1965 (3) TMI 70 - HC - Income Tax

Court rules transfer of money to grandson not a valid gift; interest deduction denied. Commissioner awarded costs.

COMMISSIONER OF INCOME-TAX, UP. Versus SMT. SHYAMO BIBI.

The court held that the entry made by the assessee in her books on December 22, 1953, transferring Rs. 1 lakh to her grandson did not constitute a valid ... - Issues Involved:1. Validity of the gift of Rs. 1 lakh by the assessee to her grandson, Om Nath.2. Allowability of the deduction of Rs. 150 as interest paid on the gifted amount.Issue-wise Detailed Analysis:1. Validity of the Gift of Rs. 1 Lakh by the Assessee to Her Grandson, Om NathThe primary issue was whether the entry made by the assessee in her books on December 22, 1953, transferring Rs. 1 lakh from her account to the account of her grandson, Om Nath, amounted to a valid gift when the book balance on that date amounted to Rs. 15-10-0 only.Facts and Arguments:- The assessee maintained personal accounts and derived income from property and her share in a partnership firm.- On December 22, 1953, she made transfer entries in her account books crediting Rs. 1 lakh to Om Nath's account and debiting her own account by the same amount, professing to make a gift of Rs. 1 lakh to him.- A memorandum was prepared, signed by both the assessee and Om Nath, stating the gift was made out of natural love and affection.- The Income-tax Officer and the Appellate Assistant Commissioner rejected the claim of the gift, arguing that mere book entries do not suffice to complete a gift, referencing Section 123 of the Transfer of Property Act.- The Tribunal, however, held that the gift was complete as soon as the entries were made, relying on the decision in Chimanbhai Lalbhai v. Commissioner of Income-tax.Court's Analysis:- The court emphasized that under Section 123 of the Transfer of Property Act, a gift of movable property must be effected by either a registered instrument or by delivery.- The court noted that no actual delivery of money occurred; the assessee retained possession of the money, and there was no evidence of redelivery by Om Nath.- It was highlighted that the assessee was not a banker, and the firm was not a banking firm, thus the transfer entries in her personal accounts did not amount to delivery.- The court disagreed with the Tribunal's reliance on Chimanbhai Lalbhai, noting that the facts in that case involved a banking transaction with an overdraft allowed by the banker, which was not applicable here.Conclusion:The court concluded that there was no valid gift on December 22, 1953, as there was no delivery of the money to Om Nath. The mere book entries and the memorandum did not suffice to constitute a valid gift under Section 123 of the Transfer of Property Act.2. Allowability of the Deduction of Rs. 150 as Interest Paid on the Gifted AmountThe secondary issue was whether the assessee was entitled to deduct Rs. 150, said to have been paid as interest to Om Nath, from her income for the assessment year 1954-55.Facts and Arguments:- The assessee claimed a deduction of Rs. 150 as interest on the Rs. 1 lakh placed to the credit of Om Nath.- The Income-tax Officer and the Appellate Assistant Commissioner rejected this claim, arguing that there was no valid gift, and thus no basis for the interest payment.- The Tribunal allowed the deduction, holding that the gift was valid and the interest payment was legitimate.Court's Analysis:- The court reiterated that since there was no valid gift, Om Nath could not be considered the owner of the Rs. 1 lakh.- Consequently, the assessee could not claim to have paid interest on money that did not belong to Om Nath.- The court noted that the question of whether the deduction was allowable under Section 10(2)(iii) or Section 10(2)(xv) of the Income-tax Act was not raised before the Income-tax Officer or the Appellate Assistant Commissioner.Conclusion:The court held that the deduction of Rs. 150 as interest was not allowable since there was no valid gift, and thus no legitimate basis for the interest payment.Final Judgment:The court answered the referred question in the negative, concluding that the entry made by the assessee in her books on December 22, 1953, did not amount to a valid gift when the book balance on that date amounted to Rs. 15-10-0 only. Consequently, the assessee was not entitled to the deduction of Rs. 150 as interest. The Commissioner of Income-tax, U.P., was awarded costs of Rs. 200.