his son and daughter in the books of the banker.

Issue (i): Whether the entries made in the books of the assessee's banker constituted a valid gift, an assignment of a chose in action, or a novation of contract.

Analysis: The transfer was found to be genuine and fully carried out through the banker's books, with the assessee's instructions accepted and acted upon, and the beneficiaries subsequently operating on the credited amounts. The absence of physical handing over of cash did not defeat the transaction, since banking practice permits payment and transfer by book entries and cheque-like directions. The lack of sufficient cash in the bank at the moment of entry was held irrelevant to the legal effectiveness of the gift, and the joint family character of the banker made no legal difference.

Conclusion: The transaction constituted a valid gift, and the answer was in favour of the assessee.

Issue (ii): Whether the assessee was liable to be assessed on the interest credited to the accounts of his son and daughter in the books of the banker.

Analysis: Once the gifts were held to be valid and the amounts stood transferred to the beneficiaries, the interest credited on those amounts belonged to them and not to the assessee. The interest could not be treated as the assessee's income merely because the credits arose out of the banking entries made pursuant to his directions.

Conclusion: The assessee was not liable to be assessed on the interest amounts, and the answer was in favour of the assessee.

Final Conclusion: The reference was answered by upholding the legal effectiveness of the transfer through banking entries and by excluding the consequential interest from the assessee's taxable income.

Ratio Decidendi: A genuine transfer effected through accepted banking entries can constitute a valid gift in law without physical delivery of cash, and income arising thereafter belongs to the transferee rather than the transferor.

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