TaxTMI 
TaxTMI 
TaxTMI 
1971 (3) TMI 6
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.... Lal Prabhat Kumar Saroj Kumari (wife, Sita Devi) (wife, Pushpa Devi) (minor daughter) Brijmohan and his sons, Murari Lal and Prabhat Kumar, constitute a partnership firm, Messrs. Bhau Ram Jawahar Mal, the assessee before us. On March 23, 1960, Murari Lal purported to make a gift of Rs. 10,000 to his sister, Saroj Kumari. On May 12, 1960, Ganpati Devi purported to make a gift of Rs. 10,000 to her daughter-in-law, Sita Devi. On September 21, 1960, Brijmohan purported to make a gift of Rs. 10,000 to his daughter-in-law, Pushpa Devi. The gifts were effected, it was said, by transfer entries in the books of the assessee-firm. The assessee credited interest in the accounts of Saroj Kumari, Sita Devi and Pushpa Devi by reason of the amounts gifted to them and entered it in their respective accounts. In assessment proceedings for the year 1961-62 the assessee claimed a deduction on account of the interest so debited. The claim was rejected by the Income-tax Officer in the view that the gifts were invalid as they had been made merely by transfer entries in the books of the assessee. The Income-tax Officer pointed out that the cash balance in the assessee's books on the respective dates o....
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....sufficient consideration for not validating a gift made by a partner to his relations through transfer entries in the books of the firm. There were other considerations, of course, such as withdrawal by the donees of the amount standing to their credit showing that the donees had accepted the gift, but there is nothing in the Tribunal's appellate order to indicate that the donees in the case before us had not accepted the gifts made to them. We are concerned with a case where the Tribunal rejected the claim substantially on the ground that transfer entries in the books of account would not result in a valid gift if the cash balance available with the firm was inadequate. In South Indian Lucifer Match Works v. Commissioner of Income-tax, a sum of Rs. 15,000 each was transferred from the capital account of a Hindu undivided family business to the two daughters of the karta, and, subsequently, the daughters entered into partnership with the karta and his son. The Madras High Court laid down that it was not necessary for the validity of the gifts that the amount should be actually handed over to the debtors. Subsequently, the same High Court in E. S. Hajee Abdul Kareem and Son v. Comm....
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....t a gift by making appropriate entries in the relevant accounts of the family's books. It seems to us that it is not necessary in every case for the validity of a gift that there should be physical delivery of the amount by the donor to the donee, and in every case the decision of the question turns upon whether the modus operandi results in a transfer of the amount gifted from the donor to the donee. We think it sufficiently settled that such transfer can be effected in the books of a firm by making a debit entry in the account of the donor and making a corresponding credit entry in the account of the donee. So long as the entries made in the respective accounts put the gifted amount beyond the control of the donor and result in his ownership in it being replaced by the ownership of the donee, there is no reason why a valid gift cannot be effected through such book entries. We also think it to be established law that an adequate cash balance in the books of the firm sufficient to cover the amount of the gift on the date it is made is not a necessary condition to the validity of the gift. The adequacy of a cash balance in the books of the firm on the relevant date is of no moment ....
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.... was also placed before us. The assessee there made transfer entries in her account books crediting a sum of Rs. 1,00,000 to the account of her grandson, Om Nath, and debiting her account for the same amount, and this court held that there was no valid gift as there was no delivery of possession of the amount. It was pointed out (page 8) : No money changed hands; whatever money the assessee had either in cash or in the form of assets or bank balance remained where it was. She was not authorised by Om Nath to receive the money on his behalf ; consequently, by her detaining possession of the money even if she had in her possession Rs. 1,00,000, it could not be said that the money was put in possession of her as authorised to hold it on Om Nath's behalf." And further (page 10) : " In the first place she did not have Rs. 1,00,000 at all which could be delivered by her to Om Nath. Her cash balance consisted of only a few rupees. She might have had assets in the partnership but she did not transfer them or any interest in them. The partnership might have been owing money to her but she did not transfer any money out of that to Om Nath ; she did not instruct the partnership to transfer....