Appeal No 1713NT of 1973
From the
Judgment and Order dated 611971 of the Allahabad High Court in Wealth Tax Reference No 285 of 1965 124 SC Manchanda and Ms A Subhashini for the Appellant
Respondent in person
Not present  The Judgment of the Court was delivered by SABYASACHI MUKHARJI J
The appeal under section 291 of the hereinafter called the Act is directed against the judgment and order of the High Court of Allahabad dated 6th of January 1971
The questions involved before the Allahabad High Court in the reference under section 271 of the Act were as follows 1 Whether on the facts and in the circumstances of the case the Tribunal right ly held that the assessee did not make valid gifts aggregating Rs 150000 on 11
1957 2 Whether on the facts and in the circumstances of the case the Tribunal right ly held that the assessee did not validly assign Rs 150000 in favour of his sons and grand sons by his letter dated 11
1957 3 Whether on the facts and in the circumstances of the case the Tribunal tight ly held that the sum of Rs 150000 was properly included in the assessee s net wealth 4 Whether on the facts and in the circumstances of the case the Tribunal right ly held that the assessee did not make valid gifts aggregating Rs67560 5 Whether on the facts and in the circumstances of the case the Tribunal right ly held that the sum of Rs6756012 was rightly included in the net wealth of the assessee The case relates to the assessment year 1957 58 and the relevant date of valuation was 31st March 1957
The asses see Dr RS Gupta had maintained an account in the books of Messrs Tika Ram and Sons Pvt
On 1st January 1957 the account showed a credit of Rs 150740
On that day the assessee had addressed a letter to the Company stating that he had decided to gift away for love and affection various sums to the following persons 125 Ved Prakash Gupta 
Rs25000 Om Prakash Gupta 
Rs25000 Hari Prakash Gupta 
Rs50000 Pravin Kumar Gupta 
Rs 50000 By that letter the assessee had directed the Company to debit his account to the extent of Rs 150000 and credit the respective amounts in the names of the aforesaid per sons
It appears further that copies of this letter were sent to one Om Prakash Gupta and Ved Prakash Gupta
There was no dispute that instructions of the assessee were car ried out by the Company and relevant debit and credit en tries were made in the respective accounts
On the same day ie on ist January 1957 Om Parkash Gupta wrote to the assessee his father thanking him for the gift of Rs25000 made in his favour and the gift of Rs50000 in favour of his son Pravin
A similar letter was written by Ved Prakesh thanking the assessee his father for the gift of Rs25000 made to him and Rs50000 gifted to his son
It must be mentioned however that the company ie Messrs Tika Ram and Sons
Ltd was stated to be running an oil mill and carrying on business as grain tillers
contractors and brick kiln owners
It was also stated to be carrying on business of advancing money and taking money on loan when necessary
But it appears that it was admitted position that Tika Ram  Sons had a cash balance of Rs4000 only on 111957 and it did not have any overdraft facilities with any bank
The respective donees were stated to have later on withdrawn amounts from the amounts so transferred to their accounts
The assessee contended that a total sum of Rs 150000 was validly gifted by him to his sons and grand sons and hence the amounts had been wrongly included in his net wealth by the Income Tax Officer and the Appellate Assistant Commissioner
It was his contention that Tika Ram  Sons carried on the business of banking and hence the gifts were valid
But there was no evidence that Tika Ram and Sons were carrying on any banking business
The Tribunal held that they were not carrying on banking business
The main question therefore that falls for consid eration is whether gifts in question made by transfer en tries in the books of debtor company were valid gifts even though the debtor company was not carrying on business of banking and had no cash in hand for the amount in question on that date
Gift is defined in section 122 of the as transfer of certain existing mova ble or immovable property made voluntarily and without consideration by 126 one person called the donor to another called the donee and accepted by or on behalf of the donee
Section 123 of the said Act deals with how transfers are effected and stipulates inter alia that for the purpose of making a gift of movable property as in this case the transfer must be effected either by a registered instrument signed by the donor and attested or by delivery
Such delivery may be made in the same way as goods sold may be delivered
The next contention was regarding the inclusion of net wealth a sum of Rs6756012 standing to the credit of the assessee in the books of Ms Pearls  Beads
The assessee claimed to have gifted the said amounts by transfer entries in the books of Ms Pearls  Beads on 30th March 1957
No letter as in the previous case was addressed by the assessee but only oral instructions were said to have been given
The Tribunal held that there was no valid gifts
There was no evidence it appears that the said sum was available with the said firm of Ms Pearls  Beads
