Deemed gift on debt abandonment: loan advances become taxable only when written off, not when originally advanced.

Advances shown consistently in the assessee's books as loans were not treated as gifts when made, because the accounting entries kept them as recoverable balances from year to year. Under section 4(1)(c) of the Gift-tax Act, 1958, a deemed gift arises only when there is a release or abandonment of the debt, so the relevant date is the write-off of the balance. The later letter said to show no intention to recover could not displace the contemporaneous books, which remained the decisive evidence. The deemed gift therefore arose only when the debt was finally written off and abandoned.

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Issues: Whether the amounts advanced by the assessee to his son were liable to be treated as gifts in the years in which they were spent, or only on the date when the balances were written off and the debt was abandoned.

Analysis: The advances were consistently shown in the assessee's books as loans and were carried forward from year to year. If they had been treated as gifts when made, they would not have been retained as loan balances in the accounts. The final writing off of the balance, after crediting the amount realised from sale of the son's motor car, showed that the assessee treated the amounts as recoverable till that date. Under section 4(1)(c) of the Gift-tax Act, 1958, a deemed gift arises when there is a release or abandonment of debt, and the relevant time is the date of such abandonment. The later letter said to indicate no intention to recover the amounts could not override the contemporaneous accounting entries.

Conclusion: The gift arose only on 5 February 1972 when the debt was written off and abandoned, not on the dates of the original advances; the question was answered against the assessee and in favour of the Revenue.

Ratio Decidendi: Where advances are treated in the assessee's books as loans and are later written off, the deemed gift under section 4(1)(c) of the Gift-tax Act, 1958 arises on the date of release or abandonment of the debt, and contemporaneous accounting treatment is decisive.

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