Book-entry gifts can be valid when intention and acceptance are proven, preventing disallowance of related interest income.

Book entries can constitute a valid gift for tax purposes when the donor's intention, the donees' acceptance, and actual implementation in the accounts are established, even without a formal gift deed or stamp duty compliance. The Bombay HC followed earlier authority and treated the credited transfers as effective gifts because the transactions were genuinely acted upon by both sides. Once the gifts were validly made, the related interest on the transferred amounts could not be brought back into the assessee's income merely for want of documentary formality. The issues were answered in favour of the assessee.

---

---

Issues: Whether gifts made by debit and credit entries in the partners' accounts, without execution of gift deeds or affixture of stamps, were valid, and whether the consequential disallowance of interest on those gifts was justified.

Analysis: The reference was governed by the principle that a gift need not be completed by physical transfer of cash or by formal gift deeds if the donor clearly makes the transfer through account entries, the donees accept it, and the transaction is acted upon by both sides. The court followed earlier authority holding that such book transfers can constitute a valid gift when supported by evidence of donor intention, donee acceptance, and actual implementation in the accounts. Once the gifts were validly effected, the interest credited on the transferred amounts could not be treated as includible in the assessee's income.

Conclusion: Both questions were answered in the affirmative and in favour of the assessee.

Final Conclusion: The legal position accepted was that gifts made through genuine account entries, once accepted and acted upon, are effective gifts for tax purposes and their associated interest cannot be disallowed merely for want of a formal gift deed.

Ratio Decidendi: A gift may be validly completed by account entries alone where the donor's intention, the donee's acceptance, and mutual acting upon the transaction are established.

---