The High Court in view of the decision of the Division Bench of the Allahabad High Court in the case of Gopal Raj Swarup vs Commissioner of Wealth tax Lucknow answered the first question in the negative and so far as the second question is concerned it declined to answer as it did not arise in view of the answer given to the first question and the questions Nos
34 and 5 were answered in the negative
Aggrieved by the said decision the revenue has come up in appeal
In order to constitute a valid gift there must be an existing property
In case of entries in the books of ac count by credit and debit the sums should be available on the date of gift in the account of the firm whose accounts are said to be credited or debited
In the case of banking companies or other firms and companies who have overdraft facilities even if the sums are not in credit of the donor and are not with such companies or firms gifts might be possible by adjustment of the book entries
But in the cases of non banking companies or firms if these companies or firms do not have overdraft facilities it is not possible to make valid gift if sums or funds are not available
This question has been examined by the various High Courts
It is possible in certain circumstances for a donor to make a valid gift by instructing a firm or a company or a HUF in which the donor has an account to give effect to the gift by debiting his account and crediting the account in the name of the donee
But in such cases 127 merely books entries would not suffice
The circumstances must be such as to make it clear that there were sufficient funds at the disposal of the donor by reason of which he could make the gift by such book entries
The firm in which the donor may have account may or may not have sufficient cash balance but it must have sufficient provision for overdraft with the bank on the basis it could honour in structions given by the assessee
This position of law has been referred to and reiterated by the Bench decision of the Delhi High Court in the case of India Glass Agency vs Com missioner of Income Tax New Delhi Justice Ranganathan of the Delhi High Court after referring to several authorities has observed that book entries may be sufficient only when circumstances make it clear that the gift was genuine and the firms where accounts transfer are effected must have sufficient cash in hand or sufficient provision for overdraft facility upon the basis of which it would honour the instructions given by the assessee
The assessee must also have sufficient credit balance to enable him to make the gift
Reference may also be made for this proposition to the decision of the Delhi High Court in New India Colour Co vs Commissioner of IncomeTax New Delhi The effect of the two aforesaid decisions of the learned fudges of the Delhi High Court indicates that in case there was not sufficient cash balance from out of which the amount gifted could be physically given to the donee more entries in the books of account in the form would not constitute delivery of possession over the gifted property to the donee and gift in such case will not be valid
The position however might be different if such firms or companies or HUF in whose accounts gifts are effected have overdraft facilities
The Calcutta High Court had occasion to discuss this aspect in the case of Commissioner of Income Tax West Bengal 111 vs Ashok Glass Works There it was held on facts that the entries had been made contemporane ously showed that the transaction was genuine and there was no suggestion that the interests which were credited in the accounts of the minor donees by the firm which carried on money lending business also were fictitious
The Tribunal therefore it was found tightly held that the gifts were valid and the interest paid in respect of the accounts standing in the name of the donees was allowable as a deduc tion in the hands of the assessee firm
The Calcutta High Court had to consider this in the case of Commissioner of Gift Tax West Bengal 111 vs Tara chand Maghraj There the High Court after discussing various decisions 128 including certain decisions of the Allahabad High Court which we shall presently note and the provisions of section 122 of the  and the Sale of Goods Act
held that under section 123 of the  in case of gift of movable property the transfer may be effected by delivery
Such delivery may be in the same way as goods sold may be delivered
Section 33 of the Sale of goods Act permitted the parties to deliver by any manner or method which the parties agreed would be treated as delivery or which had the effect of putting the goods in the possession of the buyer
In that case it was found that the effect of the transaction in that case was to put the amounts in the possession of the assessee who was authorised to hold the amounts on behalf of the donees which resulted in a delivery of the amounts within the meaning of the Sale of Goods Act
The Court however pointed out that it was held that there was no valid gift on the date of the entries then it could not be held that subsequently when the money was transferred by further entries in the same books it resulted in a valid gift
In the instant case before us and we have noted and we reiterate only a sum which could be taken by the donees was Rs4000 in Messrs Tika Ram  Sons Pvt Ltd and there was no overdraft facility of Tika Ram  Sons with any bank
In that view of the matter there was no existing goods to be part ed
Before the Bombay High Court in the case of Chimanbhai Lalbhai vs Commissioner of Income Tax Contral Bombay there were entries in the books of a Banking Company and gifts were held to be valid
