Completed Gift Validity: interest to donee-creditors deductible where transfers were corroborated; deputed agent remuneration also allowed.

Where partner-to-donee transfers were evidenced by book entries supplemented by stamped writings declaring irrevocable gifts, acceptance by donees, and conduct treating donees as creditors (payment of interest and withdrawals), the transfers constituted completed gifts and interest of Rs.15,947 was deductible under section 10(2)(iii); where a partner deputed agents under an authorised agreement and payments were bona fide, commercially expedient and necessary to protect the partner's interest, the payments of Rs.24,706 and Rs.4,360 were allowable deductions against the partner's share of income.

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Issues: (i) Whether the assessee firm is entitled under section 10(2)(iii) of the Income-tax Act to deduct Rs. 15,947 as interest paid on moneys transferred by a partner to donees; (ii) Whether amounts of Rs. 24,706 and Rs. 4,360 are admissible deductions against the share of income from Messrs. Halar Salt & Chemical Works.

Issue (i): Whether the interest payments of Rs. 15,947 are deductible under section 10(2)(iii) in computing the firm's income where transfers were effected by book entries and corroborative writings.

Analysis: The Court examined the facts that (a) substantial book entries were made debiting the donor-partner's account and crediting the donees, (b) subsequent stamped writings by the donor reaffirmed the gifts and declared them irrevocable with acceptance by the donees, (c) the firm treated the donees as creditors by paying interest and permitting withdrawals, and (d) prior assessments had allowed interest deductions and the genuineness of the transactions was not disputed. The Court held that mere book entries alone would not suffice generally, but where corroborative writings, acceptance by donees, acts consistent with creditor status and commercial realities exist, the requirements of a completed valid gift and the characterisation necessary for section 10(2)(iii) are satisfied.

Conclusion: The deduction of Rs. 15,947 under section 10(2)(iii) is allowable; question answered in the affirmative in favour of the assessee.

Issue (ii): Whether Rs. 24,706 and Rs. 4,360 paid to agents employed to manage a partner's interest in another firm are admissible deductions against the partner's share of income.

Analysis: The Court considered the agreement authorising remuneration to the two persons, the undisputed genuineness of the payments, and commercial necessity where a partner is unable to attend to business and deputes duties with permission of co-partners. The Court rejected the Revenue's contention that such payments were mere appropriation of profits, observing that bona fide expenditures incurred for earning the partner's share of income and commercially expedient to protect that interest are allowable. Precedents and commercial substance were taken into account.

Conclusion: The amounts Rs. 24,706 and Rs. 4,360 are admissible deductions against the share of income; question answered in the affirmative in favour of the assessee.

Final Conclusion: On the facts and circumstances, the Court affirms the Tribunal's findings and holds that the impugned interest deduction and the remuneration payments are allowable deductions to the assessee firm, resulting in answers favourable to the assessee on both referred questions.

Ratio Decidendi: Where book entries evidencing transfers are accompanied by contemporaneous writings confirming irrevocable gifts, acceptance by donees, and acts treating donees as creditors (payment of interest and withdrawals), such transfers can constitute completed gifts and the related interest payments and bona fide, commercially expedient payments made to deputed agents are deductible in computing the real income of the assessee.

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