In the case of Commissioner of IncomeTax Ahmedabad vs Digvijaysinghji Tin Factory  on the contrary it was held that the gifts were valid though not sufficient cash with firm avail able but proper book entries were made
See also the cases of Commissioner of Income Tax Bombay City H vs Popatlal Mulji and also in the case of Addl
Commis sioner of Income Tax Poona vs Dharsey Keshavji 143 ITR 509 and Commissioner of Income Tax Poona vs Devichand Uttamchand In the background of facts of those cases the Bombay High Court held that the gifts were valid
In the case of Baliram Mathuradas By his legal Heir Madanlal Paliram vs Commissioner of Income Tax Bombay City II the Bombay High Court had occasion to consider this question and held that there was no evidence of acceptance
It was held by the Bombay High Court that there was no valid gift
Similarly in the case of Virji Devshi vs Commissioner of Income Tax Bombay the Bombay High Court held 129 Just as the entries in his own account book by a person would not constitute a valid transfer even the entries in the accounts of the firm would not be sufficient The Madras High Court had also taken divergent views
It may be noted that in EMV Muthappa Chettiar vs Commission er of Income Tax Madras the Madras High Court held that mere entries were not enough to constitute valid gifts particularly when gift of fund continued to be used in the donors  business
The Madras High Court in the case of Mrs Ida L Cham bers and Three Others vs Kelland Huxford Chambers was dealing with a case where C proprietor of a business who had invested a large amount of capital in it caused entries to be made in his account books crediting his wife and certain other members of his family with sums which were debited to his capital account
Separate accounts in their names were opened in the books and in their accounts the credits were entered
The entries were followed up by letters to the effect inter alia that the sums were en tirely in the nature of personal gifts from C and would bear interest payable half yearly
C was not in a position to make gifts in cash of the amounts credited in favour of his wife and relatives
He had large assets but these were represented by land buildings plant machinery and stock in trade
Interest on the amounts was also credited in the accounts regularly for some time until a bank from which C had obtained an overdraft objected to such crediting of interest
C s wife withdrew various sums of money from time to time from the interest account and whenever C desired to retransfer amounts to his capital account he obtained let ters of consent from her
The principal amounts credited were shown as deposits in the balance sheets of the busi ness for some years and were thereafter referred to as unsecured loans
On a question arising whether there was a valid gift or trust in respect of the said amounts it was held by the Division Bench of the Madras High Court that there was no completed gift of the principal amounts as there was no registered deed and as there was no delivery of the property
Though C had the intention of making gifts the entries in the books did not complete the gift
It was further held that there was no trust either and that there was nothing in the acts or conduct of C to show that he intended to create a trust or to constitute himself a trus tee
Where moneys were actually paid by way of interest on the alleged gifts those became completed gifts
This deci sion went up to the Privy Council but on the aspect of gift no opinion was expressed by the Judicial Committee
The decision of the Privy Council is reported in ILR 1944 at page 617 130 The Punjab and Haryana High Court in Balireal Nawal Kishore vs Commissioner of Income Tax Punjab held that the credit cash balance of the donor was Rs81000 and cash balance with firm was only Rs4299 but the unuti lised overdraft of the firm was Rs 127088
The gift was held to be valid
In Sukhlal Sheo Narain vs Commissioner of Wealth Tax Haryana the Punjab  Haryana High Court had dealt with a case where the father had gifted Rs84000 ie Rs28000 to each of his sons
Father had complete control and dominion over that amount
There was no evidence that gifts were accepted on behalf of minors
It was held by the High Court that gifts were invalid
Rangoon High Court in Abba Dada and Company vs Commis sioner of Income Tax Burma held that the mere book entries were not sufficient in that case to constitute valid gift
The Rajasthan High Court in KP Brothers vs Commission er of Income Tax New Delhi held that there was a valid gift but in that case it was a banking company
The Allahabad High Court in the case of Commissioner of Income Tax UPv Smt
Shyamo Bibi had to deal with a case where the credit balance of 2 12 lakhs was with the firm
Balance of the firm was only Rs 15
Memo of gift recorded on stamp paper
It was held that the gift was not valid
In Commissioner of Wealth Tax vs Gulab Rai Govind Pra sad there was an alleged gift of Rs2 lakhs to minor son by book entries
Cash Balance was only Rs7626
No interest was credited to donee s account
No acceptance was produced
Property purchased out of gift and income was used by the family
It was  held that there was no valid gift
But the Allahabad High Court in the case of Gopal Raj Swarup vs Commissioner of Wealth Tax Lucknow supra had to deal with the wealth tax
There the assessee was the karta of a Hindu undivided family
On 20th November 1956 the assessee purported to transfer Rs50000 from his account to the account of his son
The transfer was effected by debit ing the assessee s personal account in the books of the Hindu undivided family with Rs50000 and crediting the same in the personal account of his son
On 20th November 1956 the assessee had a substantial credit balance exceeding the sum of Rs50000 which he purported to give to his son
The adjustment of entries made in the books of account was in pursuance of a letter 131 written by the assessee to the said Hindu undivided family on the same date
The Wealth Tax Officer and the Income Tax Officer rejected the contention that he made a gift of Rs50000 to his son and this amount should be excluded from his taxable net wealth
The Tribunal never doubted that the transaction in question was bona fide but dismissed the appeal of the assessee on the sole ground that the transfer evidenced by the entries in the books of account and by the declaration did not operate to bring into existence a valid gift
It was held on the facts of that case that the asses see had made a valid gift of the value of Rs50000
In the impugned judgment the Allahabad High Court had followed the said decision
The said decision was also followed in Bhau Ram Jawaharmal vs Commissioner of Income Tax UP in Gopal Jalan vs Commissioner of Income Tax UP and in Phool Chand Gajanand vs Commis sioner of Income Tax UP We are of the opinion that each case must be decided on the facts of that case
Where the assessee has a credit amount with firm or with family or with a banking company and that sum is available to that firm or the company or HUF on the date of the gift then a valid gift by book entries might be possible but where a sum was not available with the firm or the family or a company which was not a banking company or which had no overdraft facility by mere book entries even though there was acceptance of that gift by the donee would not effectuate a valid gift
The Court in Controller of Estate Duty Punjab Haryana J  K HP and Chandigarh vs Kamlavati had to deal with gift by way of transfer in the account books
There this Court held that when the property was gifted by a donor the possession and enjoyment of which was allowed to a partnership firm in which the donor was a partner then the mere fact of the donor sharing the enjoy ment or the benefit in the property was not sufficient for the application of section 10 of the  until and unless such enjoyment or benefit was clearly referable to the gift ie to the parting with such enjoy ment or benefit by the donee or permitting the doner to share them out of the bundle or rights gifted in the proper ty
If the possession enjoyment or benefit of the donor in the property was consistent with the facts and circumstances of the case other than those of the factum of gift it could not be said that the donee had not retained the possession and enjoyment of the property to the entire exclusion of the donor or to the entire exclusion of the donor in any benefit to him by contract or otherwise
There M the deceased was a 132 partner in a firm having a half share in the partnership
On 27th March 1957 M made a gift of Rs 1 lakh to his son L and of Rs50000 to his wife K by making debit entries in his account in the firm and corresponding credits to the accounts of L and K With effect from 28th March 1957 L was taken as a partner in the firm by giving L one forth share out of the half share of M M died on 9th January 1962
The Tribunal held that section 10 of the was not attracted and the sum of Rs 150000 could not be included in the property passing on the death of M and the High Court on a reference affirmed the viewes of the Tribunal
This Court held affirming the decision of the High Court that section 10 did not apply to the gifts of Rs 1 lakh and Rs50000 made by the deceased to his son and to his wife respectively
But in that case the question in the present form in which it arises before us in the instant case did not arise
This Court in the case of Badri Prasad Jagan Prasad vs Commissioner of Income Tax UP judgment by one of us had occasion to refer to the effect of book entries but this question which is present before us in the present appeal was not before this Court in that case
No useful purpose therefore will be served by reference to that case
In that view of the matter except to the extent indi cated above the entries in the books of account could not effectuate gifts
As we have discussed the facts on the principles we are of the opinion that the High Court was in error in answering the question in the manner it did
The order and judgment of the High Court are therefore set aside
All the questions are answered in favour of the revenue
As the respondent is not appearing there will be no order as to costs
NPV Appeal allowed


Summary:
The Income Tax Officer included in the net wealth of the respondent assessee for the assessement year 1957 58 two sums viz Rs 150000 and Rs6756012 which the asses see claimed to have gifted
It is stated that on January 1 1957 the respondent assessee by a letter directed a company in which he maintained an account to debit his account to the extent of Rs 150000 and credit in the names of his two sons and grandsons various sums as he had decided to give away these amounts to them out of love and affection
The company carried out the instructions and relevant debit and credit entries were made in the respective accounts
On the same day by two separate letters the gifts were ac cepted by the sons and later on these amounts were withdrawn by the respective donees
In the case of second gift oral instructions were given for transferring the amounts stand ing to his credit
The respondent assessee having failed before the Income Tax Officer and the Appellate Assistant Commissioner ap pealed to the Income Tax Appellate Tribunal and contended that the first company was carrying on the business of banking and hence the gifts in question were valid and that the Income Tax Officer and the Appellate Assistant Commis sioner had wrongly included these amounts in his net wealth and in the case of second gift the assessee claimed that the amounts were gifted by him by transfer entries
The Tribunal found that there was no evidence that the first company was carrying on any banking business and in the case of second gift the sum was available with the company
It therefore held that the first company was not carrying on banking business and in the 122 second case there was no valid gift
It however referred the matter to the High Court
The High Court held that the Tribunal was not right in holding that the assessee did not make valid gifts and in holding that the amounts were rightly included in the net wealth of the assessee
Allowing the appeal by the Revenue this Court HELD 1
In order to constitute a valid gift there must be an existing property
In case of entries in the books of account by credit and debit the sums should be available on the date of gift in the account of the firm whose accounts are said to be credited or debited
In the case of banking companies or other firms and companies who have overdraft facilities even if the sums are not in credit of the donor and are not with such companies or firms gifts might be possible by adjustment of book entries
But in the cases of non banking companies or firms if these companies or firms do not have overdraft facilities it is not possible to make valid gift if sums or funds are not available
126E G 2
It is possible in certain circumstances for a donor to make a valid gift by instructing a firm or a company or HUF in which the donor has an account to give effect to the gift by debiting his account and crediting the account in the name of the donee
But in such cases merely book entries would not suffice
The circumstances must be such as to make it clear that there were sufficient funds at the disposal of the donor by reason of which he could make the gift by such book entries
The firm in which the donor may have account may or may not have sufficient cash balance but it must have sufficient provision for overdraft with the bank on the basis of which it could honour instructions given by the assessee
126H127A B 3
Each case must be decided on the facts of that case
Where the assessee has a credit account with a firm or with a family or with a banking company and that sum is available to that firm or the company or HUF on the date of the gift then a valid gift by book entries might be possible
But where a sum was not available with the firm or the HUF or a company which was not a banking company or which had no overdraft facility by mere book entries even though there was acceptance of that gift by the donee a valid gift would not be effectuated
131D E 4
In the instant case the entries in the books of account could not effectuate valid gifts
The only sum which could be taken by the donee was Rs4000 in the case of the first company which had no 123 overdraft facility with the bank
Thus there was no exist ing goods to be parted
The High Court was therefore in error in answering the questions against the Revenue
132E F Appeal allowed
Order and Judgment of the High Court set aside Gopal Raj Swarup v Commissioner of Wealth tax Lucknow 12 Indian Glass Agency vs Commissioner of Income Tax New Delhi  New India Colour Co vs Commissioner of Income Tax New Delhi  Commissioner of Income Tax West Bengal 111 vs Ashok Glass Works  Commissioner of Gift Tax West Bengal 111 vs Tarachand Meghraj  Chimanbhai Lalbhai vs Commissioner of Income Tax Central Bombay 34 ITR 259 Commissioner of Income Tax Ahmedabad vs Digvijay singhji Tin Factory  Commissioner of Income Tax Bombay City I1 vs Popatlal Mulji  Addl
Commissioner of Income Tax Poona vs Dharsev Keshavji  Commissioner of Income Tax Poona vs Devinchand Uttamchand  Baliram Mathuradas By his Legal Heir Madanlal Paliram vs Commissioner of Income Tax Bombay City H  Virji Devshi vs Commissioner of Income Tax Bombay  EMV Muthappa Chet tiar vs Commisioner of Income Tax Madras  Mrs Ida L Chambers and Three Others vs Kelland Huxford Chambers  Balimal Nawal Kishore vs Commis sioner of Income Tax Punjab  Sukhlal Sheo Narain vs Commissioner of Wealth Tax Haryana 89 ITR 157 Abba Dada and Company vs Commissioner of Income Tax Burma  KP Brothers vs Commissioner of In come tax New Delhi  Commissioner of Income Tax UPv Smt Shyamo Bibi  Commissioner of Wealth Tax vs Gulab Rai Govind Prasad  Bhau Ram Jawaharmal vs Commissioner of Income Tax  UP  Gopal Jalan vs Commissioner of Income Tax UP  Phool Chand Gajanand vs Commissioner of Income Tax UP  Controller of Estate Duty Punjab Haryana J  K HP and Chandigarh vs Kamlavati  referred to